IIA CIA Part 2 Exam Sample Questions, Free Practice Questions

Question #1

Which of the following tasks would be considered unusual for planning a control self-assessment workshop?

A. onducting interviews to identify relevant issues for the discussion

B. dentifying key stakeholders and ensuring they are represented in the group

C. ecuring an external subject matter expert to arbitrate disputes

D. nsuring that managers are willing to accept constructive criticism

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Correct Answer: C

Question #2

Which of the following represents appropriate evidence of supervisory review of engagement workpapers?

A. supervisor's initials on each workpaper

B. I and IV only

C. , II, and III only

D. , III, and IV only

E. , II, III, and IV

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Correct Answer: B

Question #3

Which of the following is typically not a reason for committing financial statement fraud?

A. o dispel negative market perception

B. o disguise a duplicate payment to a vendor

C. o obtain more favorable terms on financing

D. o receive performance-related bonuses

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Correct Answer: B

Question #4

After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?

A. anager of disbursements

B. only

C. and II only

D. I and III only

E. I, III, and IV only

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Correct Answer: B

Question #5

During a payroll audit of a large organization, an internal auditor noted that the assistant personnel director is responsible for many aspects of the computerized payroll system, including adding new employees in the system; entering direct-deposit information for employees; approving andentering all payroll changes; and providing training for system users. After discussions with the director of personnel, the auditor concluded that the director was not comfortable dealing with information technology issue

A. ontinue to follow the engagement program because the engagement scope and objectives have already been discussed with management

B. eview the engagement program to ensure testing of direct deposits to employee bank accounts is adequately covered

C. ecommend to the chief audit executive that a fraud investigation be started

D. est a sample of payroll changes to ensure that they were approved by the assistant director before being processed

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Correct Answer: B

Question #6

Confirmation would be most effective in addressing the existence assertion for:

A. he addition of a milling machine to a machine shop

B. ales of merchandise during the regular course of business

C. nventory held on consignment

D. he granting of a patent for a special process developed by the organization

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Correct Answer: C

Question #7

During which of the following systems development stages would it be most useful for an internal auditor to be involved?

A. oding and testing

B. ser acceptance and post-implementation

C. esign and implementation

D. esting and user acceptance

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Correct Answer: C

Question #8

What is the most important risk in determining the validity of construction delay claims?

A. ontractor claims may be submitted prior to completion of the work

B. ontractor claims may include costs considered in the fixed-price portion of the work

C. ontractor claims may include subcontractor estimates of balances due to the subcontractor

D. ontractor claims may be understated

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Correct Answer: B

Question #9

An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?

A. eview the controls over payroll in both the company and the service bureau

B. eview only the company's controls over data sent to and received from the service bureau

C. eview only the controls over payments to the service bureau based on the contract

D. ancel the engagement because the processing is being performed outside of the organization

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Correct Answer: A

Question #10

Which role is not considered a change agent when an organization wants to implement structural changes?

A. enior management

B. ine management

C. ndependent consultant

D. hareholder

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Correct Answer: D

Question #11

An auditor receives anonymous information that fraud is occurring in the operation being audited, but no details are given as to the type of fraud or the individuals involved. There are several areas in which fraud could occur. The auditor should:

A. dentify the area that has the greatest volume of transactions and design a sampling plan for substantive testing

B. pply analytical procedures to areas that might be impacted by possible fraudulent activities

C. nterview employees to identify areas where the fraud could be occurring

D. lan detailed tests of the areas that have the highest dollar amount of transactions

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Correct Answer: B

Question #12

When conducting audit follow-up of a finding related to cash management routines, an internal auditor would expect to find that all of the following changes have occurred except:

A. he steps being taken are resolving the condition disclosed by the finding

B. nherent risk has been eliminated as a result of resolution of the condition

C. ontrols have been implemented to deter or detect a recurrence of the finding

D. enefits have accrued to the entity as a result of resolving the condition

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Correct Answer: B

Question #13

According to the International Professional Practices Framework, which of the following statements is correct regarding the communication of audit results?

A. ummary reports may be issued separately from or in conjunction with the final report

B. and III only

C. I and IV only

D. , II, and IV only

E. , II, III, and IV

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Correct Answer: C

Question #14

An auditor is performing a review of a complex process to identify opportunities to increase efficiency. What is the most practical way to document the process to identify areas of inefficiency?

A. rite a description of the process activities in sequential order

B. evelop a PERT (program evaluation and review technique) diagram

C. lowchart the process

D. reate a decision tree

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Correct Answer: C

Question #15

The efficiency of internal audit operations is best enhanced if workpaper standards:

A. ermit the extent of documentation to vary according to engagement objectives

B. equire supervisors to initial and date each workpaper that they review

C. llow access to workpapers by external parties if approved by senior management or the audit committee

D. andate the workpaper retention period

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Correct Answer: A

Question #16

The following is an excerpt from an audit engagement workpaper:- A Company- Accounts Receivable- DateObjective. To determine if the computer system is correctly recording all accounts receivable transactions.Procedures: Judgmental selection of a sample of all accounts receivable balances greater than $50,000 for positive confirmation of balances.Conclusion: Based on the results of testing wherein all but three confirmations were returned, the accounts receivable balance is fairly presented in all material r

A. t is not appropriate to judgmentally select a sample when testing accounts receivable

B. conclusion should be reached only for the results of overall testing, not for individual procedures

C. he audit procedures used are not consistent with the audit objective

D. he format of the workpaper does not conform to the standard format for workpapers

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Correct Answer: C

Question #17

The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?

A. inancial measures

B. only

C. I and IV only

D. II and IV only

E. I, III, and IV only

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Correct Answer: D

Question #18

An audit of an organization's claims department determined that a large number of duplicate payments had been issued due to problems in the claims processing system. During the exit conference, the vice president of the claims department informed the auditors that attempts to recover the duplicate payments would be initiated immediately and that the claims processing system would be enhanced within six months to correct the problems. Based on this response, the chief audit executive should:

A. djust the scope of the next regularly scheduled audit to assess controls within the claims processing system

B. iscuss the findings with the audit committee and ask the committee to determine the appropriate follow-up action

C. chedule a follow-up engagement within six months to assess the status of corrective action

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

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Correct Answer: D

Question #19

The chief audit executive (CAE) of an organization has established an internal audit activity (IAA) quality assessment program. According to IIA guidance, which of the following would be part of this program?

A. ssessment of the IAA conducted independently of client feedback, and the review of individual audits to determine the quality and timeliness of supervision

B. ssessment of the IAA conducted independently of client feedback, and identified areas of improvement reviewed at the end of the year

C. ompliance with a checklist of required audit procedures, and review of individual audits to determine the quality and timeliness of supervision

D. ompliance with a checklist of required audit procedures, and identified areas of improvement reviewed at the end of the year

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Correct Answer: C

Question #20

A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically.If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation. All of the applicable documents are electronically marked, cross-referenced, and retained in open files. Both an integrated test facility and a systems control aud

A. se generalized audit software to read the electronically marked unmatched items

B. se generalized audit software to read the purchase orders and trace to applicable receiving and vendor invoice files

C. se the SCARF to identify unusual items

D. ubmit test data to identify attributes of unmatched items

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Correct Answer: A

Question #21

New credit policies have been implemented in an automated order-entry system to improve the collection of receivables. Sales management has compiled several examples that show decreased sales and delayed order entry, and contends that these examples are a direct result of the new credit-policy constraints. Sales management's data and information provide.

A. eedback control data

B. rrelevant and argumentative information

C. vidence that the new credit policies do not meet the stated corporate objective to improve collections

D. statistically valid conclusion about the impact of the new credit policies on customer goodwill

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Correct Answer: A

Question #22

An audit of management's quality program includes testing the accuracy of the cost-of-quality reports provided to management. Which of the following internal control objectives is the focus of this testing?

A. o ensure compliance with policies, plans, procedures, laws, and regulations

B. o ensure the accomplishment of established objectives and goals for operations or programs

C. o ensure the reliability and integrity of information

D. o ensure the economical and efficient use of resources

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Correct Answer: C

Question #23

What would be used to determine the collectability of accounts receivable balances?

A. he file of related shipping documents

B. egative accounts receivable confirmations

C. ositive accounts receivable confirmations

D. n aged accounts receivable listing

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Correct Answer: D

Question #24

A chief audit executive (CAE) of a major retailer has engaged an independent firm of information security specialists to perform specialized internal audit activities. The CAE can rely on the specialists' work only if it is:

A. erformed in accordance with the terms of the contract

B. arried out in accordance with the Standards

C. erformed under the supervision of the information technology department

D. arried out using standard review procedures for retailers

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Correct Answer: B

Question #25

Many questionnaires are made up of a series of different questions that use the same response categories (for example: strongly agree, agree, neither, disagree, strongly disagree). Some designs will have different groups of respondents answer alternate versions of the questionnaire that present the questions in different orders and reverse the orientation of the endpoints of the scale (for example: agree on the right and disagree on the left). The purpose of such questionnaire variations is to:

A. liminate intentional misrepresentations

B. educe the effects of pattern response tendencies

C. est whether respondents are reading the questionnaire

D. ake it possible to get information about more than one population parameter using the same questions

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Correct Answer: B

Question #26

While investigating a compromised Web server, an auditor found that the Web server logs had been deleted. The auditor should recommend that the Web server logs bE.

