Free CIA Part 2 Exam Questions and Answers PDF 2024

Question #1

An auditor used a questionnaire during an interview to gather information about the nature of credit sales processing. The questionnaire did not cover some pertinent information offered by the person being interviewed, and the auditor did not document the potential problems for further investigation.The primary deficiency with the above process is that:

A. he auditor failed to consider the importance of the information offered

B. questionnaire was used in a situation where a structured interview should have been used

C. sing a questionnaire precludes the auditor from documenting other information

D. he engagement program was incomplete

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Correct Answer: A

Question #2

Audit supervision includes approval of the engagement report in order to ensure that:

A. he client's objectives are met

B. enior management supports the report's conclusions

C. eport style and grammar are appropriate

D. eport findings are substantiated

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Correct Answer: D

Question #3

During an audit of an ethics program, which of the following procedures are most appropriate to evaluate the effectiveness of the program?· Testing whether corrective actions taken on involved parties breaching the ethics program are adequate.· Testing whether all employees are mandated through policy to comply with the ethics program.· Testing whether all employees are required to confirm in writing their compliance with the ethics program.· Testing through surveys employee's level of understanding and com

A. and 2 only

B. and 4 only

C. and 3 only

D. and 4 only

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Correct Answer: B

Question #4

An organization's policies allow buyers to authorize expenditures up to $50,000 without any other approval. Which of the following audit procedures would be most effective in determining if fraud in the form of payments to fictitious companies has occurred?

A. se generalized audit software to list all purchases over $50,000 to determine whether they were properly approved

B. evelop a snapshot technique to trace all transactions by suspected buyers

C. se generalized audit software to take a random sample of all expenditures under $50,000 to determine whether they were properly approved

D. se generalized audit software to select a sample of paid invoices to new vendors and examine evidence that shows that services or goods were received

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Correct Answer: D

Question #5

During an audit of a retail organization, an internal auditor found a scheme in which the warehouse director and the purchasing agent diverted approximately $500,000 of goods to their own warehouse, then sold the goods to third parties. The fraud was not found earlier since the warehouse director updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures would havemost likely led to the discovery of the mi

A. elect a random sample of receiving reports and trace to the recording in the perpetual inventory records

B. elect a random sample of purchase orders and trace to receiving reports and to the records in the accounts payable department

C. ake an annual physical inventory, reconciling amounts with the perpetual inventory records

D. elect a random sample of sales invoices and trace to the perpetual inventory records to see if inventory was on hand

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Correct Answer: C

Question #6

Which of the following factors could interfere with effective problem solving by an internal auditor?

A. eacting to previous experiences with clients

B. only

C. II only

D. and II only

E. , II, and III

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Correct Answer: D

Question #7

A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing engagement and there is pressure to complete the current engagement. The auditor notes the problem and forwards the information to the chief audit executive but performs no further follow-up. The auditor's actions woulD.

A. e in violation of the IIA Code of Ethics for withholding meaningful information

B. only

C. I only

D. II only

E. and II only

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Correct Answer: C

Question #8

A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The analysis involves rating auditable entities on risk factors using a scale of 1 to 10, with 10 representing the greatest risk. A partial list of risk factors and the ratings given to three of the bank's departments is provided below:Which of the following statements regarding risk in the department is true?

A. s compared to departments A and C, department B has a stronger control system to compensate for the greater complexity of the department's transactions and dollar value of its assets

B. he internal audit activity should schedule audits of department B more often than audits of department C because of the relative control strength of department C as compared to department

C.

D. he nature of department A's control structure may be justified by the nature of the department's assets and the complexity of its transactions

E. he relative ranking of the departments in order of their risk, from greatest to least risk, is: A; C;

F.

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Correct Answer: C

Question #9

An internal audit activity is participating in the due diligence work for an acquisition that a company is considering. One engagement objective is to determine if the acquisition's accounts payable contain all outstanding liabilities. Which of the following audit procedures would not be relevant for this objective?

A. xamine supporting documentation of subsequent (after-period) cash disbursements and verify period of liability

B. end confirmations, including zero-balance accounts, to vendors with whom the company normally does business

C. elect a sample of accounts payable from the accounts payable list and verify the supporting receiving reports, purchase orders, and invoices

D. race receiving reports issued before the period end to the related vendor invoices and accounts payable list

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Correct Answer: C

Question #10

When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?

A. ssure the individual that the results of the interview will remain confidential

B. stablish a rapport with the subject to encourage openness

C. iscontinue questioning once the individual has confessed to the fraud

D. efrain from deviating from the list of questions prepared before the interview

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Correct Answer: B

Question #11

A company's cellular phone costs vary significantly by sales representative and by month. Which of the following would be the most appropriate approach for a consulting project concerning this issue?

A. ontrol self-assessment involving sales representatives

B. enchmarking with other cellular phone users

C. usiness process review of cellular phone needs

D. erformance measurement and design of the budgeting process

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Correct Answer: C

Question #12

In a review of an electronic data interchange application using a third-party service provider, the auditor should:

A. nsure encryption keys meet International Organization for Standardization (ISO) standards

B. and II only

C. and IV only

D. I and III only

E. I and IV only

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Correct Answer: D

Question #13

What decision-making approach should a facilitator initiate if a group addresses an unfamiliar situation during a control self-assessment session?

