Auditing and Assurance Services

[answerhappygod]

the audit committee.D) Performing a follow-up on audit findings.Version 1 15
47) When preparing an audit report, an internal auditor must convince management to take action concerning the report's findings. When reporting on an audit finding, an auditor must include some key elements about that finding in the report. These key elements are:A) condition, criteria, cause, effect, and recommendation.B) condition, criteria, cause, effect, and requirement.C) condition, source, cause, effect, and recommendation.D) location, criteria, cause, effect, and recommendation.48) Program audits include determining:A) the degree to which an entity is acquiring, protecting, and using its resources effectively.B) the effectiveness of an organization's programs, activities, or functions.C) the causes of an organization's inefficiencies or uneconomical practices.D) the entity's compliance with laws and regulations concerning matters of efficiency.49) The Standards for the Professional Practice of Internal Auditing of the Institute of Internal Auditors (IIA) does not include the broad category of:A) proficiency and due care.B) nature of work.C) performance of the engagement.D) quality control.50) Which of the following internal audits is generally not a type of government audit?A) Review of compliance with policies, plans, procedures, laws, and regulations.B) Review of the economy and efficiency in the use of resources.C) Review of the means of safeguarding assets.D) Review of the results of programs.Version 1 16
55) Which of the following is not required to become a certified internal auditor (CIA)?A) Hold a college degree.B) Pass a two-day examination.C) Have a full-time position as an internal auditor.D) Meet an experience requirement.56) When considering the competence of internal auditors,external auditors should obtain evidence about the:A) educational and experience qualifications of the internal auditors.B) organizational status of the internal auditors.C) lines of communication within the entity of the internal auditors.D) the size of the internal audit department.57) When independent CPAs in public practice take engagements to audit government units or financial assistancerecipients, they must follow:A) GAAS only.B) GAAS and GAGAS.C) GAGAS only.D) internal auditing standards.58) Which of the following statements is true?A) External auditors must consider the internal auditfunction as part of obtaining an understanding of a company's internal control structure.B) External auditors must review all work performedby internal auditors.C) External auditors must investigate the competence and objectivity of internal auditors.D) External auditors must share responsibility for the work of internal auditors if it is used for evidence for the financial statement audit.Version 1 18
59) Which of the following is a difference between performing an audit and performing a fraud examination?A) Auditors are not concerned with the nature of a financial misstatement; fraud examiners are concerned with the nature of the misstatement.B) Auditors use analytical procedures, such as trend analysis, to identify risks of misstatements; fraud examiners are not interested in analytical procedures because they must identify specific items that prove the occurrence of fraud.C) Auditors are generally not concerned with small immaterial misstatements; fraud examiners generally do not believe that any fraud is immaterial.D) Auditors are concerned only with financial statement errors; fraud examiners are concerned only with the theft of assets by employees.60) Fraud examiners have four main objectives in performing an investigation. Which of the following is not one of those objectives?A) Determine whether a fraud exists.B) Determine who was involved in the fraud.C) Determine how the fraud occurred.D) Determine the effect on financial statement users.61) In performing a financial statement audit in accordance with government auditing standards, an auditor is required to report on the entity's compliance with laws and regulations. This report should:A) state that compliance with laws and regulations isthe responsibility of the entity's management.B) describe the laws and regulations with which the entity must comply.C) provide an opinion on overall compliance with laws and regulations.D) indicate that the auditor does not possess legal skills and cannot make legal judgments.Version 1 19
events (specific violations of laws and regulations).D) write a disclaimer of opinion related to knowledge of noncompliance.66) The Single Audit Act of 1984, as amended in 1996 requires an annual audit of all governments, agencies, and nonprofit organizations that:A) receive $500,000 or more federal funds.B) receive $750,000 or more federal funds.C) spend $500,000 or more federal funds.D) spend $750,000 or more federal funds.67) When auditors report on a financial audit engagement in accordance with generally accepted government auditing standards (GAGAS), the basic report(s) include a:A) disclaimer of opinion on financial statements, report on internal control, and report on compliance audit regarding laws and regulations.B) report (opinion) on financial statements, report oninternal control, and report on compliance audit regarding laws and regulations.C) report on internal control and report(s) on efficiency and effectiveness of operations.D) report on compliance regarding lawsand regulations and report(s) on achievement of program goal(s).68) Generally accepted government auditing standards (GAGAS) regarding performance reporting standards requiresthe reports to tell about which of the following?A) Presentation of financial statements in accordance with GAAP and abuse of public money and property.B) Presentation of financial statements in accordance with GAAP and internal control design and strength of operation.C) Abuse of public money and property and management's noteworthy positive accomplishments.D) Abuse of public money and propertyand internal control design and strength of operation.69) In assessing the objectivity of internal auditors, an independent auditor Version 1 21