A. enerated and maintained on a separate secure server

B. ccessible by administrative users only

C. ncrypted to ensure that the logs cannot be deleted

D. estored automatically to the Web server from backup files

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Correct Answer: A

Question #27

Which of the following factors would increase the confidence level in a variables sampling plan?

A. larger sample size

B. and II only

C. and III only

D. I and III only

E. , II, and III

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Correct Answer: A

Question #28

What does the following scatter gram suggest?

A. ales revenue is related to training costs

B. he training program is not effective

C. ncreases in training costs consistently increase sales revenue

D. ne data point is incorrectly plotted

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Correct Answer: A

Question #29

Which of the following would provide the best evidence of compliance with an airline's standard of having aircraft refueled and cleaned within a specified time of arrival at an airport?

A. endor fuel invoices that have been reconciled to inventory records

B. ime cards completed by aircraft cleaning and fueling crews

C. bservation of selected aircraft while they are being refueled and cleaned

D. omparison of the standard hourly labor costs for cleaning and fueling personnel with actual labor charges

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Correct Answer: C

Question #30

An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to:

A. imit access to the data table to management and line supervisors who have the authority to determine pay rates

B. equire a supervisor in the department, who does not have the ability to change the table, to compare the changes to a signed management authorization

C. nsure that adequate edit and reasonableness checks are built into the automated system

D. equire that all pay changes be signed by the employee to verify that the change goes to a bona fide employee

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Correct Answer: B

Question #31

Which of the following data sources would provide the least valid data for an audit of a retail store's customer service?

A. graph that compares staffing levels for selected times with store traffic (number of customers) over the same time period

B. random survey of customer satisfaction given to customers as they leave the store

C. nterviews of randomly selected service personnel regarding the quality of service that they provide

D. graph of customer service training across stores, comparing training with overall levels of service satisfaction

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Correct Answer: C

Question #32

Which of the following processes real-transaction data through auditor-developed test programs?

A. eneralized audit software

B. racing

C. arallel simulation

D. apping

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Correct Answer: C

Question #33

An audit of a Web-based third-party payment processor determined that a programming error enabled customers to create multiple accounts for each mailing address. This caused problemsduring the processing of credit card transactions. Management agreed to correct the program and notify customers with multiple accounts that the accounts would be consolidated. What should the auditor do in response?

A. mend the scope of the subsequent audit to verify that the program was corrected and that accounts were consolidated

B. II only

C. V only

D. and II only

E. I and III only

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Correct Answer: D

Question #34

Which of the following is the best problem-solving technique to use when analyzing performance and cost?

A. alue analysis

B. ttribute listing

C. rainstorming

D. omponent analysis

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Correct Answer: A

Question #35

Which of the following is a weakness that is inherent in the use of the test data method to test internal controls in a computer-based accounting system?

A. he auditor must test many transactions with the same condition in order to achieve assurance that the condition is being detected

B. onditions that were not specifically considered by the auditor may go untested

C. he approach requires the creation of "dummy companies," possibly destroying or altering actual company data in the process

D. nclusion of atypical data in the test data may cause errors to be noted on the exception report

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Correct Answer: B

Question #36

Which of the following is the most common method management can use to manage risk within its risk appetite?

A. mplementation of controls

B. se of risk registers and dashboard

C. requent communication of risk appetite for operating personnel

D. ontinuous evaluations and audits

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Correct Answer: A

Question #37

Which of the following is the most appropriate step for the chief audit executive to take in order to avoid defamation of character of the principal suspect in a fraud investigation?

A. estrict the use of potentially damaging words to privileged reports or discussions

B. abel all workpapers, reports, and correspondence of the internal audit activity as private

C. estrict discussions of the fraud to members of management who express an interest in the investigation

D. estroy all investigation workpapers and reports if the fraud cannot be proven

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Correct Answer: A

Question #38

Which of the following is a red flag associated with improper asset valuation?