A. pontaneous agreement

B. onsensus building

C. ajority voting

D. ompromise

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Correct Answer: B

Question #14

During an audit of a branch bank, an internal auditor learned that a series of system failures had resulted in a four-day delay in processing customers' scheduled payroll direct deposits. The first failure was that of a disk drive, followed by software and other minor failures. Which of the following controls should the auditor recommend to avoid similar delays in processing?

A. ontingency planning

B. edundancy checks

C. rocess monitoring

D. reventive maintenance

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Correct Answer: A

Question #15

An auditor is using an internal control questionnaire as part of a preliminary survey. Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?

A. nterviews provide the opportunity to insert questions to probe promising areas

B. nterviews are the most efficient way to upgrade the information to the level of objective evidence

C. nterviewing is the least costly audit technique when a large amount of information is involved

D. nterviewing is the only audit procedure which does not require confirmation of the information that is obtained

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Correct Answer: A

Question #16

An internal auditor is assigned to conduct an audit of security for a local area network (LAN) in the finance department of the organization. Investment decisions, including the use of hedging strategies and financial derivatives, use data and financial models which run on the LAN. The LAN is also used to download data from the mainframe to assist in decisions. Which of the following should be considered outside the scope of this security audit engagement?

A. nvestigation of the physical security over access to the components of the LAN

B. he ability of the LAN application to identify data items at the field or record level and implement user access security at that level

C. nterviews with users to determine their assessment of the level of security in the system and the vulnerability of the system to compromise

D. he level of security of other LANs in the company which also utilize sensitive data

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Correct Answer: D

Question #17

An internal audit manager is supervising an engagement. A senior auditor deviates from the approved engagement plan but meets all deadlines in the approved time schedule. Which activity is not required for the audit manager to provide proper engagement supervision?

A. ctively participate in audit procedures

B. nsure that all engagement objectives are met

C. pprove the deviation from the engagement plan

D. nsure compliance with the time schedule

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Correct Answer: A

Question #18

Persuasive evidence indicates that a member of senior management has been involved in insider trading that would be considered fraudulent. However, the evidence was encountered during an operational audit and is not considered relevant to the audit. Which of the following is the most appropriate action for the chief audit executive to take?

A. eport the evidence to external legal counsel for investigation

B. eport the evidence to the chairperson of the audit committee and recommend an investigation

C. onduct sufficient audit work to conclude whether fraudulent activity has taken place, then report the findings to the chairperson of the audit committee and to government officials if appropriate action is not taken

D. iscontinue audit work associated with the insider trading since it is not relevant to the existing audit

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Correct Answer: B

Question #19

During a routine audit of a customer service hotline, an internal auditor noticed that an unusually high number of customer complaints pertained to payments not being applied to the customers' accounts.Which of the following would most likely be the reason for the high volume of complaints?

A. n ineffective customer service department

B. oor controls in the invoice approval processes

C. heck tampering by an employee

D. ubmission of fraudulent expense reports

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Correct Answer: C

Question #20

During an operational audit of a chain of pizza delivery stores, an auditor determined that cold pizzas were causing customer dissatisfaction. A review of oven calibration records for the last six months revealed that adjustments were made on over 40 percent of the ovens. Based on this, the auditor:

A. as enough evidence to conclude that improperly functioning ovens are the cause

B. eeds to conduct further inquiries and reviews to determine the impact of the oven variations on the pizza temperature

C. as enough evidence to recommend the replacement of some of the ovens

D. ust search for another cause since approximately 60 percent of the ovens did not require adjustment

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Correct Answer: B

Question #21

Which of the following is the best approach for obtaining feedback from engagement clients regarding the quality of internal audit work?

A. sk questions during the exit interviews and send copies of the documented responses to the clients

B. all engagement clients after the exit interviews and send copies of the documented responses to the clients

C. istribute questionnaires to selected engagement clients shortly before preparing the internal audit annual activity report

D. rovide questionnaires to engagement clients at the beginning of each engagement and request that the clients complete and return them after the engagements

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Correct Answer: D

Question #22

Once an audit report is drafted, the auditor's supervisor should review it primarily to ensure that all:

A. tatements are supported and can be authenticated

B. ecommendations for corrective action are clear

C. rocesses within the audited area were reviewed

D. ample sizes appear appropriate for any issues found

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Correct Answer: A

Question #23

Which of the following factors would not be considered in determining appropriate follow-up procedures?

A. he significance of the audit finding

B. he effort and cost needed to correct the reported condition

C. he availability of funds in the audited department's budget to correct the reported condition

D. he potential consequences if the corrective action fails

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Correct Answer: C

Question #24

A chief audit executive (CAE) is evaluating four potential audit engagements based on the following factors: the engagement's ability to reduce risk to the organization, the engagement's ability to save the organization money, and the extent of change in the area since the last engagement. The CAE has scored the engagements for each factor from low to high, assigned points, and calculated an overall ranking. The results are shown below with the points in parentheses:Risk ReductionCost SavingsChangesHigh (3)

A. and 2 only

B. and 3 only

C. and 4 only

D. and 4 only

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Correct Answer: D

Question #25

Which of the following would provide the greatest assurance of the accuracy of a computer program's computation of freight charges for catalog sales?

