ac 413 - test 2
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 appropriate standard or criterion to support engagement observations, conclusions, and recommendations 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 has set an engagement objective of ascertaining the reasonableness of the increases in rental revenue resulting from operating costs passed on to the lessee by the landlord. the internal auditor has already inspected the lease contract to determine that such costs are allowed. which of the following engagement procedures will best meet this objective? a. observation b. inquiry c. inspection of documents d. analytical review
d. analytical review computation of the rates of increase of operating costs passed through to the lessee from period to period in relation to inflation rates provide an initial view of the reasonableness of the increases
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.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. B.A vendor's original invoice stamped "PAID" and referenced to a check number. C.An accounts payable subsidiary ledger that shows payment of the invoice. D.An entry in the engagement client's cash disbursements journal supported by a voucher package containing the vendor's invoice.
A.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. A canceled check included in a cutoff bank statement received directly from the bank provides external as well as internal documentary information. The information was generated internally but passed through outsiders who confirmed it (honored the check) before sending it directly to the internal auditor. Such information is very persuasive.
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.Provide support for the internal audit activity's financial budget. C.Provide control over workpapers. D.Permit the audit committee to review observations, conclusions, and recommendations.
A.Facilitate quality assurance reviews. As a means of developing internal audit staff, supervisory review of workpapers may be a basis for assessing the internal audit activity's quality assurance and improvement program. Thus, they facilitate quality assurance reviews.
An internal auditor has uncovered illegal acts committed by a member of senior management. Such information A.May be disclosed in a separate communication and distributed to the board. B.Must be immediately reported to the appropriate government authorities. C.Should be excluded from the internal auditor's engagement communication and discussed orally with the senior manager. D.May be disclosed in a separate communication and distributed to all senior management.
A.May be disclosed in a separate communication and distributed to the board. Certain information is not appropriate for disclosure to all report recipients because it is privileged, proprietary, or related to improper or illegal acts. Disclose such information in a separate report. Distribute the report to the board if the conditions being reported involve senior management.
The primary objective of maintaining security over workpapers is to A.Prohibit unauthorized changes or removal of information. B.Facilitate engagements by external auditors. C.Facilitate subsequent engagements in the same department. D.Prohibit engagement clients from seeing workpapers.
A.Prohibit unauthorized changes or removal of information. The workpapers are essential to the proper functioning of the internal audit activity. Among many other purposes, they document the information obtained, the analyses made, and the support for the conclusions and engagement results. Unauthorized changes or removal of information would seriously compromise the integrity of the internal audit activity's work. For this reason, the chief audit executive must ensure that workpapers are kept secure.
The primary objective of maintaining security over workpapers is to A.Prohibit unauthorized changes or removal of information. B.Facilitate engagements by external auditors. C.Prohibit engagement clients from seeing workpapers. D.Facilitate subsequent engagements in the same department.
A.Prohibit unauthorized changes or removal of information. The workpapers are essential to the proper functioning of the internal audit activity. Among many other purposes, they document the information obtained, the analyses made, and the support for the conclusions and engagement results. Unauthorized changes or removal of information would seriously compromise the integrity of the internal audit activity's work. For this reason, the chief audit executive must ensure that workpapers are kept secure.
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.Purchase requisitions. C.Vendors' statements. D.Purchase orders.
A.Vendors' invoices. The vendors' invoice confirms that the proper amount due has been recorded. A vendor's invoices provide the best source of information about additions to inventory. Vendors' invoices provide an external source of information regarding shipments to the engagement client. These amounts should be equal to quantities added to inventory (after possible adjustment for items returned to the vendor because of damage, etc.).
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 a communication to the marketing management and give summary communications to other management levels. B.Discuss results with all levels of management. C.Discuss results with marketing management and issue a summary communication to senior management. D.Write detailed communications for each level of management.
A.Write a communication to the marketing management and give summary communications to other management levels. 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.
A questionnaire consists of a series of questions relating to controls normally required to prevent or detect errors and fraud that may occur for each type of transaction. Which of the following is not an advantage of a questionnaire? A.The completed questionnaire provides documentation that the internal auditor became familiar with internal control B.A questionnaire is flexible in design and application. C.A questionnaire provides a framework that minimizes the possibility of overlooking aspects of internal control. D.A questionnaire can be easily completed.
