CIA Part 2 Exam Sample Questions with Answers

Question #1

Information gathered in a forensic investigation of business fraud is usually gathered with which of the following standards in mind?

A. enerally Accepted Auditing Standards

B. enerally Accepted Accounting Principles

C. he International Professional Practices Framework

D. egal evidence

View answer

Correct Answer: D

Question #2

Which of the following might alert an auditor to the possibility of fraud in a division?

A. he division is not scheduled for an external audit this year

B. only

C. II only

D. and II only

E. , II, and III

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Correct Answer: B

Question #3

Which of the following statements is true regarding the final assurance engagement report issued tomanagement?

A. atings are only used to assess the condition of an observation made by an internal auditor

B. udit findings may be communicated to management prior to issuance of the final approved audit report

C. ommunications must be relevant logical, and free from errors before they are disseminated

D. he audit report must present the information in the following order (1) audit scope, (2) engagement objectives, and (3) engagement results

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Correct Answer: C

Question #4

Which of the following must an auditor establish in order to demonstrate that fraud has occurred?

A. onetary damage to the victim

B. he suspect's intent

C. xistence of an internal control deficiency

D. vidence of collusion

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Correct Answer: B

Question #5

Which of the following items should be addressed in an organization's privacy statement?

A. ntended use of collected information

B. and II only

C. and IV only

D. , II, and V only

E. I, III, IV, and V only

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Correct Answer: C

Question #6

An audit of an organization's fulfillment department discovered that problems in the order processing system led to a significant number of orders being fulfilled multiple times. During the exit conference, the head of the department informed the auditors that the processing system would be enhanced within six months to correct the problems. Which course of action should the chief audit executive follow?

A. djust the scope of the next scheduled audit to determine that the problems have been resolved

B. onitor the status of corrective action and schedule a follow-up engagement when appropriate

C. eet with the audit committee to determine the appropriate follow-up action

D. ssess the status of corrective action in a follow-up engagement in six months

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Correct Answer: B

Question #7

During an information security audit, an auditor discovers that the current disaster recovery plan was developed three years ago but never tested. There have been significant changes to information systems since the plan was developed. The auditor should:

A. sk management to test the recovery plan immediately

B. ecommend that management and users update and test the recovery plan

C. pdate the recovery plan for management as part of the review

D. eview the recovery plan and report weaknesses to management

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Correct Answer: B

Question #8

A company has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly accounting for costs related to contract change orders. Which of the following procedures would be appropriate for testing this suspicion?

A. erify that the contractor has not charged change orders with costs that have already been billed to the original contract

B. only

C. II only

D. and II only

E. and III only

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Correct Answer: C

Question #9

A chief audit executive agrees to conduct an engagement that will focus on customers' perceptions of the quality of the organization's products and services. Which of the following issues should be addressed first?

A. ost-effectiveness

B. uality control

C. ustomer complaints

D. upplier deliveries

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Correct Answer: C

Question #10

A manager of one of a retailer's several retail outlets is stealing cash from cash sales, recording the sales as accounts receivable, and subsequently writing off the fictitious accounts receivable as bad debts. Which of the following comparisons would be most effective in signaling the possibility of such a fraud?

A. ad debt expense as a percentage of sales, compared to that of the other outlets

B. ad debt expense as a percentage of sales, compared to that of previous years

C. ercentage of past-due accounts receivable, compared to that of the other outlets

D. ercentage of past-due accounts receivable, compared to that of previous years

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Correct Answer: A

Question #11

If an organization's chief audit executive wants to implement continuous auditing, what is the appropriate order in which key steps should be undertaken?

A. dentify business applications that require access

B. II, I, IV, II

C. I, I, III, IV

D. II, I, II, IV

E. I, III, I, IV

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Correct Answer: C

Question #12

Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?

A. bservation

B. racing

C. e-computation

D. ouching

View answer

Correct Answer: B

Question #13

CORRECT TEXTA fast-food company is developing a computer simulation involving arrival time at a drive-through restaurant. The distribution for arrival times is:TimeSingle-Digit RandomBetween ArrivalsProbabilityNumber Assigned1 minute0.12 minutes0.21, 23 minutes0.33, 4, 54 minutes0.46, 7, 8, 9Six random numbers are selected to represent the arrival of six cars: 1, 6, 9, 0, 5, 6. The mean time between arrivals for these cars, in this run of the simulation model, is:

A. minute

B. minutes

C. minutes

D. minutes

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Correct Answer: C

Question #14

An internal auditor for a regional bank suspects that the head of commercial lending has beengranting loans without the required collateral Which of the following sampling techniques will bemost effective for investigating the auditor's suspicion?

A. ariables sampling

B. ollar-unit sampling

C. udgmental sampling

D. iscovery sampling

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Correct Answer: D

Question #15

Which of the following activities would be performed during a benchmarking consulting engagement?