should:A) evaluate the quality control program in effect for the internal auditors.B) examine documentary evidence of the work performed by the internal auditors.C) test a sample of the transactions and balances thatthe internal auditors examined.D) determine the organizational level to which the internal auditors report.70) The work of internal auditors may affect the independent auditor's:A) procedures performed in obtaining an understanding of the internal control structure and in assessing the risk of material misstatement only.B) procedures performed in obtaining an understanding of the internal control structure and substantivetests performed in gathering direct evidence only.C) procedures performed in assessing the risk of material misstatement and substantive tests performed in gathering direct evidence only.D) procedures performed in obtaining an understanding of the internal control structure and in assessing the risk of material misstatement and substantive tests performedin gathering direct evidence.71) When performing a fraud examination, the fraud examiner takes great care to preserve and identify any documents that may indicate fraud, which is called:A) preserving the chain of custody of the evidence.B) establishing evidential procedure.C) marking an evidential exhibit.D) forensic auditing.72) Which of the following would be considered in determining whether an internal audit department is independent?Version 1 22
A) The organizational level of the chief audit officer and the objectivity of the audit staff.B) A requirement for the auditors to report to the audit committee and the composition of the audit committee.C) The organizational status of the audit committee and the individual independence of internal auditors in the department.D) The nature of the audit charter and the objectivity of the audit staff.73) Which of the following would be considered an independence issue for an internal auditor?A) The company decreased every department's budget, including internal audit, by 5%.B) The auditors participated in the employee stock plan and, therefore, owned stock in the company.C) The CAE reports directly to the audit committee.D) The controller had authority to change theaudit schedule before being sent to management and the audit committee.74) Which of the following situations provides the greatestthreat to an internal auditor's objectivity?A) An auditor reviews the procedures for a new electronic data interchange (EDI) connection to a major customer before it is implemented.B) A former purchasing assistant performs a review of bidding procedures in the purchasing department four months after being transferred to the internal auditing department.C) An auditor recommends controls and performance measures for inclusion in a new contract with an outside service organization for the processing of payroll and employee benefits.D) A warehouse employee assists an auditorin verifying the physical inventory of small motors.75) An internal auditor's report should contain five elements for each finding. Which of the following are the correct elements?A) Condition, Version 1 23
criteria, cause, effect, recommendation.B) Condition, relevance, cause, effect, recommendation.C) Condition, evidence, cause, effect, recommendation.D) Condition, relevance, evidence, effect,recommendation.76) A university received a significant grant from the statein which it resides. Which of the following would be of greatest interest to a governmental auditor auditing that grant at the university?A) Cash received by the university was deposited in the appropriate account.B) The grant is properly recorded on the university's financial statements.C) Grant money was spent in accordance with the purpose of the grant.D) The person applying for the grant was the person who was utilizing the grant money.77) In an audit of a municipality the auditor is most important audit objective is:A) the municipality is in compliance with laws, regulations, and the municipality's policy and procedures.B) the municipality's internal controls are operating effectively.C) the municipality as sufficient documentation to support all purchases.D) purchases made by the municipality have sufficient encumbrances.78) Which of the following is mostly concerned with the benefits derived from the expenditure of funds?A) Operational auditing.B) Performance auditing.C) Management auditing.D) Financial statement auditing.Version 1 24
79) A typical objective for internal auditors in the company's sustainability A) determine whether the financial statements fairly present the company's expenditures on regulatory compliance.B) establish funding requirements for sustainability programs.C) assist management in establishing measurements for achieving company objectives.D) report on the company's relative success in attaining sustainability objectives.Version 1 25
