Certified Internal Auditor Questions + Answers Part 3

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QUESTION 182
Which of the following audit findings would have the least impact (either positive or negative) on a department's control environment?
A. Thedepartmentmakeslong-terminvestmentriskdecisionstomaximizereturnoninvestment.
B. Thedepartmentmanagersetsanddemonstratesatoneofhonestyandintegrityinallbusinessdealings. C. Many department functions are duplicated or verified by other department employees.
D. Deficiencies were found in the appropriate authorization of transactions.
Correct Answer: A Section: Volume B


Explanation Explanation/Reference:
QUESTION 183
When developing an effective risk-based plan to determine audit priorities, an internal audit activity should start by:
A. Identifyingriskstotheorganization'soperations. B. Observingandanalyzingcontrols.
C. Prioritizing known risks.
D. Reviewing organizational objectives.
Correct Answer: D Section: Volume B Explanation
Explanation/Reference:
QUESTION 184
Which of the following elements is important for an internal auditor to consider when performing a privacy risk assessment of an organization?
I. Areas where personal information is collected, used, stored, and disseminated. II. Inherent risk.
III. Privacy practices of competitors.
IV. Third-party recipients of information.
A. IIIonly
B. IandIIonly
C. I, II, and IV only D. I, II, III, and IV.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:


QUESTION 185
A dental insurance provider has implemented an electronic claim submission process and is concerned that dentists are submitting claims for services that were not provided. Which of the following control procedures would be most effective in preventing this type of fraud?
A. Developaprogramthatidentifiesproceduresperformedonanindividualwhichareeitherinexcessofexpectationsbasedontheageoftheinsuredorare similar to other procedures recently performed on the individual.
B. Requireallsubmittedclaimstobefollowedbyasignedstatementbythedentisttestifyingtothefactthattheclaimedprocedureswereperformed.
C. Send confirmations to the dentists requesting them to confirm the exact nature of the claims submitted to the insurance provider.
D. Develop an integrated test facility and submit false claims to verify that the system is detecting such claims on a consistent basis.
Correct Answer: A Section: Volume B Explanation
Explanation/Reference:
QUESTION 186
Reportable audit findings must be:
I. Documented by facts.
II. Supported by relevant evidence.
III. Agreed to by management of the audited area. IV. Convincing enough to compel corrective action.
A. IandIVonly
B. IIandIIIonly C. I, II, and IV only D. I, II, III, and IV.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 187
Risk within an internal audit engagement is defined as the:


A. Probabilitythatabalanceorclassoftransactionsandrelatedassertionscontainmisstatementsthatcouldbematerialtothefinancialstatements. B. Uncertaintyofaneventoccurringthatcouldhaveanimpactontheachievementofobjectives.
C. Failure to adhere to organizational policies, plans, and procedures, or the failure to comply with relevant laws and regulations.
D. Failure to accomplish established objectives and goals for operations or programs.
Correct Answer: B Section: Volume B Explanation
Explanation/Reference:
QUESTION 188
The percentage of orders that are rush orders and the percentage of returns to total orders are examples of which of the following types of control activities?
A. Qualitycontrolmonitoring.
B. Directfunctionalmanagement. C. Benchmarking.
D. Performance indicators.
Correct Answer: D Section: Volume B Explanation
Explanation/Reference:
QUESTION 189
According to the International Professional Practices Framework, risk is:
I. Defined as the negative effect of events that are expected to occur. II. Measured in terms of consequences.
III. Measured in terms of likelihood.
A. Ionly
B. IandIIonly C. II and III only D. I, II, and III.


Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 190
When planning the work program for an assurance engagement, an internal auditor should first review the department's business objectives and then:
A. Identifyrisks.
B. Reviewcontrols.
C. Determine scope.
D. Evaluate vulnerabilities.
Correct Answer: A Section: Volume B Explanation
Explanation/Reference:
QUESTION 191
It is important for a chief audit executive to seek formal approval from the board regarding an internal audit charter so that:
A. Theeffectivenessoftheinternalauditactivitycanbemeasured.
B. Thestatusoftheinternalauditactivitycanbemoreclearlyestablished. C. There is assurance that all internal audit activities will be completed.
D. Improvements can be implemented in internal audit processes.
Correct Answer: B Section: Volume B Explanation
Explanation/Reference:
QUESTION 192
Which of the following actions by a chief audit executive is most likely to prevent exaggerated sales reports by division management?


I. Hire a new internal auditor who has fraud investigation credentials.
II. Assist the controller in developing and monitoring a series of business process indicators which are historically correlated with, but independent of, sales. III. Announce a series of internal audit engagements focusing on compliance with corporate sales-reporting policies.
IV. Ask the president and the board to issue a statement of corporate policy stressing the importance of accurate management reporting and the negative consequences of intentional misreporting.
A. IandIIonly
B. IIandIIIonly C. III and IV only D. I, II, III, and IV.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 193
In assessing the independence of the internal audit activity, a member of a peer review team should consider all of the following factors except:
A. Accesstoandfrequencyofcommunicationswiththeboardofdirectorsoritsauditcommittee.
B. Thecriteriaofeducationandexperienceconsiderednecessarywhenfillingvacantpositionsontheauditstaff. C. The degree to which auditors assume operating responsibilities.
D. The scope and depth of engagement objectives for the audit engagements included in the review.
Correct Answer: B Section: Volume B Explanation
Explanation/Reference:
QUESTION 194
Which of the following best describes the procedures used by the representatives of an organization's stakeholders to provide oversight of the processes administered by management?
A. Governance