A. se discovery sampling, selecting transactions from invoices which should have freight charges added to them

B. se either test data or parallel simulation to test the computer application

C. se difference estimation, selecting transactions from invoices which should have freight charges added to them

D. se generalized audit software to select a monetary-unit sample of invoices that have been billed to customers

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Correct Answer: B

Question #26

Which of the following types of contracts would provide the least incentive for a contractor to achieve economy and efficiency?

A. ump-sum contract

B. ost-plus contract

C. nit-price contract

D. ndefinite delivery contract

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Correct Answer: B

Question #27

What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

A. rend analysis

B. atio analysis

C. egression analysis

D. orizontal analysis

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Correct Answer: C

Question #28

An auditor prepared a workpaper that consisted of a list of employee names and identification numbers as well as the following statement:"A statistical sample of 40 employee personnel files was selected to verify that they contain all documents required by company policy 501 (copy attached). No exceptions were noted."The auditor did not place any audit verification symbols on this workpaper. Which of the following changes would most improve the auditor's workpaper?

A. se of audit verification symbols to show that each file was examined

B. emoval of the employee names to protect their confidentiality

C. ustification for the sample size

D. isting of the actual documents examined for each employee

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Correct Answer: C

Question #29

When assessing the risk associated with an activity, an internal auditor should:

A. etermine how the risk should best be managed

B. rovide assurance on the management of the risk

C. odify the risk management process based on risk exposures

D. esign controls to mitigate the identified risks

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Correct Answer: B

Question #30

The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison oF.

A. mployee morale before and after program implementation

B. crap and rework costs before and after program implementation

C. ustomer returns before and after program implementation

D. anufacturing and distribution costs per unit before and after program implementation

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Correct Answer: A

Question #31

During an audit, an employee, who does not want to be identified, offers to provide informationthat would be damaging to the organization and may concern illegal activities. Which of the following actions by the auditor would not be consistent with the IIA Code of Ethics and Standards?

A. romising to maintain the employee's anonymity and listening to the information

B. uggesting that the employee consider talking to legal counsel

C. nforming the employee that an attempt will be made to keep the source of the information confidential while looking into the matter further

D. nforming the employee of other methods of communicating this type of information

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Correct Answer: A

Question #32

In evaluating the validity of different types of audit evidence, which of the following conclusions is not correct?

A. ecomputation, though highly valid, is limited in usefulness due to its limited scope

B. he validity of documentary evidence is independent of the effectiveness of the control system in which it was created

C. nternally created documentary evidence is considered less valid than externally created documentary evidence

D. he validity of confirmations varies directly with the independence of the party receiving the confirmation

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Correct Answer: B

Question #33

A retail sales company has discontinued a product that normally sold for $100. During the first month of a sale of the product, a 20 percent discount was given. Later that sale price was reduced by an additional 40 percent. What was the overall discount from the original selling price?

A. 0 percent

B. 2 percent

C. 8 percent

D. 0 percent

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Correct Answer: B

Question #34

A post-audit questionnaire sent to audit clients is an effective mechanism for:

A. ubstantiating audit observations

B. romoting the internal audit activity

C. mproving future audit engagements

D. alidating process flow

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Correct Answer: C

Question #35

Cross-referencing individual payroll time cards to personnel department records and reports would allow an internal auditor to determine whether:

A. ndividuals are bona fide employees

B. ersonnel department records agree with payroll accounting records

C. ndividuals were paid at the proper rates

D. ndividuals were paid only for time worked

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Correct Answer: A

Question #36

An organization has developed a large database that tracks employees, employee benefits, payroll deductions, job classifications, and other similar information. The internal auditor reviews the retirement benefits plan and determines that the pension and medical benefits have been changed several times in the past ten years. The auditor wishes to determine whether there is justification to perform further audit investigation. The most appropriate audit procedure would beto:

A. eview the trend of overall retirement expense over the last ten years

B. se generalized audit software to select a monetary-unit sample of retirement pay, and determine whether each retired employee was paid correctly

C. eview reasonableness of retirement pay and medical expenses on a per-person basis stratified by which plan was in effect when the employee retired

D. se generalized audit software to select an attributes sample of retirement pay, and perform detailed testing to determine whether each person chosen was given the proper benefits

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Correct Answer: C

Question #37

When conducting research, which of the following is most important?

A. sing computer databases or the Internet to find all relevant sources

B. roviding documentation of the reference sources

C. resenting only those facts that support the conclusion

D. resenting all contrary views to balance the opinion

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Correct Answer: B

Question #38

Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?

