Auditing 2
The extent of supervision required will depend on all of the following EXCEPT: Complexity of the engagement Budget for internal auditors Proficiency of internal auditors Experience of internal auditors
Budget for internal auditors
Purchasing fraud risks include all of the following EXCEPT: Buying goods or services at market rates Buying goods or services that are overpriced Buying goods or services for personal use Buying goods or services that are non-existent
Buying goods or services at market rates
The major objective of most bid splitting schemes is Limiting or eliminating competitive bids Extortion Unapproved conflict of interest Illegal Gratuities
Limiting or eliminating competitive bids
When nonconformance with the Definition of Internal Auditing, the Code of Ethics or the Standards impacts a specific engagement, communication of the results must disclose all of the following EXCEPT: Action plan for nonconformance Principle or rule of conduct of the Code of Ethics or Standard(s) with which full conformance was not achieved Reason(s) for nonconformance Impact of nonconformance on the engagement and the communicated engagement results
Action plan for nonconformance
How did the Big Four accounting firms develop auditing services in India? Established branch offices Changed statutes Aligned themselves with surrogate domestic accounting firms Purchased domestic auditing firms
Aligned themselves with surrogate domestic accounting firms
Which of the following bid rigging strategies does not attempt to reduce competition? Restricting bids All of the strategies attempt to reduce competition Customized specifications Losing bids
All of the strategies attempt to reduce competition
Which of the following is the most important control for preventing payments to shell companies? Identify invoices and checks paid to unapproved vendors Analyze unusual invoices paid to vendors Periodically check existence and independence of suppliers by management independent of purchasing function Approve authorized supplier list by management independent of purchasing function
Approve authorized supplier list by management independent of purchasing function
The scope of the engagement must include consideration of all the following EXCEPT: Personnel Records Relevant systems Audit report Physical properties
Audit report
Critics claim that the independent audit function in India lags behind other countries in all of the follow areas except: Professionalism Rigor Overall effectiveness Auditing standards
Auditing standards
Woody's need to steal was fueled by his compulsion to gamble on all of the following areas EXCEPT: Basketball games Boxing matches Lottery tickets Football games
Basketball games
Goodner's employment policy prohibited hiring someone unless they had all of the following EXCEPT: References preferably from reputable individuals with some connection to the Goodner Brothers Thorough background checks from local detective agencies Three strong references Bonded employee
Bonded employee
A journalist quoted in the case indicated that bribery, kickbacks, and facilitating payments currently tend to take all of the following forms EXCEPT: Construction projects that never seem to materialize Consultants Dummy charities Cash payments in sealed envelopes
Cash payments in sealed envelopes
Which of the following bid rigging schemes does not involve an employee of the organization? Accepting bids after deadline Losing bids from competitors Collusive bidding through bid pooling Customized specifications
Collusive bidding through bid pooling
The main reason the inherent risk impact is higher for personal purchases with purchase orders than with personal purchases with credits cards is because: Credit cards are harder to use than purchase orders Credit cards do not require multiple approvals like purchase orders Credit cards have lower authorization limits than purchase orders Credit cards are more likely to be stolen than purchase orders
Credit cards have lower authorization limits than purchase orders
The Institute of Chartered Accountants of India has regulatory mandates to do all of the following in India except: Oversees independent audit function Issues accounting standards Criminally prosecutes violators of statutory accounting or auditing standards Issues ethical rules of conduct for chartered accountants Sanctions chartered accountants and public accounting firms that violate professional responsbilities
Criminally prosecutes violators of statutory accounting or auditing standards
The chief audit executive is responsible for all of the following EXCEPT: Deciding to whom it will be disseminated Deciding how it will be disseminated Approving the final engagement communication Delivering the final engagement communication to its intended audience Reviewing the final engagement communication
Delivering the final engagement communication to its intended audience
Auditors should review credit card statements for all of the following EXCEPT: Business purpose Proper review authorization Adequate documentation Delivery addresses
Delivery addresses
Which of the following policies were not adopted by India's central government after independence from Great Britain? Devaluation of the currency Significant tariffs License Raj Limits on equity investments by foreign nationals