A. ollect data relevant to the benchmarking process

B. and III only

C. I and IV only

D. , II, and III only

E. , III, and IV only

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Correct Answer: D

Question #16

Direct staff as a percentage of total staff is an example of which of the following types of efficiency measures?

A. roductivity ratio

B. roductivity index

C. perating ratio

D. esource utilization rate

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Correct Answer: C

Question #17

After becoming aware of control weaknesses indicating that a fraud could have been committed, which of the following actions should an internal auditor take next?

A. ssue a written report identifying the control weaknesses

B. erform tests directed toward the identification of other fraud indicators

C. otify external auditors of the suspicion that fraud has been committed

D. ecommend that a fraud investigation be conducted involving internal auditors, lawyers, investigators, security personnel, and other specialists, as appropriate

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Correct Answer: B

Question #18

Which of the following would not be an appropriate step for an internal auditor to perform during an assessment of compliance with an organization's privacy policy?

A. etermine who can access databases containing confidential information

B. valuate the organization's privacy policy to determine if appropriate information is covered

C. nalyze access to permanent files and reports containing confidential information

D. valuate the government's security measures related to confidential information received from the organization

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Correct Answer: D

Question #19

Which of the following would be an appropriate improvement to controls over large quantities of consumable material that are charged to expense when placed in bins which are accessible to production workers?

A. elocate bins to the inventory warehouse

B. equire management to compare the cost of consumable items used to the budget

C. ock the bins during normal working hours

D. one of the above actions are needed for items of minor cost and size

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Correct Answer: B

Question #20

The chief executive officer has requested that the chief audit executive (CAE) coordinate the establishment of an enterprise risk management (ERM) program for the organization. Which of the following would be the most appropriate action for the CAE?

A. ccept the request as the role of coordinating ERM is a core function of internal audit

B. ecline the request as this role compromises the CAE's objectivity

C. ccept the request after consulting with the board and adhering to proper safeguards

D. ecline the request as internal audit has limited knowledge and experience of risk at the enterprise level to undertake the assignment

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Correct Answer: C

Question #21

According to the International Professional Practices Framework, which of the following statements is true regarding the use of the statement, "Conducted in Conformance with the International Standards for the Professional Practice of Internal Auditing," when communicating results of a seven-year-old internal audit activity?

A. he statement may be used only when conducting international engagements

B. he statement may be used only if the results of the quality assurance and improvement program support the statement

C. he statement may be used whether or not the internal audit department has an external quality assessment review or an independent validation of a self assessment

D. he statement should not be used for a consulting engagement

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Correct Answer: B

Question #22

A code of ethics within the internal auditing profession is necessary in order to:

A. educe the likelihood that members of the profession will be sued for substandard work

B. nsure that all members of the profession perform at approximately the same level of competence

C. rovide guidance to internal auditors in their service to others

D. equire members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization

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Correct Answer: C

Question #23

Which of the following best describes the most important criteria when assigning responsibility for specific tasks required in an audit engagement?

A. uditors must be given assignments based primarily upon their years of experience

B. ll auditors assigned an audit task must have the knowledge and skills necessary to complete the task satisfactorily

C. asks must be assigned to the audit team member who is most qualified to perform them

D. ll audit team members must have the skills necessary to satisfactorily complete any task that will be required in the audit engagement

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Correct Answer: B

Question #24

Which of the following examples of audit evidence is the most persuasive?

A. eal estate deeds, which were properly recorded with a government agency

B. anceled checks written by the treasurer and returned from a bank

C. ime cards for employees, which are stored by a manager

D. endor invoices filed by the accounting department

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Correct Answer: A

Question #25

Why should internal auditors develop a strong relationship with the external auditors?

A. xternal auditors offer an additional layer of approval to internal auditors' reports

B. xternal auditors can help improve the effectiveness of internal control sampling techniques

C. xternal auditors can offer an independent and knowledgeable viewpoint

D. xternal auditors can share information gained from work with similar clients

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Correct Answer: C

Question #26

In order to effectively elicit sensitive information from an employee during an audit engagement, an auditor should:

A. ell the employee a piece of information obtained from a coworker in a previous interview

B. ut sensitive questions at the beginning of a questionnaire to ensure that they are answered

C. xplain that the auditor's reputation for integrity, which is vital to the auditor's business success, would be seriously damaged if confidentiality were breached

D. oint out that management has given the auditor full authority to conduct this interview

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Correct Answer: C

Question #27

The most effective procedure to verify compliance with a requirement that materials be purchased from the lowest-priced source is to compare:

A. rices paid for selected materials with prices listed on related purchase orders

B. ids obtained for selected purchases with related purchase orders

C. endors' current prices with prices listed on related purchase orders

D. pproved vendor lists with bids obtained for selected purchases

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Correct Answer: B

Question #28

Questions used to interrogate individuals suspected of fraud should:

A. dhere to a predetermined order

B. over more than one subject or topic

C. ove from general to specific

D. irect the individual to a desired answer

View answer

Correct Answer: C

Question #29

An auditor for a major retail company suspects that inventory fraud is occurring at three stores which have high costs of goods sold. Which of the following audit activities would provide the most persuasive evidence that fraud is occurring?