A. ntegrated test facility

B. arallel simulation

C. est data

D. mbedded audit routines

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Correct Answer: D

Question #39

An organization has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly charging for costs related to contract change orders. Which of the following procedures are appropriate for testing this suspicion?1. Determine if the contractor has received proper approval of change orders from management.2. Determine if the contractor has billed for original contract work cancelled by the change orders.3. Det

A. and 2 only

B. and 3 only

C. and 3 only

D. and 4 only

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Correct Answer: C

Question #40

Which of the following files, when compared with billing records, would provide the best source of information for determining if all goods shipped are billed to customers?

A. re-numbered customer invoices

B. ccounts receivable transactions

C. re-numbered shipping documents

D. ustomer purchase orders

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Correct Answer: C

Question #41

During an audit of a contract for computer security, a governmental auditor finds that a contractor has developed a system that could be the most advanced in the industry. If it seems that the contractor is charging the government for developmental cost of a system that might be sold to other organizations, what is the auditor's best course of action?

A. stimate the cost to develop the advanced security system and inform the contractor that it will be a disallowed cost

B. xclude the observation from the engagement final communication because the contract was vague and the level of security is clearly acceptable

C. stimate the added cost, report it to management, and suggest that management meet with its lawyers and the contractor to resolve differences

D. ompare the cost of the security program with previous costs incurred by governmental operations and inform the contractor that the difference will be a disallowed cost

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Correct Answer: C

Question #42

In which of the following situations would it be most appropriate to employ the services of a forensic specialist?

A. etection of unauthorized changes to source documents

B. eview for misapplication of general computer controls over accounts receivable

C. nvestigation of ghost employees in a large business

D. erification of fixed assets in a manufacturing company

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Correct Answer: A

Question #43

An audit identified a number of weaknesses in the configuration of a critical client/server system. Although some of the weaknesses were corrected prior to the issuance of the audit report, correction of the rest will require between six and 18 months for completion. Consequently, management has developed a detailed action plan, with anticipated completion dates, foraddressing the weaknesses. Which of the following is the most appropriate course of action for the chief audit executive to take?

A. ssess the adequacy of the action plan and monitor key dates and deliverables

B. chedule a follow-up audit engagement to assess the status of corrective action

C. eassign information systems auditors to assist the information technology department in correcting the weaknesses

D. valuate statistics related to unplanned system outages, unauthorized access attempts, and denials of service to assess the effectiveness of corrections

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Correct Answer: A

Question #44

A limitation of using ratio analysis in an audit engagement is that it:

A. ften uses financial information provided by management which has not been reviewed for reliability and validity

B. s an expensive method of testing

C. equires computer software in order to develop meaningful interpretations of data

D. s useful only when comparisons can be made across other industries

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Correct Answer: A

Question #45

An auditor plans to analyze customer satisfaction, including. (1) customer complaints recorded by the customer service department during the last three months; (2) merchandise returned in the last three months; and (3) responses to a survey of customers who made purchases in the last three months. Which of the following statements regarding this audit approach is correct?

A. lthough useful, such an analysis does not address any risk factors

B. he survey would not consider customers who did not make purchases in the last three months

C. teps 1 and 2 of the analysis are not necessary or cost-effective if the customer survey is comprehensive

D. nalysis of three months' activity would not evaluate customer satisfaction

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Correct Answer: B

Question #46

During an audit of executive travel, an auditor noted that the president's travel expense reimbursements were approved by an executive secretary who reported to the president. The organization's reimbursement policy requires all travel expense reimbursements to be approved by the traveler's supervisor, but it does not address the president's reimbursements. Which of the following represents the auditor's best recommendation in this situation?

A. he organization's reimbursement policy should be amended to grant the president's executive secretary the authority to approve the president's travel expense reimbursements

B. he approval policy for executive travel should be considered at the next meeting of the audit committee of the board of directors

C. he president's travel expense reimbursements should be reviewed and approved by the chief financial officer

D. he president's noncompliance should be considered immaterial

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Correct Answer: B

Question #47

An internal auditor is conducting tests to determine if an organization is in compliance with its payment approval policies. After reviewing a sample of vouchers selected, the internal auditor concluded that there were indicators of fraud. Which of the following would be the most appropriate method to expand the audit test to achieve the audit objective?

A. alidate the completeness of the accounts payable files

B. and II only

C. I and III only

D. , II, and IV only

E. , III, and IV only

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Correct Answer: B

Question #48

Which of the following would constitute a violation of the IIA Code of Ethics?

A. n internal auditor, who has recently joined the organization, has accepted an assignment to audit the electronics manufacturing division

B. n internal auditor has accepted an assignment to audit the warehousing function six months from now

C. n internal auditor has no ambitions for promotion and has not engaged in training or other professional development activities during the last three years

D. n internal auditor discovered an internal financial fraud during the year, and the financial statements were adjusted to properly reflect the loss associated with the fraud

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Correct Answer: C

Question #49

The best method for assessing the relative importance of risk factors is to:

A. hange the rating of the factors from a 1-3 scale to a 1-5 scale

B. ssign weights to the factors based on the comparative impact

C. ist the risk factors in a priority order

D. se data from an independent source

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Correct Answer: B

Question #50

In reviewing the appropriateness of the minimum quantity level of inventory established by a department, an auditor would be least likely to consider:

A. tockout costs, including lost customers

B. easonal variations in forecasting inventory demand

C. ptimal order sizes determined by an economic order quantity model

D. he potential for obsolescence of inventory items

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Correct Answer: C

Question #51

The internal audit activity's primary responsibility in a review or examination of the organization by an external regulatory body is to:

A. erify that regulatory reviews occur with adequate frequency

B. rovide follow-up to determine if the regulator's findings are appropriately resolved by management

C. repare documentation for the regulator

D. ocument the responses to the regulator's findings

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Correct Answer: B

Question #52

An audit of a company's accounts payable found that the individuals responsible for maintaining the vendor master file could also enter vendor invoices into the accounts payable system. During the exit conference, management agreed to correct this problem. When performing a follow-up engagement of accounts payable, the auditor should expect to find that management has:

A. ransferred the individuals who maintained the vendor master file to another department to ensure that responsibilities are appropriately segregated

B. ompared the vendor and employee master files to determine if any unauthorized vendors have been added to the vendor master file

C. hanged the access control system to prevent employees from both entering invoices and approving payments

D. odified the accounts payable system to prevent individuals who maintain the vendor master file from entering invoices

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Correct Answer: D

Question #53

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the.

A. opulation

B. ttribute of interest

C. ample

D. ampling unit

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Correct Answer: A

Question #54

An organization contracted a third party to construct a new facility that was estimated to cost $25 million. Which of the following is the most pertinent reason for the organization to audit the contractor's records?

A. he contract includes a right-to-audit clause

B. he contractor will be paid on a cost-plus basis

C. he estimated cost is high

D. he contractor has subcontracted much of the work

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Correct Answer: B

Question #55

Senior management of an organization has requested that the internal audit activity provide ongoing internal control training for all managerial personnel. This is best addressed by:

A. formal consulting engagement

B. n informal consulting engagement

C. performance assurance engagement

D. n operational assurance engagement

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Correct Answer: A

Question #56

During a review of performance measures in an organization's purchasing function, the preliminary survey indicates that most of the measures have been in use for some time. The internal auditor should:

A. eview the data that was used to develop the measures

B. erform benchmarking in order to verify that the measures being used are meaningful

C. stablish the history of the measures and reasons for use

D. eport that the measures being used are out-of-date and should be improved

View answer

Correct Answer: B

Question #57

If participants in a control self-assessment workshop begin breaking their agreed-upon ground rules, the facilitator should:

A. gnore the behavior and continue the workshop

B. llow them to continue briefly and then remind them of the ground rules

C. ave the participants modify the ground rules

D. trictly enforce the ground rules

View answer

Correct Answer: B

Question #58

Which of the following is the correct ratio to use in calculating the dollar value of the population if the auditor is using ratio estimation?Number of ItemsAudited ValueCarrying AmountSample$500,000$480,000Population3,000$5,000,000

A.

B.

C.

D. 0

View answer

Correct Answer: C

Question #59

Which of the following conditions is the strongest indicator of possible fraud?

A. n assistant treasurer who refuses to take vacations

B. ndependent reconciliations of subsidiary to general ledgers that are not always completed on a timely basis

C. condition of excess manufacturing waste material

D. manager who is often over budget at the end of a reporting period

View answer

Correct Answer: A

Question #60

A consumer electronics company is considering acquiring a small flash memory manufacturer. An internal auditor has been assigned to determine if the manufacturer's accounts payable contain all outstanding liabilities. Which audit procedure is not relevant for this objective?

A. erify the period of liability of subsequent cash disbursements using related supporting documentation

B. end confirmations, including zero-balance accounts, to vendors with whom the manufacturer normally does business

C. race receiving reports issued before the period end to the accounts payable list and vendor invoices

D. erify a sample of accounts payable by using related invoices, receiving reports, and purchase orders

View answer

Correct Answer: D

Question #61

Which of the following are typical steps in the design of an organization's performance measurement system?

A. nderstand organizational strategy; perform a situational assessment; establish measurement categories; and take actions based upon measurement results

B. ategorize performance measures; establish a data collection plan; analyze data; and predict future performance

C. stablish a measurement plan; create an organizational strategy linked to those measurements; trend measurement data; and measure data variability

D. erform a situational assessment; generate macro measurements; review measurement data; and change strategy based upon measurement results

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Correct Answer: A

Question #62

During an audit of a major contract, an auditor finds that actual hours and dollars billed are consistently at or near budgeted amounts. This condition is a red flag for which of the following procurement fraud schemes?

A. efective pricing

B. ost mischarging

C. ictitious vendor

D. id rotation

View answer

Correct Answer: B

Question #63

Which of the following would not be characteristic of control self-assessment implemented by an audit department?

A. n auditor usually facilitates the discussion during the workshop phase while another records comments for subsequent use

B. uditors and business-unit employees work as a team

C. uditors perform traditional audit tests to identify control weaknesses

D. articipants discuss the control weaknesses that hinder the achievement of objectives

View answer

Correct Answer: C

Question #64

During an interview with a manager in a company's claims department, an auditor noted that the manager became nervous and changed the subject whenever the auditor raised questions about certain types of claims. The manager's answers were consistent with company policies and procedures. When documenting the interview, the auditor should:

A. ocument the manager's answers, noting the nature of the nonverbal communication

B. ocument the manager's answers but not the nonverbal communication because it is subjective and is not corroborated

C. onclude that the nonverbal communication is persuasive and that sufficient evidence exists to begin a fraud investigation

D. isregard the interview entirely because the verbal and nonverbal communications were contradictory

View answer

Correct Answer: A

Question #65

A bakery chain has a statistical model that can be used to predict daily sales at individual stores based on a direct relationship to the cost of ingredients used and an inverse relationship to rainy days. What conditions would an internal auditor look for as an indicator of employee theft of food from a specific store?

A. n a rainy day, total sales are greater than expected when compared to the cost of ingredients used

B. n a sunny day, total sales are less than expected when compared to the cost of ingredients used

C. oth total sales and cost of ingredients used are greater than expected

D. oth total sales and cost of ingredients used are less than expected

View answer

Correct Answer: B

Question #66

The scope of a consulting engagement performed by internal auditors should:

A. e sufficient to address the objectives agreed upon with the client

B. xclude areas that might be the subject of subsequent assurance engagements

C. e limited to activities within the current operating period

D. e preapproved in conjunction with the annual plan of consulting engagements

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Correct Answer: A

Question #67

Which of the following situations would best support the decision of a chief audit executive (CAE) to defer follow-up activity at a branch office until the next audit engagement?

A. n audit of the branch office is routinely scheduled every three years

B. n-site follow-up of a remote branch may not be feasible due to travel costs

C. ranch office management states that correction of the audit issue may take longer than expected

D. he CAE and management agree that the corrective action taken to date is sufficient

View answer

Correct Answer: D

Question #68

An internal auditor is evaluating controls over the purchasing function. The function includes the material control department, the purchasing department, and the receiving department. Which of the following is true regarding the presentation of the process flow among the three departments?

A. vertical flowchart of each department, showing inputs at the top and outputs at the bottom, would be most useful

B. lowcharts are not useful for documenting process flow

C. horizontal flowchart, with the departments described across the top and the process flowing horizontally, would be most useful

D. oth a flowchart and narratives are needed due to the number of departments involved

View answer

Correct Answer: C

Question #69

In which of the following cases is it appropriate for an audit report to not contain management's response either within the report or as an attachment?

A. anagement's response to an audit report is generally not a requirement

B. nternal controls were found to be properly designed and operating effectively although operations are deemed inefficient

C. here was insufficient time to obtain management's response during the draft reporting process

D. n internal audit report contains no observations

View answer

Correct Answer: D

Question #70

Which of the following data collection strategies systematically tests the effects of various factors on an outcome?

A. ontent analysis

B. ampling

C. valuation synthesis

D. odeling

View answer

Correct Answer: D

Question #71

If management expects 100 percent compliance with a procedure, which of the following sampling approaches would be most appropriate?

A. ttributes sampling

B. iscovery sampling

C. argeted sampling

D. ariables sampling

View answer

Correct Answer: B

Question #72

What is the most likely source of information for a detailed schedule of a company's insurance policies in force?

A. riginal journal entries found in the cash disbursements journal, along with supporting checks processed by the bank

B. olicies and procedures governing insurance coverage

C. he current fiscal year's budget for insurance, together with the beginning balance of the prepaid insurance account

D. he files containing insurance policies with various carriers

View answer

Correct Answer: D

Question #73

Which of the following would have the least significance in an audit of the efficiency of a driver's license testing facility?

A. lerical staff administer written tests to allow examiners more time to supervise driving tests

B. taff are cross-trained to provide backup for other areas of the facility as required

C. point-of-sale cashiering system reduces the need to reenter payment data

D. xaminers are required to be recertified on an annual basis

View answer

Correct Answer: D

Question #74

Which of the following types of internal audit consulting engagements is an example of a facilitation service?

A. onducting control self-assessment workshops

B. stimating savings from outsourcing processes

C. and IV only

D. , III, and IV only

E. I, III, and V only

F. , II, III, IV, and V

View answer

Correct Answer: A

Question #75

Which of the following would be the best audit procedure to use to determine if a division's unusually high sales and gross margin for November and December were the result of fraudulently recorded sales?

A. race a sample of shipping documents to related sales invoices to verify proper billing

B. onfirm accounts receivable balances with customers

C. ompare sales and gross margin totals with those of the previous ten months and the first month of the following year

D. se regression analysis techniques to estimate the sales and cost of goods sold for November and December

View answer

Correct Answer: B

Question #76

In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be audited. What is the most likely result of that procedure?

A. t creates apprehension about the audit engagement

B. t involves the engagement client's supervisory personnel in the audit

C. t is an uneconomical approach to obtaining information

D. t is only useful for audits of distant locations

View answer

Correct Answer: B

Question #77

Which of the following factors is least essential to a successful control self-assessment workshop?

A. oting technology

B. acilitation training

C. rior planning

D. roup dynamics

View answer

Correct Answer: A

Question #78

Five brand managers in a consumer products company met to determine how well certain promotions had performed. The data that they needed to analyze consisted of approximately 50 gigabytes of daily point-of-sale (POS) data for each month. The brand managers tried to download the POS data from the mainframe and import it into microcomputer spreadsheets for analysis. Their efforts were unsuccessful, most likely because oF.

A. he complexity of the mainframe data structure and the large volume of data

B. he difficulty of establishing access privileges for each subset of the mainframe data

C. nconsistencies in the mainframe data due to lack of integrity constraints on the data files

D. rror-prone transmission links for downloading the data from the mainframe data files

View answer

Correct Answer: A

Question #79

A chief audit executive has noticed that staff auditors are presenting more oral reports to supplement written reports. The best reason for the increased use of oral reports is that they:

A. educe the amount of testing required to support audit findings

B. an be delivered in an informal manner without preparation

C. an be prepared using a flexible format and reduce the information included in the written report

D. ermit auditors to counter arguments and provide additional information that the audience may require

View answer

Correct Answer: D

Question #80

Which of the following is a red flag associated with fictitious revenues?

A. low growth or unusually low profitability

B. nusual decrease in the number of days' sales in receivables

C. ubstantial increase in receivables turnover

D. ignificant transactions with related parties

View answer

Correct Answer: D

Question #81

The internal audit activity performs the following sequence of risk management activities:identification, analysis, and evaluation. According to IIA guidance, which of the following assurance approaches does this describe?

A. rocess elements approach

B. nterprise-wide risk management approach

C. ey principles approach

D. aturity model approach

View answer

Correct Answer: A

Question #82

According to IIA guidance, which of the following are acceptable strategies for an internal audit activity (IAA) to establish or build relationships?

A. ssist executives with their administrative and governance responsibilities, and encourage all IAA members to develop relationships with the organization's executives

B. ssist executives with their administrative and governance responsibilities, and ensure that all communications with the board are formal audit reports or preset agendas

C. uring an engagement, restrict communications with affected executives to matters pertaining to the engagement; and encourage all IAA members to develop relationships with the organization's executives

D. uring an engagement, restrict communications with affected executives to matters pertaining to the engagement; and ensure that all communications with the board are formal audit reports or preset agendas

View answer

Correct Answer: A

Question #83

A company owns a machine that will produce 100 light switches in four hours. Due to increased demand, a second machine capable of producing 100 light switches in three hours has been added.Approximately how many hours will it take to produce 100 light switches using both machines working together?

A.

B.

C.

D.

View answer

Correct Answer: C

Question #84

Which of the following situations might allow an employee to steal checks sent to an organization and subsequently cash them?

A. hecks are not restrictively endorsed when received

B. nly one signature is required on the organization's checks

C. ne employee handles both accounts receivable and purchase orders

D. ne employee handles both cash deposits and accounts payable

View answer

Correct Answer: A

Question #85

In preparing to facilitate a control self-assessment session, an auditor would be least likely to ensure that:

A. ey stakeholders are represented in the group

B. n independent content expert is available to help settle disagreements

C. ackground research is completed to familiarize the auditor with relevant issues

D. anagement is consulted on the issues and priorities

View answer

Correct Answer: B

Question #86

Which of the following techniques could be used to evaluate the effectiveness of changes to the operation of a computer help line?

A. enchmarking

B. aseline measurements

C. alk-throughs

D. uality circles

View answer

Correct Answer: B

Question #87

An internal auditor has a recommendation to change operations which could potentially increase profits by $50,000. The best way to sell this recommendation to management is to:

A. arefully work out the details of implementation before presenting it to department management

B. iscuss it with operating supervisors who are directly affected by the change, and then with department management

C. ring it to the audit manager, who should bring it immediately to senior management's attention

D. ait until the exit conference to discuss it in order to ensure all affected parties are present

View answer

Correct Answer: B

Question #88

What is the primary factor that determines the depth and breadth of audit follow-up?

A. he engagement client's written response to the audit findings

B. he auditor's assessment of risk associated with the audit findings

C. he auditor's assessment of personnel responsible for correcting audit findings

D. he availability of audit personnel and financial resources

View answer

Correct Answer: B

Question #89

In response to an accounts receivable confirmation, a customer indicated that the invoice listed on the confirmation letter had been paid two months earlier.This may indicate that:

A. he receivable was selected for confirmation in error

B. he customer is a bad credit risk

C. he receivable should be written off

D. raudulent activity has occurred

View answer

Correct Answer: D

Question #90

Which of the following best describes the primary concern of the audit manager upon review of engagement working papers of an auditor?

A. o ensure adequate control over the custody of working papers is exercised by the auditor

B. o ensure that as part of the documentation the auditor collected original documents that can corroborate the audit findings

C. o ensure that the work papers create background for subsequent reviews

D. o ensure that the audit programs are followed by the auditor

View answer

Correct Answer: D

Question #91

As part of the preliminary survey, an internal auditor sent an internal control questionnaire to theaccounts payable function Based on the questionnaire responses, the auditor determines that thereis no established procedure for adding and approving new vendors What would the auditor do next?