Devaluation of the currency
Triton's former controller refused to sign off on the company's Form 10-K registration statement because it failed to disclose bribery, kickbacks, and payments to all of the following groups in Indonesia, Columbia, and Argentina EXCEPT: Auditors Customs officials Dummy charities Government officials
Dummy charities
The engagement plan must include all of the following EXCEPT: Engagement's audit report Engagement's scope Engagement's objectives Engagement's timing Engagement's resource allocations
Engagement's audit report
Judge Lifland concluded that the accounting firm's independence was likely impared based on all of the following reasons EXCEPT: Ernst and Young and CBI would have reasonably been in adversarial positions had CBI's board of directors known of the audit failure Ernst and Young knew prior to agreeing to perform the reaudit work that it had not complied with GAAS Ernst and Young did not withdraw its 1992 and 1993 audit opinions Ernst and Young knew that CBI's board of directors did not know of Ernst and Young's failure to comply with GAAS
Ernst and Young did not withdraw its 1992 and 1993 audit opinions
The auditor should test for all of the following for shell companies EXCEPT: Examine invoices with lack of details: invoice numbers, telephone numbers, tax identification numbers Examine invoices with P.O. Box numbers or residential addresses Examine purchase order for correct item description, quantity, and price Match vendor master file with employee master file for address, telephone numbers, and tax identification numbers
Examine purchase order for correct item description, quantity, and price
The most important financial reporting management assertions for inventory are Existence and Presentation Completeness and Valuation Completeness and Presentation Existence and Valuation
Existence and Valuation
One of your employees told a supplier that your organization would not do business with that supplier any more unless the supplier paid the employee a processing fee. This is an example of: Bribery Illegal Gratuity Kickback Extortion
Extortion
Which of the following is false regarding the Foreign Corrupt Practices Act of 1977 (FCPA) FCPA requires companies to maintain internal control systems that provide reasonable assurance of discovering bribes FCPA requires auditors to issue an opinion on internal controls over financial reporting FCPA is based on findings that almost all bribery was covered up in the corporation books and adequate internal controls would deter bribery FCPA criminalizes bribery of foreign officials
FCPA requires auditors to issue an opinion on internal controls over financial reporting
In performing consulting engagements, internal auditors must ensure that the scope of the engagement is sufficient to address the agreed-upon objectives. If internal auditors develop reservations about the scope during the engagement, the engagement should immediately be terminated. True False
False
Internal auditors must establish an understanding with consulting engagement clients about objectives, scope, respective responsibilities, and other client expectations. This understanding does not need to be documented for any engagements. True False
False
The chief audit executive may not designate appropriately experienced members of the internal audit activity to perform the review. True False
False
Russia's rough and tumble version of capitalism included widespread violence in all of the following areas EXCEPT: Kickbacks Organized robbery Foreign takeover of companies Bribery Hundreds of murders and contract killings
Foreign takeover of companies
The AWB bribery scheme included all of the following elements EXCEPT: The price for wheat sold to Iraq involved inflating the price to cover the cost of the bribes Bribe payments were deducted as normal business expenses on tax returns filed with the Australian Taxation Office The bribes were concealed by funneling them through a Jordanian trucking company Full disclosure of the bribes as they were made to the United Nations
Full disclosure of the bribes as they were made to the United Nations
The crest of the Tata Group that commonly appears on the correspondence of Tata companies includes the three-word creed of the Zoroastrian (Parsis) religion including all of the following EXCEPT: Good thoughts Good words Good works Good deeds
Good works
When an overall opinion is issued, it must take into account the expectations of all of the following EXCEPT: Other stakeholders Senior management Government officials The board
Government officials
Woody concealed his thefts by doing all of the following EXCEPT: He adjusted the cash receipts journal to cover up his theft of cash receipts from the register He offered to take throw-away tires to the tire disposal facility, but took non-defective tires instead to sell He kept and resold tires returned by customers, but issued them credit memos He charged tires he sold for his own benefit to accounts of large volume customers. If they complained, he corrected their balance. If they paid, it perpetuated his scheme.