B.A questionnaire is flexible in design and application. Questionnaires are designed to be inflexible in that the responses to certain questions are expected. Questionnaires are not easily adapted to unique situations. The approach that offers the most flexibility is a narrative memorandum describing internal control. The next most flexible approach is a flowchart.
In an operational audit, the internal auditors discovered an increase in absenteeism. Accordingly, the chief audit executive decided to identify information about workforce morale. To achieve this engagement objective, the internal auditors must understand that A.Only outcomes that are directly quantifiable can be reliably analyzed. B.Reliable information may be obtained about morale factors such as job satisfaction. C.Morale cannot be reliably analyzed. D.Morale is always proportional to compensation.
B.Reliable information may be obtained about morale factors such as job satisfaction. Reliable information is the best information attainable through the use of appropriate engagement techniques (Inter. Std. 2310). Such information need not consist only of quantifiable outcomes, such as rates of workforce turnover and absenteeism. Reliable information may be identified about such difficult-to-measure things as attitudes toward supervisors, other workers, and compensation. For example, surveys may produce statistically valid information about job satisfaction.
Which of the following procedures is the least effective in gathering information about the nature of the processing and potential problems? A.Interview supervisors in the claims department to find out more about the procedures used, and the rationale for the procedures, and obtain their observations about the nature and efficiency of processing. B.Send an email message to all clerical personnel detailing the alleged problems and request them to respond. C.Interview selected clerical employees in the claims department to find out more about the procedures used, and the rationale for the procedures, and obtain their observations about the nature and efficiency of processing. D.Distribute a questionnaire to gain a greater understanding of the responsibilities for claims processing and the control procedures utilized.
B.Send an email message to all clerical personnel detailing the alleged problems and request them to respond. Sending an email message to clerical staff is the least effective communication and information-gathering method. It is impersonal and alleges inefficiencies before evidence has indicated that the problems are caused by inefficiencies in processing. This impersonal method might have been useful if the auditor wished to solicit open responses, but not enough guidance is given to encourage that kind of response.
When actions have not been taken by management on reported engagement observations, conclusions, and recommendations, the internal auditor should A.Conclude that the engagement observations, conclusions, and recommendations are insignificant and no corrective action is necessary. B.Withhold communications about other related engagement observations, conclusions, and recommendations until corrective action is taken. C.Determine whether management or the board has assumed the risk for not taking corrective action. D.Develop and implement a plan of corrective action.
C.Determine whether management or the board has assumed the risk for not taking corrective action. The internal auditor determines whether the desired results were achieved or if senior management or the board has assumed the risk of not taking action or implementing the recommendation
The most persuasive information regarding the asset value of newly acquired computers is A.Physical examination. B.Inquiry of management. C.Documentation prepared externally. D.Observation of engagement client's procedures.
C.Documentation prepared externally. Information is considered more or less persuasive depending on how much control the engagement client has over it. The most persuasive information relevant to the valuation assertion is documentation that is prepared externally.
Which of the following situations is most likely to be the subject of a written interim report to the engagement client? A.The auditors have decided to substitute survey procedures for some of the planned detailed review of certain records. B.The engagement program has been expanded because of indications of possible fraud. C.Open burning at a subsidiary plant poses a prospective violation of pollution regulations. D.Seventy percent of the planned audit work has been completed with no significant adverse observations.
C.Open burning at a subsidiary plant poses a prospective violation of pollution regulations. Interim reports are oral or written 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. A possible violation of pollution regulations requires immediate attention.
Which of the following types of tests is the most persuasive if an internal auditor wants assurance of the existence of inventory stored in a warehouse? A.Obtaining written confirmation from management. B.Examining warehouse receipts contained in the engagement client's records. C.Physically observing the inventory in the warehouse. D.Examining the shipping documents that support recorded transfers to and from the warehouse.
C.Physically observing the inventory in the warehouse. Direct knowledge obtained through the internal auditor's physical observation is the most reliable information about the existence of the inventory.
