ACCT 4631 - Internal Auditing: CIA Quiz Topics 12, 13, 14

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

Answer A is correct. Supervision includes, among other things, ensuring the approved engagement program is completed unless changes are justified and authorized (PA 2340-1, para. 1). For this purpose, a time budget is necessary to evaluate and control the progress of the engagement. It permits comparison of the actual time spent on a procedure with its allotted time.

When making a presentation to management, the internal auditor wants to report observations, conclusions, and recommendations and to stimulate action. These objectives are best accomplished by A. Delivering a lecture on the engagement results. B. Showing a series of slides or overheads, which graphically depict the engagement results; limit verbal commentary. C. Using slides/overheads to support a discussion of major points. D. Handing out copies of the final engagement communication, asking the participants to read it, and asking for questions.

Answer C is correct. Using audiovisual aids to support a discussion of major points results in the greatest retention of information. One study concluded that 85% of the information presented in this way will be remembered after 3 hours, and 65% after 3 days.

According to the Standards, when should a signed report be issued? A. Only if required by the particular engagement. B. At predetermined stages as the engagement progresses. C. Whenever an opinion is expressed. D. At the conclusion of an engagement.

Answer D is correct. A signed report is issued after the engagement's completion (PA 2410-1, para. 15).

The content and format of engagement communications may vary. However, according to the Standards, a necessary element is statement of A. Documentation of previous oral communications. B. The status of observations from prior engagement communications. C. Related activities not reviewed. D. Engagement objectives.

Answer D is correct. Communications must include the engagement's objectives and scope as well as applicable conclusions, recommendations, and action plans (Perf. Std. 2410).

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

Answer A is correct. A work program documents engagement procedures selected in advance but should be modified, as appropriate, during the course of the engagement (PA 2200-1). The work program must be approved prior to its implementation, and any adjustments approved promptly (Impl. Std. 2240.A1). Work programs are necessarily tentative because the internal auditors are likely to encounter unexpected situations while performing detailed procedures. If they learn that a significant area is not covered, the internal auditors must determine whether they can achieve the engagement objectives and satisfy their professional responsibilities without modification of the work program. Modification will necessitate consultation with superiors to obtain authorization to adjust time and financial budgets.

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

Answer C is correct. Management cooperation with audit activities is not a measure or expectation but rather a condition. A condition is the factual evidence that the internal auditor found in the course of the examination.

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 be strictly adhered to, regardless of circumstances. C. Requests for time budget adjustments should be approved by the audit committee. D. Time budgets should normally be prepared in terms of hours or days.

Answer D is correct. A budget is a plan that contains a quantitative statement of expected results. It may be defined as a quantified program. All engagement projects and other assignments must be kept under budgetary control. Time budgets for engagement projects are usually prepared in employee-hours or employee-days.

In a well-developed management environment, the internal audit activity A. Focuses primarily on asset management and report results to the audit committee. B. Interfaces primarily with senior management, minimizing interactions with line managers who are the subjects of internal audit work. C. Conducts initial audits of new computer systems after they have begun operating. D. Reports the results of an audit engagement to line management as well as to senior management.

Answer D is correct. Internal auditors discuss conclusions and recommendations with appropriate levels of management before the chief audit executive (CAE) issues the final engagement communications (PA 2440-1, para. 1). The level of participants in the discussions and reviews varies by organization and nature of the report; they generally include those individuals who are knowledgeable of detailed operations and those who can authorize the implementation of corrective action (para. 3).

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

Answer A is correct. After identifying the risks, the auditor determines the procedures to be performed and the scope (nature, timing, and extent) of those procedures (PA 2210-1, para. 3). If the preliminary evaluation indicates increased control risk, the auditor usually decides to apply additional engagement procedures to reach the engagement objectives.

One of the primary roles of an engagement work program is to A. Provide for a standardized approach to the engagement. B. Document an internal auditor's evaluations of controls. C. Assess the risks associated with the activity under review. D. Serve as a tool for planning and conducting engagement work.