A. se an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF and investigate all differences

B. nterview the three individual store managers to determine if their explanations about the observed differences are the same, and then compare their explanations to that of the section manager

C. chedule a surprise inventory audit to include a physical inventory and investigate areas of inventory shrinkage

D. elect a sample of individual store prices and compare them with the sales entered on the cash register for the same items

View answer

Correct Answer: C

Question #30

At a construction company, an internal auditor is planning an audit of the company's process fordesigning and building grid connections The process involves customers making payments m threeparts The first payment of 10% after approval of the customer s application The second payment of 70% prior to construction The third payment of 20% after construction is completeWhich of the following key controls should the auditor test to ensure that the company is not takingany unwanted credit risks?

A. ontrols that ensure that grid connection design is finalized before construction is approved to begin

B. ontrols that ensure construction orders are initiated after the second invoice is paid

C. ontrols that ensure all three invoices are calculated correctly according to the total project cost

D. ontrols that ensure that applications are verified for approval prior to initiating design and construction

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Correct Answer: D

Question #31

During an engagement, an internal auditor discovered that an organization's policy on delegation of authority listed six individuals who were no longer employed with the organization. In addition, four individuals acting with disbursement authority were not identified in the policy as having such authority. Which of the following is the most effective course of action to address the control weakness?

A. mmediately initiate a complete audit of the disbursement function to determine if significant frauds have occurred

B. ecommend that management review the process supporting the policy and make improvements

C. dvise management to add the four additional names and remove the incorrect names from the policy to make it current

D. eview further to ensure that the four individuals do not have the appropriate authority through delegation

View answer

Correct Answer: B

Question #32

When interviewing an individual suspected of fraud, what type of questions would be asked after the introductory questions?

A. nformational questions

B. dmission-seeking questions

C. ssessment questions

D. losing questions

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Correct Answer: A

Question #33

Because of a new marketing initiative, an organization has reduced requirements for extending credit to new customers. As a result, outstanding accounts receivable as a percentage of revenue has increased significantly during the past two years. Which of the following would be least useful in monitoring this finding?

A. pdates from the manager of accounts receivable regarding collection of outstanding receivables

B. pdates from the information technology division regarding development of a new accounts receivable system

C. pdates from the controller regarding the status of corrective actions

D. pdates from the credit and marketing personnel tasked with reevaluating credit policies

View answer

Correct Answer: B

Question #34

Which of the following is an advantage of control self-assessment (CSA) over conventional auditing techniques?

A. SA evaluates control activities and human resource practices

B. SA provides assurance about whether business objectives will be met

C. SA facilitates obtaining input from subject-matter experts efficiently

D. SA provides assurance that action will be taken to improve deficiencies

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Correct Answer: C

Question #35

After completing a fraud investigation but before publishing a formal written report, the chief audit executive should submit a draft of the final report to the organization's:

A. egal counsel

B. xternal auditor

C. udit committee chairperson

D. hief executive officer

View answer

Correct Answer: A

Question #36

Which of the following would be the least important reason for a company to merge with another company?

A. o diversify risk

B. s a response to new government policy

C. o reduce labor costs

D. o increase stock prices

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Correct Answer: D

Question #37

Which of the following types of sampling techniques should an internal auditor use when testing the effectiveness of internal controls?

A. ean-per-unit sampling

B. ttributes sampling

C. ariables sampling

D. ollar-unit sampling

View answer

Correct Answer: B

Question #38

When conducting a performance appraisal of an internal auditor who has been a below-average performer, it is not appropriate to:

A. otify the internal auditor of the upcoming appraisal several days in advance

B. se objective, impartial language

C. se generalizations

D. ocument the appraisal

View answer

Correct Answer: C

Question #39

Which of the following is not likely to be included as an audit step when assessing vendor performance policies?

A. etermine whether agreed-upon lot sizes were sent by vendors

B. etermine whether only authorized items were received from vendors

C. etermine whether the balances owed to vendors are correct

D. etermine whether the quality of the goods purchased from the vendors has been satisfactory

View answer

Correct Answer: C

Question #40

Which of the following trends found on financial reports would most likely indicate a possible problem?

A. material decrease in the receivables turnover

B. material increase in inventory turnover

C. material increase in daily sales compared to total outstanding receivables

D. material increase in the acid-test ratio

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Correct Answer: A

Question #41

An internal auditor has just undertaken an organization-wide risk assessment. In identifying potential audit engagements the internal auditor should consider least:

A. ocusing on the high risk areas as sources of potential engagements

B. ocusing in areas not audited last year

C. actoring in management requests

D. ocusing on those risks highlighted by the external auditor

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Correct Answer: B

Question #42

An internal auditor is asked to determine why the production line for a large manufacturingorganization has been experiencing shutdowns due to unavailable pacts The auditor learns thatproduction data used for generating automatic purchases via electronic interchange is collected onpersonal computers connected by a local area network (LAN) Purchases are made from authorizedvendors based on both the production plans for the next month and an authorized materialsrequirements plan (MRP) that identifies the part

A. ompare purchase orders generated from test data input into the LAN with purchase orders generated from production data for the most recent period

B. evelop a report of excess inventory and compare the inventory with current production volume

C. ompare the pans needed based on current production estimates and the MRP for the revised production techniques with the purchase orders generated from the system for the same period

D. elect a sample of production estimates and MRPs for several periods and trace them into the system to determine that input is accurate

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Correct Answer: C

Question #43

Which of the following would be most helpful to a governmental auditor searching for the existence of multiple welfare claims that were filed under different names but used the same address?

A. agging and tracing

B. eneralized audit software

C. ntegrated test facility

D. preadsheet analysis

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Correct Answer: B

Question #44

Given the scarcity of internal audit resources, a chief audit executive (CAE) decided not toschedule a follow-up of audit recommendations when developing engagement work schedules.Does the CAE's decision violate the Standards?

A. o, because the Standards do not specify whether follow-up is needed

B. o, because when there is evidence of sufficient motivation by the client, there is no need for follow-up action

C. es, because scarcity of resources is not a sufficient reason to omit follow-up action

D. es, because the Standards require the auditors to determine whether the client has appropriately implemented all of the auditor's recommendations

View answer

Correct Answer: C

Question #45

Which of the following is least likely to vary when conducting audit engagements in different regions of an international organization?

A. pplication of governmental regulations to business activities

B. ork schedules and holidays of the individual regions

C. evel of workpaper documentation needed to support audit observations

D. vailability of technology and technical support

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Correct Answer: C

Question #46

As part of an operational audit of the shipping department, an auditor selected a sample of 45 daily shipping logs from the department's files. On 44 of the days, the log contained a sufficient number of shipments to meet the department's daily quota. Based on this test, the auditor concluded that the shipping department was effective at meeting its quotas. Which of the following is true about the auditor's conclusion?

A. he number of items selected for testing is inadequate to justify the conclusion

B. he shipping department is effective in meeting its responsibilities

C. his conclusion would negate any need to perform tests of efficiency

D. one of the above

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Correct Answer: D

Question #47

A bank is developing an integrated customer information system. The type of audit involvement that would most likely help avoid implementation of a system that does not cover all types of accounts would be:

A. design review

B. n application control review

C. source code review

D. n access control review

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Correct Answer: A

Question #48

Checklists used to assess audit risk have been criticized for all of the following reasons except:

A. roviding a false sense of security that all relevant factors are addressed

B. nappropriately implying equal weight to each item on the checklist

C. ecreasing the uniformity of data acquisition

D. eing incapable of translating the experience or sound reasoning intended to be captured by each item on the checklist

View answer

Correct Answer: C

Question #49

Inadequate risk assessment would have the strongest negative impact in which of the following phases of an audit engagement?

A. etermining the scope

B. eviewing internal controls

C. esting

D. valuating findings

View answer

Correct Answer: A

Question #50

One method for dealing with the uncertainty of demand forecasts used in linear programming is to extend the model solution to include.

A. ensitivity analysis

B. oal seeking

C. ranch-and-bound solutions

D. onlinear programming

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Correct Answer: A

Question #51

Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?

A. acilitated meetingII

B. only

C. and III only

D. I and III only

E. , II, and III

View answer

Correct Answer: C

Question #52

Which of the following is an advantage of an interim report?

A. n interim report provides timely feedback to the audit engagement client

B. and IV only

C. I and III only

D. , III, and IV only

E. , II, III, and IV

View answer

Correct Answer: C

Question #53

Which characteristic of risk assessment makes it a useful tool for audit planning?

A. t provides a list of auditable activities in the organization

B. t ranks the severity of potentially adverse effects on the organization

C. t provides a process for identifying and analyzing potentially adverse effects

D. t evaluates the probability that an event or action may adversely affect the organization

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Correct Answer: C

Question #54

As part of an operational audit, an auditor compared records of current inventory with usage during the prior two-year period and determined that the spare parts inventory was excessive.What step should the auditor perform first?

A. etermine the effects of a stock-out on the organization's profitability

B. etermine whether a clear policy exists for setting inventory limits

C. etermine who approved the purchase orders for the spare parts

D. etermine whether purchases were properly recorded

View answer

Correct Answer: B

Question #55

An auditor evaluating excessive product rejection rates should investigatE.