80) A governmental auditor assigned to audit the financial statements of the state highway department would not be considered independent if the auditor:A) spouse was the CFO of the highway department.B) lived in the state and utilized the highway system on a daily basis.C) performed audits of the state budget that includedfunding to the highway department.D) reported the audit findings to the transportation committee of the state legislature.81) Management has instated a new grievance process. When an employee has a grievance a manager, in another department is assigned as an independent mediator to evaluatethe employee's complaint. That manager must submit a written report to the Vice President of Human Resources, whomust act on the report and discuss the resolution with the employee, the employee's manager, and any other relevant personnel.Management acknowledges that this process will mean that an employee will be paid for several hours of work during the grievance process and several managers will spend time in the process. However, this process will likely reduce employee turnover.This process has been in place for 18 months. Management wants to know what the costs are for the grievance process and if the new process is achieving the stated objective of reducing employee turnover. What type of audit would internal perform?A) Operational audit.B) Governance audit.C) Compliance audit.D) Performance audit.82) The purpose of the internal audit's evaluation of the effectiveness of existing risk management processes is to determine that:A) management has planned and designed operations to provide reasonable assurance of achieving objectives and goals.B) management's policies and procedures Version 1 26
will achieve objectives and goals.C) the organization's objectives and goals are established within risk limits established by the internal audit organization.D) the organization's objectives and goals will be achieved in an accurate and timely manner and with minimal use of resources.83) Predication is:A) the determination of the method used to enact a fraud.B) evidence used in a court of law in proving fraudulent behavior.C) a reason to believe that a fraud has occurred.D) the amount of restitution that is made to the company when an individual is convicted of afraud.84) In a fraud investigation, the first objective is:A) identify possible motives to commit a fraud.B) inspect documentation for tampering.C) establish who the perpetrators are.D) to determine ifa fraud has been committed.85) Which of the following would not be an objective of a fraud investigation?A) Determine from the evidence if a fraud has been committed.B) Determine the scope of the fraud.C) Identify internal control weaknesses that allowed the fraud to occur.D) Determine the amount of restitution that should be received from the perpetrators.86) Auditors of governmental units would not be presumed to be independent if they are:A) free from sources of personal impairment.B) independent under AICPA Code of Version 1 27
Professional Conduct rules.C) auditing the branch of government to which they are assigned.D) elected or appointed and reporting to a legislativebody of government.87) The services provided by internal auditors do not include:A) audits of financial statements for security registration statements.B) review of control systems that ensure compliancewith company policies, laws, and regulations.C) review of effectiveness in achieving program results in comparison to pre-established objectives and goals.D) appraisals of the economy and efficiency of operations.88) Operational audits do not include determining:A) whether the entity is acquiring, practicing, and using resources economically and efficiently.B) review of control systems to ensure compliance with company policies.C) the causes of inefficiencies or uneconomical practices.D) whether the department's goals are aligned with the organization's goals.89) Program audits do not include determining:A) the extent to which the desired results or benefits established by the legislature are being achieved.B) the effectiveness of organizations, programs, activities, or functions.C) whether the agency has complied with laws and regulations applicable to the program.D) whether the financial statements of an audited entity fairly present the financial position in accordance with GAAP.Version 1 28
A) managing the internal audit activity.B) nature of work.C) compliance with policies, plans, procedures, laws, and regulations.D) engagement planning.91) The GAO Government Auditing Standards requirements for written reports in financial statement audits do not include:A) audit report on financial statements.B) a report of any significant accomplishments and management improvements.C) a report on the auditee's internal control structure and the control risk assessment.D) a report on theauditee's compliance with applicable laws and regulations.92) In a single audit of federal financial assistance programs, which of the following does the auditor not need to determine and report for each organization?A) An expanded scope audit of economy, efficiency, and program results.B) That the financial statements are presented fairly in accordance with GAAP.C) That an adequate internal control system is in place.D) That the laws and regulations have been complied with.93) Which of the following auditors is responsible for designing and planning an audit to detect material illegal acts and frauds?A) External auditors.B) Internal auditors.C) Governmental auditors.D) All of the answer choices are correct.94) Generally, fraud examiners are called when Version 1 29