Answer D is correct. Among other things, work programs state the objectives of the engagement, identify technical requirements, and state the nature and extent of testing required (PA 2200-1, para. 1).

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

Answer A is correct. All engagement working papers are reviewed to ensure they support engagement communications and necessary audit procedures are performed (PA 2340-1, para. 3).

In beginning an engagement, an internal auditor reviews written procedures that detail segregations of responsibility adopted by management to strengthen internal controls. These written procedures should be viewed as which attribute of an observation? A. Effect. B. Condition. C. Cause. D. Criteria.

Answer D is correct. Criteria are the standards, measures, or expectations used in making an evaluation and/or verification (the correct state) (PA 2410-1, para. 7). The written procedures represent the standards (criteria) against which an observation concerning segregation of responsibility should be measured.

The primary reason for having written formal audit reports is to A. Record observations and recommended courses of action. B. Provide a formal means by which the external auditor assesses potential reliance on the internal audit activity. C. Provide an opportunity for engagement client response. D. Document the corrective actions required of senior management.

Answer A is correct. A written formal audit report provides client personnel and senior management with a consistent version of the conditions found by the auditors and of the recommended remedial actions.

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 A. 1, 2, and 3 only. B. 1 and 2 only. C. 1, 2, and 4 only. D. 2 and 3 only.

Answer A is correct. Audit scope statements (1) describe the limits of the engagement, (2) identify activities to be reviewed and any related activities that are excluded, and (3) specify a time frame for completion.

A work program for a comprehensive assurance engagement to evaluate a purchasing function should include A. Procedures arranged by relative priority based upon perceived risk. B. A focus on risks affecting the financial statements as opposed to controls. C. A statement of the engagement objectives for the operation under review with agreement by the engagement client. D. Procedures to accomplish engagement objectives.

Answer D is correct. Work programs are a necessary part of engagement planning. They include the procedures for collecting, analyzing, interpreting, and documenting information during the engagement (PA 2240-1, para. 2).

A purpose of the internal auditors' exit meeting with appropriate levels of management is to A. Generate commitment for appropriate managerial action. B. Obtain information to evaluate internal control. C. Present the final engagement communication to the chief executive officer. D. Inform members of the board of engagement results.

Answer A is correct. Discussion of conclusions and recommendations with the engagement client not only provides a quality control review but is also a courtesy that enhances the internal auditor-client relationship. In addition, the exit meeting is an important aspect of the participative approach to internal auditing because it involves the client in the engagement process as well as in any recommended changes arising from the engagement. People are more likely to accept changes if they have participated in the decisions and in the methods used to implement changes.

Engagement working papers are reviewed to ensure that A. They are properly referenced for easy follow-up within the next year. B. They meet or exceed the work standards of the organization's external auditors. C. They are properly cross-referenced to the engagement communications. D. No issues are open at the conclusion of the field work.

Answer D is correct. All engagement working papers are reviewed to ensure they support engagement communications and necessary audit procedures are performed (PA 2340-1, para. 3).

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

Answer D is correct. Engagement objectives are broad statements developed by internal auditors that define intended engagement accomplishments (The IIA Glossary). Procedures are the means to reach conclusions related to the objectives. Evaluating whether cash receipts are adequately safeguarded is an objective because it states what the engagement is to accomplish.

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 A. 1 and 2 only. B. 1, 2, and 3. C. 2 only. D. 1 only.

Answer B is correct. "Adequate criteria are needed to evaluate controls. Internal auditors must ascertain the extent to which management has established adequate criteria to determine whether objectives and goals have been accomplished. If adequate, internal auditors must use such criteria in their evaluation. If inadequate, internal auditors must work with management to develop appropriate evaluation criteria" (Impl. Std. 2210.A3).

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. Preliminary survey. B. Field work. C. Examination and evaluation of evidence. D. Engagement program development.