A. etermine that this situation is acceptable and focus on more significant issues

B. ocument the issue m the draft audit report

C. ocument the observation for further follow up when testing the operating effectiveness of controls

D. nterview the personnel associated with this observation

View answer

Correct Answer: C

Question #92

Which of the following performance criteria would be most useful when measuring the performance of a customer service desk?

A. he number of customer inquiries recorded per day

B. he percentage of customer issues resolved within 24 hours

C. he number of customer complaints recorded per day

D. he percentage of total customers served per day

View answer

Correct Answer: B

Question #93

Because of an abundance of high priority requests from management, an internal audit activity no longer has the resources to meet all of its commitments contained in the annual audit plan. Which of the following would be the best course of action for the chief audit executive to follow?

A. ontinue with the plan and seek opportunities to adjust priorities and reallocate resources

B. resent a reassessment of the plan to the board and senior management for consideration

C. eassess the plan and either cancel or divert resources away from the lowest priority activities

D. dvise the board immediately and seek their support for additional resources to meet the needs of the plan

View answer

Correct Answer: B

Question #94

An internal auditor recommended that an organization implement computerized controls in its sales system in order to prevent sales representatives from executing contracts in excess of their delegated authority levels. A follow-up review found that the sales system had not been modified, but a process had been implemented to obtain written approval by the vice president of sales for all contracts in excess of $1 million. The chief audit executive (CAE) would be justified in reporting this situation to the o

A. n the opinion of the CAE, the level of residual risk assumed by senior management is too high

B. only

C. II only

D. and III only

E. , II, and III

View answer

Correct Answer: A

Question #95

Given the scarcity of internal audit resources, a chief audit executive (CAE) decides not to schedule a follow-up of audit recommendations when developing engagement work schedules.Why does the CAE's decision violate the Standards?

A. t is not the CAE's responsibility to establish a process for a follow-up

B. ack of resources is not a sufficient reason to forgo a follow-up

C. ollow-up actions should take priority over new engagements in scheduling

D. hen resources are scarce, the follow-up can be incorporated into the next engagement

View answer

Correct Answer: B

Question #96

Which of the following procedures would provide the best evidence of the effectiveness of a credit- granting function?

A. bserve the process

B. eview the trend in receivables write-offs

C. sk the credit manager about the effectiveness of the function

D. heck for evidence of credit approval on a sample of customer orders

View answer

Correct Answer: B

Question #97

An internal audit activity implemented an integrated test facility to test payroll processing. The auditors identified the key controls and processing steps built into the computer program and developed test data to test them. The auditors submitted test transactions throughout the year and did not find any differences in their test results. The auditors can conclude that:

A. he system is properly capturing the hours worked by employees during the year and the hours have been properly submitted to payroll and processed correctly

B. ll employees were correctly paid during the year and their pay was correctly computed

C. he computer application and its control procedures were processing payroll transactions correctly during the past year

D. ll of the above

View answer

Correct Answer: C

Question #98

The most effective method of reporting engagement results to management and stimulating action is to:

A. eliver a lecture on the engagement results

B. imit verbal commentary and present a series of slides that graphically depict the engagement results

C. se slides to support a discussion of major points

D. istribute copies of the report, ask the participants to read the report, and ask for questions

View answer

Correct Answer: C

Question #99

When interrogating an individual who is suspected of fraud, it is appropriate to:

A. ell the individual that any information disclosed in the interrogation will not be disclosed outside of the company

B. tart the interview with questions to which the interviewer already knows the answer

C. iscontinue questioning once the individual has confessed to the fraud

D. repare a list of questions prior to the interrogation and strictly adhere to the list

View answer

Correct Answer: B

Question #100

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

View answer

Correct Answer: C

Question #101

Which of the following is used to identify and prioritize critical business applications to determine those that must be restored and the order of restoration in the event that a disaster impairs information systems processing?

A. ontingent facility contract analysis

B. ystem backup analysis

C. endor supply agreement analysis

D. isk analysis

View answer

Correct Answer: D

Question #102

Which of the following procedures would be most helpful in providing additional evidence when an auditor suspects that an unidentified employee is submitting and approving invoices for payment?

A. se generalized audit software to identify invoices from vendors with post office box numbers or other unusual features

B. elect a sample of payments made during the year and investigate each one for approval

C. elect a sample of receiving reports representative of the period under investigation and trace to approved payment

D. elect a sample of invoices paid during the past month and trace them to appropriate vendor accounts

View answer

Correct Answer: A

Question #103

Which of the following statements is correct regarding the assessment of risk in the annual audit planning process?1. Activities requested by management should be considered higher risk than those requested by the audit committee.2. Activities with lower budgets can be as high risk as those with higher budgets.3. The potential financial or adverse exposure should always be considered in the assessment of risk.

A. only

B. only

C. only

D. and 3 only

View answer

Correct Answer: D

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