A. ommunication between sales and production departments on sales returns

B. and III only

C. and IV only

D. I, III, and IV only

E. , II, III, and IV

View answer

Correct Answer: B

Question #56

Production managers for a manufacturing company are authorized to prepare emergency purchase orders for raw materials. These manually prepared orders do not go through the purchasing department and do not require a receiving report. The managers forward the invoice and purchase order to the accounting department for payment. Which of the following internal controls would efficiently prevent abuse of this system?

A. nstitute a company policy requiring rotation of orders among several suppliers

B. equire a manual receiving report from the warehouse prior to payment

C. orbid the use of emergency purchase orders

D. eview the level of safety stock

View answer

Correct Answer: B

Question #57

Which of the following potential performance measures should an auditor recommend excluding from a performance scorecard?

A. umber of employees

B. arket share

C. umber of customer complaints

D. raining dollars per employee

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Correct Answer: A

Question #58

According to HA guidance, which of the following statements regarding audit workpapers is true?

A. udit reports should include the workpapers as a reference for the audit conclusions

B. he internal auditor's workpapers are the primary reference for reported control deficiencies

C. d-hoc communications with management of the area under review should be excluded from the workpapers

D. oth draft and final versions of workpapers should be saved at the end of the engagement

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Correct Answer: D

Question #59

Which of the following would most likely contribute to discrepancies between receiving reports and the number of units in a shipment?

A. ailing to compare the quality of goods received with specifications

B. sing inadequate vendor selection procedures

C. ccepting improper authorization for purchases

D. ndicating the quantities ordered on the receiving department's copy of the purchase order

View answer

Correct Answer: D

Question #60

Which of the following actions has the least influence on the chief audit executive's development of an audit plan?

A. nput from senior management and the board

B. n evaluation of the complexity of each audit engagement

C. hanges in the organizations structure or budget

D. n assessment of risk and exposures affecting the organization

View answer

Correct Answer: B

Question #61

Recommendations should be included in the audit report in order to:

A. rovide management with options for addressing audit findings

B. nsure that audit findings are resolved in the manner suggested by the auditor

C. inimize the amount of time required to correct audit findings

D. nsure that audit findings are addressed by management

View answer

Correct Answer: A

Question #62

If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?

A. he confidence level could not be quantified

B. he precision would be larger

C. he projected value of inventory would be less reliable

D. he risk of incorrect acceptance would be higher

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Correct Answer: A

Question #63

Which of the following actions by management would reduce an employee's opportunity to commit fraud?

A. stablishing physical controls over company assets

B. liminating bonuses tied to sales or other performance goals

C. efining ethical behavior expectations in the company handbook

D. dentifying consequences, such as termination, for fraudulent activities

View answer

Correct Answer: A

Question #64

An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated. Which of the following statistical sampling methods would be most appropriate for this test?

A. ttributes sampling

B. iscovery sampling

C. robability-proportional-to-size sampling

D. ean-per-unit sampling

View answer

Correct Answer: D

Question #65

Productivity statistics are provided quarterly to a company's board of directors. An auditor checked the ratios and other statistics in the four most recent reports. The auditor used scratch paper and copies of the board reports to verify the accuracy of computations and compared the data used in the computations with supporting documents. The auditor wrote a note describing this work for the workpapers and then discarded the scratch paper and report copies. The auditor's note stated."The ratios and other s

A. our quarters is not a large enough sample on which to base a conclusion

B. he auditor's workpapers are not sufficient to facilitate an efficient review of the auditor's work

C. he auditor should have included the scratch paper in the workpapers

D. he auditor should have considered whether the information in the board report was compiled efficiently

View answer

Correct Answer: B

Question #66

Insurance companies often receive electronic hospitalization claims directly from hospitals. Which of the following control procedures would be most effective in detecting fraud in such an environment?

A. se integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing

B. evelop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department

C. se generalized audit software to match the claimant identification number with a master list of valid policyholders

D. evelop batch controls over all items received from a particular hospital and process those claims in batches

View answer

Correct Answer: B

Question #67

The use of standard operating procedure questionnaires in audit fieldwork can be beneficial because.

A. hese questionnaires can both identify discrepancies and educate clients

B. tandard operating procedures are essential to the effectiveness and efficiency of operations

C. hese questionnaires are more comprehensive than are other types of techniques for gathering data during fieldwork

D. hese questionnaires do not normally require prior clearance with management of the audited area

View answer

Correct Answer: A

Question #68

When planning an audit engagement, what should an internal auditor first consider when assessing the risk of fraud in the area to be audited?

A. mpact of and exposure to fraud

B. xistence of evidence of fraud

C. rganizational structure

D. anagement's risk appetite

View answer

Correct Answer: A

Question #69

Which of the following would have the least impact (either positive or negative) on an assessment of a department's control environment?

