Internal - Test 2 - Ch 1

*In selecting an instructional strategy for developing internal audit staff, a chief audit executive begins by reviewing* A. Organizational objectives. B. Learning content. C. Learners' readiness. D. Budget constraints.

A. Organizational objectives.

*The advantage attributed to the establishment of internal auditing field offices for work at foreign locations is best described as* A. The possibility of increased objectivity of personnel assigned to a field office. B. A reduction of travel time and related travel expense. C. The increased ease of maintaining uniform organization-wide standards. D. More contact with senior personnel leading to an increase in control.

B. A reduction of travel time and related travel expense.

*According to the International Professional Practices Framework, the internal audit activity is effectively managed when* A. Policies on responsibilities of the internal audit activity are included in the organization's operations manual. B. Its individual members conform with the Code of Ethics and the Standards. C. Management oversees the day-to-day operations of the internal audit activity. D. It has the skill set and knowledge to help the organization achieve its objectives.

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

*In addressing internal audit resource needs for a complex engagement, the CAE may include all of the following except* A. Other employees of the organization. B. Members of the audit committee. C. Specialized consultants. D. External service providers.

B. Members of the audit committee.

*Which of the following potentially is (are) subject to the internal auditors' evaluations?* *1. The human resources function.* *2. The purchasing process.* *3. The manufacturing and production database system* 1 only. B. 2 only. C. 1, 2, and 3. D. None of the answers are correct.

C. 1, 2, and 3

*The key factor in the success of an internal audit activity's human resources program is* A. An informal program for developing and counseling staff. B. A compensation plan based on years of experience. C. A well-developed set of selection criteria. D. A program for recognizing the special interests of individual staff members.

C. A well-developed set of selection criteria.

*To improve their efficiency, internal auditors may rely upon the work of external auditors if it is* A. Performed after the internal auditing work. B. Primarily concerned with operational objectives and activities. C. Coordinated with internal auditing work. D. Conducted in accordance with the Code of Ethics.

C. Coordinated with internal auditing work.

*An audit committee should be designed to enhance the independence of both the internal and external auditing functions and to insulate these functions from undue management pressures. Using this criterion, audit committees should be composed of* A. rotating subcommittee of the board of directors or its equivalent. B. Only members from the relevant outside regulatory agencies. C. Members from all important constituencies, specifically including representatives from banking, labor, regulatory agencies, shareholders, and officers. D. Only external members of the board of directors or its equivalent.

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

*Which of the following is most essential for guiding the internal audit staff?* A. Quality program assessments. B. Position descriptions. C. Performance appraisals. D. Policies and procedures.

D. Policies and procedures.

*All of the following are true regarding the process and methods of coordinating assurance activities except* A. Assurance mapping connects significant risk categories and sources of assurance. B. In the combined assurance model, the internal audit activity coordinates with compliance activities. C. The formality of assurance activity coordination may vary with the size of the entity and any regulatory requirements. D. Sharing results with other providers violates the coordinating services agreement.

D. Sharing results with other providers violates the coordinating services agreement.

*Which of the following statements most accurately reflects the chief audit executive's responsibilities for internal audit resources?* A. The CAE is responsible for ensuring that audit coverage is based on the periodic skills assessment. B. The CAE is responsible for evaluating the detailed summary of audit resources presented by management to the board. C. The CAE is not responsible for such human resource functions as evaluation and development. D. The CAE is responsible for communicating resource needs to the board but has no explicit responsibility for administering the organization's compensation program.

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

*Which of the following is not an appropriate member of an audit committee?* A. The vice president of the local bank used by the organization. B. An academic specializing in business administration. C. A retired executive of a firm that had been associated with the organization. D. The organization's vice president of operations.

D. The organization's vice president of operations.

*Numerous environmental laws and regulations have recently changed. Senior management has asked the chief audit executive to perform an environmental audit to be completed as soon as possible. The internal audit activity currently is performing an operational audit. As a result, the chief audit executive must make difficult decisions about resource allocation. Which of the following is the least significant issue in determining whether to reallocate audit resources?* A. The potential fraud discovered during the operational audit. B. Potential cost to the organization for noncompliance with the new environmental laws and regulations. C. The knowledge, skills, and competencies of the internal audit staff. D. The results from the prior financial audits.

D. The results from the prior financial audits.

*According to the International Professional Practices Framework, internal audit resources are effectively deployed when* A. The internal audit staff has the necessary attributes for the planned activities. B. The resources needed to accomplish the plan are adequate. C. There are more opportunities to achieve operating benefits for the engagement client. D. They are used in a way that optimizes the achievement of the approved plan.

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

*In most organizations, the rapidly expanding scope of internal auditing responsibilities requires continual training. What is the main purpose of such a training program?* A. To comply with continuing education requirements of professional organizations. B. To use slack periods in engagement scheduling. C. To help individuals to achieve personal career goals. D. To achieve both individual and organizational goals.