B. Control
C. Risk management D. Monitoring
Correct Answer: A Section: Volume B Explanation
Explanation/Reference:
QUESTION 195
Which of the following is most likely to be an element of an effective compliance program?
A. Theinternalauditactivityisassignedresponsibilityforoverseeingtheprogram.
B. Theprogramiscommunicatedtoemployeesinavideoformatonaone-timebasis.
C. The organization uses monitoring systems designed to detect improper activity.
D. The organization obtains as much information as possible when performing background checks on employees.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 196
Which of the following internal controls is likely to prevent pollution from waste disposal before it occurs, rather than detect it after it occurs?
A. Identificationoflargebudgetvariancesindisposalcostsforhazardouschemicals. B. Restrictedaccesstoenvironmentaldepartmentfiles.
C. Formal on-the-job training program conducted by the environmental staff.



D. Samples of water and solid waste taken daily with the results recorded in a log.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 197
Which of the following controls would most likely prevent the input of an unreasonable number of labor hours into a costing system?
A. Recalculationtestsduringprocessing.
B. Programmedlimittestsofinputfields.
C. Reconciliation of input control totals.
D. Consistency checks of data in input fields.
Correct Answer: B Section: Volume B Explanation
Explanation/Reference:
QUESTION 198
A daily report which lists unsuccessful attempts to log on to a computer system is A.
A. Correctivecontrol.
B. Preventivecontrol.
C. Detective control.
D. Compensating control.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:


QUESTION 199
Which of the following should be the primary objective of an audit of an entity's business continuity plan?
A. Costoftestingandupdatingtheplan.
B. Delegationofresponsibilitiesfortheplan. C. Relationship of the plan to risk exposures. D. Efficiency of the planning procedures.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 200
Some of a company's payroll transactions were batch posted to the payroll file but were not uploaded correctly to the general ledger file on the mainframe. The best control to detect this type of error would be.
A. Editcontrolsonthepayrollfile.
B. Appropriatesegregationofdutiesforbatchapproval. C. Validation of hash totals.
D. Reconciliation of paychecks to the bank account.
Correct Answer: C Section: Volume B Explanation
Explanation/Reference:
QUESTION 201
Which of the following would be the best example of a monitoring control for a chain of restaurants?
A. Eachrestaurantmanagerreconcilesthecashreceivedwiththefoodordersrecordedonthecomputer.
B. Allfoodordersmustbeenteredthroughthecomputer,andthereissegregationofdutiesbetweenthefoodserversandthecooks.
C. Corporate management prepares a detailed analysis of gross margin per restaurant and investigates those showing a significantly lower gross margin. D. Proof of bank deposit is transmitted to corporate headquarters on a daily basis.


Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 202
Why is the concept of residual risk important?
A. Becauseresidualriskisdifficulttomeasure.
B. Becauseresidualriskisalloftheriskthatremainsaftercontrolsareestablished.
C. Because the cost-benefit analysis supporting control design is part of the measure of residual risk.
D. Because the risk that remains after control design and implementation needs to be acceptable to senior management.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 203
The first stage in the development of a crisis management program is to:
A. Formulatecontingencyplans.
B. Conductariskanalysis.
C. Create a crisis management team. D. Practice the response to a crisis.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 204


A major corporation is considering significant organizational changes. Which of the following groups would not be responsible for implementing these changes?
A. Employees.
B. Seniormanagement. C. Common stockholders. D. Outside consultants.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 205
According to the International Professional Practices Framework, a review team must express an opinion on which of the following when performing an external assessment of an internal audit activity?
I. Conformance with the Standards and IIA Code of Ethics.
II. Effectiveness of continuous improvement activities.
III. Feedback from internal audit customers and other stakeholder groups.
IV. Efficiency and effectiveness of the internal audit activity's administration processes.
A. Ionly
B. IIIonly
C. IandIIonly D. II and IV only
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 206
When planning an audit engagement, what should an internal auditor first consider when assessing the risk of fraud in the area to be audited? A. Impactofandexposuretofraud.


B. Existenceofevidenceoffraud. C. Organizational structure.
D. Management's risk appetite.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 207
Which of the following risk factors is most subjective?
A. Changesinstaff,systems,ortheenvironment. B. Priorauditfindings.
C. Size of the unit being audited.
D. Competency of operating management.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 208
Which aspect of the audit function would be most impacted by a lack of coordination between an organization's internal and external auditors?
A. Responsiveness. B. Timeliness.
C. Effectiveness.
D. Efficiency.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:


QUESTION 209
An organization's chief audit executive (CAE) has been asked to monitor and report on any violations of the organization's code of conduct. The CAE should:
A. Reviewandadjudicateallcomplaints.
B. Leadthecommitteeresponsiblefortheoversightofthecode.
C. Develop specific procedures to ensure that the code is clearly communicated to all employees. D. Participate in an advisory capacity on the committee that adjudicates any violations.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 210
Which of the following is least likely to enhance the independence of an internal audit activity?
A. Theexistenceofaformalwrittencharterfortheinternalauditactivity.
B. Submissionofanannualinternalauditworkplantotheauditcommittee. C. A direct reporting relationship to the audit committee.
D. Adherence to the organization's position classification structure.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 211
Which of the following reporting relationships results in the greatest impairment to the independence of the chief audit executive (CAE)?
A. TheCAEreportsadministrativelyandfunctionallytothepresident.
B. TheCAEreportsadministrativelytothepresidentandfunctionallytotheboard.
C. The CAE reports administratively to the chief financial officer and functionally to the president.
D. The CAE reports administratively to the audit committee and functionally to the chief operating officer.


Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 212
An employee who recently transferred into the internal audit activity has been assigned to audit the accounts payable system. Which function, if previously performed by this employee, would represent a conflict of interest?
A. Monitoringtheallowancefordoubtfulaccounts.
B. Writingproceduresforthehandlingofduplicatepayments. C. Signing timekeeping cards for subordinates.
D. Reviewing shipping documents for accuracy.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 213
A company's chief audit executive determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following actions would be the least acceptable?
A. Notifytheauditcommitteeoftheproblemandconsultwiththemregardingoutsourcingtheauditengagementtoaqualifiedexternalauditingfirm.
B. Determinetherequisiteknowledgeneededandobtainthepropertrainingforauditorsifsuchtrainingisavailablewithintheappropriatetimeframeworkoutlined by the audit committee.
C. Notify the audit committee of the problem and assign the most competent auditors to perform the audit engagement.
D. Employ the skills of a financial derivatives expert to consult on the project, and supplement the consulting with a local seminar on financial derivatives.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:


QUESTION 214
During an audit engagement in an insurance company, an internal auditor discovered that senior management had purposely misclassified $200, 000 in assets on financial statements submitted to regulatory authorities in order to avoid significant statutory penalties. To remain in compliance with the IIA Code of Ethics, what would be the most appropriate action for the auditor to take?
A. Notethesituationintheworkpapersandinformthechiefexecutiveofficer.
B. Sendaninformativememototheexternalauditors.
C. Discuss the matter with audit management and ensure that the audit committee is informed. D. Report the matter to regulatory authorities since senior management is implicated.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 215
During an audit of financial contracts, an internal auditor learns that a relative has a substantial loan with the organization. The auditor should:
A. Excludetherelative'sinformationfromtheauditedworkandproceedwiththeauditengagement.
B. Proceedwiththeauditengagementbutdiscloseintheengagementfinalcommunicationthattherelativeisacustomer.
C. Immediately withdraw from the audit engagement.
D. Notify management and the chief audit executive (CAE) and have the CAE determine whether the auditor should continue with the audit engagement.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 216
How should management obtain assurance that employees are complying with the organization's security policy?
A. Regularlyconductindependentreviewsofemployees'securitypractices.
B. Routinelysurveystaffsothatinformationrelatedtosecuritypracticescanbesubmittedanonymously.


C. Rely on exception reports to identify errors.
D. Enforce a policy that requires all employees to sign a statement that they will adhere to the organization's security policies.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 217
What is the primary purpose of a risk management program?
A. Reducerisktoatolerablelevel.
B. Reduceallrisksregardlessofcosts.
C. Transfer all risks to external third parties. D. Identify every significant risk to avoid it.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 218
Within the internal audit process, which of the following is not a significant advantage of employing a control model?
A. Itprovidesguidanceonidentifyingcontroldeficienciesforeachinternalauditengagement. B. Itrecognizestheneedtoevaluatebothhardandsoftcontrols.
C. It assists internal auditors in assessing the achievement of management's objectives.
D. It validates the findings and recommendations of the internal audit.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:


QUESTION 219
An organization's chief audit executive (CAE) has been asked to conduct an assurance engagement for an information technology system that was subject to a consulting engagement in the prior year. How should the CAE respond?
A. Declinetheengagementbecauseindependenceandobjectivitywouldbeimpaired.
B. Delaytheassuranceengagementtoensurethatthereisatwo-yearperiodbetweentheengagements. C. Accept the engagement and assign different auditors to conduct the assurance services.
D. Facilitate a control self-assessment workshop instead of performing an assurance engagement.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 220
According to the Standards, a review team must express an opinion on which of the following when performing an external assessment of an internal audit activity? 1. Conformance with the Standards and IIA Code of Ethics.
2. Effectiveness of continuous improvement activities.
3. Feedback from internal audit customers and other stakeholder groups.
4. Efficiency and effectiveness of the internal audit activity's administration processes.
A. 1only
B. 3only
C. 1and2only D. 2and4only
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 221
To develop greater internal auditing expertise, the chief audit executive (CAE) has been assigning the same relatively inexperienced team of internal auditors to a series of engagements spanning several months. Is this practice consistent with the Standards?


A. Yes.TheCAEispromotingtheprofessionaldevelopmentofthestaff.
B. Yes.Theexperiencewillquicklybuildspecializedskillsandcompetencies.
C. No. The team should collectively possess the competencies appropriate for the engagements. D. No. Teams should be comprised of both experienced and inexperienced auditors.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 222
Which of the following would be the least significant consideration when performing a risk analysis?
A. Financialexposureandpotentialloss. B. Skillsavailablewithintheauditstaff. C. Results of prior audits.
D. Major operating changes.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 223
Which of the following is correct regarding the implementation of a quality assurance and improvement program for the internal audit function?
A. Theboardhastheprimaryresponsibilityforimplementationofarobustqualityassuranceandimprovementprogramforinternalaudit.
B. AninternalauditfunctionthatisfullycomplyingwithinternalassessmentofqualitycanconfidentlyclaimitisperforminginconformitywiththeInternational Professional Practices Framework.
C. The chief audit executive can establish a formal quality assurance and improvement program that is led by an audit manager. D. A quality assurance and improvement program is applicable depending on the size and complexity of the audit function.
Correct Answer: C Section: Volume C