He adjusted the cash receipts journal to cover up his theft of cash receipts from the register
Which of the following were not internal control weaknesses for Goodner Brothers? Hiring policies The sales representatives often jotted the details of a transaction on a piece of scrap paper rather than completing purchase orders, sales orders, credit memos, and other accounting documents on a timely basis The Huntington facility's sales manager and two sales represntatives had unrestricted access to the accounting system Sloppy accounting practices and lax control over its inventory
Hiring policies
Why would an auditor want to identify bid organizations that have the same address, phone number, contract person, or whose bids have the same sub-quote or errors? Identify collusive bidding through bid pooling Identify false specifications requiring later price modification Identify false bids from fictitious suppliers Identify improperly advertised bids
Identify false bids from fictitious suppliers
Which audit procedure attempts to identify bid rigging that does not include an employee of the company? Compare bids awarded to bid opening log Identify patterns of predictable bid rotation among bid awardees Identify and examine all change orders for reasonableness, especially from same contractors Assess the adequacy of the number of vendors who can satisfy specifications
Identify patterns of predictable bid rotation among bid awardees
When developing the engagement objectives, internal auditors must consider the probability of all of the following EXCEPT: Significant errors Fraud Immaterial errors Noncompliance Other exposures
Immaterial errors
The purchase agreement with TCW contained all of the following "control-triggering events" EXCEPT: Misrepresentation of operating results and financial condition resulting in large year end bonuses for Castello for which he was not entitled Unauthorized loans to Castello and other CBI executives Failure to maintain certain financial ratios at a specified level Inability to meet analyst's earnings projections
Inability to meet analyst's earnings projections
Which is the most important auditing principle violated in the Tata Finance Limited case? Independence Confidentiality Competency Objectivity
Independence
"Pocket auditors" created in the early 1990s appeared to contain all of the following characteristics EXCEPT: Independent in fact and appearance Helped clients evade taxes Helped clients "cook the books" Helped clients disguise asset-stripping Friends and relatives of organizational executives
Independent in fact and appearance
All of the following controls attempt to prevent reducing the number of bids considered for award EXCEPT Record and track all bid submissions in a bid submission log and store bids in a secure location Prohibit customized specifications to eliminate bidders Independent review looking for specification splitting Prohibit sole source or limited source contractors
Independent review looking for specification splitting
Which of the following controls do not create awareness that bribery, illegal gratuities, extortion, and unapproved conflict of interest are prohibited? Certifications by employees Written policies Fraud training Independent reviews
Independent reviews
The Parsi Tata family founded all of the following EXCEPT: India's first automobile manufacturer India's first domestically owned bank India's first airline India's first salt mining company India's first chemical company
India's first salt mining company
How was the inventory shortage initially discovered? Internal auditors discovered it during a October inventory audit External auditors discovered it during the year-end audit inventory observation Management discovered it after an employee provided an anonymous tip that tires were being stolen Management discovered it during the year-end inventory count
Internal auditors discovered it during a October inventory audit
All of the following are true regarding the Australian Wheat Board except: Created to assist the country's wheat farmers It established price for all exported wheat It established the price for all domestic wheat until 1989 It did not provide economic benefits for Australian farmers
It did not provide economic benefits for Australian farmers
Audit planning for inventories should include all of the following steps EXCEPT: Brainstorm to identify areas most susceptible to fraud or errors Listen to instruction given to inventory counters before inventory counting process beings to assess whether or not the verbal instructions match the written instructions Review prior inventory audit program and working papers Document scope and timing of inventory audit
Listen to instruction given to inventory counters before inventory counting process beings to assess whether or not the verbal instructions match the written instructions
Which of the following is not a normal consequence of kickbacks? Higher prices Lower prices Lower quality Excessive goods or services received
Lower prices
The Chartered Accountants' Action Committee for Level Playing Field White Paper report made all of the following allegations against Multinational Accounting Firms (MAF) except: Experts in money laundering Bribed the state and regulators Repeatedly caught in frauds and malpractices MAF's put India first
MAF's put India first
In planning the engagement, internal auditors must consider all of the following EXCEPT: The significant risks to the activity, its objectives, resources, and operations and the means by which the potential impact of risk is kept to an acceptable level The objectives of the activity being reviewed and the means by which the activity controls its performance Management personnel impacted by the audit plan The opportunities for making significant improvements to the activity's governance, risk management, and control processes
Management personnel impacted by the audit plan
In order to test for non-accomplice vendors, the auditors should test all of the following EXCEPT: Match invoice with purchase requisition, purchase order, and receiving report Match invoice paid addresses to approved vendor addresses Match address for cash disbursements with addresses on invoices and authorized vendor list Match current year approved vendor's addresses with prior year approved vendor's addresses to identify address changes. Address changes traced to authorization
Match invoice with purchase requisition, purchase order, and receiving report
Auditors search for duplicate payments is aimed mostly at detecting which type of fraud? Non-Accomplice Vendors Internal Control Over Financial Reporting Personal Purchases Shell Companies
Non-Accomplice Vendors
All of the following control risks caused Ernst & Young to describe CBI's control environment as "ineffective" EXCEPT: Non-aggressive positions taken by management personnel regarding key accounting estimates Lack of proper segregation of duties within the company's accounting department Dominance of the company by Robert Castello Absence of an internal audit function
Non-aggressive positions taken by management personnel regarding key accounting estimates
Which of the following observation procedures looks for possible duplication of inventory counts? Observe any movement of inventory during the count Observe inventory that may appear damaged or obsolete Observe recounted items to assure correctness Open boxes for tested items
Observe any movement of inventory during the count
Which of the following in NOT true regarding the Parsis? Parsis actively proselyte their religious beliefs The Paris have disproportionately impacted India's history The Parsis migrated from the Middle East where they were the national religion of Persia before the Islamic conquest The Parsis try to retain their culture and religion by intermarrying within their community and by discouraging native Indians from joining their religion
Parsis actively proselyte their religious beliefs
All of the following are types of non-accomplice vendor schemes EXCEPT: Submits counterfeit invoice then steals check or has it delivered to perpetrator's mail box Double pays vendor, then requests return of second payment or refund and steals it Overbills organization, then requests a refund from vendor and steals refund Pays wrong vendor, then requests return of payment or refund and deposits it in employer organization's bank account
Pays wrong vendor, then requests return of payment or refund and deposits it in employer organization's bank account
What is the major purpose of non-accomplice vendor controls? Detect perpetrator after misleading vendors Detect perpetrator non-accomplice vendor frauds Prevent perpetrator from misleading vendors Prevent perpetrator from receiving checks
Prevent perpetrator from receiving checks
The communication will identify all of the following EXCEPT: The overall opinion, judgment, or conclusion reached Scope limitations The risk or control framework or other criteria used as a basis for the overall opinion Qualifications of the internal auditor The scope, including the time period to which the opinion pertains Consideration of all related projects including the reliance on other assurance providers
Qualifications of the internal auditor
If not otherwise mandated by legal, statutory, or regulatory requirements, prior to releasing results to parties outside the organization the chief audit executive must do all of the following EXCEPT: Receive permission from the audit committee of the board of directors Consult with senior management and/or legal counsel as appropriate Control dissemination by restricting the use of the results Assess the potential risk to the organization
Receive permission from the audit committee of the board of directors
The massive reorganization of Russian infrastructures in the 1990s produced widespread chaos in all of the following areas EXCEPT: Religious Social Economic Political
Religious
The most important control for detecting credit card fraud is: Reviewer independent of credit card authorized signer carefully reviews each transaction's documentation for business purpose Authorized signer must provide documentation and business purpose for each purchase Purchases are delivered to organization's delivery addresses Credits cards limits set for individual purchases, monthly purchases, and business authorized SIC codes
Reviewer independent of credit card authorized signer carefully reviews each transaction's documentation for business purpose
Recording the numbers of the last receiving report and shipping document provide evidence for all of the following management assertions EXCEPT: Completeness Existence Rights Valuation
Rights
The correct use of inventory tags provides evidence for all of the following management assertions EXCEPT: Existence Rights Completeness Valuation
Rights
A key control to prevent personal purchases with purchase orders is to segregate all of the following authorizations EXCEPT: Payment Voucher Purchase Requisition Sales Order Purchase Order
Sales Order
Which of the following audit procedures best tests whether or not employees know that they are prohibited from engaging in bribery, illegal gratuities, extortion, and unapproved conflict of interest? Select a sample of employees and verify that they have signed the annual certification stating that they are not involved in bribery, illegal gratuities, extortion, or unapproved conflict of interest Select a sample of employees and review their conflict of interest statements Read and assess the adequacy of policies prohibiting bribery, illegal gratuities, extortion, and unapproved conflict of interest Analyze training log to verify that all employees received training prohibiting bribery, illegal gratuities, extortion, and unapproved conflict of interest
Select a sample of employees and verify that they have signed the annual certification stating that they are not involved in bribery, illegal gratuities, extortion, or unapproved conflict of interest
According to the heat maps, which fraud scheme has the highest inherent risk? Personal Purchases with Purchase Orders Non-Accomplice Vendor Shell Company Personal Purchases with Credit Cards
Shell Company
Which of the following is false about shell companies? Shell companies usually have a mailing address so they can receive payments Shell companies may sell goods to employers at inflated prices, keeping the difference between the shell company's purchase price and sale price as profit Shell company schemes generally originate outside the purchasing department Shell companies generally register with the state or county so they can open a bank account
Shell company schemes generally originate outside the purchasing department
Before authorizing payments, invoices should be matched to all of the following documents EXCEPT: Shipping Report Purchase Requisition Receiving Report Purchase Order
Shipping Report
All of the following are typical of facilitating payments EXCEPT: Routine payments Significant amounts paid to secure or retain business Payments to lower ranking government officials to expedite transactions Modest payments
Significant amounts paid to secure or retain business
Severely limiting the time someone has to bid on a contract is a form of which type of bid rigging? Award manipulation Submission manipulation False specifications Solicitation manipulation
Solicitation manipulation
An independent reviewer should look for all of the following red flags of bid rigging EXCEPT: Complete specifications Customized specifications Standard advertising venues Specification splitting
Standard advertising venues
All of the following were weaknesses in Russia's privatization program EXCEPT: State-owned organization leadership was replaced with new leadership for all organizations Most of the newly created companies were technically insolvent and required economic support from the federal government Rampant inflation exceeded 2,000 per annually Many of the corporate managers did not understand or embrace capitalistic principles
State-owned organization leadership was replaced with new leadership for all organizations
All of the following soured analysts on Triton EXCEPT: Bribing of foreign officials Intimations of other corporate wrongdoing Allegations of creative accounting methods Strong stock performance
Strong stock performance
A.F. Ferguson & Company (AFF), India's largest accounting firm, issued a 2002 900 page report contained all of the following EXCEPT: Tata's management and boards made protecting the jobs of Tata employees a primary business objective even if they refused to elimiate unprofitable businesses or business segments Tata family members and their close friends and business associates dominated the operating management and board of directors of individual Tata companies Mr. Tata and his subordinates were aware of the fraudulent transactions Tata's financial statements adequately followed generally accepted accounting principles
Tata's financial statements adequately followed generally accepted accounting principles
The established scope must be sufficient to achieve the objectives of the engagement. True False
True
All of the following are true for Russia's "privatization programme" EXCEPT: The Russian government did not retain minority ownership interest in any companies Russia's political leaders wanted to quickly embrace capitalism The privatization program was intended to convert the country from communism to capitalism in a few years The privatization programme gave Russian citizens the right to acquire ownership interest in many Russian firms at a nominal cost
The Russian government did not retain minority ownership interest in any companies
When planning an engagement for parties outside the organization, internal auditors must establish a written understanding with them about objectives, scope, respective responsibilities, and other expectations, including restrictions on distribution of the results of the engagement and access to engagement records. True False