Answer A is correct. Engagement planning should include performing, as appropriate, a survey to (1) become familiar with the activities, risks, and controls to identify areas for engagement emphasis and (2) invite client comments and suggestions from engagement clients (PA 2210.A1-1, para. 3). Among other things, the survey should include discussions with the engagement client (e.g., interviews with operating personnel) and documenting key control activities (including identifying performance standards).

The most appropriate use of an oral engagement communication is to communicate A. Conditions that demand immediate action. B. Matters that are not material. C. Complex matters to operating management when the possibility exists that misunderstanding would result from reducing them to writing. D. Sensitive matters to management when the chief audit executive does not want to commit them to writing.

Answer A is correct. Interim reports are written or oral and are used to communicate information that requires immediate attention. Therefore, the most appropriate use of an oral engagement communication would be in an interim report to communicate conditions that demand immediate action. The use of interim reports does not diminish or eliminate the need for a final report (PA 2410-1, para. 14).

Engagement work programs testing controls ordinarily must A. Reduce costly duplication of effort by ensuring that every aspect of an operation is examined. B. Be generalized so as to be usable at all locations of a particular department. C. Be generalized to fit all situations without regard to departmental lines. D. Be specifically designed for each operation evaluated.

Answer D is correct. A work program must be adapted to the specific needs of the engagement after the internal auditor establishes the engagement objectives and scope and determines the resources required. A pro forma (standard) work program is not appropriate for a complex or changing environment. Its stated objectives and procedures may no longer be relevant.

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

Answer D is correct. Possible objectives and scope for the engagement, the client personnel to whom the auditors need access, and the expected start and completion dates for the engagement are all appropriate matters for discussion at a pre-engagement meeting. The sampling plan cannot be drafted until risk is assessed and the engagement objectives are set.

You are conducting an engagement to evaluate the organization's marketing effort. You agreed to keep the marketing vice president informed of your progress on a regular basis. What method should be used for those progress reports? A. Oral or written interim reports. B. Written reports signed by the chief audit executive. C. Briefing by the appropriate marketing first-line supervisor. D. Copies of working paper summaries.

Answer A is correct. Interim reports are written or oral and may be transmitted formally or informally. Interim reports are used to communicate information that requires immediate attention, to communicate a change in engagement scope for the activity under review, or to keep management informed of engagement progress when engagements extend over a long period (PA 2410-1, para. 14).

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

Answer A is correct. Internal auditors must ascertain the extent to which management has established adequate criteria to determine whether objectives and goals have been accomplished (Impl. Std. 2210.A3). Thus, management is always responsible for establishing the criteria.

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

Answer A is correct. Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing, and resource allocations (Perf. Std. 2200).

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

Answer A is correct. Risk is the possibility that an event will occur having an impact on the achievement of objectives. Risk is measured in terms of impact and likelihood (The IIA Glossary).

The scope statement of an engagement communication should A. Identify the activities reviewed and describe the nature and extent of work performed. B. Define the standards, measures, or expectations used in evaluating engagement observations. C. Communicate the internal auditor's evaluation of the effect of the observations on the activities reviewed. D. Describe the engagement objectives and tell the reader why the engagement was conducted.

Answer A is correct. Scope statements identify the audited activities and may include supportive information such as time period reviewed and related activities not reviewed to delineate the boundaries of the engagement. They may describe the nature and extent of engagement work performed (PA 2410-1, para. 4).

The internal auditor-in-charge has just been informed of the next engagement, and the engagement team has been assigned. Select the appropriate phase for finalizing the engagement budget. A. After the completion of all field work. B. After the preliminary survey. C. During the initial planning meeting. D. During formulation of the long-range plan.

Answer B is correct. A survey permits an informed approach to planning and carrying out engagement work and is an effective tool for allocating the internal audit activity's resources where they can be used most effectively. Among other things, the results of the survey should include preliminary estimates of time and resource requirements. Thus, after the preliminary survey has been completed, the final engagement budget can be prepared.