Explanation Explanation/Reference:
QUESTION 224
Which of the following are appropriate ways to obtain continuous professional education? 1. Instructing at a local IIA training event.
2. Attending internal audit conferences and seminars.
3. Practicing specialized audit and consulting work.
4. Participating in research projects in internal auditing.
A. 1and3only
B. 1and2only
C. 3and4only
D. 1,2,and4only
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 225
Which of the following processes or tools can be used as ongoing internal assessments of the performance of the internal audit activity? 1. Analyses of audit plan completion and cost recoveries.
2. Selective peer reviews of work papers by staff involved in the respective audits.
3. Self-assessment of the internal audit activity with on-site validation by a qualified independent reviewer.
4. Feedback from audit customers and stakeholders.
A. 1only
B. 1and2only
C. 3and4only
D. 1,2,and4only
Correct Answer: D Section: Volume C Explanation


Explanation/Reference:
QUESTION 226
Which of the following are appropriate responsibilities of the audit committee in relation to the chief audit executive (CAE)? 1. Approving the internal audit charter.
2. Approving decisions regarding the appointment and removal of the CAE.
3. Approving the risk management strategy for the organization.
4. Making appropriate inquiries of management and the CAE to determine whether there are inappropriate scope and resource limitations.
A. 1and2only
B. 1,2,and3only C. 1,2,and4only D. 2,3,and4only
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 227
Which of the following internal auditor attributes are affected by a conflict of interest?
A. Independenceandauthority.
B. Authorityandproficiency.
C. Independence and objectivity.
D. Objectivity and due professional care.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 228
Which of the following is the most appropriate outcome measure for assessing safety operations?


A. Numberofinspectionsconducted.
B. T ests made of equipment.
C. Reduction in machine down time due to accidents.
D. Number of operations observed.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 229
Which of the following would be a violation of the objectivity of a certified internal auditor?
1. Accepting a motivational book from a major vendor.
2. Attending a professional sporting event as the guest of a corporate supplier.
3. Performing an internal audit engagement for a division 18 months after having controllership responsibility for that division. 4. Designing and implementing a corporate-wide utilities cost containment program.
A. 1and3only
B. 2and3only
C. 2and4only
D. 1,3,and4only
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 230
An organization that outsources much of its internal audit work to an external service provider is planning for an external quality assessment. Which of the following options would accomplish this task and be in conformance with the Standards?
A. Engaginganexternalindustryassociatethatperformedasimilarreviewforasupplieroftheorganization.
B. Selectingateamfromanindependententitythatpreviouslyemployedthechiefauditexecutiveoftheorganization.
C. Using a team under the direction of the organization's chief audit executive, and obtaining validation from a former manager of the internal audit activity. D. Using the same external service provider because of its competency and experience with the organization.


Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 231
In order to use “Conducted in accordance with the International Standards for the Professional Practice of Internal Auditing, " an internal audit activity must:
A. SatisfyallrequirementsoftheInternationalProfessionalPracticesFrameworkduringeachinternalauditengagement. B. CompleteanexternalassessmentofqualityassurancetodemonstratecompliancewiththeStandards.
C. Establish a continuous quality assurance and improvement program.
D. Have its charter reviewed and approved by management and the board.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 232
Which of the following is the best example of a strategic objective?
A. Openinganewproductline.
B. Adheringtolawsandregulations. C. Attaining a specified sales target. D. Safeguarding assets.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 233


A daily log of treasury dealers who exceeded their authorized limits serves as a:
A. Preventivecontrol.
B. Detectivecontrol.
C. Feed-forward control. D. Directive control.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 234
Which of the following are acceptable resources for a chief audit executive to use when developing a staffing plan? 1. Co-sourcing arrangements.
2. Employees from other areas of the organization.
3. The organization's external auditors.
4. The organization's audit committee members.
A. 1only
B. 1and2only
C. 2and3only
D. 1,2,and4only
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 235
Which of the following would most likely function as a detective control?
A. Securitydogs.
B. Alertemployees. C. Insurance claims.


D. Cycle counts.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 236
One of an organization's quality objectives is to reduce the amount of rework needed in the production cycle. Which of the following controls would be the least effective in achieving this objective?
A. Machineryisroutinelymaintainedtoavoidproductionmalfunctions.
B. Employeesarerewardedforsuggestionsthatleadtoqualityimprovements.
C. Quality inspectors are assigned to identify any defects in the finished product.
D. Daily reconciliations are performed between finished goods and the number of rejects.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 237
Some of an organization's payroll transactions were batch posted to the payroll file but were not uploaded correctly to the general ledger file on the mainframe. The best control to detect this type of error would be:
A. Editcontrolsonthepayrollfile.
B. Appropriatesegregationofdutiesforbatchapproval. C. Validation of hash totals.
D. Reconciliation of paychecks to the bank account.
Correct Answer: C Section: Volume C Explanation


Explanation/Reference:
QUESTION 238
Which of the following is the primary advantage of using a computer assisted audit technique (CAAT) to provide a higher level of assurance?
A. CAATscanselectanappropriatesamplesizefortestingandthusprovidehigherlevelofassurance.
B. CAATsaremoreobjectivethanthetraditionalmethodsininterpretingtheresults.
C. CAATs can examine the whole of population of transactions, rather than a sample, in order to identify exceptions and trends. D. CAATs can process the results faster and thus give a higher level of assurance.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 239
Which of the following statements is not true?
A. Thenatureofconsultingservicesthatareperformedbytheinternalauditactivityshouldbedefinedintheauditcharter.
B. Itisinappropriateforinternalauditorstoprovideconsultingservicesrelatingtooperationsforwhichtheyhadpreviousresponsibilities.
C. A party outside the internal audit activity should oversee assurance engagements for functions over which the chief audit executive has responsibility.
D. The chief audit executive should decline a consulting engagement if the internal audit staff lacks the knowledge, skills, or other competencies needed to perform all or a part of the engagement.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 240
Which of the following factors is not likely to affect the level of inherent risk associated with an application system?
A. Thesystemisstrategic.
B. Controlsoverthesystemappearreliable.