A. nusual increase in gross margin

B. nusual decrease in the number of days' purchases in inventory

C. ecurring positive cash flows from operations

D. llowance for bad debts that is increasing in percentage terms

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Correct Answer: A

Question #39

Which of the following is the first step in the process where auditors and clients work together to evaluate the clients' system of internal control?

A. ssess risks

B. evelop questionnaires

C. dentify and assess controls

D. dentify objectives

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Correct Answer: D

Question #40

Which of the following describes an internal auditor's responsibilities to include audit procedures to detect fraud in audits of a multinational organization?

A. nternational Accounting Standards require the internal auditor to include audit procedures which would detect fraud if it would cause a material misrepresentation of the financial statements

B. nternal auditors do not have any specific responsibilities with respect to including fraud-related audit procedures

C. roper audit procedures, when carried out with due professional care, will guarantee that fraud, if present, will be detected

D. f significant control weaknesses are detected, additional tests should be directed toward other indicators of fraud

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Correct Answer: D

Question #41

As a result of a recent discovery of false information on employment applications, an internal auditor has reviewed hiring procedures. Which of the following represents a weakness in the control system?

A. pplicants are not required to have their signed applications legally authenticated

B. II only

C. and II only

D. I and III only

E. , II, and III

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Correct Answer: C

Question #42

During the development of a purchasing system, an auditor reviewed the payment authorization program. Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?

A. ssue an exception report

B. ay the amount billed and adjust the inventory account for the difference

C. eturn the invoice to the vendor for correction

D. uthorize payment of the full invoice, but maintain an open purchase order record for the missing goods

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Correct Answer: A

Question #43

An internal auditor compared the number of human resources professionals per employee with industry standards. This comparison would assist the auditor in evaluating which of the following areas?

A. ufficiency of controls over payroll rate increases

B. urrent level of performance of the human resources department

C. dequacy of controls over hiring new employees

D. egree of compliance with human resources policies

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Correct Answer: B

Question #44

The most effective way for internal auditors to enhance the reliability of computerized financial and operating information is by:

A. etermining if controls over record keeping and reporting are adequate and effective

B. eviewing data provided by information systems to test compliance with external requirements

C. etermining if information systems provide management with timely information

D. etermining if information systems provide complete information

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Correct Answer: A

Question #45

During an audit of a major metropolitan museum, an auditor was unable to locate selected items from the museum's collection. The director of the museum informed the auditor that the upcoming replacement of the museum's inventory tracking system would address the auditor's concerns.What follow-up activity should the auditor propose?

A. eceive periodic feedback from museum staff regarding the status of the system implementation

B. onitor the system implementation and schedule a follow-up review once the new system is in place

C. etermine whether the items are indeed missing and assess the ability of the new system to remedy the problem

D. chedule an audit of the museum's security systems to determine if theft is a problem

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Correct Answer: C

Question #46

In forming a team to investigate an organization's potential adoption of an activity-based costing system, the best reason to include an internal auditor on the team would be the auditor's knowledge of:

A. ctivities and cost drivers

B. nformation processing procedures

C. urrent product cost structures

D. nternal control alternatives

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Correct Answer: D

Question #47

The most common motivation for management fraud is the existence of:

A. ices, such as a gambling habit

B. ob dissatisfaction

C. inancial pressures on the organization

D. he challenge of committing the perfect crime

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Correct Answer: C

Question #48

A major insurance company provides a discount on automobile insurance if the vehicle meets certain safety criteria. Which of the following audit tests would provide an internal auditor with the best evidence that all qualifying insured automobiles are receiving the discount?

A. ompare the percentage of automobiles receiving discounts this year to that of last year

B. sk managers whether they are aware of the discount criteria and whether they are providing the discount to all qualifying automobiles

C. elect a sample of automobiles that are not receiving the discount and determine if they have been properly excluded

D. elect a sample of automobiles receiving the discount and determine that the required discount criteria are being met

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Correct Answer: C

Question #49

Under what circumstances would internal audit not become involved when intentional misconduct is suspected?

A. anagement is involved in wrongdoing

B. anagement is running a parallel investigation

C. anagement does not believe a trusted employee could be guilty

D. anagement does not maintain strong internal controls

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Correct Answer: B

Question #50

Which of the following methods would an auditor most likely use to document a complex sales order process?