Recommendations should be included in audit reports to A.Ensure that problems are resolved in the manner suggested by the auditor. B.Minimize the amount of time required to correct audit findings. C.Provide management with options for addressing audit findings. D.Guarantee that audit findings are addressed, regardless of cost.
C.Provide management with options for addressing audit findings. Recommendations are based on the internal auditor's observations and conclusions. They call for action to correct existing conditions or improve operations and may suggest approaches to correcting or enhancing performance as a guide for management in achieving desired results.
An engagement communication relating to an engagement performed at a bank categorizes observations as "deficiencies" for major problems and "other areas for improvement" for less serious problems. Which of the following excerpts is properly included under "other areas for improvement?" A.Many secured loans did not contain hazard insurance coverage for tangible property collateral. B.Loan officers also prepare the cashier's checks for disbursement of the loan proceeds. C.The bank is incurring unnecessary postage cost by not combining certain special mailings to checking account customers with the monthly mailing of their statements. D.At one branch a large amount of cash was placed on a portable table behind the teller lines.
C.The bank is incurring unnecessary postage cost by not combining certain special mailings to checking account customers with the monthly mailing of their statements. The attributes of engagement observations include effect, the risk or exposure, because the condition is inconsistent with the criteria. Moreover, the internal auditor must determine the degree of the risk or exposure. That the bank incurs unnecessary postage expense by not combining mailings warrants mentioning but does not constitute a serious risk or exposure.
The chief audit executive should ensure follow-up of prior engagement observations and recommendations A.Unless management has accepted the recommendation. B.Unless the engagement work schedule does not allow time for follow-up. C.To determine if corrective action was taken and is achieving the desired results. D.Unless management rejected the recommendation in its initial response.
C.To determine if corrective action was taken and is achieving the desired results. The internal auditor determines whether the desired results were achieved or if senior management or the board has assumed the risk of not taking action or implementing the recommendation.
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.An entry in the engagement client's cash disbursements journal supported by a voucher package containing the vendor's invoice. C.A vendor's original invoice stamped "PAID" and referenced to a check number. D.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.
D.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. A canceled check included in a cutoff bank statement received directly from the bank provides external as well as internal documentary information. The information was generated internally but passed through outsiders who confirmed it (honored the check) before sending it directly to the internal auditor. Such information is very persuasive.
The most appropriate use of an oral engagement communication is to communicate A.Complex matters to operating management when the possibility exists that misunderstanding would result from reducing them to writing. B.Matters that are not material. C.Sensitive matters to management when the chief audit executive does not want to commit them to writing. D.Conditions that demand immediate action.
D.Conditions that demand immediate action. Interim reports are oral or written 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.
To enhance communications with top management, some internal audit activities include a summary report with each written engagement communication. What information should be included in such a summary report? A.Only that information needed to resolve the disagreements between the engagement clients and the internal auditors. B.The internal auditor's assessment of the adequacy of internal controls. C.The same information as the written report but in diagram form. D.Highlights of the engagement results.
D.Highlights of the engagement results. Summary reports highlighting engagement results are appropriate for levels of management above the engagement client and can be issued separately from or in conjunction with the final report.
In a well-developed management environment, the internal audit activity A.Conducts initial audits of new computer systems after they have begun operating. B.Interfaces primarily with senior management, minimizing interactions with line managers who are the subjects of internal audit work. C.Focuses primarily on asset management and report results to the audit committee. D.Reports the results of an audit engagement to line management as well as to senior management.
D.Reports the results of an audit engagement to line management as well as to senior management. Internal auditors discuss conclusions and recommendations with appropriate levels of management before the chief audit executive (CAE) issues the final engagement communications. 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.
A workpaper is complete when it A.Is clear, concise, and accurate. B.Contains all of the attributes of an observation. C.Complies with the internal audit activity's format requirements. D.Satisfies the engagement objective for which it is developed.