C. The system is not a critical operating system. D. The system uses complex technology.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 241
Which of the following should an internal auditor possess in order to fulfill the responsibilities of the internal audit activity?
A. Proficiencyinapplyingmanagementprinciplesinordertostandinforthechieffinancialofficer. B. Anunderstandingofmanagementprinciplesinordertoevaluatedeviationsfromgoodpractices. C. An appreciation of internal audit standards in order to recognize problems.
D. Proficiency in accounting principles in order to conduct fraud investigations.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 242
Which of the following statements best describes the competency requirement for an auditor regarding fraud risks encountered in an engagement execution?
A. Theauditorshouldbeabletohavecomparablecompetenciesofapersonwhoseprimaryresponsibilityisdetectingandinvestigatingfraud.
B. Theauditormusthavesufficientknowledgetoevaluatetheriskoffraudandthemannerinwhichitismanagedbytheorganization.
C. The auditor is not expected to have any competency requirement regarding fraud since the role of investigating and detecting fraud belongs to other functions in the organization.
D. The auditor must be able to have an appreciation of the fundamentals of fraud detection and investigation techniques.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:


QUESTION 243
An external quality assurance review which was authorized by the chief audit executive (CAE) indicated significant findings from the Standards. To whom should the final results of the quality assurance review be reported?
A. ConfidentiallytotheCAEonly
B. TheCAEwithcopiestotheboardandseniormanagement.
C. To the board with copies to the external auditor or regulatory oversight body. D. To the senior management with a copy to the board.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 244
Which of the following topics would a chief audit executive most likely include with their report to the board?
A. Thestatusoflaborcontractnegotiationsatthelargestmanufacturingplant.
B. Asignificantlevelofseniormanagementturnoverthroughouttheorganization. C. A recent management hire to oversee labor concerns.
D. Analyses of recent increases in overtime.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 245
An organization's sales professionals are potentially abusing the use of cellular phones, resulting in an alarming increase in telephone expenses. Which of the following controls is least likely to curb this abuse?
A. Developingperiodicreportstomanagementthatshowtype,length,andnumberofcallspersalesprofessional,withrelatedtotalsandcomparisons.
B. Requiringsalesprofessionalstopaymonthlycellularphonebillsandsubsequentlysubmitonlybusinesscallsforreimbursementusinganexpensereport


process.
C. Requiring sales managers to approve monthly bills prior to payment, explain budget variances, and explain increases from previous periods. D. Requiring authorization of the cellular phone bill payment by the manager of the telecommunications department.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 246
During the planning phase of an audit of suspected overbilling on contracts for security services, an internal auditor should perform all of the following except:
A. Interviewanofficialofthesecurityservicescompanytodeterminethecauseofrecentincreasesinbillingsforservices. B. Interviewthemanagerwhorequestedtheauditengagement.
C. Obtain a copy of the contract between the two organizations.
D. Prepare an engagement program.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 247
In preparing for an audit of the footwear division of a major retail organization, an internal auditor gathered the following information about the organization's stores:


In addition to labor costs, the other costs associated with each store are leasing and maintenance expenses. Which of the following is a valid conclusion?
A. Salesperstorearedirectlyrelatedtothesizeofthestore. B. Employeesarelessproductiveinlargerstores.
C. Gross margin is directly related to the size of the store.
D. Cost of goods sold is directly related to the size of the store.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 248
Which of the following internal control weaknesses would an internal auditor most likely detect while reviewing a flowchart that depicts the purchasing function of an organization?


A. Purchasingpolicieshavenotbeenupdated.
B. Theorganizationisnottakingadvantageofquantitydiscountsavailablefromitssuppliers. C. Payments for goods received have not been authorized at the appropriate level.
D. Payments to suppliers are made before goods are received.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 249
An internal auditor pays to participate in the company's annual golf tournament, which is held outside of normal business hours. The auditor wins the putting contest and is awarded an all-expense-paid weekend vacation.
According to the IIA Code of Ethics regarding objectivity, the auditor's best course of action would be to:
A. Refusetheprizebecausetheamountissignificant.
B. Accepttheprizebecausetheeventwasheldoutsideofnormalbusinesshours. C. Refuse the prize because it represents an impairment to objectivity.
D. Accept the prize because the auditor received no special treatment.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 250



An internal auditor audited a department store's cash function. Which of the following actions would indicate a lack of due professional care by the auditor?
A. Basedonawell-designedsystemofinternalcontrolsoverthecashfunction,theauditreportassuredseniormanagementthatnoirregularitiesexisted. B. Aflowchartoftheentirecashfunctionwasdevelopedbutonlysamplesoftransactionsweretested.
C. The audit report included a well-supported recommendation for a reduction in staff even though such a reduction might adversely impact morale.
D. The auditor informed appropriate authorities within the organization about suspected wrongdoing but did not inform external authorities.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 251
Which of the following would be an appropriate outcome of a quality assurance and improvement program in an internal audit activity? 1. Modification of resources.
2. Corrections to procedures.
3. Changes in processes.
4. Implementation of new technology.
A. 2and4only
B. 3and4only
C. 1,2,and3only D. 1,2,3,and4
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 252
Which of the following actions by the internal audit activity provides strong evidence that it is organizationally independent?
A. Itreviewsengagementresultsforevidenceofundueinfluencebeforereleasingthefinalreport.
B. Itrequiresallinternalauditstafftosignannualnon-disclosureandpotentialconflictofintereststatements. C. It maintains direct interactions with the audit committee or board.