A. evelop a horizontal flowchart, with supporting documentation for key control points

B. reate a critical path method chart, noting the processes involved for each step

C. erform a process review, assigning time and cost to each step of the process to develop a hierarchy flowchart

D. tilize a systems narrative, which can be updated during subsequent audits

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Correct Answer: A

Question #51

A company used simple regression analysis to analyze maintenance costs against machine hours (MH) for a 26-week period when the plant was in full operation. The regression yielded the following estimated cost function:Maintenance Cost = $60 + $0.25/MHThe regression analysis also generated a coefficient of determination (R2), or goodness of fit, of 0.85. Which of the following statements regarding this regression analysis is appropriate?

A. his regression can be used to determine the maintenance cost for any period at any activity level by substituting the machine hours in the equation

B. he $60 component represents the best estimate of fixed maintenance costs for the company in a shutdown situation

C. he $0

D. he coefficient of determination of R2 = 0

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Correct Answer: C

Question #52

While performing a follow-up of a concern about equipment-inventory tracking, which course of action is not necessary for the auditor to take?

A. nsure that the steps being taken resolve the condition disclosed by the initial finding

B. nsure that controls have been implemented to prevent the issue from occurring again

C. nsure that the entity has begun to experience benefits as a result of resolving the issue

D. nsure that the inherent risk has been eliminated as a result of resolving the issue

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Correct Answer: D

Question #53

The scope of a business process review primarily involves:

A. ppraising the environment and comparing against established criteria

B. ssessing the organization's system of internal controls

C. eviewing routine financial information and assessing the appropriateness of various accounting treatments

D. valuating organizational and departmental structures, including assessments of transaction flows

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Correct Answer: D

Question #54

An internal auditor has completed an audit of an organization's activities and is ready to issue a report. However, the client disagrees with the internal auditor's conclusions. The auditor should:

A. ithhold the issuance of the audit report until agreement on the issues is obtained

B. ssue the audit report and state both the auditor and client positions and the reasons for the disagreement

C. ssue the audit report and omit the client's conclusion as it is not the opinion of the internal auditor

D. erform additional work, with the client's concurrence, to resolve the areas of disagreement and delay the issuance of the report until agreement is reached

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Correct Answer: B

Question #55

Which of the following, if observed, would not indicate the need to extend the search for other indicators of fraud in a purchasing department?

A. he standard of living of one of the purchasing agents has increased

B. he internal control structure has significant weaknesses

C. he purchasing agents have convinced management to adopt a policy of paying vendors on a more timely basis in order to avoid incurring penalty charges

D. he cost of goods procured seems to be excessive in comparison with previous years

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Correct Answer: C

Question #56

What is the primary reason for having audit management approve audit engagement reports?

A. o ensure that client concerns are appropriately addressed

B. o confirm proper format, grammar, and punctuation

C. o verify that senior management supports the report's conclusions

D. o validate that report findings are substantiated

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Correct Answer: D

Question #57

An internal auditor has been assigned to perform a quality audit on a manufacturing plant. Which course of action should the auditor perform first?

A. ompare the planned outputs with the actual outputs

B. scertain the costs of materials purchased

C. valuate the plant's ability to meet production quotas

D. eview the levels of scrap and rework

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Correct Answer: D

Question #58

An internal auditor is discussing an audit problem with an engagement client. While listening to the client, the internal auditor should:

A. repare a response to the client

B. ake mental notes on the speaker's nonverbal communication, as it is more important than what is being said

C. ake sure that all details, as well as the main ideas of the client, are remembered

D. ntegrate the incoming information from the client with information that is already known

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Correct Answer: D

Question #59

Monetary-unit sampling is most useful when the internal auditor:

A. s testing the accounts payable balance

B. annot cumulatively arrange the population items

C. xpects to find several material errors in the sample

D. s concerned with overstatements

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Correct Answer: D

Question #60

Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?

A. hysically inspect all assets on the organization's property

B. only

C. and IV only

D. I and III only

E. II and IV only

View answer

Correct Answer: D

Question #61

An internal auditor noticed that employees with responsibilities for cash collection had recently issued an unusually large number of credit memos, indicating that the original charges had been made to the wrong customer accounts. From a control standpoint, the auditor would be concerned with the possibility that:

A. he organization is selling a large number of defective items

B. mployees in this function are concealing a theft of cash collected from customers

C. redit memos are not being submitted on a timely basis

D. he credit department has not been properly screening customers and, as a result, a large portion of the accounts receivable may not be collectible

View answer

Correct Answer: B

Question #62

Which of the following is most appropriate when conducting an interview during the course of a fraud investigation?

A. chedule the interview well in advance

B. xplain the detailed purpose to the interviewee

C. ssume that the interviewee is guilty

D. ave a witness present during the interview

View answer

Correct Answer: D

Question #63

Which of the following best defines an audit opinion?