D. To achieve both individual and organizational goals.

*Which of the following statements about the chief audit executive's responsibilities for internal audit resources is most accurate?* A. The CAE is responsible for ensuring that audit coverage is based on the skills of the internal audit activity. B. The CAE is responsible for presenting a detailed summary of audit resources to management. C. The CAE is responsible for the effective deployment of resources to achieve the approved audit plan. D. The CAE is responsible for administering the organization's compensation program.

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

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

D. 1, 2, and 3.

*Use of external service providers with expertise in healthcare benefits is appropriate when the internal audit activity is* A. Evaluating the organization's estimate of its liability for postretirement benefits, which include healthcare benefits. B. Comparing the cost of the organization's healthcare program with other programs offered in the industry. C. Training its staff to conduct an audit of healthcare costs in a major division of the organization. D. All of the answers are correct.

D. All of the answers are correct.

*What is the most accurate term for the procedures used by the board to oversee activities performed to achieve organizational objectives?* A. Governance. B. Control. C. Risk management. D. Monitoring.

A) Governance

*In managing internal audit resources, the CAE considers all of the following except* A. Benchmarking. B. Succession planning. C. Staff evaluation and development. D. Resourcing needs.

A. Benchmarking

*If a department outside of the internal audit activity is responsible for reviewing a function or process, the internal auditors should* A. Consider the work of the other department when assessing the function or process. B. Ignore the work of the other department and proceed with an independent audit. C. Reduce the scope of the audit since the work has already been performed by the other department. D. Yield the responsibility for assessing the function or process to the other department.

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

*After using the same public accounting firm for several years, the board of directors retained another public accounting firm to perform the annual financial audit in order to reduce the annual audit fee. The new firm has now proposed a one-time engagement relating to the cost-effectiveness of the various operations of the business. The chief audit executive has been asked to advise management in making a decision on the proposal. An argument can be made that the internal audit activity is better able to perform such an engagement because* A. External auditors may not possess the same depth of understanding of the organization as the internal auditors. B. . Internal auditors are required to be objective in performing engagements. C. Engagement procedures used by internal auditors are different from those used by external auditors. D. Internal auditors will not be vitally concerned with fraud and waste.

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

*Although all the current members of an internal audit activity have good records of performance, the manager is not sure if any of the members are ready to assume a management role. Which of the following is an advantage of bringing in an outsider rather than promoting from within?* A. Management training costs are reduced when a qualified outsider is hired. B. The manager can be sure that the new position will be filled by a competent employee. C. Bringing in an outsider is a less expensive alternative than promoting from within. D. The "modeling" effect is strengthened by bringing in a new role model.

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

*Controls should be designed to provide reasonable assurance that* A. Organizational objectives will be achieved economically and efficiently. B. Management's plans have not been circumvented by worker collusion. C. The internal audit activity's guidance and oversight of management's performance is accomplished economically and efficiently. D. Management's planning, organizing, and directing processes are properly evaluated.

A. Organizational objectives will be achieved economically and efficiently.

*Which of the following is a false statement about the relationship between internal auditors and external auditors?* A. Oversight of the work of external auditors is the responsibility of the chief audit executive. B. Sufficient meetings are scheduled between internal and external auditors to ensure timely and efficient completion of the work. C. Internal and external auditors may exchange engagement communications and management letters. D. Internal auditors may provide engagement work programs and working papers to external auditors.

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

Fact pattern: You are the chief audit executive of a parent organization that has foreign subsidiaries. Independent external audits performed for the parent are not conducted by the same firm that conducts the foreign subsidiary audits. Because the internal audit activity occasionally provides direct assistance to both external firms, you have copies of audit programs and selected working papers produced by each firm. *The foreign subsidiary's external audit firm wants to rely on an audit of a function at the parent organization. The audit was conducted by the internal audit activity. To place reliance on the work performed, the foreign subsidiary's auditors have requested copies of the working papers. What is the most appropriate response to the foreign subsidiary's auditors?* A. Provide copies of the working papers. B. Ask the parent's audit firm if it is appropriate to release the working papers. C. Ask the board for permission to release the working papers. D. Refuse to provide the working papers under any circumstances.

A. Provide copies of the working papers.

*The chief audit executive for a large decentralized organization has developed a manual containing comprehensive detailed written procedures as a guide for the decentralized engagement work groups, each of which has 20 to 30 internal auditors. The organization recently acquired a small organization that has an internal audit activity consisting of a supervisor and two staff personnel. Which of the following actions is the most practical in providing administrative guidance for this new internal audit activity?* A. Select key procedures from the manual and use informal supervisory direction for other engagement management issues. B. Use informal supervisory direction for engagement management issues. C. Use the already developed manual. D. Adopt the administrative procedures being followed by the internal auditors of the acquired organization.

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

*Staff members of the internal audit activity should be assigned to engagements and training projects that will enable them to develop their potential. Which of the following should be the most important consideration in making assignments that will allow staff members to develop properly?* A. The skills and experience levels of individual auditors. B. Specific training requirements imposed by the Standards. C. The importance of giving all staff members extensive supervisory experience. D. Special interests of individual staff members.

A. The skills and experience levels of individual auditors.

*When are governance, risk management, and control processes considered adequate?* A. When management has planned and designed them to provide reasonable assurance of achieving the organization's objectives efficiently and economically. B. When management has planned and designed them to provide absolute assurance of achieving the organization's objectives efficiently and economically. C. When the internal audit activity has planned and designed them to provide reasonable assurance of achieving the organization's objectives efficiently and economically. D. When the company is profitable.

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

*Policies and procedures must be established to guide the internal audit activity. Which of the following statements is false with respect to this requirement?* A. The form and content of written policies and procedures depend on the size of the internal audit activity. B. All internal audit activities must have a detailed policies and procedures manual. C. Formal administrative and technical manuals may not be needed by all internal audit activities. D. A small internal audit activity may be managed informally through close supervision and memoranda.

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

*Fact pattern: You are the chief audit executive of a parent organization that has foreign subsidiaries. Independent external audits performed for the parent are not conducted by the same firm that conducts the foreign subsidiary audits. Because the internal audit activity occasionally provides direct assistance to both external firms, you have copies of audit programs and selected working papers produced by each firm.* *The foreign subsidiary's auditors would like to rely on some of the work performed by the parent organization's audit firm, but they need to review the working papers first. They have asked you for copies of the working papers of the parent organization's audit firm. What is the most appropriate response to the foreign subsidiary's auditors?* A. Provide copies of the working papers without notifying the parent's audit firm. B. Notify the parent's auditors of the situation and request that they either provide the working papers or authorize you to do so. C. Provide copies of the working papers and notify the parent's audit firm that you have done so. D. Refuse to provide the working papers under any circumstances.

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

*The chief audit executive (CAE) is best defined as the* A. Inspector general. B. Person responsible for the internal audit function. C. Outside provider of internal audit services. D. Person responsible for overseeing the contract with the outside provider of internal audit services.

B. Person responsible for the internal audit function.

*Internal audit resources should be appropriate, sufficient, and effectively deployed. Consequently,* A. Resource planning should be limited to expected activities. B. The chief audit executive should perform a periodic skills assessment. C. Only members of the internal audit staff should perform internal audit activities. D. The chief audit executive ultimately must ensure the adequacy of resources.

B. The chief audit executive should perform a periodic skills assessment.

*The internal audit activity has recently experienced the departure of two internal auditors who cannot be immediately replaced due to budget constraints. Which of the following is the least desirable option for efficiently completing future engagements, given this reduction in resources?* A. Using self-assessment questionnaires to address audit objectives. B. Employing information technology in audit planning, sampling, and documentation. C. Eliminating consulting engagements from the engagement work schedule. D. Filling vacancies with personnel from operating departments that are not being audited.

C. Eliminating consulting engagements from the engagement work schedule.

*The IIA's Three Lines Model states that the roles of an organization's governing body most likely include* A. Assisting with risk management. B. Delivering products to clients. C. Ensuring that organizational objectives align with stakeholders' interests. D. Providing assurance and advice that instills confidence and clarity.

C. Ensuring that organizational objectives align with stakeholders' interests.

*The audit committee strengthens the control processes of an organization by* A. Assigning the internal audit activity responsibility for interaction with governmental agencies. B. Using the chief audit executive as a major resource in selecting the external auditors. C. Following up on recommendations made by the chief audit executive. D. Approving internal audit activity policies.

C. Following up on recommendations made by the chief audit executive.

*Which of the following statements is true regarding coordination of internal and external auditing efforts?* A. The chief audit executive should not give information about illegal acts to an external auditor because external auditors may be required to report the matter to the board or regulatory agencies. B. Ownership and the confidentiality of the external auditor's working papers prohibit their review by internal auditors. C. The chief audit executive should determine that appropriate follow-up and corrective action was taken by management when required regarding matters discussed in the external auditor's management letter. D. If internal auditors provide assistance to the external auditors in connection with the annual audit, such assistance is not subject to the Standards.

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

*Which of the following statements regarding the external auditor is true?* A. Disputes between the external auditor and management are resolved through an arbitrator. B. Review of the external auditor's internal control and audit reports during each engagement is done by a different accounting firm. C. The external auditor's work is overseen and reviewed by the audit committee. D. Negotiation of the external auditor's fee is the responsibility of the corporate officers.

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

*The internal audit activity (IAA) is effectively managed when* A. Senior management creates its operating budget. B. The organization's human resources department hires the IAA's associates. C. Trends and emerging issues are considered. D. The board establishes policies and procedures for the IAA.

C. Trends and emerging issues are considered.

*Several members of an organization's senior management have questioned whether the internal audit activity should report to the newly established quality audit function as part of the total quality management process within the organization. The chief audit executive (CAE) has reviewed the quality audit standards and the programs that the quality audit manager has proposed. The CAE's response to senior management should include which of the following?* A. Changing the applicable standards for internal auditing within the organization to provide compliance with quality audit standards. B. Changing the qualification requirements for new staff members to include quality audit experience. C. Estimating departmental cost savings that would result from the elimination of the internal audit activity. D. Identifying appropriate liaison activities with the quality audit function to ensure coordination of audit schedules and overall audit responsibilities.

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