D. It releases an approved internal audit charter stating that the internal audit activity is independent.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 253
Which of the following statements is correct with regard to risk management?
A. Theboard'sresponsibilityforriskmanagementcannotbeassignedtoaboardcommittee,suchasaboardriskcommittee.
B. Thechiefauditexecutiveisaccountabletotheboardfordesigning,implementingandmonitoringtheriskmanagementprocess. C. The total process of risk management, which includes a related system of internal control, is the responsibility of the board.
D. The finance director is responsible for the overall implementation of the risk management process.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 254
A receiving department receives copies of purchase orders for use in identifying and recording inventory receipts. The purchase orders list the name of the vendor and the quantities of the materials ordered.
A possible error that this system could allow is:
A. Paymenttounauthorizedvendors.
B. Paymentforunauthorizedpurchases. C. Overpayment for partial deliveries.
D. Delay in recording purchases.
Correct Answer: C Section: Volume C Explanation


Explanation/Reference:
QUESTION 255
Which of the following is least likely to be considered material in an audit of a medium-sized organization?
A. A$1,000overstatementoftheaccrued-vacationpayableaccount. B. Aviolationofagovernmentstatute.
C. Fraud resulting in a cash loss to the organization.
D. An underpayment to the employee pension fund.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 256
Which of the following items of evidence is most valid to support a finding that a public utility's repair crews are sometimes required to work under unsafe conditions?
A. Videotapesofrepaircrewsworkinginasituationthatisunsafe.
B. Audiotapedtestimonialsfromrepaircrewmemberswhowererequiredtoworkunderunsafeconditions.
C. Reports showing increases in the number of days of sick leave for individuals on repair crews.
D. Written and signed descriptions from repair crew members of the unsafe conditions that they have had to endure.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 257
Which of the following sources of evidence would be least persuasive regarding potential waste and inefficiency on the part of a contractor? A. Thecontractor'scertificationthatithasnotincurredanywasteorinefficiencies.


B. Awalk-throughofthecontractor'smanufacturinganddevelopmentfacilities. C. An examination of the nature of contract expenses incurred.
D. A comparison of contract expenses with those of similar projects.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 258
During a review of a division's operations, an internal auditor notes that sales and customer base are unchanged, while inventory and gross margin have increased significantly. Which of the following audit procedures would be most relevant in substantiating management's assertion that the gross margin increase is due to increased efficiency in manufacturing operations?
A. Obtainaphysicalcountofinventory.
B. Forasampleofproducts,comparecosts-per-unitthisyeartothoseoflastyear,testcostbuild-ups,andanalyzestandardcostvariances.
C. Take a physical inventory of equipment to determine if there were significant changes.
D. Select a sample of finished goods inventory and trace raw materials cost back to purchase prices in order to determine the accuracy of the recorded raw materials price.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 259
The work papers for an audit of hazardous-materials handling and disposal at an engineering research facility provide evidence that the following procedures were performed.
Drums of hazardous waste not yet shipped off-site were inventoried. The physical count agreed with the company's inventory records.
A sample of hazardous-waste shipments received at the disposal site was compared to bills of lading and company records. No errors were detected. The audit staff observed engineering personnel during the handling of hazardous materials. No company policy violations were noted.
The reconciliation of waste drums to the inventory records provides evidence that:
A. Hazardous-wastematerialswerebeingdisposedofasprescribedbycompanypolicy.


B. Theamountofhazardousmaterialsbeingusedwasaccuratelyrecorded.
C. Records of drums shipped to the waste disposal site were being maintained. D. Allhazardous-wastedrumsininventorywereaccountedfor.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 260
An internal auditor for a large bank is reviewing the collectability of a loan that is secured by real property. The best evidence of the loan's collectability would be:
A. Arecentindependentappraisalofthevalueoftherealproperty. B. Adocumentshowingtheloancommittee'sapprovaloftheloan. C. The borrower's confirmation of the loan balance.
D. Aproperlycompletedandsignedloanapplicationform.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 261
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. Feedbackcontroldata.
B. Irrelevantandargumentativeinformation.
C. Evidence that the new credit policies do not meet the stated corporate objective to improve collections. D. A statistically valid conclusion about the impact of the new credit policies on customer goodwill.
Correct Answer: A Section: Volume C Explanation


Explanation/Reference:
QUESTION 262
Which of the following results from computer assisted audit techniques provides the most significant indication that additional audit work is needed?
A. Severalexactmatcheswerefoundwhenvendorandemployeeaddresseswerecompared.
B. Thesumofcreditentriesonthebankstatementdidnotequalthesumofcollectionsforthesameperiod.
C. Sorting the check register file by vendor name identified missing sequences of check numbers.
D. Matching the accounts payable transaction file with the purchase order request file resulted in many differences between the person requesting the purchase order and the person authorizing payment.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 263
An internal 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. Useofauditverificationsymbolstoshowthateachfilewasexamined. B. Removaloftheemployeenamestoprotecttheirconfidentiality.
C. Justification for the sample size.
D. Listing of the actual documents examined for each employee.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:


QUESTION 264
When comparing an organization's current performance to that of the prior year, an internal auditor found that: Total labor costs had increased.
More overtime costs had been incurred.
The total number of workers had increased.
Net income was 10 percent lower.
Based solely on this information, which of the following is a valid conclusion?
A. Netincomeperworkerdecreased. B. Wage rates increased.
C. Worker efficiency decreased.
D. Total labor hours increased.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 265
An internal auditor would most likely judge an error in an account balance to be material if the error involves:
A. Adatainputfunction.
B. Alargepercentageofnetincome.
C. An unverified routine transaction.
D. An unusual transaction for the company.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 266
What conclusion can be reached by comparing a random sample of vendor invoices to purchase orders?


