Acct 422 - Internal Audit (Ch 9)

2. Senior management has requested that the internal audit function perform an operational review of the telephone marketing operations of a major division and recommend procedures and policies for improving management control over the operation. The internal audit function should: a. Accept the audit engagement because independence would not be impaired. b. Accept the engagement, but indicate to management that recommending controls would impair audit independence so that management knows that future audits of the area would be impaired. c. Not accept the engagement because internal audit functions are presumed to have expertise on accounting controls, not marketing controls. d. Not accepting the engagement because recommending controls would impair future objectivity of the department regarding this client.

a. Accept the audit engagement because independence would not be impaired.

14. Which of the following best describes an auditor's responsibility after noting some indicators of fraud? a. Expand activities to determine whether an investigation is warranted b. Report the possibility of fraud to senior management and ask how to proceed c. Consult with external legal counsel to determine the course of action to be taken d. Report the matter to the audit committee and request funding for outside specialists to help investigate the possible fraud

a. Expand activities to determine whether an investigation is warranted

9. Organizational independence exists if the CAE reports <List A> to some other organizational level than the CEO or similar head of the organization as long as the internal audit activity <List B> without interference: a. List A: Administratively; List B: controls the scope and performance of work and reporting of results b. List A: administratively; List B: approved the internal audit budget and risk-based internal audit plan c. List A: functionally; List B: controls the scope and performance of work and reporting of results d. List A: functionally; List B: approves the internal audit budget and risk-based internal audit plan

a. List A: Administratively; List B: controls the scope and performance of work and reporting of results

6. When conducting a consulting engagement to improve the efficiency and quality of a production process, the audit team is faced with a scope limitation because several months of the production data have been lost or are incomplete. Faced with this scope limitation, the CAE should: a. Resign from the consulting engagement and conduct an audit to determine why several months of data are not available. b. Discuss the problem with the customer and together evaluate whether the engagement should be continued. c. Increase the frequency of auditing the activity in question d. Communicate the potential effects of the scope limitation to the audit committee.

b. Discuss the problem with the customer and together evaluate whether the engagement should be continued.

12. Which of the following activities undertaken by the internal auditor might be in conflict with the standard of independence? a. Risk management consultant b. Product development team leader c. Ethics advocate d. External audit liaison

b. Product development team leader

3. Who is ultimately responsible for determining that the objectives for an internal audit engagement have been met? a. The individual internal audit staff member b. The CAE c. The audit committee d. The internal audit engagement supervisor

b. The CAE

7. Which of the following is not a responsibility of the CAE? a. To communicate the internal audit function's plans and resource requirements to senior management and the board for review and approval. b. To oversee the establishment, administration, and assessment of the organization's system of internal controls and risk management processes. c. To follow up on whether appropriate management actions have been taken on significant issues cited in internal audit reports. d. To establish a risk-based plan to accomplish the objectives of the internal audit function consistent with the organization's goals.

b. To oversee the establishment, administration, and assessment of the organization's system of internal controls and risk management processes.

1. Per IIA Standards, internal audit functions must establish: a. Internal quality assurance and improvement program assessments. b. External quality assurance and improvement program assessments c. Both internal and external quality assurance and improvement program assessments. d. Neither internal and external quality assurance and improvement program assessments.

c. Both internal and external quality assurance and improvement program assessments.

15. Which of the following activities are designed to provide feedback on the effectiveness of an internal audit activity? I. Proper supervision II. Proper training III. Internal assessments IV. External assessments a. I, II, III only b. I, II, IV only c. I, III, IV only d. All of these

c. I, III, IV only Note the feedback aspect

8. The Standards requires the CAE to share information and coordinate activities with other internal and external providers of assurance services. With regard to the independent outside auditor, which of the following would not be an appropriate way for the CAE to meet this requirement? a. Holding a meeting between the CAE and the independent outside audit firm's partner to discuss the upcoming audit of the financial statements. b. Providing the independent outside auditor with access to the working papers for an audit of third-party contractors. c. Requiring the independent outside auditor to have the CAE's approval of their annual audit plan for conducting the financial statement audit. d. Requesting that the internal audit function receive a copy of the independent outside auditor's management letter.

c. Requiring the independent outside auditor to have the CAE's approval of their annual audit plan for conducting the financial statement audit.

4. Which of the following is the best for reason for the CAE to consider the organization's strategic plan in developing the annual internal audit plan? a. To emphasize the importance of the internal audit function to the organization. b. To make recommendations to improve the strategic plan. c. To ensure that the internal audit plan supports the overall business objectives. d. To provide assurance that the strategic plan is consistent with the organization's values.

c. To ensure that the internal audit plan supports the overall business objectives.

5. The Standards requires policies and procedures to guide the internal audit staff. Which of the following statements is false with respect to this requirement? a. A small internal audit function may be managed informally through close supervision and written memos. b. Formal administrative and technical audit manuals may not be needed by all internal audit functions. c. The CAE should establish the function's policies and procedures. d. All internal audit functions should have a detailed policies and procedures manual.

d. All internal audit functions should have a detailed policies and procedures manual.

13. According to the IPPF, internal auditors should possess which of the following skills? I. Internal auditors should understand human relations and be skilled in dealing with people. II. Internal auditors should be able to recognize and evaluate the materiality and significance of deviations from good business practices. III. Internal auditors should be experts on subjects such as economics, commercial law, taxation, finance, and IT. IV. Internal auditors should be skilled in oral and written communications a. II only b. I and III only c. III and IV only d. I, II, and IV only

d. I, II, and IV only

11. According to the IPPF, the independence of the internal audit activity is achieved through: a. Staffing and supervision b. Continuing professional development and due professional care c. Human relations and communications d. Organizational status and objectivity

d. Organizational status and objectivity

10. Audit committees are most likely to participate in the approval of: a. Audit staff promotions and salary increases b. The internal audit report observations and recommendations c. Audit work schedules d. The appointment of the CAE

d. The appointment of the CAE