Which of the following should not be one of the primary reasons why an internal auditor may communicate sensitive information outside the normal chain of command? A. The desire to stop the wrongful, harmful, or improper activity. B. The internal auditor does not agree with how the board or directors or management may correct the problem. C. A professional obligation requires disclosure of the activity to an outside party. D. Legal advice indicates that the internal auditor should disclose the sensitive information to an outside party.

Answer B is correct. An internal auditor who communicates sensitive information outside the chain of command should be motivated by the desire to stop the wrongful, harmful, or improper activity; legal advice; or a professional obligation. A personal disagreement is the least satisfactory reason.

Fact Pattern: Paragraph 1: The production department has the newest production equipment available because of a fire that required the replacement of all equipment. Paragraph 2: The members of the production department have become completely comfortable with the state-of-the-art technology over the past year and a half. As a result, the production department has become an industry leader in production efficiency and effectiveness. Paragraph 3: The production department produces an average of 25 units per worker per shift. The defect rate is 1%. Paragraph 4: The industry average productivity is 20 units per worker per shift. The industry defect rate is 3%. Which paragraph should be characterized as the attribute described in the Standards as "condition"? A. 1 B. 3 C. 4 D. 2

Answer B is correct. Condition is defined as the factual evidence that the internal auditor found in the course of the examination (the current state) (PA 2410-1, para. 7). Paragraph 3 describes the actual productivity of the firm.

Successful communication between the internal auditor and the engagement client partially depends on achieving appropriate emphasis so that both parties are aware of the most important points in their discussion. Which of the following approaches provides the most emphasis in an engagement communication? A. Key points embedded in discussion. B. Graphics, repetition, and itemization. C. Calm discussion in a conversational tone. D. Solid paragraphs and detailed appendices.

Answer B is correct. Graphic illustrations (e.g., pictures, charts, or graphs), oral and written repetition such as summaries, and itemized lists (bulleted or numbered) are good ways of emphasizing information.

One purpose of the exit meeting is for the internal auditor to A. Require corrective action. B. Review and verify the appropriateness of the engagement communication based upon client input. C. Review the performance of internal auditors assigned to the engagement. D. Present the final engagement communication to management.

Answer B is correct. Internal auditors discuss conclusions and recommendations with appropriate levels of management before the CAE issues the final engagement communications. This is usually accomplished during the course of the engagement or at post-engagement meetings (PA 2440-1, para. 1). Another technique is the review of draft engagement conclusions, observations, and recommendations by management of the activity reviewed. These discussions and reviews help ensure that there have been no misunderstandings or misinterpretations of fact by providing the opportunity for the engagement client to clarify specific items and to express views of the observations, conclusions, and recommendations (para. 2).

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. Information included in the engagement work program. B. Probability of significant noncompliance. C. Results of engagement procedures. D. Resources required.

Answer B is correct. Internal auditors must consider the probability of significant errors, fraud, noncompliance, and other exposures when developing assurance engagement objectives (Impl. Std. 2210.A2).

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

Answer B is correct. Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing, and resource allocations (Perf. Std. 2200). Identifying sufficient information to achieve engagement objectives is done during field work, not planning.

A docket is to a judge as what is to an auditor performing an engagement? A. Audit report. B. Work program. C. Audit documentation. D. Charter.

Answer B is correct. Internal auditors must develop and document work programs that achieve the engagement objectives (Perf. Std. 2240). Work programs establish the procedures for collecting, analyzing, interpreting, and documenting information during the engagement. During the engagement, each procedure is signed off to indicate that the work has been completed. Like a court docket, a work program is used to keep track of the events/workload (i.e., audit procedures/court cases) to be accomplished.

Which of the following should be identified as a deficiency by an engagement supervisor who is reviewing working papers? A. A letter to the engagement client outlining the scope of the engagement was recorded in the working papers. B. A draft communication concerning an engagement observation recorded in the working papers omitted the criteria used for evaluation. C. A memorandum recorded in the working papers explained why an engagement work program step was omitted. D. A memorandum recorded in the working papers explained why the time budget for a part of the engagement was exceeded.