A. Noduplicateinvoiceswerereceived.
B. Noduplicatepaymentsweremade.
C. Invoices were for authorized purchases. D. Authorized invoices were paid.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 267
An internal auditor has taken an attributes sample of a bank's existing loan portfolio. Out of a sample of 60 loans, the auditor found: Four that were not properly collateralized.
Five that were not in compliance with bank policies (other than lack of collateralization).
Four that were part of a related-party group, but were set up as separate loan entities.
Of the 60 loans selected in the sample, these errors were noted on a total of 10 loans. Several loans had multiple problems.
Which of the following conclusions can the auditor reach from these observations?
1. There is sufficient evidence that fraudulent activity is taking place by one or more of the bank's lending officers. 2. The financial statements will be misstated as a result of these actions.
3. There are significant noncompliance audit findings that should be reported.
A. 3only
B. 1and2only C. 1and3only D. 2and3only
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 268
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. Thestandardoflivingofoneofthepurchasingagentshasincreased.
B. Theinternalcontrolstructurehassignificantweaknesses.
C. The 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. The cost of goods procured seems to be excessive in comparison with previous years.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 269
Which of the following might alert an internal auditor to the possibility of fraud in a division?
1. The division is not scheduled for an external audit this year.
2. Sales have increased by 10 percent.
3. A significant portion of management's compensation is directly tied to reported net income of the division.
A. 1only
B. 3only
C. 1and2only D. 1,2,and3
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 270
A production division received 45 responses to a customer-service survey distributed to 100 purchasing departments randomly selected from all customers who made purchases in the prior 12 months. Which of the following is the most likely reason that the division manager would be concerned about nonresponse bias in this situation?
A. Thesamplemeansandstandarderrorsaremoredifficulttocompute.
B. Thosewhodidnotrespondmaybesystematicallydifferentfromthosewhodid. C. The sample size is too small.


D. Confidence intervals are narrower.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 271
An internal auditor is using mean-per-unit sampling to estimate the value of health benefit claims for a period. The auditor's desired precision is $20, 000. If the achieved precision is $10, 000, which of the following conditions is implied?
A. Thevalueofclaimsisoverstated.
B. Thevalueofclaimsisunderstated.
C. The standard deviation is smaller than expected. D. The standard deviation is larger than expected.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 272
An internal auditor is designing a sampling plan to test the accuracy of daily production reports over the past three years. All of the reports contain the same information except that Friday reports also contain weekly totals and are prepared by managers rather than by supervisors. Production normally peaks near the end of a month. If the auditor wants to select two reports per month using an interval sampling plan, which of the following techniques reduces the likelihood of bias in the sample?
A. Estimatingtheerrorrateinthepopulation. B. Usingmultiplerandomstarts.
C. Increasing the confidence level.
D. Increasing the precision.
Correct Answer: B Section: Volume C Explanation


Explanation/Reference:
QUESTION 273
Which of the following is a common error made in designing multiple-choice questions in a survey questionnaire?
A. Unipolarratherthanbipolarlabelsareusedfortheresponsecategories.
B. Thealternativeresponsecategoriesforthequestionsarenotmutuallyexclusive. C. Likert scaling is used instead of semantic differential scaling.
D. The question itself uses terms that are very familiar to the respondent.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 274
An internal auditor is checking the accuracy of a computer-printed inventory listing to determine whether the total dollar value of inventory is significantly overstated. Because there is no time or resources to check all items in the warehouse, a sample of inventory items must be used. If the sample size is fixed, which of the following would be the most accurate sampling approach?
A. Selectthoseitemsthataremosteasilyinspected.
B. Employsimplerandomsampling.
C. Sample so that the probability of a given inventory item being selected is proportional to the number of units sold for that item. D. Sample so that the probability of a given inventory item being selected is proportional to its book value.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 275
Which of the following is not an advantage of face-to-face interviews over electronic surveys?


A. Theresponserateistypicallyhigher.
B. Interviewerscanincreasearespondent'scomprehensionofquestions. C. Survey designers can use a wider variety of question types.
D. They are less expensive to distribute and compile data.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 276
An internal 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. Theauditorfailedtoconsidertheimportanceoftheinformationoffered.
B. Aquestionnairewasusedinasituationwhereastructuredinterviewshouldhavebeenused. C. The use of a questionnaire precluded the auditor from documenting other information.
D. The engagement program was incomplete.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 277
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. 60percent. B. 52percent. C. 48 percent. D. 30 percent.
Correct Answer: B


Section: Volume C Explanation
Explanation/Reference:
QUESTION 278
A company produces a product that consists of materials X, Y, and Z. The product is mixed so that: The quantity of material X used is one-third more than that of material Y.
The quantity of material Y used is one-fourth less than that of material Z.
If the company used 24, 000 units of material Z during a period, what is a reasonable estimate of the amount of material X used?
A. 8,000 B. 18,000 C. 24, 000 D. 32, 000
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 279
Which of the following is true of a horizontal flowchart as compared to a vertical flowchart?
A. Itprovidesmoreroomforwrittendescriptionsthatparallelthesymbols.
B. Itbringsintosharperfocustheassignmentofdutiesandindependentchecksonperformance. C. It is usually longer.
D. It does not provide as broad a picture at a glance.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:


QUESTION 280
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. Decisionanalysis. B. Simula-tion.
C. Sensitivityanalysis. D. Variance analysis.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 281
Once the cause of a problem has been identified, the next step is to:
A. Selectasolution.
B. Generatealternativesolutions.
C. Identifytheproblem.
D. Consider the reaction of competitors to various courses of action.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 282
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. Performedinaccordancewiththetermsofthecontract.
B. CarriedoutinaccordancewiththeStandards.
C. Performed under the supervision of the information technology department. D. Carried out using standard review procedures for retailers.


Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 283
During an audit of a major contract, an internal 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. Defectivepricing. B. Costmischarging. C. Fictitious vendor. D. Bid rotation.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 284
Which of the following is characteristic of embezzlement?
A. Favorsfromasupplierthatisattemptingtogainadvantagewhensellingitsproducts.
B. Unlawfulconversionofassetsthatareinthepossessionofanemployee.
C. Misrepresentation of material facts in order to mislead others to part with something of value. D. Stealing of material of value by unknown persons from outside the organization.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:


QUESTION 285
In which of the following situations would fishbone diagrams be most useful?
A. Theproblemiscomplicatedandtherootcauseisunknown.
B. Teammemberscannoteffectivelycommunicatewitheachother.
C. The team is too small for brainstorming to be effective.
D. The team consists of experts who can resolve problems without much difficulty.
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 286
The results of an internal control questionnaire revealed that all investment activity exceeding $10, 000 must be approved by the assistant treasurer. A sample of these transactions with a five-percent acceptable error rate found that 98 of the 100 items tested included the assistant treasurer's approval. Based on this data, the auditor should:
A. Confirmallinvestmentactivitywiththefirm'sbrokersinceerrorsinapprovalhadoccurred.
B. Decidenottoperformfurthertestingofinvestmentauthorizations.
C. Contact the corporate finance department to verify all of the investments held.
D. Perform an analytical review of investment transactions in comparison with prior years to identify significant fluctuations.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 287
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. Vendorfuelinvoicesthathavebeenreconciledtoinventoryrecords.
B. Timecardscompletedbyaircraftcleaningandfuelingcrews.
C. Observation of selected aircraft while they are being refueled and cleaned.


D. Comparison of the standard hourly labor costs for cleaning and fueling personnel with actual labor charges.
Correct Answer: C Section: Volume C Explanation
Explanation/Reference:
QUESTION 288
Company A has a formal comprehensive corporate code of ethics while company B does not. Which of the following statements regarding the existence of the code of ethics in company A can be logically inferred?
1. Company A exhibits a higher standard of ethical behavior than does company B.
2. Company A has established objective criteria by which an employee's actions can be evaluated.
3. The absence of a formal corporate code of ethics in company B would prevent a successful audit of ethical behavior in that company.
A. 2only
B. 3only
C. 1and2only D. 2and3only
Correct Answer: A Section: Volume C Explanation
Explanation/Reference:
QUESTION 289
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. Anineffectivecustomerservicedepartment.
B. Poorcontrolsintheinvoiceapprovalprocesses. C. Check tampering by an employee.
D. Submission of fraudulent expense reports.
Correct Answer: C Section: Volume C


Explanation Explanation/Reference:
QUESTION 290
Which of the following data collection strategies systematically tests the effects of various factors on an outcome?
A. Contentanalysis.
B. Sampling.
C. Evaluation synthesis. D. Modeling.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 291
Which of the following statements is true about visual observation during an audit engagement?
1. Visual observations should not be documented as the facts have not been substantiated.
2. Complex conditions observed should be verified prior to communicating observations to management.
3. Visual observations can be used to detect ineffective controls, idle resources, and safety hazards.
4. Visual observation can be used during both preliminary survey and fieldwork stages of the audit engagement.
A. 1and2only
B. 3and4only
C. 1,2,and4only D. 2,3,and4only
Correct Answer: D Section: Volume C Explanation
Explanation/Reference:
QUESTION 292


An engagement manager is reviewing the results of sampling work performed by staff internal auditors. Which interim report statement should immediately give the engagement manager cause for concern about the nature and quality of the sampling procedure?
A. Theacceptableriskofassessingcontrolrisktoolowis10%,thetolerabledeviationrateis5%,theexpectedpopulationdeviationrateis1%,samplesizeis80 out of a large population.
B. Theacceptableriskofassessingcontrolrisktoolowis5%,thetolerabledeviationrateis5%,theexpectedpopulationdeviationrateis5%,thesamplesizeis 1580.
C. The acceptable risk of assessing control risk too low is 5%, the tolerable deviation rate is 5%, the expected population deviation rate is 1%, the confidence expressed is 95%.
D. The acceptable risk of assessing control risk too low is 10%, the tolerable deviation rate is 5%, the true, but unknown population rate is less than 5%, the achieved upper deviation limit is 4.8%.
Correct Answer: B Section: Volume C Explanation
Explanation/Reference:
QUESTION 293
Which of the following is considered a common red flag indicator in helping to uncover fraud?
A. Impropersegregationofduties.
B. Repeatedpoorperformance.
C. Termination from previous employer. D. Experiencing financial difficulty.
Correct Answer: D Section: Volume C Explanation
Explanation/Reference: