Internal 2 SU1

The advantage attributed to the establishment of internal auditing field offices for work at foreign locations is best described as

A reduction of travel time and related travel expense.

The key factor in the success of an internal audit activity's human resources program is

A well-developed set of selection criteria.

The chief audit executive (CAE) is best defined as the

Person responsible for the internal audit function.

According to the International Professional Practices Framework, internal audit resources are effectively deployed when

They are used in a way that optimizes the achievement of the approved plan.

The internal audit activity (IAA) is effectively managed when

Trends and emerging issues are considered.

A major reason for establishing an internal audit activity is to

Evaluate and improve the effectiveness of control processes.

After using the same public accounting firm for several years, the board of directors retained another public accounting firm to perform the annual financial audit in order to reduce the annual audit fee. The new firm has now proposed a one-time engagement relating to the cost-effectiveness of the various operations of the business. The chief audit executive has been asked to advise management in making a decision on the proposal. An argument can be made that the internal audit activity is better able to perform such an engagement because

External auditors may not possess the same depth of understanding of the organization as the internal auditors.

Which of the following are responsibilities of the chief audit executive (CAE)?1. Coordinating activities with other providers of assurance and consulting services. 2. Understanding the work of external auditors. 3. Providing sufficient information to the external auditors to permit them to understand the internal auditors' work.

1, 2, and 3.

Which of the following potentially is (are) subject to the internal auditors' evaluations? 1. The human resources function. 2. The purchasing process. 3. The manufacturing and production database system.

1, 2, and 3.

When assigning individual staff members to actual engagements, internal auditing managers are faced with a number of important considerations related to needs, abilities, and skills. Which of the following is the least appropriate criterion for assigning a staff internal auditor to a specific engagement?

The staff internal auditor's desire for training in the area.

In most organizations, the rapidly expanding scope of internal auditing responsibilities requires continual training. What is the main purpose of such a training program?

To achieve both individual and organizational goals.

The most important reason for the chief audit executive to ensure that the internal audit department has adequate and sufficient resources is to

Demonstrate sufficient capability to meet the audit plan requirements.

Several members of an organization's senior management have questioned whether the internal audit activity should report to the newly established quality audit function as part of the total quality management process within the organization. The chief audit executive (CAE) has reviewed the quality audit standards and the programs that the quality audit manager has proposed. The CAE's response to senior management should include which of the following?

Identifying appropriate liaison activities with the quality audit function to ensure coordination of audit schedules and overall audit responsibilities.

The chief audit executive for a large decentralized organization has developed a manual containing comprehensive detailed written procedures as a guide for the decentralized engagement work groups, each of which has 20 to 30 internal auditors. The organization recently acquired a small organization that has an internal audit activity consisting of a supervisor and two staff personnel. Which of the following actions is the most practical in providing administrative guidance for this new internal audit activity?

Select key procedures from the manual and use informal supervisory direction for other engagement management issues.

According to the International Professional Practices Framework, the CAE must ensure that internal audit resources are

Appropriate, sufficient, and effectively deployed.

By comparing job descriptions with the qualifications and duties of the individuals currently holding those jobs, a manager can

Determine whether the organization is appropriately staffed.

Coordinating internal and external audit activity can increase efficiency by using which of the following? 1. Similar techniques 2. Similar methods 3. Similar terminology

1, 2, and 3.

Which of the following actions is an appropriate response by organizations wishing to improve the public's perception of their financial reporting?

Increased adoption of audit committees composed of outside directors.

In addressing internal audit resource needs for a complex engagement, the CAE may include all of the following except

Members of the audit committee.

Which of the following is a possible statutory limitation on audit committees?

One member must be a financial expert.

Which of the following is most essential for guiding the internal audit staff?

Policies and procedures.

The proper organizational role of internal auditing is to

Serve as an independent, objective assurance and consulting activity that adds value to operations.

Which of the following statements most accurately reflects the chief audit executive's responsibilities for internal audit resources?

The CAE is responsible for communicating resource needs to the board but has no explicit responsibility for administering the organization's compensation program.

Internal audit resources should be appropriate, sufficient, and effectively deployed. Consequently,

The chief audit executive should perform a periodic skills assessment.

When determining the number and experience level of an internal audit staff to be assigned to an engagement, the chief audit executive should consider which of the following? 1. Complexity of the engagement. 2. Length of the engagement. 3. Available internal audit activity resources. 4. Lapsed time since the last engagement.

1 and 3 only.

Which of the following parties is (are) primarily responsible for resource management in an internal auditing engagement? 1. The chief audit executive 2. Senior management 3. The board of directors

1 only.

Policies and procedures must be established to guide the internal audit activity. Which of the following statements is false with respect to this requirement?

All internal audit activities must have a detailed policies and procedures manual.

Use of external service providers with expertise in healthcare benefits is appropriate when the internal audit activity is

All of the answers are correct.

An audit committee of the board of directors of an organization is being established. Which of the following is normally a responsibility of the committee with regard to the internal audit activity?

Approval of the selection and dismissal of the chief audit executive.

Assessments of the work of external auditors may be made by the chief audit executive

As part of the evaluation of the coordination between the internal and external auditors.

A basic principle of governance is

Assessment of the governance process by an independent internal audit activity.

An internal audit activity is often requested to coordinate its work with that of the external auditors. Which of the following activities is most likely to be restricted to the external auditor?

Attesting to the fairness of presentation of cash position.

Audit committees have been identified as a major factor in promoting the independence of both internal and external auditors. Which of the following is the most important limitation on the effectiveness of audit committees?

Audit committees may be composed of independent directors. However, those directors may have close personal and professional friendships with management.

Any program for selecting and developing the human resources of the internal audit activity will fail unless compensation is adequate at all levels of responsibility. Policies concerning compensation should

Be clearly stated and based on evaluations of position requirements and individual performance.

Which of the items below most likely reflects differences between the policies of a relatively large and a relatively small internal audit activity? The policies for the large activity should

Be in considerable detail.

Inquiring how an employment candidate handled situations in their past is an example of which interview method?

Behavioral.

In managing internal audit resources, the CAE considers all of the following except

Benchmarking.

Gator Financial Service is considering outsourcing its internal audit activity. Gator Financial Service

Can outsource the services as long as Gator Financial Service continues to have the responsibility for maintaining an effective internal audit activity.

A typical function of an audit committee is

Choosing the external auditor.

Internal auditing is an assurance and consulting activity. An example of an assurance service is a(n)

Compliance engagement.

When managing the internal audit activity's (IAA's) resources, the chief audit executive (CAE) most likely

Conducts a skills assessment based on needs identified in the audit plan.

If a department outside of the internal audit activity is responsible for reviewing a function or process, the internal auditors should

Consider the work of the other department when assessing the function or process.

Exchange of engagement communications and management letters by internal and external auditors is

Consistent with the coordination responsibilities of the chief audit executive.

The chief audit executive plans to meet with the independent external auditor to discuss joint efforts regarding an upcoming external audit of the organization's pension plan. The independent external auditor has performed all external audit work in this area in the past. The CAE's objective is to

Coordinate the external audit so as to fulfill professional responsibilities and not duplicate work of the independent external auditor.

To improve their efficiency, internal auditors may rely upon the work of external auditors if it is

Coordinated with internal auditing work.

Which of the following audit committee activities is of the greatest benefit to the internal audit activity?

Determine whether scope limitations impede the ability of the internal audit activity to execute its responsibilities.

Which of the following is the best source of a chief audit executive's information for planning staffing requirements?

Discussions of internal audit needs with senior management and the board.

The internal audit activity has recently experienced the departure of two internal auditors who cannot be immediately replaced due to budget constraints. Which of the following is the least desirable option for efficiently completing future engagements, given this reduction in resources?

Eliminating consulting engagements from the engagement work schedule.

The IIA's Three Lines Model states that the roles of an organization's governing body most likely include

Ensuring that organizational objectives align with stakeholders' interests.

Which of the following is not a true statement about the relationship between internal auditors and external auditors?

External auditors must assess the competence and objectivity of internal auditors.

According to The IIA's Three Lines Model,

First line roles include support functions.

The audit committee strengthens the control processes of an organization by

Following up on recommendations made by the chief audit executive.

Written policies and procedures relative to managing the internal audit activity should

Give consideration to its structure and the complexity of the work performed.

What is the most accurate term for the procedures used by the board to oversee activities performed to achieve organizational objectives?

Governance.

According to the International Professional Practices Framework, the internal audit activity is effectively managed when

Its individual members conform with the Code of Ethics and the Standards.

The capabilities of individual staff members are key features in the effectiveness of an internal audit activity. What is the primary consideration used when staffing an internal audit activity?

Job descriptions.

When determining the number and experience level of an internal audit staff to be assigned to an engagement, the chief audit executive should consider all of the following except the

Lapsed time since the last engagement

An organization's oversight of and responsibility for an outsourced internal audit activity (IAA) is most likely demonstrated by

Maintaining a quality program.

Although all the current members of an internal audit activity have good records of performance, the manager is not sure if any of the members are ready to assume a management role. Which of the following is an advantage of bringing in an outsider rather than promoting from within?

Management training costs are reduced when a qualified outsider is hired.

The internal audit activity is responsible for implementing 1. Risk management 2. Governance 3. Control

None of the answers are correct.

Fact Pattern: You are the chief audit executive of a parent organization that has foreign subsidiaries. Independent external audits performed for the parent are not conducted by the same firm that conducts the foreign subsidiary audits. Because the internal audit activity occasionally provides direct assistance to both external firms, you have copies of audit programs and selected working papers produced by each firm. The foreign subsidiary's auditors would like to rely on some of the work performed by the parent organization's audit firm, but they need to review the working papers first. They have asked you for copies of the working papers of the parent organization's audit firm. What is the most appropriate response to the foreign subsidiary's auditors?

Notify the parent's auditors of the situation and request that they either provide the working papers or authorize you to do so.

A chief audit executive (CAE) has reviewed credentials, checked references, and interviewed a candidate for a staff position. The CAE concludes that the candidate has a thorough understanding of internal audit techniques, accounting, and finance. However, the candidate has limited knowledge of economics and information technology. Which action is most appropriate?

Offer the candidate a position if other staff members possess sufficient knowledge in economics and information technology.

An audit committee should be designed to enhance the independence of both the internal and external auditing functions and to insulate these functions from undue management pressures. Using this criterion, audit committees should be composed of

Only external members of the board of directors or its equivalent.

Controls should be designed to provide reasonable assurance that

Organizational objectives will be achieved economically and efficiently.

In selecting an instructional strategy for developing internal audit staff, a chief audit executive begins by reviewing

Organizational objectives.

Which of the following is a false statement about the relationship between internal auditors and external auditors?

Oversight of the work of external auditors is the responsibility of the chief audit executive.

A manufacturer has been expanding rapidly and is considering adding a new production line. Employees are currently working double shifts and receiving large amounts of overtime pay. Demand for all of the organization's products is currently high, but management worries about demand fluctuations with changes in the economy and technological developments by competitors. Management is concerned with such issues as whether it is efficiently using its resources, whether it is expanding too rapidly or not rapidly enough, whether employee morale is decreasing, and whether future expansion should be financed internally or through debt. Of the following management requests, which is within the normal scope of work of the internal audit activity as stated in the Standards?

Perform an independent evaluation of management's planning process as a basis for making recommendations.

Control by management is the result of

Planning, organizing, and directing of organizational activities.

The audit committee may serve several important purposes, some of which directly benefit the internal audit activity. The most significant benefit provided by the audit committee to the internal audit activity is

Protecting the independence of the internal audit activity from undue management influence.

When assessing the risk associated with an activity, an internal auditor should

Provide assurance on the management of the risk.

Fact Pattern: You are the chief audit executive of a parent organization that has foreign subsidiaries. Independent external audits performed for the parent are not conducted by the same firm that conducts the foreign subsidiary audits. Because the internal audit activity occasionally provides direct assistance to both external firms, you have copies of audit programs and selected working papers produced by each firm. The foreign subsidiary's external audit firm wants to rely on an audit of a function at the parent organization. The audit was conducted by the internal audit activity. To place reliance on the work performed, the foreign subsidiary's auditors have requested copies of the working papers. What is the most appropriate response to the foreign subsidiary's auditors?

Provide copies of the working papers.

Which of the following items would not be an appropriate staffing issue?

Providing a competitive selection of employee benefits.

Internal auditing has planned an engagement to evaluate the effectiveness of the quality assurance function as it affects the receipt of goods, the transfer of the goods into production, and the scrap costs related to defective items. The engagement client argues that such an engagement is not within the scope of the internal audit activity and should come under the purview of the quality assurance department only. What is the most appropriate response?

Refer to the internal audit activity's charter and the approved engagement plan that includes the area designated for evaluation in the current time period.

To avoid creating conflict between the chief executive officer (CEO) and the audit committee, the chief audit executive (CAE) should

Request board establishment of policies covering the internal audit activity's relationships with the audit committee.

All of the following are true regarding the process and methods of coordinating assurance activities except

Sharing results with other providers violates the coordinating services agreement.

In most cases, an internal audit activity should document policies and procedures to ensure the consistency and quality of its work. The exception to this principle is directly related to

Size of the internal audit activity.

Which of the following statements about the chief audit executive's responsibilities for internal audit resources is most accurate?

The CAE is responsible for the effective deployment of resources to achieve the approved audit plan.

Which of the following statements is false regarding the administration of the internal audit activity?

The audit committee is responsible for creating the operating and financial budget for the internal audit function.

Which of the following features of a large manufacturer's organizational structure is a control weakness?

The audit committee of the board consists of the chief executive officer, the chief financial officer, and a major shareholder.

Johnny Hagert, Chief Audit Executive, is determining the sufficiency of the resource allocation for the internal audit activity's risk-based audit plan that establishes its priorities. Mr. Hagert must consider all of the following except

The audit universe.

Which of the following statements is true regarding coordination of internal and external auditing efforts?

The chief audit executive should determine that appropriate follow-up and corrective action was taken by management when required regarding matters discussed in the external auditor's management letter.

Coordination of internal and external auditing can reduce the overall costs. Who is responsible for actual coordination of internal and external auditing efforts?

The chief audit executive.

Which of the following is responsible for coordination of internal and external audit work?

The chief audit executive.

Who has primary responsibility for providing information to the board on the professional and organizational benefits of coordinating internal audit activities with those of other providers of similar services?

The chief audit executive.

Which of the following statements regarding the external auditor is true?

The external auditor's work is overseen and reviewed by the audit committee.

What is the reason the CAE must have direct and unrestricted access to the board?

The internal audit activity needs to achieve organizational independence.

Which of the following items is least likely to be considered when determining the strategy for assessing governance, risk management, and control?

The members of the audit committee.

Which of the following is not an appropriate member of an audit committee?

The organization's vice president of operations.

An organization has outsourced its internal audit activity (IAA) to an external service provider. Consequently,

The provider must remind the organization of its ultimate responsibility.

Criteria the CAE may consider in determining whether to rely on the work of another service provider include all of the following except

The reasonableness of audit fees.

Numerous environmental laws and regulations have recently changed. Senior management has asked the chief audit executive to perform an environmental audit to be completed as soon as possible. The internal audit activity currently is performing an operational audit. As a result, the chief audit executive must make difficult decisions about resource allocation. Which of the following is the least significant issue in determining whether to reallocate audit resources?

The results from the prior financial audits.

Staff members of the internal audit activity should be assigned to engagements and training projects that will enable them to develop their potential. Which of the following should be the most important consideration in making assignments that will allow staff members to develop properly?

The skills and experience levels of individual auditors.

Which of the following, though not appropriate for use with a large internal audit activity, is an acceptable approach for managing a small internal audit activity?

Using only daily, close supervision and written memoranda.

When are governance, risk management, and control processes considered adequate?

When management has planned and designed them to provide reasonable assurance of achieving the organization's objectives efficiently and economically.