D.Satisfies the engagement objective for which it is developed. engagement workpapers, among other things, document whether engagement objectives were achieved
An engagement communication relating to an engagement performed at a bank categorizes observations as "deficiencies" for major problems and "other areas for improvement" for less serious problems. Which of the following excerpts is properly included under "other areas for improvement?" A.Loan officers also prepare the cashier's checks for disbursement of the loan proceeds. B.At one branch a large amount of cash was placed on a portable table behind the teller lines. C.Many secured loans did not contain hazard insurance coverage for tangible property collateral. D.The bank is incurring unnecessary postage cost by not combining certain special mailings to checking account customers with the monthly mailing of their statements.
D.The bank is incurring unnecessary postage cost by not combining certain special mailings to checking account customers with the monthly mailing of their statements. The attributes of engagement observations include effect, the risk or exposure, because the condition is inconsistent with the criteria. Moreover, the internal auditor must determine the degree of the risk or exposure. That the bank incurs unnecessary postage expense by not combining mailings warrants mentioning but does not constitute a serious risk or exposure.
a relatively new internal auditor is completing a final engagement communication. the communication should most appropriately by signed by the a. chief audit executive b. chair of the audit committee c. internal auditor and the manager of the activity under review to indicate that they concur with the report d. internal auditor because of a greater level of detailed knowledge of the report
a. chief audit executive the CAE determines which internal auditor is authorized to sign the report
avoiding unnecessary technical language is best associated with which quality of communication addressed in the Standards? a. clear b. accurate c. concise d. complete
a. clear 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).
vouching entails verifying recorded amounts by examining the underlying documents from the _____ documents to the ______ documents a. final;original b. final;previous c. original;final d.original;subsequent
a. final;original vouching entails verifying recorded amounts by examining the underlying documents from the final documents to the original documents. the engagement objective of working backward is to provide information that recorded amounts reflect valid transactions. vouching supports the existence or occurrence assertion. vouching is irrelevant to the completeness assertion, because the existence of records of some transactions does not prove that all transactions were recorded
an internal auditor has set up 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. observation c. inspection of documents d. analytical review
a. inquiry by interviewing selected individuals about the causes of inefficiencies, the internal auditor can expect to obtain input as to the existence and seriousness of personality conflicts that inhibit effective work
an internal auditor traces copies of sales invoices to shipping documents to determine that a. sales that are billed were also shipped b. the subsidiary accounts receivable ledger was updated c. shipments to customers were also recorded as receivables d. customer shipments were billed
a. sales that are billed were also shipped the process described is tracing. it begins with a triggering event and determines whether the result was proper. if the invoices in the sample can be correctly matched with shipping documents, some assurance is given that items billed to customers are actually shipped
Successful consultative communication in an internal auditing engagement is partially based on feedback from engagement clients about internal auditors' actions during the engagement. This feedback A.Should go to both management and the internal auditors to ensure business value is being added. B.Should go only to senior management as a means of reviewing the internal auditors. C.Should go only to the internal auditors to help them improve their performance D.Will keep clients on the defensive regarding the internal auditors.
a. should go to both management and the internal auditors to ensure business value is being added Feedback should go to both management and the internal auditors to ensure the accountability of the internal audit activity. The feedback process is a way of judging the internal auditors' performance, improving future engagements by identifying areas of weak performance, bettering internal auditor-client relations through a greater sense of participation, minimizing conflicts, and helping clients to understand the difficulties faced by the internal auditors.
According to the Standards, final engagement communications should be distributed to those members of the organization who are able to ensure that engagement results are given due consideration. For higher-level members of the organization, that requirement can usually be satisfied with a. summary reports b. oral reports c. final written reports only d. interim reports
a. summary reports Summary reports highlighting engagement results are appropriate for levels of management above the engagement client and can be issued separately from or in conjunction with the final report. Thus, summary written reports are usually intended for senior management or the board.
the chief audit executive should ensure follow up of a prior engagement observations and recommendations a. to determine if corrective action was taken and is achieving the desired results b. unless management rejected the recommendation in its initial response c. unless management has accepted the recommendation d. unless the management work schedule does not allow time for follow-up
a. to determine if corrective action was taken and is achieving the desired results The internal auditor determines whether the desired results were achieved or if senior management or the board has assumed the risk of not taking action or implementing the recommendation.
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.Time report. B.Assignment board. C.Weekly status report. D.Time budget.
b. assignment board An assignment board is a cork board that uses assignment slips and numbered tack heads to display the scheduled engagements weekly for up to a year. It provides an overview of which staff members are working on each project and is therefore of minimal assistance in the actual supervision of a specific engagement.
cash receipts should be deposited on the day of receipt or the following business day. select the most appropriate engagement procedure to determine that cash is promptly deposited. a. review the functions of cash receiving and disbursing for proper segregation of duties b. compare the daily cash receipts totals with the bank deposits c. review cash register tapes prepared for each sale d. review the functions of cash handling and maintaining accounting records for proper segregation of duties
b. compare the daily cash receipts totals with the bank deposits
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.Cause. B.Criteria. C.Effect. D.Condition.
b. criteria criteria are the standards, measures, or expectations used in making an evaluation and/or verification (the correct state). The written procedures represent the standards (criteria) against which an observation concerning segregation of responsibility should be measured.
which of the following statements is an engagement objective? a. analyze the pattern of any cash shortages b. evaluate whether cash receipts are adequately safeguarded c. recompute each month's bank reconciliation d. observe the deposit of the day's cash receipts
b. evaluate whether cash receipts are adequately safeguarded 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.
an internal auditor has set an engagement objective of determining whether mail room staff is fully used. which of the following engagement techniques will best meet this objective? a. inspection of documents b. observation c. analytical review d. inquiry
b. observation by observing mail room operations at various days of the week, the internal auditor can note whether incoming and outgoing mail backlogs exist and whether mail room staff are busy on mail activities, idle, or working on other projects
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
b. review and verify the appropriateness of the engagement communication based upon client input the primary purpose of an exit meeting is to present audit findings. a secondary purpose, among others, is to review and verify the appropriateness of the engagement communication based upon client input
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.Not sufficient, reliable, or relevant. B.Sufficient, reliable, and relevant. C.Relevant but not sufficient or reliable. D.Sufficient but not reliable or relevant.
b. sufficient, reliable, and relevant The bank deposits can be verified by examining bank statements obtained directly from the bank. Information obtained from an independent source is usually more reliable than information secured solely within the entity. Moreover, it is obviously relevant to the issue of whether cash receipts are deposited intact. A reasonable internal auditor should judge that the comparison of the organization's records with independently obtained bank statements is persuasive of the proposition that cash receipts are not deposited intact. Thus, the information is also sufficient.
The engagement team leader is least likely to have a primary role in A.Allocating budgeted engagement hours among assigned staff. B.Updating the permanent files .C.Reviewing the workpapers. D.Preparing the critique sheet for the engagement.
b. updating the permanent files The engagement team leader (sometimes called a senior) is responsible for planning the engagement, coordinating the staff, and supervising the work. Updating the permanent files is a task most likely performed by the staff.
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. assign internal audit personnel b. write the engagement work program c. conduct field work d. establish initial engagement objectives
b. write the engagement work program the survey allows the internal auditor to become familiar with the engagement client and therefor provides input to the work program
Which of the following activities would not be appropriate for a new internal auditor with minimal experience to perform during an audit engagement of a new system implementation? A.Prepare supporting test documentation. B.Perform tests. C.Communicate test results to the audit client. D. verify test results
c. communicate test results to the audit client Internal auditors must communicate the results of engagements (Perf. Std. 2400). The CAE, auditor-in-charge of the engagement, or other auditor with sufficient experience communicates results to the engagement client. An internal auditor with minimal experience is not likely to be the auditor-in-charge and should not communicate test results to the audit client.
to determine whether credit controls are inconsistently applied, preventing valid sales to creditworthy customers, the internal auditor should: a. confirm current accounts receivable b. trace postings on the accounts receivable ledger c. compare credit histories for those receiving credit and those denied credit d. analyze collection rates and credit histories
c. compare credit histories for those receiving credit and for those denied credit credit policy should maximize profits by balancing bad debt losses and the increase in sales from derived from granting credit. one concern in an engagement to review credit management is whether credit policies and procedures are fairly administered
management has requested that the internal auditor investigate the possibility that a purchasing agent is receiving kickbacks. which of the following procedures is least effective in addressing management's concern? a. take statistical sample of goods purchased and compare purchase prices for goods with those of other sources of similar goods, such as other organizations or catalogs b. analyze, by purchasing agent, all increases in cost of procured goods from specific vendors c. confirm all contract terms with vendors d. observe any changes in the lifestyles or individual consumption habits or the purchasing agents involved
c. confirm all contact terms with vendors confirming contact terms is the least useful procedure because the contract terms are already known. the confirmation would have to be expanded to inquire as to whether the purchasing agent has pressured vendors to make kickbacks. that approach is useful only if kickbacks were initiated by the purchasing agent rather than the vendor
to determine whether refunds granted to customers were properly approved, an internal auditor should vouch accounts receivable entries to a. sales invoice b. remittance advices c. credit memos d. shipping documents
c. credit memos the auditor wants to verify that customer refunds are properly supported by triggering events, i.e., vouching. the proper triggering event for a refund is an approved credit memo
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. performing interviews b. developing questionnaires c. determining the largest risk of financial statement misstatement d. all of the answers are appropriate techniques
c. determining the largest risk of financial statement misstatement determining potential misstatements is not the objective of an operational audit. additionally, a final risk analysis is developed at a later time in the audit, not during the preliminary survey. a preliminary risk assessment is appropriate during the stage.
which of the following actions constitutes a violation of confidentiality concept regarding workpapers? an internal auditor a. shows workpapers on occasion b. takes workpapers to his or here hotel room overnight c. misplaces workpapers occasionally d. allows the external auditor to copy workpapers
c. misplaces workpapers occasionally The internal audit activity controls engagement workpapers and provides access to authorized personnel only. By misplacing workpapers occasionally, the internal auditor is thus violating the confidentiality concept.
To determine the sufficiency of information regarding interpretation of a contract, an internal auditor uses A.The best obtainable information. B.Subjective judgments. C.Objective evaluations. D.Logical relationships between information and issues.
c. objective evaluations Sufficient information is factual, adequate, and convincing so that a prudent, informed person would reach the same conclusions as the auditor (Inter. Std. 2310). Because the internal auditor must avoid distortion by personal feelings, prejudices, or interpretations, this judgment must be objective.
which of the substantive field work procedures presented below provides the best information about completeness of recorded revenues? a. vouching charges made to the accounts receivable subsidiary ledger to supporting shipping records b. vouching shipping records to the customer order file c. reconciling shipping records to recorded sales d. reconciling the sales journal to the general ledger control account
c. reconciling shipping records to recorded sales the completeness assertion relates to whether all transactions that should be presented are included. to test this assertion with regard to revenues from sales of goods shipped, the internal auditor might trace shipping documents documents to sales data to determine whether items shipped have been recorded as revenues
when reviewing a report prepared by an internal auditor who has a personal friend employed in the area being audited, a chief audit executive's primary focus would be to ensure which of the following? A.The report is clearly worded and avoids unnecessary detail, redundancy, and wordiness. B.The report is easily understood and findings are presented in a logical manner. C.The report is fair, impartial, and unbiased. D.The report is free from errors and misstatements.
c. the report is fair, impartial, and unbiased Communications must be objective (Perf. Std. 2420). "Objective communications are fair, impartial, and unbiased and are the result of a fair minded and balanced assessment of all relevant facts and circumstances" (Inter. Std. 2420). Moreover, "[i]nternal auditors must have an impartial, unbiased attitude and avoid any conflict of interest" (Attr. Std. 1120). A conflict of interest involves a competing professional or personal interest (Inter. Std. 1120). An example of an objectivity impairment is auditing an area where a relative or close friend is employed (IG 1130). Objectivity also is an ethical principle described in The IIA's Code of Ethics and the Core Principles for the Professional Practice of Internal Auditing.