a fraud is already known or suspected. The term that means a reason to believe a fraud has occurred is:A) prediction.B) suspicion.C) predication.D) admonition.95) Fraud examiners must be concerned with the integrity of the evidence that they find. Preserving the evidence is called:A) expert identification.B) chain of custody.C) evidence conservation.D) admissibility of testimony.96) The fundamental principle behind Benford’s Law is:A) Numbers occur in normal distribution about a mean value for account numbers.B) Naturally occurring numbers are not randomly distributed.C) Given a sufficient sample size the population of an account can be accurately approximated.D) Accounts withlarge balances are more significant to account balances.97) Benford’s Law is used to:A) Identify accounts with unusually large balances.B) Identify unusual relationships between different accounts on the financial statements.C) Identify an unusual pattern in the numbers within an account.D) Identify accounts meeting the materiality level of audit.98) The state Department of Education Version 1 30
needs to have audits for various reasons. Select the appropriate type of engagement or practice that would most likely be performed. Answers may be used more than once. To have an opinion regarding the physical condition of several of the older high schools in the stateA) Compliance auditB) Attestation engagementC) Operational auditD) Program audit99) The state Department of Education needs to have audits for various reasons. Select the appropriate type of engagement or practice that would most likely be performed. Answers may be used more than once. To know if hiring practices in various school districts meet state lawA) Compliance auditB) Attestation engagementC) Operational auditD) Program audit100) The state Department of Education needs to have audits for various reasons. Select the appropriate type of engagement or practice that would most likely be performed. Answers may be used more than once. To know if guidance counselors can adequately handle the number of students assigned to them in an effective mannerA) Compliance auditB) Attestation engagementC) Operational auditD) Program audit101) The state Department of Education needs to have audits for various reasons. Select the appropriate type of engagement or practice Version 1 31
that would most likely be performed. Answers may be used more than once. To know if various schools are providing appropriate programs to serve the needs of the studentsA) Compliance auditB) Attestation engagementC) Operational auditD) Program audit102) The state Department of Education needs to have audits for various reasons. Select the appropriate type of engagement or practice that would most likely be performed. Answers may be used more than once. To know if an after school tutoring program has resulted in more high school students continuing with their education in collegeA) Compliance auditB) Attestation engagementC) Operational auditD) Program auditFILL IN THE BLANK. Write the word or phrase that best completes each statement or answers the question.103) __________ auditing refers to the study of business operations for the purpose of making recommendations about __________ and __________ use of resources.104) Compliance Version 1 32
auditing refers to the process of ensuring that a company is operating within __________, __________, and __________.Version 1 33
105) Although internal auditors are associated with their employers in the eyes of the public, they seek __________ and __________ independence.Version 1 34
106) Internal audit findings should always include __________, __________, __________, __________, and __________.Version 1 35
107) GAO performs three types of government audits: __________, __________ and __________ audits.Version 1 36
108) The IIA auditing standards are classified into three major categories: __________, __________, and __________.Version 1 37
109) The __________ is the federal law that established uniform requirements for audits of federal financial assistanceprovided to __________ and __________ governments.Version 1 38
110) Government performance audits determine if __________ and __________.Version 1 39
111) The Single Audit Act, as amended in 1996, establishedan annual audit for all __________ and __________ units thatspend $__________ or more of __________ funds.Version 1 40
112) The Single Audit Act requires the auditor to report on __________ __________, __________, and __________.Version 1 41
113) CPAs in public practice most often are involved in governmental audits as a result of responding to an agency's __________.Version 1 42
114) Internal audit reports are usually considered "__________" until a __________ is performed.Version 1 43
115) Few fraud auditors believe in the concept of an "immaterial fraud" because __________ and __________.Version 1 44
116) Once a fraud is discovered, the focus of the audit changes to an investigation with the primary objective of __________.Version 1 45
117) Fraud examination requires the individual to have expertise in __________ and __________.Version 1 46
118) A fraud examination has four main objectives: (1) determining whether a fraud exists, (2) determining __________, __________, and __________.Version 1 47
119) A person testifying about findings during litigation support, application of accounting principles, or application ofauditing standards is calleda(n) __________.Version 1 48
120) Prosecution of fraud perpetrators is advisable because if not prosecuted, they __________, and failure to do so __________.Version 1 49