Answer B is correct. Observations are included in engagement communications. According to PA 2410-1, observations have four attributes: criteria, condition, cause, and effect. Thus, omitting the criteria used in making an evaluation or verification results in a failure to support observations properly.

Which of the following is the best approach for obtaining feedback from engagement clients on the quality of internal audit work? A. Distribute questionnaires to selected engagement clients shortly before preparing the internal audit annual activity report. B. Provide questionnaires to engagement clients at the beginning of each engagement and request that the clients complete and return them after the engagements. C. Ask questions during the exit interviews and send copies of the documented responses to the clients. D. Call engagement clients after the exit interviews and send copies of the documented responses to the clients.

Answer B is correct. The client satisfaction survey should be provided to the client at the beginning of the engagement. This allows the client to gauge the internal audit activity's performance on specific measures during the engagement.

Communication skills are important to internal auditors. The internal auditor should be able to effectively convey all of the following to the engagement client except A. The evaluations based on a preliminary survey of an engagement client. B. Recommendations that are generated in relationship to a specific engagement client. C. The engagement objectives for a specific engagement client. D. The risk assessment used in selecting the area for engagement investigation.

Answer D is correct. Internal auditors need to be skilled in oral and written communications so that they can clearly and effectively convey such matters as engagement objectives, evaluations, conclusions, and recommendations (PA 1210-1, para. 1). The internal auditor's risk assessment is not specifically mentioned.

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

Answer B is correct. The engagement must be properly supervised to ensure objectives are achieved, quality is ensured, and staff is developed (Perf. Std. 2340). Supervision includes (1) ensuring the auditors possess the requisite knowledge, skills, and other competencies; (2) providing appropriate instructions during planning and approving the engagement program; (3) ensuring the approved engagement program is complete unless changes are justified and authorized; (4) determining working papers adequately support observations, conclusions, and recommendations; (5) ensuring communications are accurate, objective, clear, concise, constructive, and timely; (6) ensuring objectives are met; and (7) providing opportunities for developing internal auditors' knowledge, skills, and other competencies (PA 2340-1, para. 1). Hence, supervision is a control that applies to all aspects of engagements.

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. Creating working papers that document the engagement. B. Developing a written engagement work program. C. Expanding or altering engagement procedures if circumstances warrant. D. Applying the engagement work program to accomplish engagement objectives.

Answer B is correct. The engagement work program is the culmination of the planning process.

Which of the following is not an objective of the exit meeting for an engagement performed by the internal auditors? A. To resolve conflicts. B. To identify concerns for future engagements. C. To discuss the observations, conclusions, and recommendations. D. To identify management's actions and responses to the observations, conclusions, and recommendations.

Answer B is correct. The purpose of post-engagement meetings (exit meetings) is to help avoid misunderstandings or misinterpretations of fact by providing the opportunity for the engagement client to clarify specific items and express views of the observations, conclusions, and recommendations (PA 2440-1, para. 2). Identifying concerns for future engagements is thus not a purpose of the exit meeting.

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. Write the engagement work program. C. Establish initial engagement objectives. D. Assign internal audit personnel.

Answer B is correct. The survey allows the internal auditor to become familiar with the engagement client and therefore provides input to the work program.

Which of the following is most appropriate for inclusion in the summary of a final engagement communication? A. Reference to areas not covered by the engagement. B. Engagement client responses to recommendations. C. A concise statement of engagement observations. D. Discussion of recommendations given in prior years' engagement communications.

Answer C is correct. A signed report is issued after the engagement's completion. Summary reports highlighting engagement results are appropriate for levels of management above the engagement client (PA 2410-1, para. 15).

Avoiding unnecessary technical language is best associated with which quality of communication addressed in the Standards? A. Accurate. B. Concise. C. Clear. D. Complete.

Answer C is correct. Communications must be accurate, objective, clear, concise, constructive, complete, and timely (Perf. Std. 2420). Clear communications are easily understood and logical. Clarity can be improved by avoiding unnecessary technical language and providing all significant and relevant information (Inter. Std. 2420).

The manner in which data and evidence is gathered, evaluated, and summarized for presentation should be done with care and precision. Which quality of communications does this statement best describe? A. Objective. B. Constructive. C. Accurate. D. Timely.

Answer C is correct. Communications should be accurate, objective, clear, concise, constructive, complete, and timely (Perf. Std. 2420). Accurate communications are free from errors and distortions and are faithful to the underlying facts (Inter. Std. 2420).

Exit meetings serve to ensure the accuracy of the information used by an internal auditor. A secondary purpose of an exit meeting is to A. Agree to the appropriate distribution of the final engagement communication. B. Brief senior management on the results of the engagement. C. Improve relations with the engagement clients. D. Get immediate action on a recommendation.

Answer C is correct. Discussion of conclusions and recommendations with the engagement client not only provides a quality control review but is also a courtesy that enhances the internal auditor-client relationship. In addition, the exit meeting is an important aspect of the participative approach to internal auditing because it involves the client in the engagement process as well as in any recommended changes arising from the engagement.

A final communication issued by an internal auditor following an assurance engagement should contain an expression of opinion when A. The internal auditors' work is to be used by external auditors. B. A full-scope engagement has been conducted in an area. C. An opinion will improve communications with the readers of the communication. D. The area of the engagement is the financial statements.

Answer C is correct. Final communication of engagement results must, where appropriate, contain the internal auditor's opinion and/or conclusions (Impl. Std. 2410.A1). Improving communications with the reader satisfies the appropriateness criterion.

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. Ask the clerk about the weakness and determine immediately whether the observation should be communicated. B. Conduct a second interview after determining whether the weakness actually exists. C. Ask indirect questions that will help get more factual information relating to the potential weakness. D. Not mention the weakness, directly or indirectly, to avoid making the clerk uncomfortable.

Answer C is correct. Indirect questions may allow the internal auditor to obtain some information without making the clerk feel accused. An interviewee who has been put at ease and does not feel threatened is more likely to be cooperative.

Internal audit activity policy requires that final engagement communications not be issued without a management response. An engagement with significant observations is complete except for management's response. Evaluate the following courses of action and select the best alternative. A. Wait for management's response and then issue the engagement communication. B. Modify the policy to allow a specific time period for management's response. C. Issue an interim engagement communication regarding the important issues noted. D. Discuss the situation with the external auditors.

Answer C is correct. Interim reports are used to communicate information that requires immediate attention, to communicate a change in engagement scope for the activity under review, or to keep management informed of engagement progress when engagements extend over a long period. The use of interim reports does not diminish or eliminate the need for a final report (PA 2410-1, para. 14).

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. Recommendations of the engagement client's employees. C. Risks associated with the activities to be reviewed. D. The recipients of the final engagement communication.

Answer C is correct. Internal auditors establish engagement objectives to address the risks associated with the activity under review. For planned engagements, the objectives proceed and align to those initially identified during the risk assessment process from which the internal audit plan is derived (PA 2210-1, para. 1).

The scope section of an internal auditor's final engagement communication should identify A. The engagement techniques used. B. Any unresolved differences with engagement clients. C. Any limitations imposed. D. The sampling methodology employed.

Answer C is correct. Since limitations set the boundaries of the engagement, they must be identified in the scope section.

The chief audit executive is responsible for engagement supervision. The most important form of supervision during the field work phase of engagements involves A. Making sure that communications are accurate, objective, clear, concise, constructive, and timely. B. Appraising each internal auditor's performance at least annually. C. Ensuring that the approved engagement work program is completed unless changes are justified and authorized. D. Providing suitable instructions to subordinates at the outset of the engagement and approving the engagement work program.

Answer C is correct. Supervision includes ensuring the approved engagement program is completed unless changes are justified and authorized (PA 2340-1, para. 1). Execution of the work program requires supervision during field work. The other supervisory tasks generally are carried out before or after field work.

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. Determine the period covered. C. Determine to whom engagement results will be communicated. D. Conduct meetings with management responsible for the activity under review.

Answer C is correct. The CAE determines how, when, and to whom engagement results will be communicated (PA 2200-1, para. 5).

A relatively new internal auditor is completing a final engagement communication. The communication should most appropriately be signed by the A. Internal auditor and the manager of the activity under review to indicate that they concur with the report. B. Chair of the audit committee. C. Chief audit executive. D. Internal auditor because of a greater level of detailed knowledge of the report.

Answer C is correct. The CAE determines which internal auditor is authorized to sign the report (PA 2410-1, para. 15).

Several levels of management are interested in the results of an engagement performed in the marketing department. What is the best method of communicating the results of the engagement? A. Write detailed communications for each level of management. B. Discuss results with marketing management and issue a summary communication to senior management. C. Write a communication to the marketing management and give summary communications to other management levels. D. Discuss results with all levels of management.

Answer C is correct. The CAE distributes the final engagement communication to the management of the audited activity and to those members of the organization who can ensure engagement results are given due consideration and take corrective action or to ensure that corrective action is taken. Where required by the internal audit charter or organizational policy, the CAE also communicates to other interested or affected parties, such as external auditors and the board (PA 2440-1, para. 4).

Writing an engagement work program most likely occurs at which stage of the engagement? A. Subsequent to evaluating risk management and control systems. B. As the engagement is performed. C. During the planning stage. D. 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.

Answer C is correct. The engagement work program is the culmination of the planning stage.

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

Answer C is correct. The established scope must be sufficient to satisfy the objectives of the engagement (Perf. Std. 2220).

Before an assurance engagement can be performed, the auditor must identify appropriate criteria. The sources of such criteria are least likely to include A. Benchmarks for the leading firms in the industry. B. Historical cost information for the processes examined. C. Government regulations for the industry. D. Best practices for another industry.

Answer D is correct. Acceptable industry standards, standards developed by professions or associations, standards in law and government regulations, and other sound business practices are usually deemed to be appropriate criteria.

An internal auditor makes inquiries of the floor manager, observes inventory-counting procedures, and inspects warehouse equipment to determine whether management's goals are being met. These evidence-gathering procedures are performed in which of the following phases of an engagement? A. Conducting the preliminary survey. B. Establishing engagement objectives. C. Developing the engagement program. D. Field work.

Answer D is correct. Methods of gathering evidence, such as making inquiries, observing inventory, and inspecting equipment are used in the field work phase of the engagement. This phase follows the determination of engagement objectives and scope, risk assessment, and planning.

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.

Answer D is correct. Acceptable industry standards, standards developed by professions or associations, standards in law and government regulations, and other sound business practices are usually deemed to be appropriate criteria.

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. Determine best practices in this area and use them as the standard. C. Omit any comments on standards and the engagement client's performance in relationship to those standards because such an analysis would be meaningless. D. Seek agreement with management as to the criteria to be used to measure operating performance.

Answer D is correct. Adequate criteria are needed to evaluate controls. Internal auditors must ascertain the extent to which management has established adequate criteria to determine whether objectives and goals have been accomplished. If adequate, internal auditors must use such criteria in their evaluation. If inadequate, internal auditors must work with management to develop appropriate evaluation criteria (Impl. Std. 2210.A3).

According to the International Professional Practices Framework, which of the following is part of the minimum requirements for an engagement final communication? 1. Background information. 2. Purpose of the engagement. 3. Engagement scope. 4. Results of the engagement. 5. Summaries. A. 2, 4, and 5 only. B. 1, 3, and 5 only. C. 1, 2, and 3 only. D. 2, 3, and 4 only.

Answer D is correct. Although the format and content of the final engagement communications may vary by organization or type of engagement, they are to contain, at a minimum, the purpose, scope, and results of the engagement (PA 2410-1, para. 1).

Which of the following is an appropriate statement of an engagement objective? A. To observe the physical inventory count. 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 determine whether inventory stocks are sufficient to meet projected sales.

Answer D is correct. An engagement objective is a broad statement developed by internal auditors to define intended engagement accomplishments (The IIA Glossary). Determining whether inventory stocks are sufficient to meet projected sales is an engagement objective because it defines an audit accomplishment, not an engagement procedure. A procedure is designed to gather information that corroborates and documents conclusions about objectives.

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. Alter the scope of the engagement to focus on activities associated with air emissions. B. Share extensive personal knowledge with the EHS manager. C. Report potential violations in this area to the appropriate regulatory agency. D. Take note of the weakness and direct additional questions to determine the potential effect of the lack of knowledge.

Answer D is correct. An engagement's objectives and procedures address the risks associated with the activities under review. The preliminary risk assessment identifies significant activities requiring examination as potential objectives. Thus, the auditor ensures that the field work is designed to identify potential instances of noncompliance. In the closing conference, the auditor should recommend additional training for the EHS manager.

The effectiveness of an internal auditing engagement is related to the results and the action taken on those results. Which of the following activities contributes to engagement effectiveness? A. Adhering to a time budget. B. Having budget revisions approved by the project supervisor. C. Preparing weekly time reports. D. Conducting an exit meeting with engagement clients.

Answer D is correct. An exit meeting (post-engagement meeting) is an opportunity for discussion of engagement results, i.e., observations, conclusions, and recommendations. The effectiveness of an engagement is enhanced by the exit meeting because it provides the engagement client an opportunity to clarify specific items and to express views of the observations, conclusions, and recommendations.

During the working-paper 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. Eliminate any cross-references to other working papers because the system is unclear. B. Prepare a working paper to indicate that the full scope of the engagement was carried out. C. Familiarize himself or herself with the sequence of working papers so that (s)he will be able to answer questions about the conclusions stated in the final engagement communication. D. Provide a cross-referencing system that shows the relationship among observations, conclusions, recommendations, and the related facts.

Answer D is correct. Cross-referencing is important because it simplifies review either during the engagement or subsequently by creating a trail of related items through the working papers. It thus facilitates preparation of the final engagement communication and later engagements for the same engagement client.

When a final engagement communication contains a significant error, the Standards require the chief audit executive to A. Communicate corrected information to all those who might have relied on the original communication. B. Issue a written report to individuals who received the original communication. C. Issue a written report to individuals who can ensure that engagement results are given due consideration. D. Communicate corrected information to all individuals who received the original communication.

Answer D is correct. If a final engagement communication contains a significant error or omission, the CAE must communicate corrected information to all who received the original communication (Perf. Std. 2421). Hence, the Standards do not require a written report.

Which of the following items does not constitute evidence of proper supervision of an internal auditing engagement? A. 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. B. 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. 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. 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.

Answer D is correct. Supervision includes ensuring the approved engagement program is carried out unless changes are justified and authorized (PA 2340-1, para. 1). Accordingly, the deviations from the planned engagement work program by the senior internal auditor should be approved by a supervisor.

Final engagement communications should, at a minimum, contain the purpose, scope, and results of the engagement. Engagement observations and recommendations should be based on four attributes: criteria, condition, cause, and effect. The cause can best be described as A. Resultant evaluations of the effects of the observations and recommendations. B. Factual evidence that the internal auditor found. C. The risk or exposure because of the condition found. D. Reason for the difference between the expected and actual conditions.

Answer D is correct. The cause attribute is the reason for the difference between the expected and actual conditions (PA 2410-1, para. 7). Cause provides the answer to the question "Why?" and should be the basis for corrective action.

An internal auditor's final engagement communication contains the statement: "The training department expended $100,000 on the development of a training course that cannot be used." That statement is an example of A. Criteria. B. Cause. C. Recommendation. D. Effect.

Answer D is correct. The effect attribute is the risk or exposure the organization and/or others encounter because the condition is not consistent with the criteria (the impact of the difference) (PA 2410-1, para. 7). The description of the needless expenditure of $100,000 fulfills this attribute.