A. he department managed long-term investments, including investment in derivatives and other financial instruments, to maximize return

B. he department manager sets a tone of honesty and integrity in all business dealings and this tone is emulated by department personnel

C. any department functions were duplicated or verified by other department employees as part of the department's normal procedures

D. udit tests designed to verify compliance with control procedures detected a general failure to follow standard procedures for transaction authorization

View answer

Correct Answer: A

Question #70

What is the primary purpose of issuing a preliminary communication to management of the areaunder review?

A. o build good relations with management

B. o help management develop more responsive and timely action plans

C. o formally report medium- and high-risk observations in writing

D. o improve the internal audit key performance indicators

View answer

Correct Answer: B

Question #71

A company's policy requires that all customers be treated in a fair and consistent manner. Which of the following audit procedures would provide the most persuasive evidence that the policy was followed?

A. ompare the aging of outstanding receivables due from each customer

B. ompare credit reports with annual sales for a sample of customers

C. ompare the ratio of outstanding receivables to the authorized credit limit for each customer

D. ompare the sales discounts offered to each customer

View answer

Correct Answer: D

Question #72

An internal auditor is planning an assurance engagement. The auditor first reviews the department's business objectives. What is the next step?

A. eview control activities

B. valuate potential risks

C. stablish risk management roles

D. et the scope of the engagement

View answer

Correct Answer: B

Question #73

An internal auditor is conducting an initial risk assessment of an audit area and wants to assessmanagement's compliance with privacy laws for safeguarding customer information stored on theorganization's servers Which course of action is appropriate for this phase of the engagement?

A. olicit the services of a specialist information systems auditor

B. btain the most current approved copies of the organization's privacy policy

C. onsult with legal counsel about new privacy laws to establish appropriate criteria

D. onsider the detection risk of noncompliance with the laws

View answer

Correct Answer: C

Question #74

An auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory. The analysis would be potentially useful in:

A. dentifying products for which management has not been attuned to changes in market demand

B. II only

C. and II only

D. I and III only

E. , II, and III

View answer

Correct Answer: D

Question #75

While conducting a payroll audit, an internal auditor in a large government organization found inadequate segregation in the duties assigned to the assistant director of personnel. When the auditor explained the risk of fraud, the assistant director became upset, terminated the interview, and threatened to sue the organization for defamation of character if the audit engagement was not curtailed. The auditor discussed the situation with the chief audit executive (CAE). The CAE should then:

A. urtail the audit engagement to avoid potential legal action

B. rovide a report to senior management recommending a fraud investigation

C. ontinue the original engagement program as planned but include a comment about the assistant director's reaction in the engagement final communication

D. dd additional testing to determine whether other indicators of fraud exist

View answer

Correct Answer: D

Question #76

The internal auditor of a bank has developed a multiple regression model which has been used for a number of years to estimate the amount of interest income from commercial loans. During the current year, the auditor applies the model and discovers that the R2 value has decreased dramatically, but that the model otherwise seems to be working correctly. Which of the following conclusions is justified by the change?

A. hanging to a cross-sectional regression analysis should cause the R2 to increase

B. egression analysis is no longer an appropriate technique to estimate interest income

C. ome new factors, not included in the model, are causing interest income to change

D. linear regression analysis would increase the model's reliability

View answer

Correct Answer: C

Question #77

A code of business conduct provides:

A. fraud avoidance plan that does not explicitly describe punishments for violations

B. passive method of fraud deterrence

C. program to anonymously report irregularities to authorities

D. n alternative to "tone at the top" programs

View answer

Correct Answer: B

Question #78

In a payroll audit, a staff auditor suspects that signatures on some of the documents being sampled for examination are not authentic. What action should the auditor take before proceeding with the examination?

A. uggest to the payroll manager that the suspicious documents should be sent to the organization's security department for forensic review

B. eep the suspicious documents in the workpaper file until the end of the engagement, and then discuss the suspicions with the payroll manager

C. iscuss the suspicious documents with payroll staff to seek their views on the authenticity of the signatures

D. eview the suspicious documents with the chief audit executive and seek advice concerning further examination

View answer

Correct Answer: D

Question #79

A chief audit executive (CAE) suspects that several employees have used desktop computers for personal gain. In conducting an investigation, the primary reason that the CAE would choose to engage a forensic information systems auditor rather than using the organization's information systems auditor is that a forensic information systems auditor would possess:

A. nowledge of the computing system that would enable a more comprehensive assessment of the computer use and abuse

B. nowledge of what constitutes evidence acceptable in a court of law

C. uperior analytical skills that would facilitate the identification of computer abuse

D. uperior documentation and organization skills that would facilitate in the presentation of findings to senior management and the board

View answer

Correct Answer: B

Question #80

Which of the following is true of engagement recommendations?

A. pecific suggestions for implementation must be included

B. only

C. II only

D. , III, and IV only

E. I, III, and IV only

View answer

Correct Answer: D

Question #81

Which of the following is an effective way for an internal auditor to improve communications with the client during a contentious audit?

A. ncourage the client to participate as a partner in the decision-making process to determine the changes that need to be made

B. learly explain to the client the role of the internal audit activity in the change process

C. btain the support of the board of directors for proposed changes before discussing the changes with operating management

D. peak privately with key client personnel immediately after proposed changes are announced to address their concerns

View answer

Correct Answer: A

Question #82

A performance audit engagement typically involves:

A. eview of financial statement information, including the appropriateness of various accounting treatments

B. ests of compliance with policies, procedures, laws, and regulations

C. ppraisal of the environment and comparison against established criteria

D. valuation of organizational and departmental structures, including assessments of process flows

View answer

Correct Answer: C

Question #83

The chief audit executive's responsibility regarding control processes includes:

A. ssisting senior management and the audit committee in the development of an annual assessment about internal control

B. verseeing the establishment of internal control processes

C. aintaining the organization's governance processes

D. nsuring that the internal audit activity assesses all control processes annually

View answer

Correct Answer: A

Question #84

In a client satisfaction survey for an internal audit engagement, client management should be asked to assess which of the following factors?

A. udit team's knowledge of the audited area

B. and II only

C. I and IV only

D. , II, and IV only

E. , III, and IV only

View answer

Correct Answer: C

Question #85

Which of the following is an example of the verification of internal documentary evidence?

A. eviewing a carrier's bill of lading

B. econciling a vendor's month-end statement

C. ouching a copy of a sales invoice to receivables

D. ecalculating a customer's purchase order

View answer

Correct Answer: C

Question #86

An internal auditor for a financial institution has just completed an audit of loan processing. Of the 81 loans approved by the loan committee, the auditor found seven loans which exceeded the approved amount. Which of the following actions would be inappropriate on the part of the auditor?

A. xamine the seven loans to determine if there is a pattern

B. eport the amounts to the loan committee and leave it up to them to correct

C. ollow up with the appropriate vice president and include the vice president's acknowledgment of the situation in the engagement final communication

D. etermine the amount of the differences and make an assessment as to whether the dollar differences are material

View answer

Correct Answer: B

Question #87

The chief audit executive (CAE) determined that based on management's oral response, the action taken regarding an audit observation was sufficient when weighted against the relative importance of the audit recommendation. Which of the following is the most appropriate step for the internal auditor to take next?

A. nitiate a follow-up audit to ensure that action has really been taken

B. ollow-up with management until a written response is obtained

C. scalate the issue to the board and get their position on the issue

D. ote in the permanent file that follow-up needs to be performed as part of the next engagement

View answer

Correct Answer: D

Question #88

Which of the following tests must an internal auditor perform in order to ensure that inbound electronic data interchange (EDI) transactions are received and translated accurately?

A. omputerized tests to assess transaction reasonableness and validity

B. and IV only

C. I and III only

D. , II, and III only

E. , II, III, and IV

View answer

Correct Answer: C

Question #89

Which of the following actions is related to the preliminary survey process?

A. etermining if controls are effective

B. reparing the engagement work program

C. dentifying the current controls

D. ompleting a detailed test of controls

View answer

Correct Answer: C

Question #90

Which of the following statements about including consulting engagements in the annual internalaudit plan is true?

A. ll requests for consulting engagements must be included in the annual internal audit plan

B. ssurance engagements must be included in the annual internal audit plan but there is no requirement to include consulting engagements

C. onsulting engagements do not need to be included m the annual internal audit plan unless requested by the board

D. he acceptance of proposed consulting engagements into the annual internal audit plan may depend on their ability to add value

View answer

Correct Answer: D

Question #91

The internal auditor's opinion in terms of due professional care should be:

A. imited to the effectiveness of internal controls

B. xpressed only when consensus with top management has been achieved

C. ased on experience and free of all bias

D. ased on sufficient factual evidence

View answer

Correct Answer: D

Question #92

Which of the following does not represent a difficulty in using red flags as fraud indicators?

A. any common red flags are also associated with situations where no fraud exists

B. ome red flags are difficult to quantify or to evaluate

C. ed flag information is only gathered in extraordinary circumstances

D. he red flags literature is not well enough established to have a positive impact on auditing

View answer

Correct Answer: D

Question #93

If an auditor expects to find numerous discrepancies between recorded values and audited values of sample selections, which sampling technique would be most appropriate?

A. ttributes sampling

B. robability-proportional-to-size sampling

C. ifference estimation sampling

D. iscovery sampling

View answer

Correct Answer: C

Question #94

Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?

A. nclude both the audit finding and the client's position in the audit report

B. efer reporting the item and plan to perform more detailed work during the next audit

C. hange the finding so that it is acceptable to the client

D. ddress the issue with senior management and the board for resolution prior to issuing the final report

View answer

Correct Answer: A

Question #95

Which of the following is a responsibility of the internal auditor once a fraud investigation has been concluded?

