Chapter 1: Introduction to Internal Auditing

1. AVF Company's new CFO has asked the company's CAE to meet with him to discuss the role of the internal audit function. The CAE should inform the CFO that the overall responsibility of internal auditing is to: a. Serve as an independent assurance and consulting activity designed to add value and improve the company's operations. b. Assess the company's methods for safeguarding its assets and, as appropriate, verify the existence of the assets. c. Review the integrity of financial and operating information and the methods used to accumulate and report information. d. Determine whether the company's system of internal controls provides reasonable assurance that information is effectively and efficiently communicated to management.

1. A is the best answer. This answer is most closely aligned with The IIA's definition of internal auditing. Per the definition, internal auditing comprises assurance and consulting activities and is designed to add value and improve an organization's operations. The other answers may represent appropriate activities for an internal audit function, but they do not represent its overall responsibility.

2. Which of the following statements is not true about business objectives? a. Business objectives represent targets of performance. b. Establishing meaningful business objectives is a prerequisite to effective internal control. c. Establishing meaningful business objectives is a key component of the management process. d. Business objectives are management's means of employing resources and assigning responsibilities.

2. D is the best answer. An organization's strategy, not its objectives, is management's means of employing resources and assigning responsibilities. It defines how management plans to achieve the organization's objectives.

3. Within the context of internal auditing, assurance services are best defined as: a. Objective examinations of evidence for the purpose of providing independent assessments. b. Advisory services intended to add value and improve an organization's operations. c. Professional activities that measure and communicate financial and business data. d. Objective evaluations of compliance with policies, plans, procedures, laws, and regulations.

3. A is the best answer. Assurance services are defined in the glossary to the Standards as "an objective examination of evidence for the purpose of providing an independent assessment on governance, risk management, or control processes for the organization. Examples may include financial, performance, compliance, system security, and due diligence engagements."

4. Internal auditors must have competent interpersonal skills. Which of the following does not represent an attribute of interpersonal skills? a. Communication. b. Leadership. c. Project management. d. Team capabilities.

4. C is the best answer. Project management skills are important, but according to The IIA's Internal Auditor Competency Framework, this attribute falls in the Tools and Techniques competency category. The other three are all part of the Interpersonal Skills competency category.

5. While planning an internal audit, the internal auditor obtains knowledge about the auditee to, among other things: a. Develop an attitude of professional skepticism about management's assertions. b. Develop an understanding of the auditee's objectives and risks. c. Make constructive suggestions to management concerning internal control improvements. d. Evaluate whether misstatements in the auditee's performance reports should be communicated to senior management and the audit committee.

5. B is the best answer. Internal auditors need to develop an understanding of the auditee's objectives and risks during the planning stages of an engagement. The internal auditor will use the auditee's business objectives, together with the risks that threaten those objectives, as a framework for defining the desired outcomes of the engagement. The other answers may be part of an assurance engagement, but understanding the auditee would not be sufficient for the internal auditors to meet these objectives.