True
Overall opinions must be supported by all of the following types of information EXCEPT: Timely Sufficient Reliable Relevant Useful
Timely
In order to test for authorized vendors, the auditor should do all of the following EXCEPT: Review the authorized vendor list with the authorizers to verify the vendors on the list Match the current year's approved vendor list to the prior year's approved vendor list to identify new vendors Trace the vendors on the authorized vendor list to approved purchase orders Trace the vendors on approved purchase orders to the authorized vendors list
Trace the vendors on the authorized vendor list to approved purchase orders
Adequate criteria are needed to evaluate governance, risk management, and controls. Internal auditors must ascertain the extent to which management and/or the board 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 and/or the board to develop appropriate evaluation criteria. True False
True
Appropriate evidence of supervision is documented and retained. True False
True
Consulting engagement objectives must address governance, risk management, and control processes to the extent agreed upon with the client. Consulting engagement objectives must be consistent with the organization's values, strategies, and objectives. True False
True
During consulting engagements, governance, risk management, and control issues may be identified. Whenever these issues are significant to the organization, they must be communicated to senior management and the board. True False
True
During consulting engagements, internal auditors must address controls consistent with the engagement's objectives and be alert to significant control issues. True False
True
If significant consulting opportunities arise during an assurance engagement, a specific written understanding as to the objectives, scope, respective responsibilities, and other expectations should be reached and the results of the consulting engagement communicated in accordance with consulting standards. True False
True
Internal auditors may report that their engagements are "conducted in conformance with the International Standards for the Professional Practice of Internal Auditing", only if the results of the quality assurance and improvement program support the statement. True False
True
Internal auditors must conduct a preliminary assessment of the risks relevant to the activity under review. Engagement objectives must reflect the results of this assessment. True False
True
Internal auditors must develop and document a plan for each engagement. True False
True
Objectives must be established for each engagement. True False
True
The chief audit executive has overall responsibility for supervising the engagement, whether performed by or for the internal audit activity. True False
True
The chief audit executive is responsible for communicating the final results to parties who can ensure that the results are given due consideration. True False
True
The chief audit executive must communicate results to the appropriate parties. True False
True
Many of the following groups believed that AWB acted properly by making secret payments to Iraq to obtain wheat contracts EXCEPT: Australian politicians Australian businessmen Australian journalists Australian wheat farmers U.S. and Candadian wheat farmers
U.S. and Candadian wheat farmers
Which of the following billing fraud schemes does not require an accomplice vendor? Bid Rigging Unapproved conflict of interest Illegal Gratuities Kickbacks
Unapproved conflict of interest
Other risk factors identified in Ernst and Young's CBI audit workpapers included all of the following EXCEPT: Possible occurrence of a control-triggering event Unusual profit margin percentages compared to industry averages "Undue" emphasis by top management on achieving periodic earnings goals Castello's annual bonus was tied directly to CBI's reported earnings
Unusual profit margin percentages compared to industry averages
Collusive bidding controls include all of the following EXCEPT: Analyze bids for pattern of rotation for bid awardees Verify existence of all bidders Prohibit the use of sales representatives who represent multiple bidders Prohibit use of subcontractors who bid on main contract
Verify existence of all bidders
The internal audit director wrote a memo about Triton's Indonesia operations. According to the director, what was the worst practice? We must pay people in customs in order to get our equipment off the dock so that it can be used in operations We pay between $1,000 and $1,900 per month just to get our invoice paid to the state-owned Indonesian oil company I found myself in a country of state supported corruption We paid the auditors in order to have their audit exceptions taken care of
We paid the auditors in order to have their audit exceptions taken care of
Many wheat exporters maintained that AWB's high position in the global wheat market was a result of all of the following EXCEPT: Wheat quality Kickbacks Other illicit payments Bribes
Wheat quality
Engagements must be properly supervised to ensure all of the following EXCEPT: Staff is developed Objectives are achieved Workpapers are complete Quality is assured
Workpapers are complete
