Certified Internal Auditor Questions + Answers Part 9
Posted: Tue Mar 01, 2022 5:01 am
QUESTION 35
Five brand managers in a consumer products company met to determine how well certain promotions had performed. The data that they needed to analyze consisted of approximately 50 gigabytes of daily point-of- sale (POS) data for each month. The brand managers tried to download the POS data from the mainframe and import it into microcomputer spreadsheets for analysis. Their efforts were unsuccessful, most likely because oF.
A. Thecomplexityofthemainframedatastructureandthelargevolumeofdata.
B. Thedifficultyofestablishingaccessprivilegesforeachsubsetofthemainframedata.
C. Inconsistencies in the mainframe data due to lack of integrity constraints on the data files. D. Error-prone transmission links for downloading the data from the mainframe data files.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 36
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. simul-ation.
C. Sensitivityanalysis. D. Variance analysis.
Correct Answer: C Section: (none)
Explanation Explanation/Reference:
Explanation:
QUESTION 37
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/MH
The 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. Thisregressioncanbeusedtodeterminethemaintenancecostforanyperiodatanyactivitylevelby substituting the machine hours in the equation.
B. The$60componentrepresentsthebestestimateoffixedmaintenancecostsforthecompanyina shutdown situation.
C. The $0.25 component is the slope coefficient of the cost estimate and represents the average variable maintenance cost per machine hour.
D. The coefficient of determination of R2 = 0.85 indicates that the goodness of fit is poor because the value is close to the maximum value of one.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
valid.
QUESTION 38
Which of the following techniques could be used to evaluate the effectiveness of changes to the operation of a computer help line?
A. Benchmarking.
B. Baselinemeasurements. C. Walk-throughs.
D. Qualitycircles.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 39
One method for dealing with the uncertainty of demand forecasts used in linear programming is to extend the model solution to include.
A. Sensitivityanalysis.
B. Goalseeking.
C. Branch-and-bound solutions. D. Nonlinear programming.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 40
Which of the following factors is least essential to a successful control self-assessment workshop?
A. Votingtechnology. B. Facilitationtraining. C. Prior planning.
D. Group dynamics.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 41
Which of the following would not be characteristic of control self-assessment implemented by an audit department?
A. Anauditorusuallyfacilitatesthediscussionduringtheworkshopphasewhileanotherrecordscomments for subsequent use.
B. Auditorsandbusiness-unitemployeesworkasateam.
C. Auditors perform traditional audit tests to identify control weaknesses.
D. Participants discuss the control weaknesses that hinder the achievement of objectives.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 42
Which of the following is an advantage of control self-assessment (CSA) over conventional auditing techniques?
A. CSAevaluatescontrolactivitiesandhumanresourcepractices.
B. CSAprovidesassuranceaboutwhetherbusinessobjectiveswillbemet. C. CSA facilitates obtaining input from subject-matter experts efficiently.
D. CSA provides assurance that action will be taken to improve deficiencies.
Correct Answer: C Section: (none) Explanation
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Explanation:
QUESTION 43
During which of the following systems development stages would it be most useful for an internal auditor to be involved?
A. Codingandtesting.
B. Useracceptanceandpost-implementation. C. Design and implementation.
D. Testing and user acceptance.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 44
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. Relevanttothecompletenessobjective.
B. Irrelevanttothecompletenessobjective.
C. A more timely test of completeness than evidence from interviews. D. A more biased test of completeness than evidence from interviews.
Correct Answer: B Section: (none) Explanation
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Explanation:
QUESTION 45
All of the following tools are employed to control large-scale projects except:
A. Programevaluationandreviewtechnique(PERT). B. Criticalpathmethod.
C. Statistical process control.
D. Gantt charts.
Correct Answer: C Section: (none) Explanation
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Explanation:
QUESTION 46
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. Adjustthescopeofthenextregularlyscheduledaudittoassesscontrolswithintheclaimsprocessing system.
B. Discussthefindingswiththeauditcommitteeandaskthecommitteetodeterminetheappropriate follow-up action.
C. Schedule a follow-up engagement within six months to assess the status of corrective action.
D. Monitor the status of corrective action and schedule a follow-up engagement when appropriate.
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 47
An audit of a company's accounts payable found that the individuals responsible for maintaining the vendor master file could also enter vendor invoices into the accounts payable system. During the exit conference, management agreed to correct this problem. When performing a follow-up engagement of accounts payable, the auditor should expect to find that management has:
A. Transferredtheindividualswhomaintainedthevendormasterfiletoanotherdepartmenttoensurethat responsibilities are appropriately segregated.
B. Comparedthevendorandemployeemasterfilestodetermineifanyunauthorizedvendorshavebeen added to the vendor master file.
C. Changed the access control system to prevent employees from both entering invoices and approving payments.
D. Modified the accounts payable system to prevent individuals who maintain the vendor master file from entering invoices.
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 48
What is the primary factor that determines the depth and breadth of audit follow-up?
A. Theengagementclient'swrittenresponsetotheauditfindings.
B. Theauditor'sassessmentofriskassociatedwiththeauditfindings.
C. The auditor's assessment of personnel responsible for correcting audit findings. D. The availability of audit personnel and financial resources.
Correct Answer: B Section: (none) Explanation
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Explanation:
QUESTION 49
At the conclusion of an audit of an organization's treasury department, a report was issued to the treasurer, chief financial officer, president, and board. Because of the sensitivity of some findings, a follow-up review was performed. The auditor should provide the report of follow-up findings to the.
A. Treasurer.
II. Chief financial officer. III. President.
IV. Board.
B. IandIIonly
C. III and IV only
D. I, II, and III only
E. I,II,III,andIV.
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 50
When interrogating an individual who is suspected of fraud, it is appropriate to:
A. Telltheindividualthatanyinformationdisclosedintheinterrogationwillnotbedisclosedoutsideofthe company.
B. Starttheinterviewwithquestionstowhichtheintervieweralreadyknowstheanswer.
C. Discontinue questioning once the individual has confessed to the fraud.
D. Prepare a list of questions prior to the interrogation and strictly adhere to the list.
Correct Answer: B Section: (none) Explanation
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QUESTION 51
Questions used to interrogate individuals suspected of fraud should:
A. Adheretoapredeterminedorder.
B. Covermorethanonesubjectortopic. C. Move from general to specific.
D. Direct the individual to a desired answer.
Correct Answer: C Section: (none) Explanation
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QUESTION 52
A chief audit executive (CAE) suspects that several employees have used desktop computers for personal gain. In conducting an investigation, the primary reason that the CAE would choose to engage a forensic information systems auditor rather than using the organization's information systems auditor is that a forensic information systems auditor would possess:
A. Knowledgeofthecomputingsystemthatwouldenableamorecomprehensiveassessmentofthe computer use and abuse.
B. Knowledgeofwhatconstitutesevidenceacceptableinacourtoflaw.
C. Superior analytical skills that would facilitate the identification of computer abuse.
D. Superior documentation and organization skills that would facilitate in the presentation of findings to senior management and the board.
Correct Answer: B Section: (none) Explanation
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Explanation:
QUESTION 53
While conducting a payroll audit, an internal auditor in a large government organization found inadequate segregation in the duties assigned to the assistant director of personnel. When the auditor explained the risk of fraud, the assistant director became upset, terminated the interview, and threatened to sue the organization for defamation of character if the audit engagement was not curtailed. The auditor discussed the situation with the chief audit executive (CAE). The CAE should then:
A. Curtailtheauditengagementtoavoidpotentiallegalaction.
B. Provideareporttoseniormanagementrecommendingafraudinvestigation.
C. Continue the original engagement program as planned but include a comment about the assistant director's reaction in the engagement final communication.
D. Add additional testing to determine whether other indicators of fraud exist.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 54
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. Restricttheuseofpotentiallydamagingwordstoprivilegedreportsordiscussions.
B. Labelallworkpapers,reports,andcorrespondenceoftheinternalauditactivityasprivate.
C. Restrict discussions of the fraud to members of management who express an interest in the investigation.
D. Destroy all investigation workpapers and reports if the fraud cannot be proven.
Correct Answer: A Section: (none) Explanation
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QUESTION 55
The scope of a consulting engagement performed by internal auditors should:
A. Besufficienttoaddresstheobjectivesagreeduponwiththeclient.
B. Excludeareasthatmightbethesubjectofsubsequentassuranceengagements. C. Be limited to activities within the current operating period.
D. Be preapproved in conjunction with the annual plan of consulting engagements.
Correct Answer: A Section: (none) Explanation
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Explanation:
QUESTION 56
The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison oF.
A. Employeemoralebeforeandafterprogramimplementation.
B. Scrapandreworkcostsbeforeandafterprogramimplementation.
C. Customer returns before and after program implementation.
D. Manufacturing and distribution costs per unit before and after program implementation.
Correct Answer: A Section: (none) Explanation
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QUESTION 57
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: (none) Explanation
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QUESTION 58
When conducting a performance appraisal of an internal auditor who has been a below-average performer, it is not appropriate to:
A. Notifytheinternalauditoroftheupcomingappraisalseveraldaysinadvance. B. Useobjective,impartiallanguage.
C. Use generalizations.
D. Document the appraisal.
Correct Answer: C Section: (none) Explanation
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QUESTION 59
An organization contracted a third party to construct a new facility that was estimated to cost $25 million. Which of the following is the most pertinent reason for the organization to audit the contractor's records?
A. Thecontractincludesaright-to-auditclause.
B. Thecontractorwillbepaidonacost-plusbasis.
C. The estimated cost is high.
D. The contractor has subcontracted much of the work.
Correct Answer: B Section: (none) Explanation
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QUESTION 60
Which of the following would not be an appropriate step for an internal auditor to perform during an assessment of compliance with an organization's privacy policy?
A. Determinewhocanaccessdatabasescontainingconfidentialinformation.
B. Evaluatetheorganization'sprivacypolicytodetermineifappropriateinformationiscovered. C. Analyze access to permanent files and reports containing confidential information.
D. Evaluate the government's security measures related to confidential information received from the organization.
Correct Answer: D Section: (none) Explanation
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QUESTION 61
An internal auditor for a financial institution has just completed an audit of loan processing. Of the 81 loans approved by the loan committee, the auditor found seven loans which exceeded the approved amount. Which of the following actions would be inappropriate on the part of the auditor?
A. Examinethesevenloanstodetermineifthereisapattern.Summarizeamountsandincludeinthe engagement final communication.
B. Reporttheamountstotheloancommitteeandleaveituptothemtocorrect.Takenofurtherfollow-up action at this time and do not include the items in the engagement final communication.
C. Follow up with the appropriate vice president and include the vice president's acknowledgment of the situation in the engagement final communication.
D. Determine the amount of the differences and make an assessment as to whether the dollar differences are material. If the amounts are not material, not in violation of government regulations, and can be rationally explained, omit the observation from the engagement final communication.
Correct Answer: B Section: (none) Explanation
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QUESTION 62
During a systems development audit, software developers indicated that all programs were moved from the development environment to the production environment and then tested in the production environment. What should the auditor recommend?
A. Implementatestenvironmenttoensurethattestingisnotperformedintheproductionenvironment. II. Require developers to move modified programs from the development environment to the test environment and from the test environment to the production environment.
III. Eliminate access by developers to the production environment.
B. Ionly
C. III only
D. IandIIonly
E. IandIIIonly
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 63
A post-audit questionnaire sent to audit clients is an effective mechanism for:
A. Substantiatingauditobservations.
B. Promotingtheinternalauditactivity. C. Improving future audit engagements. D. Validating process flow.
Correct Answer: C Section: (none) Explanation
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QUESTION 64
Which of the following must an auditor establish in order to demonstrate that fraud has occurred?
A. Monetarydamagetothevictim.
B. Thesuspect'sintent.
C. Existence of an internal control deficiency. D. Evidence of collusion.
Correct Answer: B Section: (none) Explanation
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Explanation:
QUESTION 65
Which of the following would be the least important reason for a company to merge with another company?
A. T o diversify risk.
B. Asaresponsetonewgovernmentpolicy.
C. To reduce labor costs.
D. To increase stock prices.
Correct Answer: D Section: (none) Explanation
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QUESTION 66
Which of the following potential performance measures should an auditor recommend excluding from a performance scorecard?
A. Numberofemployees.
B. Marketshare.
C. Number of customer complaints. D. Training dollars per employee.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 67
Which of the following is the best approach for obtaining feedback from engagement clients regarding the quality of internal audit work?
A. Askquestionsduringtheexitinterviewsandsendcopiesofthedocumentedresponsestotheclients. B. Callengagementclientsaftertheexitinterviewsandsendcopiesofthedocumentedresponsestothe
clients.
C. Distribute questionnaires to selected engagement clients shortly before preparing the internal audit annual activity report.
D. Provide questionnaires to engagement clients at the beginning of each engagement and request that the clients complete and return them after the engagements.
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 68
After completing a fraud investigation but before publishing a formal written report, the chief audit executive should submit a draft of the final report to the organization's:
A. Legalcounsel.
B. Externalauditor.
C. Audit committee chairperson. D. Chief executive officer.
Correct Answer: A Section: (none) Explanation
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Explanation:
QUESTION 69
Senior management of an organization has requested that the internal audit activity provide ongoing internal control training for all managerial personnel. This is best addressed by:
A. Aformalconsultingengagement.
B. Aninformalconsultingengagement.
C. A performance assurance engagement. D. Anoperationalassuranceengagement.
Correct Answer: A Section: (none) Explanation
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Explanation:
QUESTION 70
A key to effective benchmarking in a consulting engagement is identifying the issues that can be:
A. Reviewedbyallinternalauditstaffmembers.
B. Sharedwithallinternalauditcustomers.
C. Measured and controlled by the engagement client. D. Discussed with the board or audit committee.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 71
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. Managerofdisbursements. II. Controller.
III. Chief operating officer.
IV. Audit committee members.
B. Ionly
C. IandIIonly
D. II and III only
E. II,III,andIVonly
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 72
In a client satisfaction survey for an internal audit engagement, client management should be asked to assess which of the following factors?
A. Auditteam'sknowledgeoftheauditedarea.
II. Usefulness of the audit results.
III. Quality of management of the internal audit activity.
IV. Clarity of the scope and objectives of the audit engagement.
B. IandIIonly
C. II and IV only
D. I, II, and IV only
E. I,III,andIVonly
Correct Answer: C Section: (none) Explanation
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Explanation:
QUESTION 73
In response to an accounts receivable confirmation, a customer indicated that the invoice listed on the confirmation letter had been paid two months earlier.
This may indicate that:
A. Thereceivablewasselectedforconfirmationinerror. B. Thecustomerisabadcreditrisk.
C. The receivable should be written off.
D. Fraudulent activity has occurred.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 74
Which of the following conclusions would be appropriate for a beginning auditor performing an audit of a payroll department?
A. Employeetaxeshavebeendeductedatthecorrectrates,andthetaxeshavebeenforwardedtothe appropriate government agency.
B. Althoughthereisinsufficientsegregationofduties,theimpactismitigatedbycompensatingcontrols.
C. The payroll computer system should be replaced.
D. The payroll department staff has the appropriate level of skills.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
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. Responsesfromthemanagerofaccountsreceivableregardingcollectionofoutstandingreceivables.
B. Periodicupdatesfromthecontrollerregardingthestatusofcorrectiveactions.
C. Information from the credit and marketing personnel assigned the responsibility for reevaluating credit policies.
D. Updates from the information technology division regarding implementation of a new accounts receivable system.
Correct Answer: D Section: (none) Explanation
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QUESTION 76
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. Receiveperiodicfeedbackfrommuseumstaffregardingthestatusofthesystemimplementation.
B. Monitorthesystemimplementationandscheduleafollow-upreviewoncethenewsystemisinplace.
C. Determine whether the items are indeed missing and assess the ability of the new system to remedy the problem.
D. Schedule an audit of the museum's security systems to determine if theft is a problem.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 77
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 problems during 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. Amendthescopeofthesubsequentaudittoverifythattheprogramwascorrectedandthataccounts
were consolidated.
II. Evaluate the adequacy and effectiveness of the corrective action proposed by management. III. Schedule a follow-up review to verify that the program was corrected and the accounts were consolidated.
IV. Do nothing because management has agreed to address the problem.
B. IIIonly
C. IV only
D. IandIIonly
E. IIandIIIonly
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 78
A company's cellular phone costs vary significantly by sales representative and by month. Which of the following would be the most appropriate approach for a consulting project concerning this issue?
A. Controlself-assessmentinvolvingsalesrepresentatives.
B. Benchmarkingwithothercellularphoneusers.
C. Business process review of cellular phone needs.
D. Performance measurement and design of the budgeting process.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 79
Which of the following would be the most effective method to prevent installation of new equipment that does not meet environmental permit requirements, or to prevent modification of current processes in such a way that they no longer meet permit requirements?
A. Requirethattheenvironmentalcompliancedepartmentperformregularinspectionsofthe manufacturing facility to identify new equipment or process modifications in progress.
B. Relyonannualinspectionsbyvariousregulatoryagenciestoidentifyequipmentorprocessesthat require a permit.
C. Require that the staff of the environmental compliance department attend monthly safety meetings in different parts of the facility so that they can hear directly from the workers about any changes.
D. Include the environmental compliance department in the review of proposed process changes and equipment purchases affecting permit requirements.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 80
Which of the following types of internal audit consulting engagements is an example of a facilitation service?
A. Conductingcontrolself-assessmentworkshops. II. Participating on standing committees.
III. Reviewing regulatory compliance. IV. Benchmarking.
B. Estimatingsavingsfromoutsourcingprocesses.
C. IandIVonly
D. I, III, and IV only
E. II,III,andVonly
F. I,II,III,IV,andV.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 81
Which of the following best defines an engagement conclusion?
A. Anauditor'sdeterminationofthecauseofanengagementobservation. B. Anauditor'sprofessionaljudgmentofthesituationwhichwasreviewed. C. An opinion that must be included in the engagement final communication. D. A recommendation for corrective action.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 82
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. Generatedandmaintainedonaseparatesecureserver.
B. Accessiblebyadministrativeusersonly
C. Encrypted to ensure that the logs cannot be deleted.
D. Restored automatically to the Web server from backup files.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 83
Which of the following actions by management would reduce an employee's opportunity to commit fraud?
A. Establishingphysicalcontrolsovercompanyassets.
B. Eliminatingbonusestiedtosalesorotherperformancegoals.
C. Defining ethical behavior expectations in the company handbook.
D. Identifying consequences, such as termination, for fraudulent activities.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 84
Which of the following are typical steps in the design of an organization's performance measurement system?
A. Understandorganizationalstrategy;performasituationalassessment;establishmeasurement categories; and take actions based upon measurement results.
B. Categorizeperformancemeasures;establishadatacollectionplan;analyzedata;andpredictfuture performance.
C. Establish a measurement plan; create an organizational strategy linked to those measurements; trend measurement data; and measure data variability.
D. Perform a situational assessment; generate macro measurements; review measurement data; and change strategy based upon measurement results.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 85
When interviewing an individual suspected of fraud, what type of questions would be asked after the introductory questions?
A. Informationalquestions.
B. Admission-seekingquestions. C. Assessment questions.
D. Closing questions.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 86
Which of the following activities would be performed during a benchmarking consulting engagement?
A. Collectdatarelevanttothebenchmarkingprocess. II. Review all business processes.
III. Define critical success factors.
IV. Identify performance gaps.
B. IandIIIonly
C. II and IV only
D. I, II, and III only
E. I,III,andIVonly
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
Explanation:
Five brand managers in a consumer products company met to determine how well certain promotions had performed. The data that they needed to analyze consisted of approximately 50 gigabytes of daily point-of- sale (POS) data for each month. The brand managers tried to download the POS data from the mainframe and import it into microcomputer spreadsheets for analysis. Their efforts were unsuccessful, most likely because oF.
A. Thecomplexityofthemainframedatastructureandthelargevolumeofdata.
B. Thedifficultyofestablishingaccessprivilegesforeachsubsetofthemainframedata.
C. Inconsistencies in the mainframe data due to lack of integrity constraints on the data files. D. Error-prone transmission links for downloading the data from the mainframe data files.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 36
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. simul-ation.
C. Sensitivityanalysis. D. Variance analysis.
Correct Answer: C Section: (none)
Explanation Explanation/Reference:
Explanation:
QUESTION 37
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/MH
The 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. Thisregressioncanbeusedtodeterminethemaintenancecostforanyperiodatanyactivitylevelby substituting the machine hours in the equation.
B. The$60componentrepresentsthebestestimateoffixedmaintenancecostsforthecompanyina shutdown situation.
C. The $0.25 component is the slope coefficient of the cost estimate and represents the average variable maintenance cost per machine hour.
D. The coefficient of determination of R2 = 0.85 indicates that the goodness of fit is poor because the value is close to the maximum value of one.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
valid.
QUESTION 38
Which of the following techniques could be used to evaluate the effectiveness of changes to the operation of a computer help line?
A. Benchmarking.
B. Baselinemeasurements. C. Walk-throughs.
D. Qualitycircles.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 39
One method for dealing with the uncertainty of demand forecasts used in linear programming is to extend the model solution to include.
A. Sensitivityanalysis.
B. Goalseeking.
C. Branch-and-bound solutions. D. Nonlinear programming.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 40
Which of the following factors is least essential to a successful control self-assessment workshop?
A. Votingtechnology. B. Facilitationtraining. C. Prior planning.
D. Group dynamics.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 41
Which of the following would not be characteristic of control self-assessment implemented by an audit department?
A. Anauditorusuallyfacilitatesthediscussionduringtheworkshopphasewhileanotherrecordscomments for subsequent use.
B. Auditorsandbusiness-unitemployeesworkasateam.
C. Auditors perform traditional audit tests to identify control weaknesses.
D. Participants discuss the control weaknesses that hinder the achievement of objectives.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 42
Which of the following is an advantage of control self-assessment (CSA) over conventional auditing techniques?
A. CSAevaluatescontrolactivitiesandhumanresourcepractices.
B. CSAprovidesassuranceaboutwhetherbusinessobjectiveswillbemet. C. CSA facilitates obtaining input from subject-matter experts efficiently.
D. CSA provides assurance that action will be taken to improve deficiencies.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 43
During which of the following systems development stages would it be most useful for an internal auditor to be involved?
A. Codingandtesting.
B. Useracceptanceandpost-implementation. C. Design and implementation.
D. Testing and user acceptance.
Correct Answer: C Section: (none) Explanation
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QUESTION 44
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. Relevanttothecompletenessobjective.
B. Irrelevanttothecompletenessobjective.
C. A more timely test of completeness than evidence from interviews. D. A more biased test of completeness than evidence from interviews.
Correct Answer: B Section: (none) Explanation
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QUESTION 45
All of the following tools are employed to control large-scale projects except:
A. Programevaluationandreviewtechnique(PERT). B. Criticalpathmethod.
C. Statistical process control.
D. Gantt charts.
Correct Answer: C Section: (none) Explanation
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QUESTION 46
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. Adjustthescopeofthenextregularlyscheduledaudittoassesscontrolswithintheclaimsprocessing system.
B. Discussthefindingswiththeauditcommitteeandaskthecommitteetodeterminetheappropriate follow-up action.
C. Schedule a follow-up engagement within six months to assess the status of corrective action.
D. Monitor the status of corrective action and schedule a follow-up engagement when appropriate.
Correct Answer: D Section: (none) Explanation
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QUESTION 47
An audit of a company's accounts payable found that the individuals responsible for maintaining the vendor master file could also enter vendor invoices into the accounts payable system. During the exit conference, management agreed to correct this problem. When performing a follow-up engagement of accounts payable, the auditor should expect to find that management has:
A. Transferredtheindividualswhomaintainedthevendormasterfiletoanotherdepartmenttoensurethat responsibilities are appropriately segregated.
B. Comparedthevendorandemployeemasterfilestodetermineifanyunauthorizedvendorshavebeen added to the vendor master file.
C. Changed the access control system to prevent employees from both entering invoices and approving payments.
D. Modified the accounts payable system to prevent individuals who maintain the vendor master file from entering invoices.
Correct Answer: D Section: (none) Explanation
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QUESTION 48
What is the primary factor that determines the depth and breadth of audit follow-up?
A. Theengagementclient'swrittenresponsetotheauditfindings.
B. Theauditor'sassessmentofriskassociatedwiththeauditfindings.
C. The auditor's assessment of personnel responsible for correcting audit findings. D. The availability of audit personnel and financial resources.
Correct Answer: B Section: (none) Explanation
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QUESTION 49
At the conclusion of an audit of an organization's treasury department, a report was issued to the treasurer, chief financial officer, president, and board. Because of the sensitivity of some findings, a follow-up review was performed. The auditor should provide the report of follow-up findings to the.
A. Treasurer.
II. Chief financial officer. III. President.
IV. Board.
B. IandIIonly
C. III and IV only
D. I, II, and III only
E. I,II,III,andIV.
Correct Answer: D Section: (none) Explanation
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QUESTION 50
When interrogating an individual who is suspected of fraud, it is appropriate to:
A. Telltheindividualthatanyinformationdisclosedintheinterrogationwillnotbedisclosedoutsideofthe company.
B. Starttheinterviewwithquestionstowhichtheintervieweralreadyknowstheanswer.
C. Discontinue questioning once the individual has confessed to the fraud.
D. Prepare a list of questions prior to the interrogation and strictly adhere to the list.
Correct Answer: B Section: (none) Explanation
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QUESTION 51
Questions used to interrogate individuals suspected of fraud should:
A. Adheretoapredeterminedorder.
B. Covermorethanonesubjectortopic. C. Move from general to specific.
D. Direct the individual to a desired answer.
Correct Answer: C Section: (none) Explanation
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QUESTION 52
A chief audit executive (CAE) suspects that several employees have used desktop computers for personal gain. In conducting an investigation, the primary reason that the CAE would choose to engage a forensic information systems auditor rather than using the organization's information systems auditor is that a forensic information systems auditor would possess:
A. Knowledgeofthecomputingsystemthatwouldenableamorecomprehensiveassessmentofthe computer use and abuse.
B. Knowledgeofwhatconstitutesevidenceacceptableinacourtoflaw.
C. Superior analytical skills that would facilitate the identification of computer abuse.
D. Superior documentation and organization skills that would facilitate in the presentation of findings to senior management and the board.
Correct Answer: B Section: (none) Explanation
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QUESTION 53
While conducting a payroll audit, an internal auditor in a large government organization found inadequate segregation in the duties assigned to the assistant director of personnel. When the auditor explained the risk of fraud, the assistant director became upset, terminated the interview, and threatened to sue the organization for defamation of character if the audit engagement was not curtailed. The auditor discussed the situation with the chief audit executive (CAE). The CAE should then:
A. Curtailtheauditengagementtoavoidpotentiallegalaction.
B. Provideareporttoseniormanagementrecommendingafraudinvestigation.
C. Continue the original engagement program as planned but include a comment about the assistant director's reaction in the engagement final communication.
D. Add additional testing to determine whether other indicators of fraud exist.
Correct Answer: D Section: (none) Explanation
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QUESTION 54
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. Restricttheuseofpotentiallydamagingwordstoprivilegedreportsordiscussions.
B. Labelallworkpapers,reports,andcorrespondenceoftheinternalauditactivityasprivate.
C. Restrict discussions of the fraud to members of management who express an interest in the investigation.
D. Destroy all investigation workpapers and reports if the fraud cannot be proven.
Correct Answer: A Section: (none) Explanation
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QUESTION 55
The scope of a consulting engagement performed by internal auditors should:
A. Besufficienttoaddresstheobjectivesagreeduponwiththeclient.
B. Excludeareasthatmightbethesubjectofsubsequentassuranceengagements. C. Be limited to activities within the current operating period.
D. Be preapproved in conjunction with the annual plan of consulting engagements.
Correct Answer: A Section: (none) Explanation
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QUESTION 56
The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison oF.
A. Employeemoralebeforeandafterprogramimplementation.
B. Scrapandreworkcostsbeforeandafterprogramimplementation.
C. Customer returns before and after program implementation.
D. Manufacturing and distribution costs per unit before and after program implementation.
Correct Answer: A Section: (none) Explanation
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QUESTION 57
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: (none) Explanation
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QUESTION 58
When conducting a performance appraisal of an internal auditor who has been a below-average performer, it is not appropriate to:
A. Notifytheinternalauditoroftheupcomingappraisalseveraldaysinadvance. B. Useobjective,impartiallanguage.
C. Use generalizations.
D. Document the appraisal.
Correct Answer: C Section: (none) Explanation
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QUESTION 59
An organization contracted a third party to construct a new facility that was estimated to cost $25 million. Which of the following is the most pertinent reason for the organization to audit the contractor's records?
A. Thecontractincludesaright-to-auditclause.
B. Thecontractorwillbepaidonacost-plusbasis.
C. The estimated cost is high.
D. The contractor has subcontracted much of the work.
Correct Answer: B Section: (none) Explanation
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QUESTION 60
Which of the following would not be an appropriate step for an internal auditor to perform during an assessment of compliance with an organization's privacy policy?
A. Determinewhocanaccessdatabasescontainingconfidentialinformation.
B. Evaluatetheorganization'sprivacypolicytodetermineifappropriateinformationiscovered. C. Analyze access to permanent files and reports containing confidential information.
D. Evaluate the government's security measures related to confidential information received from the organization.
Correct Answer: D Section: (none) Explanation
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QUESTION 61
An internal auditor for a financial institution has just completed an audit of loan processing. Of the 81 loans approved by the loan committee, the auditor found seven loans which exceeded the approved amount. Which of the following actions would be inappropriate on the part of the auditor?
A. Examinethesevenloanstodetermineifthereisapattern.Summarizeamountsandincludeinthe engagement final communication.
B. Reporttheamountstotheloancommitteeandleaveituptothemtocorrect.Takenofurtherfollow-up action at this time and do not include the items in the engagement final communication.
C. Follow up with the appropriate vice president and include the vice president's acknowledgment of the situation in the engagement final communication.
D. Determine the amount of the differences and make an assessment as to whether the dollar differences are material. If the amounts are not material, not in violation of government regulations, and can be rationally explained, omit the observation from the engagement final communication.
Correct Answer: B Section: (none) Explanation
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QUESTION 62
During a systems development audit, software developers indicated that all programs were moved from the development environment to the production environment and then tested in the production environment. What should the auditor recommend?
A. Implementatestenvironmenttoensurethattestingisnotperformedintheproductionenvironment. II. Require developers to move modified programs from the development environment to the test environment and from the test environment to the production environment.
III. Eliminate access by developers to the production environment.
B. Ionly
C. III only
D. IandIIonly
E. IandIIIonly
Correct Answer: D Section: (none) Explanation
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QUESTION 63
A post-audit questionnaire sent to audit clients is an effective mechanism for:
A. Substantiatingauditobservations.
B. Promotingtheinternalauditactivity. C. Improving future audit engagements. D. Validating process flow.
Correct Answer: C Section: (none) Explanation
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QUESTION 64
Which of the following must an auditor establish in order to demonstrate that fraud has occurred?
A. Monetarydamagetothevictim.
B. Thesuspect'sintent.
C. Existence of an internal control deficiency. D. Evidence of collusion.
Correct Answer: B Section: (none) Explanation
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QUESTION 65
Which of the following would be the least important reason for a company to merge with another company?
A. T o diversify risk.
B. Asaresponsetonewgovernmentpolicy.
C. To reduce labor costs.
D. To increase stock prices.
Correct Answer: D Section: (none) Explanation
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QUESTION 66
Which of the following potential performance measures should an auditor recommend excluding from a performance scorecard?
A. Numberofemployees.
B. Marketshare.
C. Number of customer complaints. D. Training dollars per employee.
Correct Answer: A Section: (none) Explanation
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QUESTION 67
Which of the following is the best approach for obtaining feedback from engagement clients regarding the quality of internal audit work?
A. Askquestionsduringtheexitinterviewsandsendcopiesofthedocumentedresponsestotheclients. B. Callengagementclientsaftertheexitinterviewsandsendcopiesofthedocumentedresponsestothe
clients.
C. Distribute questionnaires to selected engagement clients shortly before preparing the internal audit annual activity report.
D. Provide questionnaires to engagement clients at the beginning of each engagement and request that the clients complete and return them after the engagements.
Correct Answer: D Section: (none) Explanation
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QUESTION 68
After completing a fraud investigation but before publishing a formal written report, the chief audit executive should submit a draft of the final report to the organization's:
A. Legalcounsel.
B. Externalauditor.
C. Audit committee chairperson. D. Chief executive officer.
Correct Answer: A Section: (none) Explanation
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QUESTION 69
Senior management of an organization has requested that the internal audit activity provide ongoing internal control training for all managerial personnel. This is best addressed by:
A. Aformalconsultingengagement.
B. Aninformalconsultingengagement.
C. A performance assurance engagement. D. Anoperationalassuranceengagement.
Correct Answer: A Section: (none) Explanation
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QUESTION 70
A key to effective benchmarking in a consulting engagement is identifying the issues that can be:
A. Reviewedbyallinternalauditstaffmembers.
B. Sharedwithallinternalauditcustomers.
C. Measured and controlled by the engagement client. D. Discussed with the board or audit committee.
Correct Answer: C Section: (none) Explanation
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QUESTION 71
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. Managerofdisbursements. II. Controller.
III. Chief operating officer.
IV. Audit committee members.
B. Ionly
C. IandIIonly
D. II and III only
E. II,III,andIVonly
Correct Answer: B Section: (none) Explanation
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QUESTION 72
In a client satisfaction survey for an internal audit engagement, client management should be asked to assess which of the following factors?
A. Auditteam'sknowledgeoftheauditedarea.
II. Usefulness of the audit results.
III. Quality of management of the internal audit activity.
IV. Clarity of the scope and objectives of the audit engagement.
B. IandIIonly
C. II and IV only
D. I, II, and IV only
E. I,III,andIVonly
Correct Answer: C Section: (none) Explanation
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QUESTION 73
In response to an accounts receivable confirmation, a customer indicated that the invoice listed on the confirmation letter had been paid two months earlier.
This may indicate that:
A. Thereceivablewasselectedforconfirmationinerror. B. Thecustomerisabadcreditrisk.
C. The receivable should be written off.
D. Fraudulent activity has occurred.
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 74
Which of the following conclusions would be appropriate for a beginning auditor performing an audit of a payroll department?
A. Employeetaxeshavebeendeductedatthecorrectrates,andthetaxeshavebeenforwardedtothe appropriate government agency.
B. Althoughthereisinsufficientsegregationofduties,theimpactismitigatedbycompensatingcontrols.
C. The payroll computer system should be replaced.
D. The payroll department staff has the appropriate level of skills.
Correct Answer: A Section: (none) Explanation
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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. Responsesfromthemanagerofaccountsreceivableregardingcollectionofoutstandingreceivables.
B. Periodicupdatesfromthecontrollerregardingthestatusofcorrectiveactions.
C. Information from the credit and marketing personnel assigned the responsibility for reevaluating credit policies.
D. Updates from the information technology division regarding implementation of a new accounts receivable system.
Correct Answer: D Section: (none) Explanation
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QUESTION 76
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. Receiveperiodicfeedbackfrommuseumstaffregardingthestatusofthesystemimplementation.
B. Monitorthesystemimplementationandscheduleafollow-upreviewoncethenewsystemisinplace.
C. Determine whether the items are indeed missing and assess the ability of the new system to remedy the problem.
D. Schedule an audit of the museum's security systems to determine if theft is a problem.
Correct Answer: C Section: (none) Explanation
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QUESTION 77
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 problems during 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. Amendthescopeofthesubsequentaudittoverifythattheprogramwascorrectedandthataccounts
were consolidated.
II. Evaluate the adequacy and effectiveness of the corrective action proposed by management. III. Schedule a follow-up review to verify that the program was corrected and the accounts were consolidated.
IV. Do nothing because management has agreed to address the problem.
B. IIIonly
C. IV only
D. IandIIonly
E. IIandIIIonly
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 78
A company's cellular phone costs vary significantly by sales representative and by month. Which of the following would be the most appropriate approach for a consulting project concerning this issue?
A. Controlself-assessmentinvolvingsalesrepresentatives.
B. Benchmarkingwithothercellularphoneusers.
C. Business process review of cellular phone needs.
D. Performance measurement and design of the budgeting process.
Correct Answer: C Section: (none) Explanation
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QUESTION 79
Which of the following would be the most effective method to prevent installation of new equipment that does not meet environmental permit requirements, or to prevent modification of current processes in such a way that they no longer meet permit requirements?
A. Requirethattheenvironmentalcompliancedepartmentperformregularinspectionsofthe manufacturing facility to identify new equipment or process modifications in progress.
B. Relyonannualinspectionsbyvariousregulatoryagenciestoidentifyequipmentorprocessesthat require a permit.
C. Require that the staff of the environmental compliance department attend monthly safety meetings in different parts of the facility so that they can hear directly from the workers about any changes.
D. Include the environmental compliance department in the review of proposed process changes and equipment purchases affecting permit requirements.
Correct Answer: D Section: (none) Explanation
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Explanation:
QUESTION 80
Which of the following types of internal audit consulting engagements is an example of a facilitation service?
A. Conductingcontrolself-assessmentworkshops. II. Participating on standing committees.
III. Reviewing regulatory compliance. IV. Benchmarking.
B. Estimatingsavingsfromoutsourcingprocesses.
C. IandIVonly
D. I, III, and IV only
E. II,III,andVonly
F. I,II,III,IV,andV.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 81
Which of the following best defines an engagement conclusion?
A. Anauditor'sdeterminationofthecauseofanengagementobservation. B. Anauditor'sprofessionaljudgmentofthesituationwhichwasreviewed. C. An opinion that must be included in the engagement final communication. D. A recommendation for corrective action.
Correct Answer: B Section: (none) Explanation
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QUESTION 82
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. Generatedandmaintainedonaseparatesecureserver.
B. Accessiblebyadministrativeusersonly
C. Encrypted to ensure that the logs cannot be deleted.
D. Restored automatically to the Web server from backup files.
Correct Answer: A Section: (none) Explanation
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QUESTION 83
Which of the following actions by management would reduce an employee's opportunity to commit fraud?
A. Establishingphysicalcontrolsovercompanyassets.
B. Eliminatingbonusestiedtosalesorotherperformancegoals.
C. Defining ethical behavior expectations in the company handbook.
D. Identifying consequences, such as termination, for fraudulent activities.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 84
Which of the following are typical steps in the design of an organization's performance measurement system?
A. Understandorganizationalstrategy;performasituationalassessment;establishmeasurement categories; and take actions based upon measurement results.
B. Categorizeperformancemeasures;establishadatacollectionplan;analyzedata;andpredictfuture performance.
C. Establish a measurement plan; create an organizational strategy linked to those measurements; trend measurement data; and measure data variability.
D. Perform a situational assessment; generate macro measurements; review measurement data; and change strategy based upon measurement results.
Correct Answer: A Section: (none) Explanation
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Explanation:
QUESTION 85
When interviewing an individual suspected of fraud, what type of questions would be asked after the introductory questions?
A. Informationalquestions.
B. Admission-seekingquestions. C. Assessment questions.
D. Closing questions.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
Explanation:
QUESTION 86
Which of the following activities would be performed during a benchmarking consulting engagement?
A. Collectdatarelevanttothebenchmarkingprocess. II. Review all business processes.
III. Define critical success factors.
IV. Identify performance gaps.
B. IandIIIonly
C. II and IV only
D. I, II, and III only
E. I,III,andIVonly
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
Explanation: