ACCT 520 exam 3

Which of the following is not likely to be an assurance engagement objective related to auditing governance activities? A.Determine the operating effectiveness of the whistleblower process. B.Determine customer satisfaction with shareholder communications. C.Assess compliance with ethics policies. D.Evaluate the design adequacy of board education and training

B (determine customer satisfaction)

A specified range is based on an estimate of a population characteristic calculated from a random sample. The probability that the range contains the true population value is the Answers A.Lower precision limit. B.Confidence level. C.Error rate. D.Standard error of the mean.

confidence level

According to the International Professional Practices Framework, to achieve engagement objectives, which of the following is not the responsibility of the internal auditors? A.Evaluate the nature and complexity of each engagement. B.Determine appropriate and sufficient resources. C.Confirm organizational independence. D.Allocate engagement resources

confirm organizational independence

The most appropriate methodology for drawing a sample from 3,000 time cards to check for signatures would be A.Stratified sampling. B.Interval sampling. C.Cluster sampling. D.Variables sampling.

interval sampling

After completing an engagement work program step regarding materials movement between storage and assembly, the internal auditor would most likely prepare a(n) A.Opinion. B.Observation. C.Report. D.Conclusion.

observation

An internal auditor's conclusions are best described as based A.Only on an entire engagement. B.On the entire scope of an engagement or its elements. C.In part on the opinion. D.Only on an element of an engagement.

on the entire

A statistical sampling technique that will minimize sample size whenever a low deviation rate is expected is A.Ratio-estimation sampling. B.Stop-or-go sampling. C.Stratified mean-per-unit sampling. D.Difference-estimation sampling.

stop-or-go sampling

How does stop-or-go attribute sampling differ from fixed-sample-size attribute sampling? A.Desired reliability does not have to be specified in advance. B.It cannot be used to determine the assessed level of control risk. C.Total expected sample size will always be smaller. D.Nonsampling error is smaller.

Total expected sample size will always be smaller

An auditor selected a random sample of 100 items from a population of 2,000 items. The total dollars in the sample were $10,000, and the standard deviation was $10. If the achieved precision based on this sample was plus or minus $4,000, the minimum acceptable value of the population would be A.$196,000 B.$199,000 C.$204,000 D.$199,800

$196,000

A manufacturer uses a materials requirements planning (MRP) system to track inventory, orders, and raw material requirements. A preliminary audit assessment indicates that the organization's inventory is understated. Using audit software, what conditions should the auditor search for in the MRP database to support this hypothesis? 1. Item cost set at zero 2. Negative quantities on hand 3. Order quantity exceeding requirements 4. Inventory lead times exceeding delivery schedule

1 and 2

Which of the following procedures would be appropriate for testing whether cost overruns on a construction project were caused by the contractor improperly accounting for costs related to contract change orders? 1. Verify that the contractor has not charged change orders with costs that have already been billed to the original contract. 2. Determine if the contractor has billed for original contract work that was canceled as a result of change orders. 3 Verify that the change orders were properly approved by management

1 and 2

An internal auditor must weigh the cost of an engagement procedure against the persuasiveness of the evidence to be gathered. Observation is one engagement procedure that involves cost-benefit trade-offs. Which of the following statements regarding observation as an engagement technique is (are) true? 1. Observation is limited because individuals may react differently when being observed. 2. When testing financial statement balances, observation is more persuasive for the completeness assertion than it is for the existence assertion. 3. Observation is effective in providing information about how the organization's processes differ from those specified by written policies.

1 and 3

Over the past 3 years, A+ auto dealership reported the following: Year 1 Year 2 Year 3 Total sales US $1 million US $2 million US $3 million Sales promotions or events 10 15 10 Sales associates 5 10 15 Total vehicles sold 35 50 60 Which of the following is (are) a justified conclusion(s)? 1. The average sale price per vehicle increased each year. 2. Total sales are closely related to sales promotions or events for the year. 3. The number of sales associates is closely related to total sales for the year.

1 and 3

A United States organization plans to expand operations to Gambia. Which of the following are plausible assurance engagement objectives for an internal audit of the human resources department? Evaluate the clarity and transparency of the design of global compensation and benefit systems. Identify methods of improving communications with assignees, line management, and leadership. Assess compliance with applicable requirements for visas and work permits. Provide consultation to potential assignees and line management on terms and conditions of the internal assignment

1 and 3 only

An internal audit activity is planning an assurance engagement in the transportation department of a large engineering firm. The firm owns and operates a fleet of cars and trucks of various sizes. One engagement objective is to evaluate the department's vehicle maintenance procedures. Which procedures are appropriate to this engagement objective? 1. Interview service technicians to gather information about maintenance procedures. 2. Compare costs for selected procedures with industry standards. 3. Compare manufacturer maintenance guidelines with departmental procedures. 4. Analyze vehicle losses

1, 2, 3, and 4

Internal auditors need to determine the extent to which management has established adequate control criteria. For this purpose, which of the following actions may be appropriate? 1. Determining whether objectives have been accomplished 2. Using management's adequate control criteria in their evaluation 3. Working with management to develop appropriate control evaluation criteria

1, 2, and 3

Supervision of the work of internal auditors should be carried out continually. Which of the following statements regarding supervision is (are) true? 1. "Continually" indicates that supervision should be performed throughout the engagement. 2. Supervision also should be extended to development of the competencies of internal auditors. 3. The extent of supervision needs to be documented.

1, 2, and 3

The chief audit executive of a multinational organization must form an engagement team to examine a newly acquired subsidiary in another country. Consideration should be given to which of the following factors? 1. Local customs 2. Language skills of the internal auditor 3. Experience of the internal auditor 4. Monetary exchange rate

1, 2, and 3

Scope statements for assurance engagements may include which of the following? 1. Boundaries of the process 2. Areas that are within the scope and those that are excluded 3. Time frame limitations 4. Final report distribution

1, 2, and 3 only

The chief audit executive (CAE) is trying to explain the range of responsibilities a senior internal auditor will be assuming as supervisor of an upcoming engagement that will employ a team of internal auditors. Which of the following are examples that the CAE might mention? 1. Assigning team members to specific roles and procedures. 2. Establishing a process to ensure regular, thorough, and timely communication of necessary information among team members. 3. Assuming responsibility for adequate supervision during the engagement. 4. Training less experienced team members in appropriate audit procedures.

1, 2, and 4

After reviewing terminal security controls, the auditor has concluded that the controls are insufficient. Which of the following audit techniques could the auditor have used to reach this conclusion? 1. Observation 2. Generalized audit software 3. Internal control questionnaires 4. Control flowcharting

1, 3, and 4

An internal auditor is assigned to perform an engagement to evaluate the organization's insurance program, including the appropriateness of the approach to minimizing risks. The organization self-insures against large casualty losses and health benefits provided for all its employees. It is a large national entity with over 15,000 employees located in various parts of the country. It uses an outside claims processor to administer its health care program. The organization's medical costs have been rising by approximately 8% per year for the past five years, and management is concerned with controlling these costs. The internal auditor needs to determine the scope of the proposed evaluation of insurance coverage. Which of the following statements are true regarding the potential scope of the engagement? 1. The internal audit activity should concentrate on processing that occurs within the organization and not on evaluating the correctness of transactions processing by the health care processor. 2. The internal auditor should interview management prior to beginning the engagement to understand (1) its concerns and (2) the underlying assumptions made and rationale used when making the self-insurance decision. 3. The internal auditor should consider engaging an actuarial consultant to better understand the risks involved in order to help determine the scope of the engagement

2 and 3

An internal auditor determines that actual procedures differ from prescribed control procedures. The internal auditor should 1. Require operating personnel to conform to prescribed procedures. 2. Document the discrepancies and make any appropriate recommendations to management. 3. Expand all aspects of the engagement to determine other differences from prescribed procedures. 4. Modify the engagement work program as warranted by the differences noted

2 and 4

The internal auditor is concerned with the overall valuation of inventory. Rank the following sources of engagement information from most persuasive to least persuasive in addressing the assertion as to the valuation of inventory. 1. Calculate inventory turnover by individual product. 2. Assess the net realizability of all inventory items with a turnover ratio of 2.0 or less by interviewing the marketing manager as to the marketability of the product. 3. Calculate the net realizable value (NRV) of all inventory products (using software to calculate NRV based on the last selling price) and compare NRV with cost. 4. Take a statistical sample of inventory and examine the latest purchase documents (invoices and receiving slips) to calculate inventory cost.

4, 1, 3, 2

An internal auditor was evaluating the effectiveness and efficiency of the operation of the motor pool. The engagement work program included the use of analytical procedures to observe the trend of expenses for major overhauls of heavy-wheeled vehicles. This trend showed a substantial increase in the last year of the ratios of monetary amounts spent in relation to (1) the number of vehicles being used, (2) the mileage of the vehicles, (3) the age of the equipment, and (4) environmental conditions. The auditor's investigation indicated that two new maintenance firms were being used. The expenditure packages from the maintenance work were complete; however, the billings for the work had an unusual regularity. The identification of the vehicles being serviced did not correspond to the vehicle maintenance reports. Possible engagement procedures include 1. Discussing the matter with the superintendent of maintenance and asking for an explanation 2. Preparing a schedule of the types of maintenance being performed and comparing it with manufacturers' maintenance guides 3. Analyzing vehicles' trip tickets to determine if they contain indications of problems needing attention 4. Reviewing deadline reports to determine that vehicles were not in service on the dates of maintenance work 5. Reviewing dispatch schedules to determine whether vehicles were dispatched for use on days the maintenance work was reported as performed 6. Discussing the matter with plant security Which of the above actions should have the highest priority?

4, 5, and 6

One standard deviation corresponds to what approximate percentage of the area under a bell curve? A.95.5% B.34% C.90% D.68%

68%

Which of the following activities represents the greatest risk to a post-merger manufacturing organization and is therefore most likely to be the subject of an internal audit engagement? A.Combining purchasing functions. B.Combining legal functions. C.Combining marketing functions. D.Combining imprest funds.

A (combining functions)

In an engagement to review a not-for-profit organization's special revenue fund, the primary engagement objective is to determine whether the organization A.Complied with existing fund requirements and performed specified activities. B.Managed its resources economically and efficiently. C.Applies the funds in a way that would benefit the greatest number of people. D.Prepared its financial statements in accordance with accounting principles generally accepted in its country.

A (complied with existing fund requirements)

The audit committee has raised a few issues that the internal audit activity will examine during an operational audit for the current year. When performing the preliminary survey, which of the following is not an appropriate technique? A.Determining the largest risk of financial statement misstatement. B.Performing interviews. C.Developing questionnaires. D.All of the answers are appropriate techniques

A (determining the largest risk of financial)

The preliminary survey indicates that severe staff reductions at the engagement location have resulted in extensive amounts of overtime among accounting staff. Department members are visibly stressed and very vocal about the effects of the cutbacks. Accounting payrolls are nearly equal to prior years, and many key controls, such as segregation of duties, are no longer in place. The accounting supervisor now performs all operations within the cash receipts and posting process and has no time to review and approve transactions generated by the remaining members of the department. Journal entries for the last 6 months since the staff reductions show increasing numbers of prior-month adjustments and corrections, including revenues, cost of sales, and accruals that had been misstated or forgotten during month-end closing activity. The internal auditor should A.Discuss these observations with management of the internal audit activity to determine whether further work would be an efficient use of internal auditing resources at this time. B.Suspend further engagement work and issue the final communication of results because the conclusions are obvious. C.Proceed with the scheduled engagement but add personnel based on the expected number of observations and anticipated lack of assistance from local accounting management. D.Research temporary help agencies and evaluate the cost and benefit of outsourcing needed services

A (discuss these observations)

Internal auditors must develop and document a plan for each engagement. The planning process should include all the following except A.Identifying sufficient information to achieve engagement objectives. B.Obtaining background information about the activities to be reviewed. C.Establishing engagement objectives and scope of work. D.Determining how, when, and to whom the engagement results will be communicated

A (identifying sufficient information)

All of the following are acceptable criteria on which an internal audit may be based except A.Management cooperation with audit activities. B.Standards or guidelines. C.Control frameworks. D.Policies and procedures

A (management cooperation with audit activities)

An engagement objective is to verify that the correct goods or services are received on time, at the right price, and in the right quantity. Based on this objective, the function to be reviewed is the A.Purchasing department. B.Payroll department. C.Receiving department. D.Manufacturing department

A (purchasing department)

Documentation required to plan an internal audit engagement includes information that A.Resources needed to complete the engagement were considered. B.Internal audit activity resources are efficiently and effectively employed. C.Planned engagement work will be completed on a timely basis. D.Intended engagement observations have been clearly identified

A (resources needed)

Internal auditors must make a preliminary assessment of risks when conducting an assurance engagement. This assessment may involve quantitative (objective) and subjective factors. The least subjective factor is A.The organization's recognized losses on derivatives. B.Changes in the auditee's business forecast. C.The evaluation of internal control. D.The auditor's assessment of management responses

A (the organization's recognized losses derivatives)

Which of the following is an appropriate statement of an engagement objective? A. To determine whether inventory stocks are sufficient to meet projected sales. B. To include information about stockouts in the final engagement communication. C. To search for the existence of obsolete inventory by computing inventory turnover by product line. D. To observe the physical inventory count

A (to determine whether inventory stocks)

An auditor applying a discovery-sampling plan with a 5% risk of overreliance may conclude that there is A.A 95% probability that the actual rate of occurrence in the population is less than the critical rate if the occurrence rate in the sample is less than the critical rate. B.Greater than a 95% probability that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found. C.A 95% probability that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found. D.A 95% probability that the actual rate of occurrence in the population is less than the critical rate if only one exception is found.

A 95% probability that the actual rate of occurrence in the population is less than the critical rate if no exceptions are found

Which of the following items does not constitute evidence of proper supervision of an internal auditing engagement? A.An internal audit manager is not intimately involved in an engagement, but does review the results to ensure that all engagement objectives are being met. B.A senior internal auditor continuously deviates from the approved engagement work program, but consistently completes the engagement within the approved time budget. The time budget is approved by the internal audit manager, and compliance with the time budget is reviewed by the internal audit manager. C.An internal audit manager approves the engagement work program and gives instructions to subordinates at the outset of the engagement, and is available for consultation, but does not actively participate in the performance of procedures. D.The internal audit manager carefully reviews all analytical procedures performed by internal audit seniors during the preliminary planning for an engagement to determine if the conclusions are justified.

A senior internal auditor

Computer-assisted audit techniques are beneficial to the audit process because they provide for which of the following? A.Ability of auditors to analyze large amounts of data. B.Ease of access to systems. C.Ability of auditors to deploy software solutions quickly. D.Ease of training for auditors.

Ability of auditors to analyze large amounts of data

Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished? A.Appropriate accounting or auditing standards, including international standards, should be used as the criteria. B.Management is responsible for establishing the criteria. C.Internal auditors should use professional standards or government regulations to establish the criteria. D.The industry in which a company operates establishes criteria for each member company through benchmarks and best practices for that industry

B (management is responsible)

During which phase of the engagement does the internal auditor identify the objectives and related controls of the activity being examined? A.Work program preparation. B.Preliminary survey. C.Final communication of results. D.Staff selection

B (preliminary survey)

An auditor experienced in air-quality issues discovered a significant lack of knowledge about legal requirements for controlling air emissions while interviewing the manager of the environmental, health, and safety (EHS) department. The auditor should A.Report potential violations in this area to the appropriate regulatory agency. B.Take note of the weakness and direct additional questions to determine the potential effect of the lack of knowledge. C.Share extensive personal knowledge with the EHS manager. D.Alter the scope of the engagement to focus on activities associated with air emissions

B (take note of the weakness)

Which of the following possible engagement objectives would lead to a test of the efficiency of an organization's use of labor resources? A.To determine that the quality of performance by labor meets organizational standards. B.To determine that employees are assigned to work situations equivalent to their training and skill level. C.To determine that all employees are paid in accordance with union wages. D.To determine that only authorized employees are paid

B (to determine that employees are assigned)

Which of the following is an essential factor in evaluating the sufficiency of information? The information must A.Be based on references that are considered competent. B.Be convincing enough for a prudent person to reach the same decision. C.Be well documented and cross-referenced in the workpapers. D.Bear a direct relationship to the observation and include all of the elements of an observation.

Be convincing enough for a prudent person

During a preliminary survey, an auditor found that several accounts payable vouchers for major suppliers required adjustments for duplicate payment of prior invoices. This would indicate A.The existence of a sophisticated accounts payable system that correlates overpayments to open invoices and therefore requires no further audit concern. B.The possibility of unrecorded liabilities for the amount of the overpayments. C.A need for additional testing to determine related controls and the current exposure to duplicate payments made to suppliers. D.Insufficient controls in the receiving area to ensure timely notice to the accounts payable area that goods have been received and inspected.

C (a need for additional testing to determine)

Which of the following best describes a preliminary survey? A.A statistical sample of key employee attitudes, skills, and knowledge. B.A standardized questionnaire used to obtain an understanding of management objectives. C.A process used to become familiar with activities and risks to identify areas for engagement emphasis. D.A "walk-through" of the financial control system to identify risks and the controls that can address those risks.

C (a process used to become familiar)

During an assessment of the risk associated with sales contracts and related commissions, which of the following factors would most likely result in an expansion of the engagement scope? A.A decrease in sales commissions, along with a decrease in product sales. B.An increase in product sales, along with an increase in commissions. C.An increase in sales returns, along with an increase in commissions. D.A decrease in sales returns, along with an increase in product sales

C (an increase in sales returns, along with an increase in commissions)

During an operational engagement, an internal auditor compares the inventory turnover rate of a subsidiary with established industry standards to A.Evaluate the accuracy of the subsidiary's internal financial reports. B.Determine if the subsidiary is complying with organizational procedures regarding inventory levels. C.Assess the performance of the subsidiary and indicate where additional engagement work may be needed. D.Test the subsidiary's controls designed to safeguard assets

C (assess the performance)

The internal auditor has gained an understanding of the design of an engagement client's internal controls. The most appropriate next step is to A.Test controls to determine whether they are functioning as designed. B.Contact the engagement client's direct supervisor to recommend that the head of the department or function under audit is transferred or terminated. C.Draw preliminary conclusions about internal control. D.Halt the engagement and issue a report about inadequate controls

C (draw preliminary conclusions)

The planning process for an internal audit engagement most likely includes A.Identifying sufficient information to achieve engagement objectives. B.Establishing policies and procedures for the internal audit activity. C.Establishing engagement objectives. D.Creating the operating and financial budget for the internal audit activity.

C (establishing engagement objectives)

In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be evaluated. What is the most likely result of that procedure? A. It is an uneconomical approach to obtaining information. B. It is only useful for engagements of distant locations. C. It involves the engagement client's supervisory personnel in the engagement. D. It creates apprehension about the engagement.

C (it involves the engagement client's)

A page from an internal auditor's workpapers contains notes made in the prior period. They specify which controls are relevant in the current period and which controls will soon be obsolete. The notes relate to A.Review for adequacy of control processes. B.Review for effectiveness of control processes. C.Preliminary survey. D.Review of results

C (preliminary survey)

Data-gathering activities such as interviewing operating personnel, identifying standards to be used to evaluate performance, and assessing risks inherent in a department's operations are typically performed in which phase of an audit engagement? A.Engagement program development. B.Field work. C.Preliminary survey. D.Examination and evaluation of evidence

C (preliminary survey)

While planning an engagement, an internal auditor establishes engagement objectives to describe what is to be accomplished. Which of the following is a key issue to consider in developing engagement objectives? A.The qualifications of the internal auditing staff selected for the engagement. B.The recipients of the final engagement communication. C.Risks associated with the activities to be reviewed. D.Recommendations of the engagement client's employees

C (risks associated with the activities)

If an engagement client's operating standards are vague and thus subject to interpretation, the internal auditor must A.Interpret the standards in their strictest sense because standards are otherwise only minimum measures of acceptance. B.Omit any comments on standards and the engagement client's performance in relationship to those standards because such an analysis would be meaningless. C.Seek agreement with management as to the criteria to be used to measure operating performance. D.Determine best practices in this area and use them as the standard.

C (seek agreement with management)

Which of the following factors should an internal auditor consider when planning an audit of an activity? A.The number of employees involved, the control system, and the recommendations of external auditors. B.The objectives of the activity, the number of employees involved, and the control system. C.The objectives of the activity, the significant risks, and the control system. D.The qualifications of management, the significant risks, and the control system

C (the objectives of the activity, the significant risks, and the control system)

Determining that engagement objectives have been met is part of the overall supervision of an engagement and is the ultimate responsibility of the A.Engagement supervisor. B.Board. C.Staff internal auditor. D.Chief audit executive.

CAE

The internal audit activity's (IAA's) retention requirements for engagement records must be developed by the A.Audit committee. B.Chief audit executive (CAE). C.Senior manager to whom the IAA reports functionally. D.Pertinent regulator.

Chief audit executive

For an upcoming engagement, an internal auditor's objective is to determine whether costs are both documented and reasonable. This is most likely an engagement involving A.Allowance for doubtful accounts. B.Accounts payable. C.Asset disposals. D.Advertising agency billings

D (advertising agency billings)

The internal auditors of a financial institution are performing an engagement to evaluate the institution's investing and lending activities. During the last year, the institution has adopted new policies and procedures for monitoring investments and the loan portfolio. The internal auditors know that the organization has invested in new types of financial instruments during the year and is heavily involved in the use of financial derivatives to appropriately hedge risks. If the internal auditors were to conduct a preliminary review, which of the following procedures should be performed? A.Review minutes of board meetings to identify changes in policies affecting investments and loans. B.Review reports of engagements performed by regulatory and external auditors since the last internal audit engagement. C.Interview management to identify changes made in policies regarding investments or loans. D.All of the answers are correct

D (all of the answers are correct)

Developing engagement observations, conclusions, and recommendations involves comparing the condition with the relevant standard or criterion. Which of the following choices best represents an appropriate standard or criterion to support engagement observations, conclusions, and recommendations? A.A quality standard operating procedure (number and date) for the department. B.A sound industry practice, based on the internal auditor's knowledge and experience obtained during many engagement assignments within the organization. C.An internal accounting control principle, cited and copied from a public accounting reference. D.All of the answers represent an appropriate standard or criterion to support engagement observations, conclusions, and recommendations

D (all of the answers represent)

An internal auditor conducts a preliminary survey and identifies a number of significant engagement issues and reasons for pursuing them in more depth. The engagement client informally communicates concurrence with the preliminary survey results and asks that the internal auditor not report on the areas of significant concern until the client has an opportunity to respond to the problem areas. Which of the following engagement responses is not appropriate? A.Keep the engagement on schedule and discuss with management the need for completing the engagement on a timely basis. B.Consider the risk involved in the areas involved, and, if the risk is high, proceed with the engagement. C.Work with the engagement client to keep the engagement on schedule and address the significant issues in more depth, as well as the client's responses, during the course of the engagement. D.Consider the engagement to be terminated with no communication of results needed because the engagement client has already agreed to take constructive action.

D (consider the engagement to be terminated with)

As part of planning an engagement, the internal auditor in charge does all of the following except A.Distribute reports from meetings with management. B.Conduct meetings with management responsible for the activity under review. C.Determine the period covered. D.Determine to whom engagement results will be communicated

D (determine to whom engagement)

During a preliminary survey of the accounts receivable function, an internal auditor discovered a potentially major control deficiency while preparing a flowchart. What immediate action should the internal auditor take regarding the weakness? A.Perform sufficient testing to determine its cause and effect. B.Report it to the level of management responsible for corrective action. C.Schedule a separate engagement to evaluate that segment of the accounts receivable function. D.Highlight the weakness to ensure that procedures to test it are included in the engagement work program

D (highlight the weakness)

Each individual workpaper should, at a minimum, contain a(n) A.Expression of the internal auditor's overall opinion. B.Complete flowchart of the system of internal controls for the area being reviewed. C.Tick mark legend. D.Descriptive heading.

Descriptive heading

In which of the following situations would observation not provide the most compelling audit evidence? A.Analysis of the security of a storeroom or facility. B.Verification of the existence of production equipment. C.Identification of excess inventory. D.Documentation of a production or accounting process

Identification of excess

Generalized audit software is useful for

Test of controls - YES Substantive procedures - YES

An internal auditing manager is conducting the annual meeting with manufacturing division management to discuss proposed engagement plans and activities for the next year. After some discussion about the past year's activity at 12 plants in the division, the divisional vice president agrees that all significant recommendations made by the internal auditing staff refer to key controls and related operating activities that are correctly described for local management within the volume of standard operating procedures for the division. The vice president proposes to transcribe key control activities from the division's extensive written procedures to a self-assessment standard operating procedure (SOP) questionnaire. What significance should the internal auditing manager attach to such SOP questionnaires in relation to the proposed engagement schedule for the next year? A.Engagement activity can be reduced if the vice president agrees to require the internal audit activity's approval of all divisional standard operating procedures. B.Adding this control should eliminate significant engagement recommendations in the coming year, so the scope of engagement activities can be reduced accordingly. C.The SOP questionnaires should improve control adequacy, but the internal auditors need to verify that controls are working as documented in the SOP. D.SOP questionnaires must be mailed and controlled by the internal audit activity to be considered in relation to the proposed engagement schedule.

The SOP questionnaires should improve

Internal auditing is conducting an assurance audit of a regional office. An internal audit team does not suspect fraud, but it has found the following significant gaps in controls that could create opportunities for fraud: The same individual is allowed to send invoices and receive payments. Recordkeeping is lax. Some documentation of expenses is missing, but the internal auditor was able to obtain documentation from vendors. Some furniture is missing. It may have been stolen or discarded. The audit team has completed a report listing the various issues, explaining the potential for loss and fraud that these issues have created, and citing the organization's policies and procedures. Management of the office responds to the report in an e-mail stating that (1) the recommendations are unwarranted, (2) the report questions the honesty of loyal employees, and (3) implementation of the recommendations would be an unnecessary waste of time. However, to satisfy concerns about invoicing and billing, the manager promises to review the paperwork weekly. Which of the following best characterizes the nature of these findings? A.The findings are not significant because no allegations of fraud are made. B.The findings represent significant violations of the organization's policy. C.The findings are significant because they are control weaknesses that could indicate further problems. D.The findings do not describe conditions that could result in serious loss but are primarily procedural.

The findings are significant because they are control weaknesses that could indicate further problems

An internal auditing manager is leading a three-person auditing team assigned to an assurance engagement at airport rental locations for a car rental company. All team members are experienced. In planning her own work schedule, the manager believes that it will be necessary to allow time to supervise the team during the execution phase, the planning process, and the drafting of the internal audit report. Is the manager taking the correct approach? Why? A.Yes. Supervisory decisions must be made during all phases of the internal audit, regardless of the experience level of the team members. B.Yes. All engagements should be closely supervised in the same manner. C.No. When a team is experienced, supervision throughout the engagement is an unnecessary expense for the function. D.No. Once planning is completed, the most critical supervisory task is review of workpapers.

Yes. Supervisory decisions must be made

Documents provide information with differing degrees of persuasiveness. If the engagement objective is to obtain information that payment has actually been made for a specific invoice from a vendor, which of the following documents ordinarily is the most persuasive? A.An accounts payable subsidiary ledger that shows payment of the invoice. B.A canceled check, made out to the vendor and referenced to the invoice, included in a cutoff bank statement that the internal auditor received directly from the bank. C.An entry in the engagement client's cash disbursements journal supported by a voucher package containing the vendor's invoice. D.A vendor's original invoice stamped "PAID" and referenced to a check number

a canceled check, made out to

An employee of an insurer processed a fraudulent policy loan application for an amount less than the established level requiring supervisory review. The employee then obtained the check and cashed it by forging the endorsement. To prevent the loan's appearance on a subsequent policyholder statement, the loan amount was transferred to a "suspense" account. Which of the following should expose this situation at the earliest date? A.The use of prenumbered checks that are periodically accounted for. B.Regular reconciliation of the "suspense" account performed by an independent employee. C.An annual engagement performed by the internal audit activity. D.A computer report identifying unusual entries to the suspense account

a computer report identifying unusual entries

Which of the following statements about audit evidence is true? A.A purchase order marked "paid" is persuasive evidence for the receipt of goods. B.A copy of a source document has less evidential value than the original. C.Physical observation of accounts payable is the most convincing form of evidence to support the assertion of completeness. D.To be representative of a population, a sample must contain at least 10% of the items in the population

a copy of a source document

Which of the following documents should the internal auditor examine to determine whether only authorized purchases are being accepted by the receiving department? A.Policies and procedures for the receiving function. B.An invoice. C.A bill of lading. D.A copy of the purchase order.

a copy of the purchase order

A company's accounts receivable turnover rate decreased from 7.3 to 4.3 over the last 3 years. What is the most likely cause for the decrease? A.A more liberal credit policy. B.An increase in the discount offered for early payment. C.A change in net payment due from 30 to 25 days. D.Increased cash sales.

a more liberal credit policy

Which of the following represents the most reliable information that a receivable actually exists? A.A bill of lading. B.A receiving report. C.A positive confirmation. D.A sales invoice

a positive confirmation

Which of the following documents provides the most persuasive information concerning the existence and valuation of a receivable? A.A customer's purchase order in the engagement client's records related to the credit sale. B.A credit approval document supported by the customer's audited financial statements. C.A copy of a sales invoice to the customer in the engagement client's records. D.A positive confirmation received directly from the customer.

a positive confirmation received directly from the customer

The internal audit activity is planning a 3-year effort to perform engagements at all branches of a large international car rental agency. Management is especially concerned with standardized operation of the accounting, car rental, and inventory functions. What type of work program is most appropriate for this project? A.A checklist of branch standard operating procedures. B.A pro forma program developed and tested by the internal audit activity. C.An industry-developed engagement guide. D.Individual programs developed by the internal auditor-in-charge after a preliminary survey of each branch

a pro formula program

Management is investigating the acquisition of an upgraded version of the existing client-server system to increase the system's capacity. Management has requested that the internal auditor perform an operational engagement to determine the efficiency of the existing computer processing resource. What is the most relevant source of information to meet the engagement objective? A.A comparison of server capacity with desktop computer capacity. B.A review of computer job log records, listings of scheduled jobs, and computer down-time. C.A survey of current user satisfaction. D.A detailed analysis of hard drive growth over the last 3 years.

a review of computer job log

A cutoff test of sales complements the verification of A.Sales returns. B.Accounts receivable. C.Sales allowances. D.Cash

accounts receivable

Which of the following must be known to evaluate the results of an attribute sample? A.Actual size of the sample selected. B.Estimated dollar value of the population. C.Finite population correction factor. D.Standard deviation of the sample values.

actual size of the sample selected

During an audit, information is uncovered that could have a significant impact on the organization's competitiveness. According to IIA guidance, when is it appropriate for the internal auditor to communicate this information to management? A.Immediately, because of the sensitivity of the information. B.As soon as the auditor has determined that communicating the information is not a violation of the organization's code of conduct. C.After the auditor has formulated recommendations. D.After the auditor has decided that the information is substantial and credible.

after the auditor has decided that the information

Which of the following is not true about formal questionnaires properly prepared and transmitted in advance? A.They are less effective than interviewing. B.They involve the questionnaire recipient in the audit. C.All circumstances may be addressed. D.They are an opportunity for engagement client self-evaluation

all circumstances may be addressed

Fact pattern: The chief audit executive is reviewing some of the basic concepts inherent in the performance

all criteria are violated

Internal audit engagements require budgeting and staff scheduling. Which of the following is true? A.Use of actual engagements as training opportunities is discouraged. B.Budgets are developed for the most important engagements. C.All engagements should be under budgetary control. D.Time budgets ordinarily are prepared based on supervision requirements

all engagements should be under budgetary control

An assurance engagement in the quality control department is being planned. Which of the following is least likely to be used in the preparation of a preliminary survey questionnaire? A.Management's charter for the quality control department. B.An analysis of quality control documents. C.The prior engagement communications. D.The permanent engagement file

an analysis of quality control documents

Which of the following presumptions is least likely to relate to the reliability of information? A.An internal auditor's conclusion is formed within a reasonable time to achieve a balance between benefit and cost. B.The more effective internal control is, the more assurance it provides about the information. C.The internal auditor's direct personal knowledge obtained through observation is more persuasive than information obtained indirectly. D.Information obtained from independent sources outside the entity is more reliable than information secured solely within the entity

an internal auditor's conclusion is formed

The supervisor of claims processing for a health insurance firm selects all claims processed in the past 2 days by a particular employee for audit. From this sample, the supervisor can develop A.An understanding of the details contained in the processing task. B.A quantification of sampling error. C.Conclusions about the correctness of processing for the department. D.An overall representative view of employee work for the year.

an understanding of the details

Which of the following concepts distinguishes the retention of computerized audit documentation from the traditional hard copy form? A.Analyses, conclusions, and recommendations are filed on electronic media and are therefore subject to computer system controls and security procedures. B.Audit programs can be standardized to eliminate the need for a preliminary survey at each location. C.Computerized data files can be used in computer audit procedures. D.Evidential support for all findings is copied and provided to local management during the closing conference and to each person receiving the final report.

analyses, conclusions

An internal auditor arrived at the conclusion that the segregation of duties in the counting and recording of cash receipts was adequate. What type of information is this? A.Testimonial. B.Documentary. C.Physical. D.Analytical.

analytical

An internal auditor has set an engagement objective of determining whether the planned rate of return on investment in international operations has been achieved. Which of the following engagement procedures will best meet this objective? Answers A.Observation. B.Analytical review. C.Inquiry. D.Inspection of documents

analytical review

Which of the following procedures provides the most relevant information to determine the adequacy of the allowance for doubtful accounts receivable? A.Test the controls over the write-off of accounts receivable to ensure that management approves all write-offs. B.Analyze the allowance through an aging of receivables and an analysis of current economic data. C.Confirm the receivables. D.Analyze the following month's payments on the accounts receivable balances outstanding

analyze the allowance through an aging

For the upcoming specialty engagement, the audit manager has organized a group of internal auditors and engaged external specialists who have diverse backgrounds and skill sets so that there is a mix of knowledge, skills, and other competencies needed to perform the engagement. According to the Standards, which of the following best describes this attribute of engagement resources that should be determined by internal auditors? A.Applicable. B.Appropriate. C.Practical. D.Sufficient.

appropriate

During an interview with a data input clerk to discuss a computerized system used to track employee training requirements and compliance, an internal auditor identifies a potentially significant weakness in the system. The internal auditor should A.Not mention the weakness, directly or indirectly, to avoid making the clerk uncomfortable. B.Ask indirect questions that will help get more factual information relating to the potential weakness. C.Ask the clerk about the weakness and determine immediately whether the observation should be communicated. D.Conduct a second interview after determining whether the weakness actually exists

ask indirect questions that

When conducting interviews during the early stages of an internal auditing engagement, it is more effective to A.Ask people about their jobs. B.Take advantage of the fact that fear is an important part of the engagement. C.Ask for specific answers that can be quantified. D.Ask surprise questions about daily procedures.

ask people about their jobs

As part of the test of the effectiveness of a disaster recovery plan, the auditor plans to interview five employees from each of five different departments (25 employees in all). After the first few interviews, what would be the best way for the auditor to remain attentive during the remaining interviews? A.Have the rest of the employees write down their responses. B.Ask the questions in a slightly different format and in a different sequence. C.Interview the remaining employees in groups of four or five. D.Make up completely different questions to stay interested

ask the questions

Of the many tools available to assist an internal auditing supervisor, which of the following is of least assistance in the supervision of a specific engagement? A.Weekly status report. B.Assignment board. C.Time budget. D.Time report.

assignment board

Shipping documents should be traced to and compared with sales records or invoices to A.Ascertain whether all sales are supported by shipping documents. B.Assure that shipments are billed to customers. C.Determine whether payments are properly applied to customer accounts. D.Determine whether unit prices billed are in accordance with sales contracts.

assure that shipments are billed to customers

An auditor planning an attribute sample from a large number of invoices intends to estimate the actual rate of deviations. Which factor below is the most important for the auditor to consider? A.Population size. B.Desired confidence level. C.Audit objective. D.Population variance.

audit objective

The single most important factor in drawing a useful conclusion or stating a useful opinion in an engagement report is A.Auditor judgment. B.Auditee management assurances. C.Use of statistical sampling techniques. D.Senior management interest in the engagement outcome.

auditor judgment

Which of the following is the primary reason that many auditors hesitate to use embedded audit modules? A.Auditors are required to monitor embedded audit modules continuously to obtain valid results. B.Auditors are required to be involved in the system design of the application to be monitored. C.Embedded audit modules can easily be modified through management tampering. D.Embedded audit modules cannot be protected from computer viruses

auditors are required to be involved in the system design

The most reliable forms of documentary evidence are those documents that are A.Authorized by a responsible official. B.Internally generated. C.Easily duplicated. D.Prenumbered

authorized by a responsible official

Which of the following is most likely appropriate for an auditor conducting a preliminary survey interview? A.Use surprise interviewing as often as possible because an unsettled interviewee is less likely to deliver prepared answers. B.Prepare questions beforehand and always make them broadly focused. C.Be aggressive because the interviewee must be made to realize the importance of the topic. D.Avoid being overly critical of the interviewee and his or her organizational unit

avoid being overly critical of the interviewee

An internal auditor's objective is to determine the cause of inventory shortages shown by the physical inventories taken by an independent service organization that used some engagement client personnel. The internal auditor addresses this objective by reviewing the count sheets, inventory printouts, and memos from the last inventory. The source of information and the sufficiency of this information are A.Both external and internal and sufficient. B.Both external and internal and not sufficient. C.External and sufficient. D.Internal and not sufficient.

both external and internal and not sufficient

According to the Standards, internal auditors determine appropriate and sufficient resources to achieve engagement objectives based on an evaluation of all of the following except A.Time constraints for each engagement. B.Budgetary control of the engagement. C.Complexity of each engagement. D.Available resources for each engagement.

budgetary control of the engagement

An internal auditor is concerned about the possibility of fraud if A.Cash receipts, net of the amounts used to pay petty cash-type expenditures, are deposited in the bank daily. B.The accounts receivable subsidiary ledger and accounts payable subsidiary ledger are maintained by the same person. C.One person, acting alone, has sole access to the petty cash fund (except for a provision for occasional surprise counts by a supervisor or auditor). D.The monthly bank statement reconciliation is performed by the same employee who maintains the perpetual inventory records

cash receipts, net of the amounts

Which of the following statements indicates the wrong way to use an internal control questionnaire? A.Clarifying all answers with written remarks and explanations. B.Constructing the questionnaire so that a "no" response requires attention. C.Supplementing the completed questionnaire with a narrative description or flowchart. D.Filling out the questionnaire during an interview with the person who has responsibility for the area that is being reviewed.

clarifying all answers

During an audit of a company's equity accounts, the auditor determines whether restrictions have been imposed on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify relevant assertion about A.Valuation and allocation. B.Existence or occurrence. C.Completeness. D.Classification and understandability.

classification and understandability

To determine whether credit controls are inconsistently applied, preventing valid sales to creditworthy customers, the internal auditor should A.Analyze collection rates and credit histories. B.Trace postings on the accounts receivable ledger. C.Compare credit histories for those receiving credit and for those denied credit. D.Confirm current accounts receivable

compare credit histories

An internal auditor is considering whether the amount of cash is accurately recorded on the financial statements. All of the following are appropriate engagement procedures for the objective except A.Comparing cash receipt lists with the receipts journal and bank deposit slips. B.Verifying cutoff of receipts and disbursements. C.Examining bank reconciliations and confirming bank balances. D.Adding totals of reconciliations and comparing with cash account balances.

comparing cash receipt lists

An organization makes a practice of investing excess short-term cash in marketable equity securities. A reliable test of the valuation of those securities is a A.Confirmation of securities held by the broker. B.Comparison of cost data with current market quotations. C.Calculation of premium or discount amortization. D.Recalculation of investment carrying amount using the equity method

comparison of cost data with current market quotations

Management believes that some specific sales commissions for the year were too large. The accuracy of the recorded commission expense for specific salespersons is best determined by A.Use of analytical procedures. B.Computation of selected sales commissions. C.Calculating commission ratios. D.Tests of overall reasonableness

computation of selected sales commissions

As a particular engagement is being planned in a high-risk area, the chief audit executive determines that the available staff does not have the requisite skills to perform the assignment. The best course of action consistent with engagement planning principles is to A.Not perform the engagement because the requisite skills are not available. B.Use the engagement as a training opportunity and let the internal auditors learn as the engagement is performed. C.Perform the engagement but limit the scope in light of the skill deficiency. D.Consider using external resources to supplement the needed knowledge, skills, and other competencies and complete the assignment.

consider using external resources

The preliminary survey phase of an engagement to evaluate recruiting activity shows that hotel and airfare expenses are approximately equal. Both hotel and airline arrangements are made by the recruiting group secretary. Based on this information, the scope of field work should include A.Obtaining assurance that candidates' legal rights are protected during the course of the interview experience. B.Considering competitive factors involved in the selection of hotel accommodations. C.Comparing the detail of hotel charges per candidate's expense reports with copies of hotel bills obtained directly from hotel sources. D.Recommending that someone outside the recruiting group make hotel and airline reservations

considering competitive factors involved

Engagement information is usually considered relevant when it is A.Factual, adequate, and convincing. B.Consistent with the engagement objectives. C.Objective and unbiased. D.Derived through valid statistical sampling.

consistent with the engagement

During an interview to identify controls over the quality of wastewater discharge, the responsible employee refers only to a department procedure when asked about controls to ensure that samples are collected and analyzed. In the internal auditor's experience, such operations should maintain a log to record all samples, the types of analyses performed, and whether results should be reported to management or regulatory agencies. For some reason, this employee is reluctant to discuss detailed responsibilities in this area. The best thing for the internal auditor to do in this case is A.Interview the supervisor of the employee and discuss the auditee's duties in detail. B.Continue the interview and discuss other elements of the employee's duties, returning periodically to the samples and analytical results. C.Relate what the internal auditor has seen at other facilities and tell the employee that the log is necessary. D.Accept the information as given and record an observation finding that adequate controls are in place.

continue

Which of the following cannot be performed by an auditor using generalized audit software (GAS)? A.Correcting erroneous data elements, making them suitable for audit testwork. B.Matching identical product information in separate data files. C.Aging accounts receivable. D.Identifying missing check numbers.

correcting erroneous

When engagement conclusions are challenged, the internal auditor's factual rebuttal is best facilitated by A.Explicit procedures in the engagement work program. B.Summaries in the engagement work program. C.Cross-referencing of the workpapers. D.Pro forma workpapers.

cross-referencing of the workpapers

The size of a given sample is jointly a result of characteristics of the population of interest and decisions made by the internal auditor. Everything else being equal, sample size will A.Increase as sampling risk increases. B.Increase if the internal auditor decides to accept more risk of incorrectly concluding that controls are effective when they are in fact ineffective. C.Double if the internal auditor finds that the variance of the population is twice as large as was indicated in the pilot sample. D.Decrease if the internal auditor increases the tolerable rate of deviation.

decrease if the internal auditor

Which result of an analytical procedure suggests the existence of obsolete merchandise? A.Decrease in the ratio of gross profit to sales. B.Decrease in the ratio of inventory to accounts receivable. C.Decrease in the ratio of inventory to accounts payable. D.Decrease in the inventory turnover rate.

decrease in the inventory turnover rate

Checklists used to assess risk have been criticized for all of the following reasons except A.Inappropriately implying equal weight to each item on the checklist. B.Being incapable of translating the experience or sound reasoning intended to be captured by each item on the checklist. C.Providing a false sense of security that all relevant factors are addressed. D.Decreasing the uniformity of data acquisition

decreasing the uniformity of data acquisition

Treetop Corporation acquired a building and arranged mortgage financing during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the related A.Interest expense. B.Canceled checks. C.Closing statement. D.Deed

deed

When current-file workpapers are no longer of use to the internal audit activity, they should be A.Destroyed. B.Placed in the custody of the organizational legal department for safekeeping. C.Transferred to the custody of the engagement client for ease of future records. D.Transferred to the permanent file.

destroyed

The internal auditor reviewed documentation showing that a customer had recently returned three expensive products to the regional service center for warranty replacement. The documentation also showed that the warranty clerk had rejected the claim and sent it to the customer's local distributor. The claim was rejected because the serial numbers listed in the warranty claim were not found in the computer's sales history file. Subsequently, the distributor supplied three different serial numbers, all of which were validated by the computer system, and the clerk completed the warranty claim for replacements. What is the best course of action for the internal auditor under the circumstances? A.Notify the appropriate authorities within the organization that there are sufficient indicators that a fraud has been committed. B.Determine if the original serial numbers provided by the customer can be traced to other records, such as production and inventory records. C.Verify with the appropriate supervisor that the warranty clerk had followed relevant procedures in the processing and disposition of this claim. D.Summarize this item along with other valid transactions in the internal auditor's test of warranty transactions

determine if the original

An external consultant is developing methods for the management of a city's capital facilities. An appropriate scope of an engagement to evaluate the consultant's product is to A.Review the consultant's contract to determine its propriety. B.Establish the parameters of the value of the items being managed and controlled. C.Determine the adequacy of the risk management and control systems for the management of capital facilities. D.Review the handling of idle equipment

determine the adequacy of the risk

In evaluating the effectiveness and efficiency with which resources are employed, an internal auditor is responsible for A.Verifying the accuracy of asset valuation. B.Verifying the existence of assets. C.Reviewing the reliability of operating information. D.Determining the extent to which adequate operating criteria have been established

determine the extent to which adequate)

The auditor conducted an interview with the supervisor. The auditor noted that the supervisor became uncomfortable and nervous, and changed the subject whenever the auditor raised questions about certain types of claims. The supervisor's answers were consistent with company policies and procedures. When documenting the interview, the auditor should A.Ignore the specific answers given in the interview, because they are self-serving. B.Document the supervisor's answers noting the nature of the nonverbal communications. C.Conclude that the nonverbal communication is persuasive and that sufficient evidence exists to charge fraud against the group. D.Not document the nonverbal communication because it is subjective and is not corroborated.

document the supervisors

During an engagement relating to purchasing, the internal auditor finds that the largest blanket purchase order is for tires, which are expensed as vehicle maintenance items. The fleet manager requisitions tires against the blanket order for the company's 400-vehicle service fleet based on a visual inspection of the cars and trucks in the parking lot each week. Sometimes the fleet manager picks up the tires but always signs the receiving report for payment. Vehicle service data are entered into a maintenance database by the mechanic after the tires are installed. What is the best course of action for the internal auditor in these circumstances? A.Compare the number of tires purchased under the blanket purchase order with the number of tires purchased in the prior year for reasonableness. B.Determine whether the number of tires purchased can be reconciled to maintenance records. C.Count the number of tires on hand and trace them to the related receiving reports. D.Select a judgmental sample of requisitions and verify that each one is signed by the fleet manager

determine whether the number of tires purchased

Field work is a systematic process of objectively gathering information about an entity's operations, evaluating it, and determining whether those operations meet acceptable standards. Which of the following is not part of the work performed during field work? A.Expanding or altering engagement procedures if circumstances warrant. B.Applying the engagement work program to accomplish engagement objectives. C.Creating workpapers that document the engagement. D.Developing a written engagement work program

developing a written engagement

An audit assistant found a purchase order for a regular supplier in the amount of $5,500. The purchase order was dated after receipt of the goods. The purchasing agent had forgotten to issue the purchase order. Also, a disbursement of $450 for materials did not have a receiving report. The assistant wanted to select additional purchase orders for investigation but was unconcerned about the lack of a receiving report. The audit director should A.Agree with the assistant because the amount of the purchase order exception was considerably larger than the receiving report exception. B.Agree with the assistant because the cash disbursement clerk had been assured by the receiving clerk that the failure to fill out a report did not happen very often. C.Disagree with the assistant because the lack of a receiving report has a greater risk of loss associated with it. D.Disagree with the assistant because the two problems have an equal risk of loss associated with them

disagree with the assistance because the lack of a receiving report

When an internal auditor's sampling objective is to obtain a measurable assurance that a sample will contain at least one occurrence of a specific critical exception existing in a population, the sampling approach to use is A.Random. B.Discovery. C.Variables. D.Probability-proportional-to-size

discovery

Management is legally required to prepare a shipping document for all movement of hazardous materials. The document must be filed with bills of lading. Management expects 100% compliance with the procedure. Which of the following sampling approaches is most appropriate? A.Attribute sampling. B.Variables sampling. C.Targeted sampling. D.Discovery sampling.

discovery sampling

Which form of sampling is most likely to be used in a fraud investigation? A.Stop-or-go sampling. B.Discovery sampling. C.Acceptance sampling for attributes. D.Probability-proportional-to-size (PPS) sampling.

discovery sampling

Which sampling plan requires no additional sampling once the first error is found? A.Discovery sampling. B.Stratified sampling. C.Attribute sampling. D.Stop-or-go sampling.

discovery sampling

In an engagement to review travel expenses, the internal auditor calculates average expenses per day traveled for all sales personnel and then examines detailed receipts for those with high averages. These procedures represent the identification of which types of information? A.Analytical and physical. B.Physical and testimonial. C.Documentary and analytical. D.Documentary and physical.

documentary and analytical

When evaluating the propriety of a payment to a consultant, the most appropriate information for the internal auditor to obtain and review is A.Documentary information in the form of a contract. B.Analytical information in the form of comparisons with prior years' expenditures on consultants. C.Oral information in the form of opinions of operating management. D.Physical information in the form of the consultant's report.

documentary information

The most persuasive information regarding the asset value of newly acquired computers is A.Inquiry of management. B.Documentation prepared externally. C.Observation of engagement client's procedures. D.Physical examination.

documentation prepared externally

Writing an engagement work program most likely occurs at which stage of the engagement? A.As the engagement is performed. B.During the planning stage. C.At the end of each engagement when the standard work program should be revised for the next engagement to ensure coverage of noted problem areas. D.Subsequent to evaluating risk management and control systems.

during the planning stage

The annual physical inventory of the main warehouse was recorded by existing surveillance cameras. The cameras were unobtrusive and the employees had long forgotten of their existence. Unable to attend the actual physical inventory, the audit manager observed the video footage. What advantage did the auditor gain by observing the recorded video inventory over observing in person? A.The auditor can determine whether written policies have been implemented. B.Private behavior, feelings, and motives can be better observed using the recorded version. C.The recorded version is more persuasive for the occurrence assertion. D.Employee behavior was not influenced by observation.

employee behavior was

In the planning phase, the scope of an internal audit engagement is defined by the A.Engagement work program. B.Scheduling and time estimates. C.Engagement objectives. D.Preliminary survey

engagement objectives

An internal auditing supervisor reviewed the system of controls and the organizational objective of the purchasing department. What facet of engagement planning was the supervisor developing? A.Engagement work program. B.Engagement work schedule. C.Internal auditing policy manual. D.Internal auditing budget.

engagement work program

An internal auditor has just completed a survey to become familiar with the organization's payroll operations as part of an unplanned engagement. Which of the following most likely is performed next? A.Conduct field work. B.Establish initial engagement objectives. C.Assign internal audit personnel. D.Write the engagement work program

establish initial engagement objectives

During an engagement to review the personnel function, an internal auditor notes that there are several employee benefit programs and that participation in some of the programs is optional. Which of the following is the best information for assessing the acceptability of various benefit programs to employees? A.Evaluate methods used to make employees aware of available program options. B.Discuss satisfaction levels with program participants. C.Discuss satisfaction levels with the director of personnel. D.Evaluate program participation ratios and their trends.

evaluate program participation

The auditor-in-charge for a financial audit is planning an engagement. Auditors will travel to a remote location to learn about the industry and business. The auditors will need to be able to work independently. Prior to allocating engagement resources, the auditor-in-charge should A.Request a budget increase for the operation activities. B.Tour the plant facilities and warehouse. C.Evaluate the experience and competencies of the audit staff. D.Verify compliance with the applicable regulations for the industry

evaluate the experience and competencies of the

Which of the following statements is an engagement objective? A.Observe the deposit of the day's cash receipts. B.Recompute each month's bank reconciliation. C.Evaluate whether cash receipts are adequately safeguarded. D.Analyze the pattern of any cash shortages

evaluate whether cash receipts

The action taken by an internal auditor who discovers a significant area not included in the engagement work program should be to A.Perform the additional work deemed necessary without regard to the additional time needed to complete the engagement. B.Continue the engagement as planned and include the unforeseen area in a subsequent engagement. C.Evaluate whether completion of the engagement as planned will be adequate. D.Document the observation in the workpapers and take no further action until instructed to do so

evaluate whether completion of the engagement as planned

An organization manufacturing special-order products is experiencing excessive rates of rejection of finished products. An engagement procedure to identify the source of the problem is A.Analyzing customer demand for the product. B.Evaluating communications from the sales department to the production department. C.Evaluating communications from the production department to the sales department. D.Testing whether supply of the product is sufficient to meet customer demand.

evaluating communications from the sales department

In planning an assurance engagement, a survey could assist with all of the following except A.Obtaining preliminary information on controls. B.Evaluating the adequacy and effectiveness of controls. C.Obtaining engagement client comments and suggestions on control problems. D.Identifying areas for engagement emphasis

evaluating the adequacy and effectiveness of controls

Which of the following engagement procedures provides the best information about the collectibility of notes receivable? A.Examination of cash receipts records to determine promptness of interest and principal payments. B.Reconciliation of the detail of notes receivable and the provision for uncollectible amounts to the general ledger control. C.Confirmation of note receivable balances with the debtors. D.Examination of notes for appropriate debtors' signatures

examination of cash receipts

An internal auditor for a large service organization is performing an engagement to review the organization's cash balance. The internal auditor is considering the most appropriate engagement procedure to use to ensure that the amount of cash is accurately recorded on the financial statements. The most appropriate engagement procedures for the objective are A.Compare cash receipt lists to the receipts journal and bank deposit slips; review the segregation of duties, and observe and test cash receipts. B.Examine bank reconciliations, confirm bank balances, and verify cutoff of receipts and disbursements; foot totals of reconciliations and compare to cash account balances. C.Review collection procedures and perform an analytical review of accounts receivable; confirm balances of accounts receivable; and verify the existence of appropriate procedures and facilities. D.Review the organizational structure and functional responsibilities; verify the existence of, and describe protection procedures for, unused checks, including security measures

examine bank reconciliations, confirm

An investment portfolio manager has the authority to use financial derivatives to hedge transactions but is not supposed to take speculative positions. However, the manager launches a scheme that includes (1) taking a position larger than required by the hedge, (2) putting the speculative gains in a suspense account, and (3) transferring the funds to a nonexistent broker and from there to a personal account. Which of the following engagement procedures is least effective in detecting this fraud? A.Sample fund transfers to brokers and determine if the brokers are on the organization's authorized list for transactions. B.Examine individual trades to determine whether the trades violate the authorization limit for the manager. C.Sample individual trades and determine the exact matching of a hedge. Schedule and investigate all differences. D.Sample all debits to the suspense account and examine their disposition.

examine individual trades to determine

For review of an accounting department's bank reconciliation unit, which of the following is an appropriate engagement work program step for the review of canceled checks for authorized signatures? A.Completing the tests of controls over check signatures in 4 hours. B.Determining that all checks are to be signed by individuals authorized by the board. C.Examining a representative sample of signed checks and determining that the signatures are authorized in the organizational signature book. D.Comparing the check date with the first cancellation date.

examining a representative sample

An internal auditor at a credit union concludes that a secured real estate loan is collectible. Which of the following engagement procedures provides the most persuasive information about the loan's collectibility? A.Examining documentation of a recent, independent appraisal of the real estate. B.Examining the loan application for appropriate borrowers' signatures. C.Reviewing the loan file for proper authorization by the credit committee. D.Confirming the loan balance with the borrower.

examining documentation of a recent

If an auditor's preliminary evaluation of internal controls results in an observation that controls may be inadequate, the next step is to A.Prepare a flowchart depicting the internal control system. B.Expand audit work prior to the preparation of an engagement final communication. C.Note an exception in the engagement final communication if losses have occurred. D.Implement the desired controls.

expand audit work prior

An internal auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the classification assertion that all A.Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense. B.Expenditures for property and equipment have been recorded in the proper period. C.Expenditures for property and equipment have not been charged to expense. D.Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period

expenditures for property and equipment have not been charged to expense

The variability of a population, as measured by the standard deviation, is the A.Extent to which the individual values of the items in the population are spread about the mean. B.Measure of the closeness of a sample estimate to a corresponding population characteristic. C.Tendency of the means of large samples (at least 30 items) to be normally distributed. D.Degree of asymmetry of a distribution.

extent to which the individual values of the items

An internal auditor's workpapers should support the observations, conclusions, and recommendations to be communicated. One of the purposes of this requirement is to A.Facilitate quality assurance reviews. B.Permit the audit committee to review observations, conclusions, and recommendations. C.Provide control over workpapers. D.Provide support for the internal audit activity's financial budget.

facilitate quality assurance reviews

fact pattern: Jane jackson

failing to select the appropriate

Vouching entails verifying recorded amounts by examining the underlying documents from the _____ documents to the _____ documents. A.Final; previous. B.Original; final. C.Final; original. D.Original; subsequent

final; original

When an internal auditor uses monetary-unit statistical sampling to examine the total value of invoices, each invoice A.Has an equal probability of being selected. B.Has a probability proportional to its monetary value of being selected. C.Can be represented by no more than one monetary unit. D.Has an unknown probability of being selected.

has a probability proportional to its monetary value of being selected

A well-designed internal control questionnaire should A.Help evaluate the effectiveness of internal control. B.Be independent of the objectives of the internal auditing engagement. C.Elicit "yes" or "no" responses rather than narrative responses and be organized by department. D.Be a sufficient source of data for assessment of control risk.

help evaluate

An internal auditor's observation of physical inventories at the main plant at year end provides direct evidence to support which of the following objectives? A.Identification of obsolete or damaged merchandise to evaluate allowance (reserve) for obsolescence. B.Determination of goods on consignment at another location. C.Evaluation of lower of cost or market test. D.Accuracy of the priced-out inventory.

identification of obsolete or damaged merchandise

A primary reason auditors are reluctant to use an ITF (minicompany technique) is that it requires them to A.Identify and reverse the fictitious entries to avoid contamination of control totals. B.Notify user personnel so they can make manual adjustments to output. C.Collect transaction and master file records in a separate file. D.Reserve specific master file records and process them at regular intervals.

identify and reverse

A primary reason auditors are reluctant to use an ITF (minicompany technique) is that it requires them to A.Reserve specific master file records and process them at regular intervals. B.Notify user personnel so they can make manual adjustments to output. C.Collect transaction and master file records in a separate file. D.Identify and reverse the fictitious entries to avoid contamination of control totals.

identify and reverse

A rental car organization's fleet maintenance division uses a different code for each type of inventory transaction. A daily summary report lists activity by part number and transaction code. The report is reconciled by the parts room supervisor to the day's material request forms and is then forwarded to the fleet manager for approval. The use of transaction codes provides the fleet manager with information concerning the types of inventory activities. The internal auditor is considering an analytical review of transaction codes and materials used. The objective of this review is to A.Determine whether inventory items are properly valued. B.Provide information about overstocked inventory items. C.Identify possible material lost due to employee theft. D.Reveal shortages in perpetual inventory records.

identify possible material

As part of a payroll engagement, an internal auditor used an internal control questionnaire. Positive responses were given to each of the following questions by the payroll department manager: 1. Is authorization by the personnel department required to make additions to the payroll and to change pay rates? 2. Are check totals reconciled to payroll register data before checks are distributed to employees? 3. Are the functions of preparing the payroll and distributing paychecks performed by different persons? In which phase of the engagement will the internal auditor confirm these responses?

identifying, analyzing,

As a means of controlling projects and avoiding time-budget overruns, decisions to revise time budgets for an engagement should normally be made A.Immediately after the survey. B.Immediately after expanding tests to establish reliability of observations. C.When a significant risk exposure has been substantiated. D.When inexperienced staff are assigned to an engagement

immediately after the survey

An auditor was presented with a population of 1,253 invoices for the period under audit. The auditor selected every 60th invoice for testing. This is an example of A.Stop-or-go sampling. B.Cluster sampling. C.Interval sampling. D.Probability sampling.

interval sampling

An auditor suspects that the invoices from a small number of vendors contain serious misstatements and therefore limits the sample to those vendors only. A major disadvantage of selecting such a directed sample of items to examine is the A.Inability to quantify the sampling error related to the total population of vendor invoices. B.Difficulty in obtaining sample items. C.Absence of a normal distribution. D.Tendency to sample a greater number of units

inability to quantify the sampling error related to the total population

The internal audit activity's (IAA's) workpapers recorded in an electronic medium A.Should not be indexed so as to simplify supervisory review. B.Include summaries to facilitate third-party review. C.Have the disadvantage of complicating supervisory review because of lack of uniformity among media. D.Exclude reviewer comments for security reasons.

include summaries to facilitate

An internal auditor's findings may be contested by an auditee. The most effective response is likely that supported by A.Indexation of engagement observations. B.Pro forma workpapers. C.The engagement work program. D.Sources of information.

indexation of engagement observations

The internal audit activity's (IAA's) engagement workpapers must be reviewed. To facilitate the review, the most fundamental method is A.Verification symbols. B.Digitization. C.Cross-referencing. D.Indexing.

indexing

Which of the following might be detected by an auditor's review of the client's sales cutoff? A.Unrecorded sales discounts. B.Lapping of year-end accounts receivable. C.Inflated sales for the year. D.Excessive goods returned for credit.

inflated sales for the year

When performing an engagement to evaluate the computerized purchasing activities of a manufacturing organization, which of the following should be included in the permanent file portion of the engagement workpapers? A.Information concerning administrative controls over the computer operations at each location. B.Printouts using internal auditor-prepared programs and test data. C.Copies of the computer program documentation. D.Prior year's workpapers revised to reflect changes during the current year.

information concerning administrative controls

To determine the competence of the personnel in the purchasing department, an internal auditor most likely should perform A.Tests of controls. B.Analytical procedures. C.Inquiries of the staff. D.Substantive procedures

inquiries of the staff

An internal auditor has set an engagement objective of identifying the existence of personality conflicts that are detrimental to productivity. Which of the following engagement techniques will best meet this objective? A.Inquiry. B.Analytical review. C.Inspection of documents. D.Observation

inquiry

For which of the following audit tests would an internal auditor most likely use attribute sampling? A.Selecting accounts receivable for confirmation of account balances. B.Inspecting employee time cards for proper approval by supervisors. C.Making an independent estimate of the amount of a LIFO inventory. D.Examining invoices in support of the measurement of fixed asset additions.

inspecting employee time cards for proper approval by supervisors

An internal auditor is evaluating the advertising function. The organization has engaged a medium-sized local advertising agency to place advertising in magazine publications. As part of the review of the engagement workpapers, the internal auditing supervisor is evaluating the information collected. The internal auditor reviewed the language in the advertising for its legality and compliance with fair trade regulations by interviewing the organization's advertising manager, the product marketing director (who may not have been objective), and five of the organization's largest customers (who may not have been knowledgeable). The supervisor can justifiably conclude that the information is A.Conclusive. B.Reliable. C.Insufficient. D.Irrelevant.

insufficient

While testing a division's compliance with company affirmative-action policies, an auditor found that 5% of the employees are from minority groups. No one from a minority group has been hired in the past year. The most appropriate conclusion for the auditor to reach is that A.The company's policies cannot be audited and hence cannot be enforced. B.With 5% of its employees from minority groups, the division is effectively complying. C.The division is violating the company's policies. D.Insufficient evidence exists of compliance with affirmative-action policies.

insufficient evidence exists

Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without the knowledge of client operating personnel? A.Input controls matrix. B.Parallel simulation. C.Integrated test facility (ITF). D.Data entry monitor.

integrated test facility (ITF)

The dean at a prestigious private performing arts college was reading about the 20 amazing students graduating with honors in the spring. The dean wants to gather the following information from the students' families: Why did the students choose this college? How did the students go through the decision-making process? What method would the college's audit manager most likely suggest for gathering this information? A.Interviewing the students' families via telephone. B.Sending a questionnaire to the students' families. C.Observing the activities of the students. D.Having the students complete a rating scale survey

interviewing students' families via telephone

Confirmations are a highly regarded form of information. Confirmation is most effective in addressing the existence assertion for the A.Addition of a milling machine to a machine shop. B.Sale of merchandise during regular course of business. C.Inventory held on consignment. D.Granting of a patent for a special process developed by the organization

inventory held on consignment

The budget for an engagement performed by internal auditors A.Includes time budgets monitored by the engagement supervisor to control the project. B.May be increased or decreased by senior management or the board. C.Is adjusted only after approval at a level higher than the engagement supervisor. D.Should be approximated using the previous audit of the same activity.

is adjusted only after approval at a level

Monetary-unit sampling (MUS) is most useful when the internal auditor A.Cannot cumulatively arrange the population items. B.Expects to find several material misstatements in the sample. C.Is testing the accounts payable balance. D.Is concerned with overstatements.

is concerned with overstatements

Using random numbers to select a sample A.Is required for a variables sampling plan. B.Results in a representative sample. C.Allows auditors to use smaller samples. D.Is likely to result in an unbiased sample

is likely to result in an unbiased sample

When evaluating communication, the internal auditor should be aware that nonverbal communication A.Always conveys a more truthful response than verbal communication. B.Is independent of a person's cultural background. C.Always conveys less information than verbal communication. D.Is often imprecise.

is often imprecise

Reliable evidence is best defined as evidence that A.Is the best attainable. B.Proves an intermediate fact, or group of facts, from which still other facts can be inferred. C.Is supplementary to other evidence already gathered and tends to strengthen or confirm it. D.Is obtained by observing people, property, and events.

is the best attainable

Computer technology makes it possible to perform paperless audits. For example, in an audit of computer-processed customer accounts receivable balances, an auditor might use a personal computer to access the accounts receivable files directly and copy selected customer records into the computer for audit analysis. Which of the following is an advantage of this type of paperless audit of accounts receivable balances? A.It reduces the amount of substantive testing required. B.It allows direct confirmation of customer account balances. C.It allows immediate processing of audit data on a spreadsheet working paper. D.It increases the amount of technical skill required of the auditor.

it allows immediate processing of audit data

Which of the following is not a limitation of observation? A.Certain attributes cannot be observed. B.It has a slow response time. C.It lacks measurement precision. D.It is less persuasive for the completeness assertion.

it has a slow response time

Which of the following is not a benefit of using IT to solve audit problems? A.It increases audit opportunities. B.It helps reduce audit risk. C.It improves the timeliness of the audit engagement. D.It improves the auditor's judgment.

it improves the auditor's judgment

Observation is considered a reliable procedure but one that is limited in usefulness. However, it is used in a number of different situations. Which of the following statements is true regarding observation? A.It is the most persuasive method to learn how transactions are really processed during the period under audit. B.It is the most effective method to use in filling out internal control questionnaires. C.It is the most persuasive procedure for determining whether fraud has occurred. D.It is most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place.

it is most persuasive about the performance of a process

If all other factors in a sampling plan are held constant, changing the measure of tolerable misstatement to a smaller value will cause the sample size to be A.Indeterminate. B.Larger. C.Smaller. D.Unchanged.

larger

Statistical sampling usually may be applied in tests of controls when the client's internal controls A.Are carefully reduced to writing and are included in client accounting manuals. B.Leave an audit trail in the form of documentary evidence of their effectiveness. C.Depend primarily on appropriate segregation of duties. D.Enable the detection of material fraud in the accounting records.

leave an audit trail in the form of documentary evidence of their effectiveness

An internal auditor's preliminary analysis of accounts receivable turnover revealed the following rates over these accounting periods: Year 3 Year 2 Year 1 4.3 6.2 7.3 Which of the following is the most likely cause of the decrease in accounts receivable turnover? A.Shortening of due date terms. B.Liberalization of credit policy. C.Increased cash sales. D.Increase in the cash discount offered.

liberalization of credit policy

The results of a generalized audit software simulation of the aging of accounts receivable revealed substantial differences in the aging distribution, even though grand totals reconciled. Which of the following should the IS auditor do first to resolve the discrepancy? A.Ignore the discrepancy because the grand totals reconcile and instruct the controller to correct the program. B.List a sample of actual data to verify the accuracy of the test program. C.Recreate the test, using different software. D.Create test transactions and run test data on both the production and simulation programs.

list a sample of actual data to verify

Tolerating silence, asking open-ended questions, and paraphrasing are three aids to more effective A.Listening. B.Interviews. C.Meetings. D.Feedback.

listening

Internal auditors should be active listeners to gain the most information in an internal audit interview. Which of the following best describes how an active listener behaves in an interview? The listener A.Judges and evaluates the information as it is presented. B.Avoids looking directly at the speaker and interrupting his or her train of thought. C.Listens with acceptance, empathy, and intensity. D.Formulates arguments and conclusions as pieces of the speaker's information fit together.

listens with acceptance

An internal auditor's workpapers should be reviewed by the A.Management of the internal audit activity. B.Audit committee of the board. C.Management of the engagement client. D.Management of the organization's security division

management of the internal audit activity

When an accounting application is processed by computer, an auditor cannot verify the reliable operation of automated controls by A.Periodically submitting auditor-prepared test data to the same computer process and evaluating the results. B.Manually comparing detail transaction files used by an edit program with the program's generated error listings to determine that errors were properly identified by the edit program. C.Manually reperforming, as of a moment in time, the processing of input data and comparing the simulated results with the actual results. D.Constructing a processing system for accounting applications and processing actual data from throughout the period through both the client's program and the auditor's program.

manually reperforming, as of a moment

A large manufacturer has a transportation division that supplies gasoline for the organization's vehicles. Gasoline is dispensed by an attendant who records the amount issued on a serially prenumbered gasoline disbursement form, which is then given to the accounting department for proper recording. When the quantity of gasoline falls to a certain level, the service station attendant prepares a purchase requisition and sends it to the purchasing department where a purchase order is prepared and recorded in a gasoline purchases journal. Which of the following engagement procedures best determines whether gasoline disbursements are fully recorded? A.Compare the gasoline purchase requisitions with the gasoline disbursement records. B.Match the quantity of gasoline disbursed according to disbursement forms with an independent reading of quantity disbursed at the pump. C.Perform analytical procedures comparing this period's gasoline consumption with prior periods. D.Select a number of gasoline purchases from the gasoline purchases journal and compare them with their corresponding purchase orders. Ascertain that the purchases are serially prenumbered, are matched with purchase requisitions, and are authorized by someone independent of employees of the service station

match the quantity of gasoline disbursed

A fire destroyed a large portion of an organization's inventory. Management is filing an insurance claim and needs to use the internal auditors' workpapers in preparing the claim. Management A.May use the workpapers in preparing the claim, but such use should be approved by the organization's external auditors. B.May use the workpapers in preparing the claim, but such use should be approved by the chief audit executive. C.Should be precluded from preparing the claim, and this function should be performed by the internal audit activity. D.May not use the workpapers in preparing the claim.

may use the workpapers in preparing the claim, but such use should be approved by the CAE

An auditor for the state highway and safety department needs to estimate the average highway weight of tractor-trailer trucks using the state's highway system. Which estimation method must be used? A.Difference. B.Mean-per-unit. C.Probability-proportional-to-size. D.Ratio.

mean-per-unit

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to A.Measure the sufficiency of the evidence obtained. B.Minimize the failure to detect errors and fraud. C.Reduce the level of audit risk and materiality to a relatively low amount. D.Eliminate the risk of nonsampling errors.

measure the sufficiency of the evidence obtained

Which approach should an internal auditor use to draft a questionnaire about internal control? A.Flexibility in design and application. B.Wording so that a negative response indicates a problem. C.Measuring what was intended to be measured. D.Allowing responses only to questions asked prior to the engagement

measuring what was intended to be measured

"Three of six petty cash funds examined failed to contain either the correct amount of funds or sufficient documentation in lieu of funds, a 50% noncompliance rate." The above statement is an example of a(n) A.Recommendation. B.Observation. C.Opinion. D.Conclusion.

observation

Which of the following actions constitutes a violation of the confidentiality concept regarding workpapers? An internal auditor A.Allows the external auditor to copy workpapers. B.Misplaces workpapers occasionally. C.Takes workpapers to his or her hotel room overnight. D.Shows workpapers on occasion to engagement clients.

misplaces

The consumer products division of a large corporation has recently adopted a training program for its sales staff. The internal auditor has determined that one-half of the sales force has received the training. In the 6-month period following introduction of the training program, productivity increased 4% on a per-salesperson basis for those who had received the training. The soundest conclusion the auditor can reach based on these findings is that A.The remaining members of the sales force should receive training as soon as feasible. B.The training program is a success so far. C.The time spent on training has not been justified by the increase in productivity. D.More information is needed before the success of the training program can be assessed.

more information is needed

The auditor failed to recognize a deviation included in a sample intended to test controls related to a transaction process. This failure best reflects A.Statistical risk. B.Audit risk. C.Sampling risk. D.Nonsampling risk.

nonsampling risk

You have been assigned to an engagement involving the maintenance department. Which of the following is likely to produce the least reliable information? A.A narrative covering review of user reports on maintenance service. B.A schedule comparing actual maintenance expenses with budgeted expenses and those of the prior period and disclosing important differences. C.Notes on discussions with mechanics in the maintenance operation. D.An analysis of changes in certain maintenance department ratios.

notes on discussions with mechanics in the maintenance operation

An internal auditor wishes to evaluate the design of and perform procedures on controls over an engagement client's cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the internal auditor most likely will test the procedures by A.Confirmation and observation. B.Analytical procedures and confirmation. C.Observation and inquiry. D.Inquiry and analytical procedures

observation and inquiry

Which of the following procedures most likely provides an internal auditor with the most assurance about the effectiveness of the operation of a control? A.Inquiry of client personnel. B.Recomputation of account balance amounts. C.Confirmation with outside parties. D.Observation of the engagement client's personnel.

observation of the engagement

The chief audit executive is reviewing the workpapers produced by an internal auditor during a fraud investigation. Among the items contained in the workpapers is a description of an item of physical information. Which of the following is the most probable source of this item of information? A.Computing variances. B.Interviewing people. C.Observing conditions. D.Examining records.

observing conditions

When performing procedures for a physical inventory, an auditor cannot perform which of the following steps using a generalized audit software (GAS) package? A.Analyzing data resulting from inventory. B.Selecting sample items of inventory. C.Observing inventory. D.Recalculating balances in inventory reports.

observing inventory

An engagement to review payroll is least likely to include A.Comparison of payroll costs to budget. B.Tests of computations for gross and net wages. C.Tracing a sample of employee names to employment records in the personnel department. D.Observing the physical distribution of paychecks.

observing the physical distribution of paychecks

An internal auditor uses a number of techniques to select samples. A frequently, and appropriately, used technique is random selection. In which of the following situations would random selection be least justified? The auditor needs to A.Test the perpetual inventory records to ensure that the sample covers the largest monetary value items in the account. B.Test sales transactions to determine that they were properly authorized and are supported by shipping documents. C.Obtain evidence on the proper sales cut-off by sampling items from the monthly sales journal to determine if the items were recorded in the correct time period. D.Confirm accounts receivable and has already selected the 10 largest accounts for confirmation. The remaining accounts are not numbered. The auditor only has a computer listing of the accounts in alphabetical order approximately 250 pages long with 50 account balances on every page

obtain evidence on the proper scales

An internal auditor of an organization in the process of acquiring another organization has been requested to verify that cash for the organization being acquired is properly stated. The engagement technique that will yield the most persuasive piece of information is A.Obtaining standard bank confirmations. B.Comparing current cash in the bank with previous accounting periods through analytical computations. C.Examining the organization's escheatment account. D.Interviewing the organization's chief financial officer and cash manager.

obtaining standard bank confirmations

An auditor selects a sample of recorded cash receipts and vouches them to accounts receivable and customer orders. This procedure is relevant to which assertion? A.Cutoff. B.Completeness. C.Occurrence. D.Existence.

occurrence

In assessing risks of material misstatement for purchases, an internal auditor vouches a sample of entries in the voucher register to the supporting documents. Which assertion would this test of controls most likely support? A.Completeness. B.Accuracy. C.Classification. D.Occurrence.

occurrence

When performing procedures to test assertions about purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which relevant assertion would this procedure most likely support? A.Completeness. B.Occurrence. C.Valuation and allocation. D.Classification.

occurrence

To verify the proper value of costs charged to real property records for improvements to the property, the best source of information is A.Comparison of billed amounts with contract estimates. B.A letter signed by the real property manager asserting the propriety of costs incurred. C.Original invoices supporting entries into the accounting records. D.Inspection by the internal auditor of real property improvements.

original invoices

An internal auditor performs an analytical review by comparing the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years. The internal auditor notes a significant increase in the gross margin at one division. The internal auditor does some preliminary investigation and also notes that no changes occurred in products, production methods, or divisional management during the year. The most likely cause of the increase in gross margin is a(n) A.Overstatement of year-end inventory. B.Increase in the number of competitors selling similar products. C.Decrease in the number of suppliers of the material used in manufacturing the product. D.Understatement of year-end accounts receivable.

overstatement

The internal auditor wishes to test the assertion that all claims paid by a medical insurer contain proper authorization and documentation, including but not limited to the validity of the claim from an approved physician and an indication that the claim complies with the claimant's policy. The most appropriate engagement procedure is to select a sample of A.Claims filed and trace to documentary information about authorization and other supporting documentation. B.Claims denied and determine that all claims denied were appropriate. The claims denied file is much smaller and the internal auditor can obtain greater coverage with the sample size. C.Paid claims from the claims (cash) disbursement file and vouch to documentary information about authorization and other supporting documentation. D.All policyholders and examine all claims for the sampled items during the year to determine whether the claims were handled properly.

paid claims from the claims (cash) disbursement

The chief audit executive was reviewing recent reports that had recommended additional engagements because of risk exposures to the organization. Which of the following represents the greatest risk and should be the next assignment? A.Three prenumbered receiving reports were missing. B.Several times cash receipts had been held over an extra day before depositing. C.Payment had been made for routine inventory items without a purchase order or receiving report. D.There were several purchase orders issued without purchase requisitions.

payment had been made for routine inventory

An internal auditor traces individual time tickets to the payroll cost distribution and also traces totals from the payroll cost distribution to the various work-in-process accounts. If no exceptions are found, this procedure constitutes information indicating that A.Employees have been paid only for time actually worked. B.Payroll costs have been accurately distributed to work-in-process accounts. C.The work-in-process accounts have not been padded by the inclusion of unsupported payroll costs. D.Individual time tickets have been properly authorized

payroll costs have been accurately distributed

The internal auditor finds a situation in which one person has the ability to collect receivables, make deposits, issue credit memos, and record receipt of payments. The internal auditor suspects the individual may be stealing from cash receipts. Which of the following engagement procedures is most effective in discovering fraud in this scenario? A.Take a sample of bank deposits and trace the detail in each bank deposit back to the entry in the cash receipts journal. B.Perform a detailed review of debits to customer discounts, sales returns, or other debit accounts, excluding cash posted to the cash receipts journal. C.Send negative confirmations to all outstanding accounts receivable customers. D.Send positive confirmations to a random selection of customers

perform a detailed review of debits

The purpose of including a time budget in an engagement work program is to A.Provide an objective means of evaluating the internal auditor's competence. B.Ensure timely completion of the engagement. C.Provide a means of controlling and evaluating the progress of the engagement. D.Restrict the scope of the engagement

provide a means of controlling and evaluating

A production manager ordered excessive raw materials for delivery to a separate company owned by the manager. The manager falsified receiving documents and approved the invoices for payment. Which of the following audit procedures would most likely detect this fraud? A.Perform analytical tests, comparing production, materials purchased, and raw materials inventory levels; investigate differences. B.Select a sample of cash disbursements and compare purchase orders, receiving reports, invoices, and check copies. C.Select a sample of cash disbursements and confirm the amount purchased, purchase price, and date of shipment with the vendors. D.Observe the receiving dock and count materials received; compare the counts to receiving reports completed by receiving personnel.

perform analytical tests, comparing production, materials

The internal auditor wants to understand the actual flow of data regarding cash processing. The most convincing information is obtained by A.Reviewing the systems flowchart. B.Reviewing the programming flowchart for information about control procedures placed into the computer programs. C.Performing a walk-through of the processing and obtaining copies of all documents used. D.Interviewing the chief financial officer

performing a walk-through of the processing and obtaining

One objective of an internal auditing engagement involving the receiving function is to determine whether receiving clerks independently count incoming supplies before completing the quantity received section of the receiving report. Which of the following is the most persuasive information supporting the assertion that the counts are made? A.The receiving section supervisor's assurance, based on personal observation, that the counts are made. B.Periodic observations by the internal auditor over the course of the engagement. C.Assurance, from the warehouse supervisor, that the accuracy of the perpetual inventory is the result of the reliability of the entries in the quantity received section. D.A receiving clerk's initials on all receiving reports attesting that the count was made

periodic observations by the internal auditor

An internal auditor takes a photograph of the engagement client's workplace. The photograph is a form of what kind of information? A.Analytical. B.Physical. C.Testimonial. D.Documentary.

physical

The most persuasive information about the existence of newly acquired computers for the sales department is A.Documentation prepared externally. B.Observation of engagement client's procedures. C.Inquiry of management. D.Physical examination.

physical examination

Which of the following techniques is most likely to result in sufficient information with regard to an engagement to review the quantity of fixed assets on hand in a particular department? A.Physical observation. B.Interviews with department management. C.Analytical review of purchase requests and subsequent invoices. D.Examination of the account balances contained in general and subsidiary ledgers

physical observation

Which of the following techniques could be used to estimate the standard deviation for a sampling plan? A.Difference estimation. B.Regression. C.Discovery sampling. D.Pilot sample.

pilot sample

In an attribute sampling application, holding other factors constant, sample size will increase as which of the following becomes smaller? A.Confidence coefficient. B.Planned precision. C.Population. D.Expected rate of occurrence.

planned precision

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the A.Sample. B.Attribute of interest. C.Sampling unit. D.Population.

population

When planning an attribute sampling application, the difference between the expected error rate and the maximum tolerable error rate is the planned A.Skewness. B.Dispersion. C.Precision. D.Reliability.

precision

When sampling methods are used, the concept of sufficiency of information means that the samples selected provide A.Reasonable assurance that the information has a logical relationship to the engagement objective. B.The best information that is reasonably obtainable. C.Reasonable assurance that they are representative of the sampled population. D.Absolute assurance that a sample is representative of the population

reasonable assurance that they are representative of the sampled population

A small city managed its own pension fund. According to the city charter, investments could be made only in bonds, money market funds, or high-quality stocks. The internal auditor has already verified the existence of the pension fund's assets. The fund balance was not very large and was managed by the city's CFO. The internal auditor decided to estimate income from investments of the fund by multiplying the average fund balance by a weighted-average rate based on the current portfolio mix. Upon doing so, the internal auditor found that recorded return was substantially less than was expected. The internal auditor's next procedure should be to A.Inquire of the CFO as to the reason that income appears to be less than expected. B.Inform management and the board that fraud is suspected and suggest that legal counsel be called in to complete the investigation. C.Select a sample of entries to the pension fund income account and trace to the cash journal to determine if cash was received. D.Prepare a more detailed estimate of income by consulting a dividend and reporting service that lists the interest or dividends paid on specific stocks and bonds.

prepare a more detailed estimate

Which of the following is true regarding proper control of workpapers? A.Engagement records are the property of the auditor. B.All internal audit personnel have access to engagement records. C.Prevent unauthorized changes or removal of information. D.Auditors have the equivalent of attorney-client privilege.

prevent unauthorized

The established scope of the engagement must be sufficient to satisfy the objectives of the engagement. When developing the objectives of the engagement, the internal auditor considers the A.Resources required. B.Probability of significant noncompliance. C.Information included in the engagement work program. D.Results of engagement procedures

probability of significant noncompliance

The primary objective of maintaining security over workpapers is to A.Facilitate subsequent engagements in the same department. B.Prohibit unauthorized changes or removal of information. C.Prohibit engagement clients from seeing workpapers. D.Facilitate engagements by external auditors.

prohibit unauthorized changes

Workpaper summaries, if prepared, can be used to A.Promote efficient workpaper review by internal audit supervisors. B.Replace the detailed workpaper files for permanent retention. C.Document the full development of engagement observations and recommendations. D.Serve as an engagement final communication to senior management.

promote efficient

During the workpaper review, an internal auditing supervisor finds that the internal auditor's observations are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the internal auditor to A.Familiarize himself or herself with the sequence of workpapers so that (s)he will be able to answer questions about the conclusions stated in the final engagement communication. B.Prepare a workpaper to indicate that the full scope of the engagement was carried out. C.Eliminate any cross-references to other workpapers because the system is unclear. D.Provide a cross-referencing system that shows the relationship among observations, conclusions, recommendations, and the related facts.

provide a cross-referencing

Workpapers contain a record of engagement work performed and much confidential information. They are the property of the organization and remain under control of the internal audit activity, which is responsible for their security. Which of the following is the most important control requirement for workpapers? A.Provide for the protection of workpapers at all times and to the extent appropriate. B.Purge workpapers periodically of materials that are considered confidential. C.Allow access to workpapers only to internal audit activity personnel. D.Make the administrative section of the internal audit activity responsible for the security of workpapers.

provide for the protection of workpapers at all times

In preparing a sampling plan for an inventory pricing test, which of the following describes an advantage of statistical sampling over nonstatistical sampling? A.Provides a quantitative measure of sampling risk. B.Minimizes nonsampling risk. C.Reduces the level of tolerable error. D.Requires nonquantitative expression of sample results.

provides a quantitative measure of sampling risk

Engagement workpapers include A.All workpapers prepared during a previous engagement performed in the same area. B.Providing a basis for evaluating the internal audit quality program. C.Copies of all procedures that were reviewed during the engagement. D.Copies of all source documents examined in the course of the engagement.

providing a basis for evaluating

When engagements are performed for the internal audit activity by nonstaff members, the chief audit executive is responsible for A.Ensuring that the engagement communications are objective, clear, and timely. B.None of the engagement work performed by those outside the department. C.Reviewing the engagement work programs for approval. D.Providing appropriate supervision from the beginning to the conclusion of the engagement.

providing appropriate

Your objective is to determine that nonrecurring purchases, initiated by various user organizations, have been properly authorized. If all purchases are made through the purchasing department, to which of the following documents should you vouch purchases? A.Invoices. B.Receiving reports. C.Purchase orders. D.Purchase requisitions

purchase requisitions

The current internal auditing engagement to evaluate disbursements activities shows a significant number of errors made during the accounts payable vouchering process that have resulted in lost discounts and an extraordinary number of adjustments and credit memos. Engagement hours are already over budget in this section because of the number of exceptions to be analyzed. Internal auditing staff has had time to observe the operations performed by each of the voucher clerks; sample and analyze transaction documents in the accounts payable, purchasing, and receiving departments; and obtain system statistics on transaction volume, error-correction transactions, and lost-discount summaries. To date, the causes for all types of errors noted during detail testing, observation, and analysis of exceptions have not been fully identified in any of the three departments. The most appropriate course of action for the lead internal auditor to determine the causes of these errors is to A.Concentrate on engagement work program requirements for cash disbursements testing to discover any related information from those tests. B.Expand sample sizes for attributes already tested in transactions entered by accounts payable, purchasing, and receiving. C.Question and get the opinions of the accounts payable clerks and those involved in processing these transactions. D.Describe the transaction-related problems identified to date in a special engagement communication to management without expressing a cause or an internal auditor's conclusion about the situation.

question and get the opinions

An auditor is considering developing a questionnaire to research employee attitudes toward control procedures. Which of the following is a criterion that should not be considered in designing the questionnaire? A.Questions must be reliably worded so that they measure what was intended to be measured. B.Questions must be worded to ensure a valid interpretation by the respondents. C.The questionnaire should be short to increase the response rate. D.Questions should be worded such that a "No" answer indicates a problem

questions should be worded such that a "No" answer indicates a problem

The auditor wishes to sample the perpetual inventory records to develop an estimate of the monetary amount of misstatement, if any, in the account balance. The account balance is made up of a large number of small-value items and a small number of large-value items. The auditor has decided to audit all items over $50,000 plus a random selection of others. This audit decision is made because the auditor expects to find a large amount of errors in the perpetual inventory records but is not sure that it will be enough to justify taking a complete physical inventory. The auditor expects the errors to vary directly with the value recorded in the perpetual records. The most efficient sampling procedure to accomplish the auditor's objectives is A.Ratio estimation. B.Attribute sampling. C.Monetary-unit sampling. D.Stratified mean-per-unit sampling.

ratio estimation

Which of the following examples of audit evidence is the most persuasive? A.Vendor invoices filed by the accounting department. B.Time cards for employees that are stored by a manager. C.Canceled checks written by the chief financial officer and returned from a bank. D.Real estate deeds that were properly recorded with a government agency.

real estate deeds

To control daily operating costs, an organization decreased the number of times a messenger service was used each day. Despite those measures, the monthly bill continued to increase. What procedure should the internal auditor use to detect whether improper services were being billed? A.Scan ledger accounts and messenger invoices. B.Reconcile a sample of messenger invoices to pickup receipts. C.Observe daily use of the messenger service. D.Test the mathematical accuracy of a sample of messenger invoices

reconcile a sample of messenger

Which of the substantive field work procedures presented below provides the best information about completeness of recorded revenues? A.Vouching shipping records to the customer order file. B.Vouching charges made to the accounts receivable subsidiary ledger to supporting shipping records. C.Reconciling shipping records to recorded sales. D.Reconciling the sales journal to the general ledger control account.

reconciling shipping records to record sales

The primary purpose of an engagement workpaper prepared in connection with payroll expense is to A.Verify the work done by the internal auditor. B.Record the names of all employees. C.Record payroll data and analyses to support reported recommendations. D.Provide documentation to support payroll taxes due.

record payroll data and analyses to support reported recommendations

The primary purpose of an engagement workpaper prepared in connection with payroll expense is to A.Provide documentation to support payroll taxes due. B.Record the names of all employees. C.Record payroll data and analyses to support reported recommendations. D.Verify the work done by the internal auditor.

record payroll data and analyses to support reported recommendations

When relatively few items of high monetary value constitute a large proportion of an account balance, stratified sampling techniques and complete testing of the high monetary-value items will generally result in a A.Simplified evaluation of sample results. B.Larger estimate of population variability. C.Smaller nonsampling error. D.Reduction in sample size

reduction in sample size

The internal audit activity's (IAA's) policy regarding notes made by a reviewer of workpapers most likely is to A.Follow the retention requirements of the relevant legal environment for workpapers. B.Discard the notes after questions are identified. C.Retain the notes until they have served their purpose. D.Include the notes in the permanent file.

retain the notes until they have served their purpose

During an engagement to evaluate travel expenses, the accounting supervisor tells the internal auditor that each expense report is reviewed and approved before costs are reimbursed to the traveler. Which of the following is the best course of action for the internal auditor to take? A.Review a sample of expense reports for proper approval. B.Conserve engagement resources by accepting the statement and redirect work into another area. C.Request the supervisor to put the statement in writing. D.Corroborate this information with the controller.

review a sample of expense reports for proper approval

An audit found that the cost of some material installed on capital projects had been transferred to the inventory account because the capital budget had been exceeded. Which of the following would be an appropriate technique for the internal audit activity to use to monitor this situation? A.Identify variances between amounts capitalized each month and the capital budget. B.Review all journal entries that transferred costs from capital projects accounts to inventory accounts. C.Analyze a sample of capital transactions each quarter to detect instances in which installed material was transferred to inventory. D.Compare inventory receipts with debits to the inventory account and investigate discrepancies

review all journal entries

In engagement planning, internal auditors should review all relevant information. Which of the following sources of information would most likely help identify suspected violations of environmental regulations? A.Discussions with operating executives. B.Discussions conducted with the external auditors in coordinating engagement efforts. C.Review of correspondence the entity has conducted with governmental agencies. D.Review of trade publications.

review of correspondence

If the objective of an auditor's test of details is to detect the overstatement of sales, the auditor should trace transactions from the A.Customer's purchase orders to the sales journal. B.Cash receipts journal to the customer's purchase orders. C.Sales journal to the shipping documents. D.Shipping documents to the cash receipts journal.

sales journal to the shipping documents

An internal auditor traces copies of sales invoices to shipping documents to determine that A.Customer shipments were billed. B.The subsidiary accounts receivable ledger was updated. C.Sales that are billed were also shipped. D.Shipments to customers were also recorded as receivables

sales that are billed

In a variables sampling application, which of the following will result when confidence level is changed from 90% to 95%? A.Sample size will increase. B.Point estimate of the arithmetic mean will increase. C.Nonsampling error will decrease. D.Standard error of the mean will not be affected.

sample size will increase

The reliability of information available to an internal auditor is least likely to be affected by the A.Relationship of the preparer of the information to the engagement client. B.Relevance of the information to the engagement objectives. C.Sampling method employed to obtain a sample of the information. D.Timeliness of the information.

sampling method employed to obtain

Which of the following is least likely to be placed on the agenda for discussion at a pre-engagement meeting? A.Sampling plan and key criteria. B.Expected starting and completion dates. C.Objectives and scope of the engagement. D.Client personnel needed

sampling plan and key criteria

An auditor for a major retail company suspects that inventory fraud is occurring at three stores that have high cost of goods sold. Which of the following audit activities would provide the most persuasive evidence that fraud is occurring? A.Schedule a surprise inventory audit to include a physical inventory. Investigate areas of inventory shrinkage. B.Use an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF. Investigate all differences. C.Interview the three individual store managers to determine if their explanations about the observed differences are the same, and then compare their explanations to that of the section manager. D.Select a sample of individual store prices and compare them with the sales entered on the cash register for the same items

schedule a surprise inventory audit

An engagement objective is to determine if a company's accounts payable contain all outstanding liabilities. Which of the following audit procedures would not be relevant for this objective? A.Send confirmations, including zero-balance accounts, to vendors with whom the company normally does business. B.Select a sample of accounts payable from the accounts payable listing and verify the supporting receiving reports, purchase orders, and invoices. C.Examine supporting documentation of subsequent (after-period) cash disbursements and verify period of liability. D.Trace receiving reports issued before the period end to the related vendor invoices and accounts payable listing.

select a sample of accounts payable from the accounts payable

Shipments are made from the warehouse based on customer purchase orders. The matched shipping documents and purchase orders are then forwarded to the billing department for sales invoice preparation. The shipping documents are neither accounted for nor prenumbered. Which of the following substantive tests should be extended as a result of this control weakness? A.Foot the sales register and trace the total to the general ledger. B.Select sales invoices from the sales register and examine the related shipping documents. C.Trace quantities and prices on the sales invoice to the customer purchase order and test extensions and footings. D.Select bills of lading from the warehouse and trace the shipments to the related sales invoices

select bills of lading from the warehouse

An internal auditor is planning to use attribute sampling to test the effectiveness of a specific internal control related to approvals for cash disbursements. In attribute sampling, decreasing the estimated occurrence rate from 5% to 4% while keeping all other sample size planning factors exactly the same would result in a revised sample size that would be A.Unchanged. B.Indeterminate. C.Larger. D.Smaller.

smaller

Which of the following is not ordinarily considered an essential criterion for developing engagement work programs? A.Description of the objectives of the engagement client operation to be evaluated. B.Specificity as to the controls to be tested. C.Specificity as to procedures to be followed. D.Specificity as to the methodology to be used for the engagement procedures

specificity as to the methodology

The measure of variability most useful in variables sampling is the A.Median. B.Standard deviation. C.Mean. D.Range.

standard deviation

The measure of variability of a statistical sample that serves as an estimate of the population variability is the A.Basic precision. B.Standard deviation. C.Confidence interval. D.Range.

standard deviation

The chief audit executive establishes policies for A.Defining standardized tick marks and ensuring compliance with them. B.Standardized workpapers. C.Ensuring the written documentation of all conversations held throughout the engagement. D.Defining the hours available for individual engagements.

standardized workpapers

Which type of workpaper summary is typically used to consolidate numerical data scattered among several schedules? A.Pyramid summaries. B.Results summaries. C.Segment summaries. D.Statistical summaries.

statistical summaries

Ratio estimation sampling would be inappropriate to use to project the monetary error in a population if A.Observed differences between carrying amounts and audited amounts are proportional to carrying amounts. B.A number of observed differences exist between carrying amounts and audited amounts. C.Subsidiary ledger book balances for some inventory items are unknown. D.The recorded carrying amounts and audited amounts are approximately proportional.

subsidiary ledger book balances

An internal auditor is more likely to detect duplicate vendor payments in a high exposure environment with certain internal control weaknesses by using which of the following procedures? A.Substantive testing. B.Trend analysis. C.Monetary validity. D.Proportional analysis.

substantive testing

When counting cash on hand, the internal auditor must exercise control over all cash and other negotiable assets to prevent A.Substitution. B.Irregular endorsement. C.Deposits in transit. D.Theft.

substitution

While performing an engagement relating to an organization's cash controls, the internal auditor observed that cash deposits are not deposited intact daily. A comparison of a sample of cash receipts lists revealed that each cash receipt list equaled cash journal entry amounts but not daily bank deposits amounts, and cash receipts list totals equaled bank deposit totals in the long run. This information as support for the internal auditor's observations is A.Sufficient, reliable, and relevant. B.Relevant but not sufficient or reliable. C.Not sufficient, reliable, or relevant. D.Sufficient but not reliable or relevant

sufficient, reliable, and relevant

Internal auditors often include summaries within their workpapers. Which of the following best describes the purpose of such summaries? A.Summaries document that the internal auditor has considered all relevant information. B.Summaries are usually required to complete each section of an engagement work program. C.Summaries are prepared to conform with the Standards. D.Summaries distill the most useful information from several workpapers into a more usable form.

summaries distill

Which of the following best describes engagement supervision? A.Supervision is most important in the planning phase of the engagement to ensure appropriate coverage. B.The manager of each engagement has the ultimate responsibility for supervision. C.Supervision is primarily exercised at the final review stage of an engagement to ensure the accuracy of the engagement communications. D.Supervision is a continuing process beginning with planning and ending with the conclusion of the engagement.

supervision is a continuing process

The best control over the work on which internal auditors' opinions are based is A.Preparation of engagement workpapers. B.Staffing of internal audit activities. C.Supervisory review of all engagement work. D.Preparation of time budgets for internal audit activities.

supervisory review of all engagement work

When an auditor tests a computerized accounting system, which of the following is true of the test data approach? A.The program tested is different from the program used throughout the year by the client. B.Test data must consist of all possible valid and invalid conditions. C.Several transactions of each type must be tested. D.Test data are processed by the client's computer programs under the auditor's control.

test data are processed by the client's computer programs under the auditor's control

When an auditor tests the internal controls of a computerized system, which of the following is true of the test data approach? A.Test data programs need not be tailor-made by the auditor for each client's computer applications. B.Test data programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls. C.Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operations conditions. D.Test data are processed with the client's computer and the results are compared to the auditor's predetermined results.

test data are processed with the client's computer and the results are

Which of the following engagement procedures will provide the least relevant information for determining that payroll payments were made to bona fide employees? A.Examine canceled checks for proper endorsement and compare to personnel records. B.Test the payroll account bank reconciliation by tracing outstanding checks to the payroll register. C.Reconcile time cards in use to employees on the job. D.Test for segregation of the authorization for payment from the hire/fire authorization

test the payroll account bank reconciliation

In an engagement to evaluate an automated inventory control system, which approach provides the best information that purchase orders are authorized? A.Reviewing system documentation to determine proper functioning of the program. B.Tracing purchase orders to the computer listing. C.Testing to ensure that only authorized persons are able to change parameters in the program that generates purchase orders. D.Comparing receiving reports with purchase order details

testing to ensure that only authorized persons

A new staff auditor was told to perform an audit in an area with which the auditor was not familiar. Due to time constraints, the audit was not supervised. The auditor was given the assignment because it represented a good learning experience, but the area was clearly beyond the auditor's competence. Nevertheless, the auditor prepared comprehensive workpapers and reported the results to management. In this situation, A.The audit department violated the Standards by not providing adequate supervision. B.The audit department violated the Standards by hiring an auditor without proficiency in the area. C.The chief audit executive (CAE) has not violated the Standards because they do not address supervision. D.The Standards and the Code of Ethics were followed by the audit department.

the audit department violated the standards by not providing adequate supervision

Which of the following factors would most likely prevent the auditor from using monetary-unit sampling? A.The auditor expects to find that a large percentage of items sampled have misstatements. B.The auditor expects to find more errors in the larger dollar value items than in the smaller dollar value items. C.Individual accounts are not assigned a number, but are listed only alphabetically. D.The auditor expects to find a limited number of understatements of individual account balances.

the auditor expects to find that a large percentage of items sampled have misstatements

If the size of the sample to be used in a particular test of attributes has not been determined by using statistical concepts, but the sample has been chosen in accordance with random selection procedures, A.The auditor may or may not achieve desired precision at the desired level of confidence. B.The auditor will have to evaluate the results by reference to the principles of discovery sampling. C.No inferences can be drawn from the sample. D.The auditor has caused nonsampling risk to increase.

the auditor may or may not

An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past 5 years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue? A.The auditor should review period-end compensation to determine if bonuses were paid to meet earnings goals. B.The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period. C.The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management. D.The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales

the auditor should inspect transactions occurring in the last month

An organization has continual large shortages at the cash registers despite having procedures in place. A local accounting firm was retained to audit the organization's control procedures over cash. Several types of audit procedures were used during the engagement. Which of the following is the best example of the data-gathering method of observation? A.The auditor watched one of the morning shift employees pay the delivery driver out of the cash register. B.The auditor spoke with several employees, including the store manager, about the steps they follow when voiding a sales transaction. C.Reconciliations of cash deposits with sales records were performed by the auditor. D.Upon examination of cash register tapes, the auditor discovered cash drawers were opened several times during employee shifts with no corresponding sales.

the auditor watched one of the morning

An auditor is using the mean-per-unit method of variables sampling to estimate the correct total value of a group of inventory items. Based on the sample, the auditor estimates, with precision of ±4% and confidence of 90%, that the correct total is $800,000. Accordingly, A.The probability that the inventory is not significantly overstated is between 6% and 14%. B.The inventory is not likely to be overstated by more than 4.4% ($35,200) or understated by more than 3.6% ($28,800). C.The chance that the actual correct total is less than $768,000 or more than $832,000 is 10%. D.There is a 4% chance that the actual correct total is less than $720,000 or more than $880,000.

the chance that the actual

The standard error of a sample reflects A.The average rate of error in the sample. B.The degree of variation in sample items. C.The projected population error based on errors in the sample. D.The error in the population that the auditor can accept.

the degree of variation in the sample items

Which of the following is not an advantage of sending an internal control questionnaire prior to an audit engagement? A.The questionnaire will help the engagement client understand the scope of the engagement. B.The engagement client can use the questionnaire for self-evaluation prior to the auditor's visit. C.The engagement client will respond only to the questions asked, without volunteering additional information. D.Preparing the questionnaire will help the auditor plan the scope of the engagement and organize the information to be gathered

the engagement client will respond only to the

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because A.A majority of recipients usually lack the willingness to respond objectively. B.Negative confirmations do not produce evidence that is statistically quantifiable. C.The internal auditor cannot infer that all nonrespondents have verified their account information. D.Some recipients may report incorrect balances that require extensive follow-up

the internal auditor cannot

Which of the following is a step in an engagement work program? A.Internal auditors may not reveal engagement observations to nonsupervisory, operational personnel during the course of this engagement. B.A determination is made concerning whether the manufacturing operations are effective and efficient. C.The methods used to identify defective units produced are observed. D.The engagement will commence in 6 weeks and include tests of compliance with laws, regulations, and contracts

the methods used to identify

A government auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is the most likely explanation for the difference in regional results? A.The more successful region spends 30 percent more money on education than does the other region. B.A higher percentage of the general tax funds is spent on education in the more successful region than in the other region. C.The more successful region spends more money per student on education than does the other region. D.The more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only 3 percent.

the more successful region spends more money per student

Resources for an internal audit activity's (IAA's) engagement are sufficient when A.They are appropriate. B.The internal auditors assigned are knowledgeable. C.The needed quantity is available. D.The mix of internal audit skills is acceptable.

the needed quantity is available

In the preparation of an engagement work program, which of the following items is least essential? A.A review of material from prior engagement communications. B.A review of criteria established by management to determine whether operating goals and objectives have been accomplished. C.The preparation of a budget identifying the costs of resources needed. D.The performance of a preliminary risk assessment.

the preparation of a budget identifying

Which of the following best describes what determines the extent of supervision required for a particular internal audit engagement? A.The internal audit activity's prior experience in dealing with the particular engagement client. B.Whether the engagement involves possible violations of laws or governmental regulations. C.Whether the engagement involves possible fraud on the part of management. D.The proficiency of the internal auditors and the complexity of the engagement.

the proficiency of the internal auditors and the complexity of the engagement

Statistical sampling may be used to test the effectiveness of controls. An internal auditor's procedures should result in a statistical conclusion about A.The relation of the population deviation rate to the tolerable rate. B.Monetary precision exceeding a certain predetermined amount. C.Population characteristics occurring at least once in the population. D.The population value not being misstated by more than a fixed amount.

the relation of the population deviation rate to the tolerable rate

An internal auditor has taken a large sample from an audit population that is skewed in the sense that it contains a large number of small monetary balances and a small number of large monetary balances. The auditor can conclude A.The sampling distribution is not normal. Thus, monetary-unit sampling based on the Poisson distribution more accurately defines the nature of the population. B.The sampling distribution is normal. Thus, the Z value can be used in evaluating the sample results. C.The sampling distribution is not normal. Thus, attribute sampling is the only alternative statistical tool that can appropriately be used. D.None of the answers are correct.

the sampling distribution is normal. Thus, the Z value can be used in evaluating the sample results

In parallel simulation, actual client data are reprocessed using an auditor software program. An advantage of using parallel simulation, instead of performing tests of controls without a computer, is that A.The size of the sample can be greatly expanded at relatively little additional cost. B.The client's computer personnel do not know when the data are being tested. C.There is no risk of creating potentially material errors in the client's data. D.The test includes all types of transaction errors and exceptions that may be encountered.

the size of the sample

Very small random samples (fewer than 30) should normally be avoided when using a variables sampling plan because A.The skew of the distribution of sample means cannot be determined. B.The size of the sampling risk will increase disproportionately. C.The estimated standard deviation of the population will increase disproportionately. D.The estimated population mean value will increase disproportionately.

the size of the sampling risk will increase disproportionately

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? A.The experience level of the internal auditor. B.Special skills possessed by the staff internal auditor. C.The complexity of the engagement. D.The staff internal auditor's desire for training in the area

the staff internal auditor's

Management of Company X has made representations regarding certain edit checks in the payroll processing program. One such representation is that a reasonableness test is performed on the accounting for overtime hours. The auditor decides to test the effectiveness of this control by creating test transactions, some of which contain material errors. The auditor then compares the test and actual results. This procedure is A.The test data approach. B.The integrated test facility method. C.Parallel simulation. D.Possible only with an embedded audit module

the test data approach

Purchases from two new vendors increased dramatically after a new buyer was hired. The buyer was obtaining kickbacks from the two vendors based on sales volume. A possible means of detection is A.The use of purchase orders for all purchases. B.Periodically surveying vendors regarding potential buyer conflict of interest or ethics violations. C.The receipt of an invoice to put new vendors on the master file. D.The use of change analysis and trend analysis of buyer or vendor activity

the use of change analysis and trend analysis

An internal auditor notices that a particular supervisor's performance appraisal ratings for any given subordinate tend to be consistently high, consistently low, or consistently in the middle across all performance dimensions. Which one of the following is the best conclusion to draw based on this observation? A.The way individuals are rated may be systematically biased. B.This supervisor is too lenient in performance ratings. C.The performance appraisal forms probably have too many leading questions. D.This supervisor is trying too hard to treat everyone the same.

the way individuals are rated

Fact pattern: An internal auditing team has been assigned

they are less expensive

Which of the following statements is true with respect to a time budget for an internal audit engagement? A.Time budgets should be used for financial audits, but not for operational audits. B.Time budgets should normally be prepared in terms of hours or days. C.Time budgets should be strictly adhered to, regardless of circumstances. D.Requests for time budget adjustments should be approved by the audit committee

time budgets should normally be prepared in terms of hours or days

To ascertain that all credit sales are recorded in accounts receivable, an internal auditor should A.Trace from a sample of subsidiary ledger entries to related sales invoices and to related shipping documents. B.Confirm selected accounts receivable balances by direct correspondence with customers. C.Trace from a sample of shipping documents to related sales invoices and subsidiary ledger. D.Trace from a sample of customer purchase orders to related shipping documents

trace from a sample of shipping documents

Analytical procedures enable the internal auditor to predict the balance or quantity of an item. Information to develop this estimate can be obtained by all of the following except A.Tracing transactions through the system to determine whether procedures are being applied as prescribed. B.Studying the relationships of elements of financial data that would be expected to conform to a predictable pattern based upon the entity's experience. C.Comparing financial data with data for comparable prior periods, anticipated results (e.g., budgets and forecasts), and similar data for the industry in which the entity operates. D.Studying the relationships of financial data with relevant nonfinancial data.

tracing transactions through

A 90% confidence interval for the mean of a population based on the information in a sample always implies that there is a 90% chance that the A.True population mean is no larger than the largest endpoint of the interval. B.Estimate is equal to the true population mean. C.True population mean lies within the specified confidence interval. D.Standard deviation will not be any greater than 10% of the population mean

true population lies within the specified confidence interval

In planning an engagement, the internal auditor establishes objectives to address the risk associated with the activity. Risk is the A.Failure to accomplish established objectives and goals for operations or programs. B.Possibility that the balance or class of transactions and related assertions contains misstatements that could be material to the financial statements. C.Uncertainty of the occurrence of an event that could affect the achievement of objectives. D.Failure to adhere to organizational policies, plans, and procedures or to comply with relevant laws and regulations.

uncertainty of the occurrence)

To elicit views on broad organizational risks and objectives from the board and senior management, an internal auditor should A.List specific risk factors for consideration. B.Develop spreadsheets with quantitative data relevant to the industry. C.Ask each member of management about specific risks listed in an industry reference. D.Use a nondirective approach to initiating discussion of mitigating risks.

use a nondirective approach

A bank's internal auditor wishes to determine whether all loans are supported by sufficient collateral, properly aged regarding current payments, and accurately categorized as current or noncurrent. The best audit procedure to accomplish these objectives would be to A.Use generalized audit software to read the total loan file, age the file by last payment due, and extract a statistical sample stratified by the current and aged population. Examine each loan selected for proper collateralization and aging. B.Select a sample of payments made on the loan portfolio and trace them to loans to see if the payments are properly applied. For each loan identified, examine the loan application to determine that the loan has proper collateralization. C.Select a discovery sample of all loan applications to determine whether each application contains a statement of collateral. D.Select a block sample of all loans in excess of a specified monetary limit and determine if they are current and properly categorized. For each loan approved, verify aging and categorization.

use generalized audit software

When an organization uses information technology (IT) extensively, evidence may be available only in electronic form. What is an auditor's best course of action in such situations? A.Use generalized audit software to extract evidence from client databases. B.Assess the risks of material misstatement as high. C.Perform limited tests of controls over electronic data. D.Use audit software to perform analytical procedures.

use generalized audit software

Which of the following procedures would be most helpful in providing additional evidence when an auditor suspects that an unidentified employee is submitting and approving invoices for payment? A.Select a sample of payments made during the year and investigate each one for approval. B.Select a sample of receiving reports representative of the period under investigation and trace to approved payment. Note any items not properly processed. C.Select a sample of invoices paid during the past month and trace them to appropriate vendor accounts. D.Use generalized audit software to identify invoices from vendors with post office box numbers or other unusual features. Select a sample of those invoices and trace to supporting documents such as receiving reports.

use generalized audit software to identify

An auditor is conducting a survey of perceptions and beliefs of employees concerning an organization health care plan. The best approach to selecting a sample is to A.Use stratified sampling where the strata are defined by marital and family status, age, and salaried/hourly status. B.Use monetary-unit sampling according to employee salaries. C.Focus on people who are likely to respond so that a larger sample can be obtained. D.Focus on managers and supervisors because they can also reflect the opinions of the people in their departments.

use stratified sampling where

An internal auditor has been asked to review the treasury department's compliance with corporate policy related to the use of forward trading to manage currency valuation risk. The auditor finds no related policies in the corporate policy manual but does discover that the department is following a policy developed by the company's bank. Which of the following would be the most appropriate response from the auditor? A.Use the bank's policy as the audit criteria and determine whether formal adoption should be recommended in the engagement final communication. B.Postpone the audit engagement until a corporate policy can be established. C.Perform no further audit work and report the lack of a corporate policy as an audit observation. D.Withdraw from the audit engagement, because there is nothing to audit due to the lack of a corporate policy

use the bank's policy as the audit

During an investigation of unexplained inventory shrinkage, an internal auditor is testing inventory additions as recorded in the perpetual inventory records. Because of internal control weaknesses, the information recorded on receiving reports may not be reliable. Under these circumstances, which of the following documents provides the best information about additions to inventory? A.Vendors' invoices. B.Vendors' statements. C.Purchase requisitions. D.Purchase orders.

vendors' invoices

Which technique is most appropriate for testing the quality of the preliminary survey of payment vouchers described in an internal control questionnaire? A.Analysis. B.Evaluation. C.Observation. D.Verification

verification

A bank internal auditor wanted to verify the accuracy of the general ledger balance of a depository account. One engagement procedure used in this process was to mail positive confirmations to statistically sampled depositors. However, the number of replies received was not adequate to form a valid conclusion about the account's accuracy. What action should the internal auditor take to accomplish this objective? A.Assume that the nonreplies represent tacit agreements by the depositor, document the results, and perform no further work on this engagement procedure. B.Mail negative confirmation requests to all non-replies and document results of testing. If necessary, telephone depositors to inquire about any disagreement with balances confirmed. C.Verify accuracy of the depositors' addresses. Remail confirmation requests a second time with a notation indicating that it is a second request. D.Expand the original confirmation sample to include additional depositors.

verify accuracy of the depositors' addresses

During the process of confirming receivables as of December 31, Year 1, a positive confirmation was returned indicating the "balance owed as of December 31 was paid on January 9, Year 2." The internal auditor would most likely A.Verify that the amount was received. B.Reconfirm the zero balance as of January 10, Year 2. C.Determine whether any changes in the account occurred between January 1 and January 9, Year 2. D.Determine whether a customary trade discount was taken by the customer.

verify that the amount was received

An auditor who wishes to test for the occurrence of equity transactions should complete which of the following procedures? A.Vouch entries to supporting documents. B.Inquire with shareholders about the date that a stock purchase occurred. C.Compare prior-period amounts to current amounts. D.Inspect stock certificates held in treasury.

vouch entries to supporting documents

Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence and valuation assertions about recorded accounts payable? A.Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports. B.Receiving the client's mail, unopened, for a reasonable period of time after year end to search for unrecorded vendor's invoices. C.Confirming accounts payable balances with known suppliers who have zero balances. D.Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.

vouching selected entries in the accounts

When reviewing engagement workpapers, the primary responsibility of an engagement supervisor is to determine that A.Standard internal audit activity procedures are adhered to with regard to workpaper preparation and technique. B.Workpapers adequately support the engagement observations, conclusions, and recommendations. C.Workpapers are properly referenced and kept in logical groupings. D.Each worksheet is properly identified with a descriptive heading.

workpapers adequately support the engagement observations,

Which of the following is the most important if workpapers are to have the characteristics that will ensure that they achieve their primary purposes? A.Workpapers must provide sufficient, reliable, and useful information to support the engagement results. B.Workpapers must be of standard format and standard content. C.Workpapers must be properly indexed and cross-referenced to the draft final engagement communication. D.Workpapers must be arranged in logical order following the engagement work program sequence.

workpapers must provide sufficient

Which of the following are least valuable in predicting the amount of uncollectible accounts for an organization? A.Dollar amounts of accounts actually written off by the organization for each of the past 6 months. B.Total monthly sales for each of the past 6 months. C.Published economic indices indicating a general business downturn. D.Written forecasts from the credit manager regarding expected future cash collections.

written forecasts from the credit manager

Levels of production stoppages over the past year at a large laminating business were abnormally high due to machine malfunctions. Would it be appropriate for the internal auditing function to develop a survey examining attitudes toward line operations, rotation of work zones, training, maintenance schedule, etc., for the machine operators to complete? A.Yes, the survey is reliable without corroboration. B.No, the examined areas are irrelevant to the malfunctions. C.No, the survey is inappropriate without corroboration. D.Yes, the examined areas are relevant to the malfunctions

yes, the examined areas are relevant