A. summary of the significant audit observations and recommendations

B. n auditor's evaluation of the effects of the observations and recommendations on the activities reviewed

C. conclusion which must be included in the audit report

D. recommendation for corrective action

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Correct Answer: B

Question #64

A recent survey indicated that residents of a small town take the train to a nearby city eight times per month, on average. The same survey showed that the number of train trips that a resident takes per month (y) is determined by the number of days per month that the resident works in the nearby city (x), according to the equation: y = 2 + 2x. A person who never works in the nearby city is expected to take the train:

A. ero times per month

B. wo times per month

C. our times per month

D. ight times per month

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Correct Answer: B

Question #65

An internal auditor uses a data query tool in the purchasing process to review the vendor master filefor authorizations Which of the following describes the control objective likely being tested?

A. ffectiveness

B. esponse

C. fficiency

D. itigation

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Correct Answer: A

Question #66

Which of the following conclusions would be appropriate for a beginning auditor performing an audit of a payroll department?

A. mployee taxes have been deducted at the correct rates, and the taxes have been forwarded to the appropriate government agency

B. lthough there is insufficient segregation of duties, the impact is mitigated by compensating controls

C. he payroll computer system should be replaced

D. he payroll department staff has the appropriate level of skills

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Correct Answer: A

Question #67

An auditor decides to vouch a sample of ledger entries back to their original documentation. In terms of whether all transactions had been recorded, this test would bE.

A. elevant to the completeness objective

B. rrelevant to the completeness objective

C. more timely test of completeness than evidence from interviews

D. more biased test of completeness than evidence from interviews

View answer

Correct Answer: B

Question #68

If an auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk?

A. he experience and knowledge of the auditor

B. he adverse consequences of noncompliance

C. he acceptable level of risk of making an incorrect audit conclusion

D. he cost of performing auditing procedures on sample selections

View answer

Correct Answer: A

Question #69

An audit department has received anonymous information that an employee has allegedly been able to steal and cash checks sent to the organization by customers. What is the most efficient way for an auditor to determine how this type of fraud could occur and who might be the perpetrator?

A. onfirm accounts receivable

B. onfirm accounts payable

C. eview the endorsements and banks of deposit on customers' canceled checks

D. lowchart and analyze key controls in the cash receipts process

View answer

Correct Answer: D

Question #70

According to HA guidance, which of the following is the Key planning step internal auditors shouldperform to establish appropriate engagement objectives prior to starting an audit engagement?

A. eview the organizational structure, management roles and responsibilities and operating procedures

B. valuate management's risk assessment and the internal audit activity's risk assessment

C. ssess process How and control documents used to meet regulatory requirements

D. eview meeting notes from discussions involving management of the area to be reviewed

View answer

Correct Answer: D

Question #71

After completing a net present value (NPV) calculation on a proposed project, an analyst explores the change in NPV with changes in the interest rate. This additional analysis is referred to as:

A. ecision analysis

B. imulation

C. ensitivity analysis

D. ariance analysis

View answer

Correct Answer: C

Question #72

Access control software on an organization's mainframe computer records detailed information concerning both successful and unsuccessful log-on attempts to applications. Which of the following audit tools would be best suited to review the access information that has been recorded?

A. eneralized audit software

B. lowcharting

C. ntegrated test facility

D. est data

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Correct Answer: A

Question #73

During a systems development audit, software developers indicated that all programs were movedfrom the development environment to the production environment and then tested in the production environment. What should the auditor recommend?

A. mplement a test environment to ensure that testing is not performed in the production environment

B. only

C. II only

D. and II only

E. and III only

View answer

Correct Answer: D

Question #74

As part of a preliminary survey of the purchasing function, an internal auditor reads the department's policies and procedures manual and concludes that the manual describes the processing steps clearly and contains an appropriate internal control design. The next engagement objective is to evaluate the operating effectiveness of internal controls. Which procedure would fulfill this objective most effectively?

A. erform a design test

B. erform a compliance test

C. erform a systems test

D. erform an efficiency test

View answer

Correct Answer: B

Question #75

An audit of customer accounts receivable found that outstanding receivables as a percentage of revenue had increased significantly during the past two years. The increase was attributed to the extension of credit, at the urging of the marketing department, to a number of companies that were not creditworthy. Which of the following would be least useful in monitoring the disposition of this finding?