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 receipt of an invoice to put new vendors on the master file b. the use of purchase orders for all purchases c. the use of change analysis and trend analysis of buyer or vendor activity d. periodically surveying vendors regarding potential buyer conflict of interest
c. the use of change and trend analysis of buyer and vendor activity the abrupt increase in business awarded to the vendors will be indicated by change and trend analysis
a transportation department maintains its vehicle inventory and maintenance records in a database. which of the following audit procedures is most appropriate for evaluating the accuracy of the databases information? a. use program tracing to show how, and in what sequence, program instructions are processed in the system b. stimulate normal processing by using test programs c. verify a sample of the records extracted from the database with supporting documentation d. submit batches of test transactions through the current system and verify with expected results
c. verify a sample of the records extracted from the database with supporting documentation verifying is a process of corroboration and comparison, for example, of one document or oral statement with another; a general ledger balance with the detail in the subsidiary ledger; a manager's approval with an authorizing directive issued by a higher level of management, or a purchase with a purchase requisition, an allowed amount (such as a bill of materials), production schedule, or receiving report. verifying that recorded information agrees with the supporting documents is the most often used technique for testing the accuracy of information maintained by a system, whether manual or automated
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. select a judgmental sample of requisitions and verify that each one is signed by the fleet manager c. count the number of tires on hand and trace them to the related receiving reports d. determine whether the number of tires purchased can be reconciled to maintenance records
d. determine whether the number of tires purchased can be reconciled to maintenance records the fleet manager both requisitions and receives the tires, providing an opportunity for fraud. the internal auditor should determine whether tires purchased have been used on company vehicles rather than diverted to another purpose
Standardized workpapers are often used, chiefly because they allow workpapers to be prepared more A.Accurately. B.Professionally. C.Neatly. D.Efficiently.
d. efficiently standardized engagement workpapers improve the efficiency and consistency of the engagement process
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.Interviewing people. B.Examining records. C.Computing variances. D.Observing conditions.
d. observing conditions Physical information results from the verification of the actual existence of things, activities, or individuals by observation, inspection, or count. It may take the form of photographs, maps, charts, or other depictions.
Fact Pattern: Bank management suspects that a bank loan officer frequently made loans to fictitious entities, disbursed loan proceeds to personally established accounts, and then let the loans go into default. Some pertinent facts about the loan officer include: A high standard of living, explained as the result of sound investments and not taking vacations; An expensive personal car obtained through business contacts; Gasoline and repair bills submitted for a car assigned by the bank that are higher than the organization's average (mileage logs were submitted on a quarterly basis); and Marked annoyance with questions from internal auditors. the extent of loans made to fictitious borrowers by the loan officer is least likely to be discovered by: a. external audit of loan files b. analyses of the number of loans made by each loan officer c. analysis of total monetary volume of loans by loan officer d. reconciliation of total loans outstanding to the general ledger balance
d. reconciliation of total loans outstanding to the general ledger balance reconciling outstanding loans to the general ledger will not detect fraud because the fraudulent loans will be properly accounted for. the loan officer received the loans by manipulating actual loan documents, not by merely taking the money
which of the following is an appropriate objective in an engagement to review a personnel department? determining whether a. an equitable training program exists the provides all employees with approximately the same amount of training each year b. hourly employees are being paid only for hours actually worked as indicated by time cards or similar reports c. recruitment is being delegated to the various departments that have personnel needs d. reference checks of prospective employees are being performed
d. reference checks of prospective employees are being performed An effective personnel function is necessary for hiring, training, and monitoring human resources. One purpose of this function is to recruit, select, hire, train, supervise, and evaluate individuals who are suitable in light of job requirements, job descriptions, and job specifications (the abilities needed for particular jobs). In a review of this function, an appropriate objective is to determine whether the selection process is being properly performed. Thus, a potential employee's references should be checked to determine whether (s)he is truthful and has the desired qualifications.
A workpaper is complete when it A.Contains all of the attributes of an observation. B.Complies with the internal audit activity's format requirements. C.Is clear, concise, and accurate. D.Satisfies the engagement objective for which it is developed.
d. satisfies the engagement objective for which it is developed engagement workpapers, among other things, document whether engagement objectives were achieved