A. scertain the extent to which fraud has been perpetrated

B. otify the appropriate regulatory authorities regarding the outcome of the investigation

C. etermine if controls need to be implemented or strengthened to reduce future vulnerability

D. mplement controls to prevent future occurrences

View answer

Correct Answer: C

Question #96

Which of the following would cause a company's accounts receivable turnover ratio to decrease steadily over a three-year period?

A. n increase in the discount offered for early payment

B. more liberal credit policy

C. nvoices provided on a weekly rather than a monthly basis

D. ncreased cash sales

View answer

Correct Answer: B

Question #97

According to IIA guidance, which of the following should be considered when creating policies and procedures for the internal audit activity (IAA)?

A. umber of auditors, complexity of audit activities, and structure of the IA

B. umber of auditors, complexity of audit activities, and audit staff skills and competencies

C. umber of auditors, structure of the IAA, and audit staff skills and competencies

D. omplexity of audit activities, structure of the IAA, and audit staff skills and competencies

View answer

Correct Answer: A

Question #98

Which of the following would be the most effective method to prevent installation of new equipment that does not meet environmental permit requirements, or to prevent modification of current processes in such a way that they no longer meet permit requirements?

A. equire that the environmental compliance department perform regular inspections of the manufacturing facility to identify new equipment or process modifications in progress

B. ely on annual inspections by various regulatory agencies to identify equipment or processes that require a permit

C. equire that the staff of the environmental compliance department attend monthly safety meetings in different parts of the facility so that they can hear directly from the workers about any changes

D. nclude the environmental compliance department in the review of proposed process changes and equipment purchases affecting permit requirements

View answer

Correct Answer: D

Question #99

Which of the following are advantages of flowcharts over internal control questionnaires''1 Flowcharts reduce the need to test whether employees are observing internal control processesFlowcharts provide a visual depiction of the processes in the area under review 3. Flowchartsidentify and prioritize internal control design weaknesses.4 Flowcharts highlight the control points to help internal auditors evaluate control design

A. and 3 only

B. and 4 only

C.

D.

View answer

Correct Answer: D

Question #100

With which of the following would the internal audit activity discuss findings, conclusions and recommendations prior to issuance of internal audit report?1. Business unit management.2. Chief audit executive.3. Audit committee. 4. Chief executive officer.

A. and 2 only

B. and 3 only

C. and 3 only

D. , 2, 3, and 4

View answer

Correct Answer: A

Question #101

Management has asked the internal audit activity to perform an operational audit of a division that recently reported an increase in expenditures in addition to a decrease in profits. However, existing internal audit resources are currently engaged in a legal compliance audit. Which factor would be considered least important in deciding whether resources should be removed from the legal compliance audit to the operational audit?

A. he increase in expenditures at the division over the past year

B. he probability that the legal compliance audit will detect fraud

C. he results of the external auditor's most recent financial audit

D. he potential for regulatory fines associated with the legal compliance audit

View answer

Correct Answer: C

Question #102

Which of the following would be a red flag that indicates the possibility of inventory fraud?

A. he controller has assumed responsibility for approving all payments to certain vendors

B. and II only

C. I and III only

D. , II, and IV only

E. , III, and IV only

View answer

Correct Answer: C

Question #103

Company A has a formal comprehensive corporate code of ethics while company B does not.Which of the following statements regarding the existence of the code of ethics in company A can be logically inferred?

A. ompany A exhibits a higher standard of ethical behavior than does company B

B. I only

C. II only

D. and II only

E. I and III only

View answer

Correct Answer: A

Question #104

To furnish useful and timely information and promote improvements in operations, internal auditors should provide:

A. enior management with reports that emphasize the operational details of defective conditions

B. perating management with reports that emphasize general concerns and risks

C. nformation in written form before it is discussed with the engagement client

D. eports that meet the expectations of both operational and senior management

View answer

Correct Answer: D

Question #105

A manufacturing process could create hazardous waste at several production stages, from raw materials handling to finished goods storage. If the objective of a pollution prevention audit engagement is to identify opportunities for minimizing waste, in what order should the following opportunities be considered?

A. ecycling and reuse

B. , II, IV, I, III

C. V, II, I, III, V

D. , III, IV, II, V

E. II, IV, II, V, I

View answer

Correct Answer: B

Question #106

An organization's internal auditors are reviewing production costs at a gas-powered electrical generating plant. They identify a serious problem with the accuracy of carbon dioxide emissions reported to the environmental regulatory agency, due to computer errors. The auditors should immediately report the concern to:

A. he regulatory agency

B. lant management

C. plant health and safety officer

D. he risk management function

View answer

Correct Answer: B

Question #107

At the conclusion of an audit of an organization's treasury department, a report was issued to the treasurer, chief financial officer, president, and board. Because of the sensitivity of some findings,a follow-up review was performed. The auditor should provide the report of follow-up findings to the.

A. reasurer

B. and II only

C. II and IV only

D. , II, and III only

E. , II, III, and IV

View answer

Correct Answer: D

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