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

B. eriodic updates from the controller regarding the status of corrective actions

C. nformation from the credit and marketing personnel assigned the responsibility for reevaluating credit policies

D. pdates from the information technology division regarding implementation of a new accounts receivable system

View answer

Correct Answer: D

Question #76

An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?

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

B. end accounts receivable balance confirmations to customers

C. ompare the division's sales and gross margins to those of the prior three-month period

D. stimate the sales and cost of goods sold for the three-month period by using regression analysis

View answer

Correct Answer: B

Question #77

According to the Standards, which of the following describes the condition attribute when applied to the observations and recommendations contained in the audit report?

A. he standards, measures, or expectations used in making an evaluation or verification

B. he reason for the difference between the expected state and the actual state

C. he factual evidence that the internal auditor found in the course of the examination

D. he risk or exposure the organization encounters because the actual state is not consistent with the criteria

View answer

Correct Answer: C

Question #78

When determining the nature, timing, and extent of follow up, the chief audit executive considers all of the following factors except:

A. ignificance of the reported observation or recommendation, degree of effort, and cost needed to correct the reported condition

B. mpact that may result should the corrective action fail

C. uthority and responsibility of the person required to take corrective action

D. omplexity of the corrective action and time period involved

View answer

Correct Answer: C

Question #79

Which of the following statements is true regarding internal control questionnaires?

A. nternal control questionnaires are useful m evaluating the effectiveness of standard operating procedures

B. nternal control questionnaires provide reliable documents allowing internal auditors to cover many control procedures in little time

C. nternal control questionnaires can be used by internal auditors as an interview guide

D. nternal control questionnaires provide direct audit evidence which may need corroboration

View answer

Correct Answer: D

Question #80

Which of the following would be the least desirable criteria against which to judge current operations of an organization's treasury function?

A. he operations of the treasury function as documented during the last audit engagement

B. ompany policies and procedures delegating authority and assigning responsibilities

C. inance textbook illustrations of generally accepted good treasury function practices

D. odification of best practices of the treasury function in relevant industries

View answer

Correct Answer: A

Question #81

All of the following tools are employed to control large-scale projects except:

A. rogram evaluation and review technique (PERT)

B. ritical path method

C. tatistical process control

D. antt charts

View answer

Correct Answer: C

Question #82

A chief audit executive (CAE) has decided to add an engagement to the current audit plan which will exceed available audit resources. Which of the following is the best course of action for the CAE to take?

A. resent the plan change to senior management and request additional resources before going to the board of directors

B. eek approval from senior management and the board of directors for the plan change and advise them of the issue of limited resources

C. dd this change to the plan and request senior management to indicate which other engagement should be deleted to keep the overall plan within resource constraints

D. mmediately seek additional resources from senior management and the board of directors to meet the needs of the organization

View answer

Correct Answer: B

Question #83

Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?

A. evelop a cost-per-product analysis for products developed over the past five years

B. evelop a report on revenue generated by or cost savings directly attributable to newly developed products

C. ompare research as a percentage of revenue between this company and all major competitors in the same industry

D. ompare the number of this year's new product developments to the number of new product developments for the past five years

View answer

Correct Answer: B

Question #84

Which of the following is not relevant when developing recommendations for inclusion in auditreports?

A. easibility

B. ost of implementation

C. nderlying causes

D. iming of follow-up

View answer

Correct Answer: D

Question #85

When internal auditors provide consulting services, the scope of the engagement is primarily determined by:

A. nternal auditing standards

B. he audit engagement team

C. he engagement client

D. he internal audit activity's charter

View answer

Correct Answer: C

Question #86

Which of the following best defines an engagement conclusion?

A. n auditor's determination of the cause of an engagement observation

B. n auditor's professional judgment of the situation which was reviewed

C. n opinion that must be included in the engagement final communication

D. recommendation for corrective action

View answer

Correct Answer: B

Question #87

A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is most likely to explain the difference in the regional results?

A. he more successful region spends 30 percent more money on education than does the other region

B. higher percentage of the general tax fund is spent on education in the more successful region than in the other region

C. he more successful region spends more money per student on education than does the other region

D. he more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only three percent

View answer

Correct Answer: C

Question #88

A key to effective benchmarking in a consulting engagement is identifying the issues that can be:

A. eviewed by all internal audit staff members

B. hared with all internal audit customers

C. easured and controlled by the engagement client

D. iscussed with the board or audit committee

View answer

Correct Answer: C

Question #89

Which of the following audit planning activities adds the least value in understanding the current risk exposures facing the corporation?

A. eview of organizational strategic plans and operational plans

B. onsultation with senior management and the audit committee

C. eview of the external auditor's risk assessment

D. eview of corporate performance reporting and benchmarking

View answer

Correct Answer: D

Question #90

An internal auditor provided the following statement about division A's performance during the month: "Because supplies of raw material X were scarce, division A's profits declined by 15 percent."Which of the following can be validly concluded from the auditor's statement?

A. ivision A's production level declined by 15 percent

B. only

C. I only

D. II only

E. and II only

View answer

Correct Answer: B

Question #91

An internal auditor found that the cost of some material installed on capital projects had been transferred to the inventory account because the capital budget had been exceeded. Which of the following would be an appropriate technique for the auditor to use to determine the extent of the problem?

A. dentify variances between amounts capitalized each month and the capital budget

B. nalyze a sample of capital transactions each quarter to detect instances in which installed material was transferred to inventory

C. eview all journal entries that transferred costs from capital to inventory accounts

D. ompare inventory receipts with debits to the inventory account and investigate discrepancies

View answer

Correct Answer: C

Question #92

When performing a compliance audit of the organization's outsourced services, which of the following is considered the primary engagement objective?

A. erifying that the organization does not have the appropriate knowledge and resources in- house

B. nsuring the provider has adequate internal controls in order to protect the quality of their service

C. valuating the efficiency, effectiveness, economy, and sufficiency of the services provided

D. ssessing the provider's adherence to contract and regulatory requirements

View answer

Correct Answer: D

Question #93

The internal audit activity of an organization obtained approval to add a senior auditor to its staff. The chief audit executive, audit manager, and audit supervisor each will interview the candidates. According to the Standards, which of the following best explains the involvement of management in the interview process?

A. rovides audit management with the opportunity to communicate expectations regarding ethical behavior standards

B. nables audit management to outline its quality assurance and improvement program with the senior auditor

C. ssists audit management in planning by more effectively allocating the senior auditor to appropriate audits

D. llows audit management to explain the criteria that will be used to evaluate the senior auditor's performance

View answer

Correct Answer: C

Question #94

Which sampling plan requires no additional sampling once the first error is found?

A. tratified sampling

B. ttributes sampling

C. top-or-go sampling

D. iscovery sampling

View answer

Correct Answer: D

Question #95

After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to usE.

A. imple random sampling to select a sample of vouchers processed by the department during the past year

B. robability-proportional-to-size sampling to select a sample of vouchers processed by the department during the past year

C. iscovery sampling to select a sample of vouchers processed by the department during the past year

D. udgmental sampling to select a sample of vouchers processed by clerks who were identified by the department manager as acting suspiciously

View answer

Correct Answer: C

Question #96

Which of the following is one of the five basic tnanoal statement assertions when an internal auditorevaluates controls over financial reporting?

A. eliability or appropriateness

B. easonableness

C. xistence or occurrence

D. elevance

View answer

Correct Answer: C

Question #97

The internal audit activity can be involved with systems development continuously, immediately prior to implementation, after implementation, or not at all. An advantage of continuous internal audit involvement compared to the other types of involvement is that:

A. he cost of audit involvement can be minimized

B. here are clearly defined points at which to issue audit comments

C. edesign costs can be minimized

D. he threat of lack of audit independence can be minimized

View answer

Correct Answer: C

Question #98

An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time. The application controls being verified by this analysis are:

A. dit and validation controls

B. ejected and suspense item controls

C. ontrols over update access to the database

D. rogrammed balancing controls

View answer

Correct Answer: A

Question #99

A film company determined that income level impacts the number of films that people watch per month, as shown by the graph below:The graph indicates that:

A. richer person always sees more films than a poorer person

B. he number of films seen per month is a linear function of income level

C. 20 percent pay increase is more likely to increase film viewing at lower income levels than at higher income levels

D. 20 percent pay increase is likely to increase film viewing by a constant amount regardless of income level

View answer

Correct Answer: C

Question #100

An internal auditor would most likely use attributes sampling when testing which of the following?

A. ccounts receivable balances

B. orrect coding of accounts payable disbursement vouchers

C. ear-end inventory value

D. ixed asset book value

View answer

Correct Answer: B

Question #101

Risk assessments can vary in format, but generally include:1. A description of identified risks.2. Tests of audit controls.3. A system of rating risks.4. Sample size identification.

A. and 2 only

B. and 3 only

C. , 3, and 4 only

D. , 3, and 4 only

View answer

Correct Answer: B

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