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.121) During the audit of a corporation's major division, an auditor interviewed an accounting clerk. The clerk told the auditor that she believes that the division has been capitalizing research and development expenses (GAAP requires that all R&D costs be charged to ordinary expense in the period in which they are incurred). R&D is a significant part of the division's budget. If this information is found to be true, the division may have to expense millions of dollars previously capitalized and significantly reduce its operating profit. The auditor has not performed any testing to determinewhether this problem actually exists but has discussed the potential problem with the division controller and you, the director of internal audit.The following day, you received the following e-mail from the company president:The controller of Division B informs me that you have discovered a questionable account classification dealing with research and development expense. I am aware of the issue. You are directed to discontinue anyfurther investigation of thismatter until I inform you toproceed. Under the confidentiality standard of your profession, I also direct you not to discuss this matter with other managers, the audit committee, or the outside auditors.As the director of internal audit, write a shortmemo in response to the president's e-mail. Be sure to explain the position you are taking and why this position is appropriate.Version 1 50
ESSAY. Write your answer in the space provided or on a separate sheet of paper.122) Explain briefly the purpose and requirements under the Single Audit Act.123) What are the different types of government audits?Version 1 51
124) What are the different types of internal audits?Version 1 52
125) How do government auditors achieve objectivity?Version 1 53
126) The standards of the Institute of Internal Auditors (IIA) are grouped under two broad categories. Identify and briefly explain each of the categories. Each category has special standards written for specific types of audits. Identify the two types of special standards for each category.Version 1 54
127) Following are five cases (1-5) illustrating different types of audit engagements. In the space provided by each case, indicate the type of audit that would be conducted (H-M), the specific type of auditor who might perform the engagement (P-S), and the auditing standards that would probably apply for the engagement (W-Z). (H) Financial(I) Operational(J) Compliance(K) Performance(L) Governance(M) Attestation Case 1. A CPA firm's review of the effectiveness of a federally supported unemployment training program. Case 2. An audit of financial statements as part of a registration under the Securities Act of 1933. Case 3. A review of the company's plant security to determine whether it is operating effectively. Case 4. A review of the Human Resource Department's hiringpractices. Case 5. A study of how the Department of Defense could reduce costs from a competitive bid program. Lettera.b.c.d.e.Version 1 55
119) expert witness120) [will continue to steal, sends a negative message to other employees]Version 1 65
121) Mr. President, I am in receipt of your e-mail requesting that the internal audit department discontinue its audit into Division B's R&D expenses. Although the internal audit department wishesto cooperate with you and the management of Division B whenever possible, in this instance, I cannot comply with your instruction. It is imperative that the internal audit department maintain independence and objectivity in all matters related to our audits. This includes being able to determine the scope of our audit. In addition, it is important that the internal audit department maintain a high standard of integrity to retain the trust of the departments, management, and the audit committee. These elements of internal audit are clearly indicated in the Standards of Professional Practice of the Institute of Internal auditor and, as you are aware, our department adheres to those standards. Our authority to evaluate all areas of the company at our discretion and our responsibilities to follow standards is clearly indicated in the audit charter, which was approvedby the Board of Directors.122) The purpose of the Single Audit Act was to simplify the reporting requirements for stateand local governments that receive federal assistance from several federal agencies. Theycan now satisfy the reporting requirement by preparing a single audit report for the unit instead of preparing numerous reports by various auditors. In a single audit, auditors must determine and report whether theFinancial statements are presented in accordance with GAAP.Internal control system provides reasonable assurance that the organization is managing federal assistance programsin compliance with applicable laws and regulations.Organization has complied with laws and Version 1 66
123) The types of government audits include (1) financial statement audits to determine whether the financial statements are prepared in accordance with GAAP and the entity has complied with laws and regulations. (2) Attestation engagements. (3) Performance audits, which include economy and efficiency audits and program audits.124) Financial audits.Compliance audits. Operational Audits.Governance Audits.125) Government auditors achieve objectivity byFinding standards for evaluation, andUsing measurement of actual results, soActual results can be compared to the standards.126) The two categories of internal auditing standards are (1) attribute standards that set the characteristics of internal audit departments and the professional that work done in those departments and (2) performance standards that establish requirements when performing an engagement. Within the standards there are specific standards for attestation engagements and for consulting engagements.127)Lettera.b.c.d.128)