Certified Internal Auditor Questions + Answers Part 15
Posted: Tue Mar 01, 2022 5:10 am
QUESTION 1
In order to effectively elicit sensitive information from an employee during an audit engagement, an auditor should:
A. Telltheemployeeapieceofinformationobtainedfromacoworkerinapreviousinterview.
B. Putsensitivequestionsatthebeginningofaquestionnairetoensurethattheyareanswered.
C. Explain that the auditor's reputation for integrity, which is vital to the auditor's business success, would be seriously damaged if confidentiality were breached. D. Point out that management has given the auditor full authority to conduct this interview.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 2
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 A Explanation
Explanation/Reference: QUESTION 3
Direct staff as a percentage of total staff is an example of which of the following types of efficiency measures?
A. Productivityratio.
B. Productivityindex.
C. Operating ratio.
D. Resource utilization rate.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 4
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 A Explanation
Explanation/Reference: QUESTION 5
Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?
A. Observation.
B. Tracing.
C. Re-computation.
D. Vouching.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 6
Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?
I. Facilitated meeting
II. Survey
III. Management-produced analysis
A. Ionly
B. IandIIIonly C. II and III only D. I, II, and III
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 7
What does the following scatter gram suggest?
A. Salesrevenueisrelatedtotrainingcosts.
B. Thetrainingprogramisnoteffective.
C. Increases in training costs consistently increase sales revenue. D. One data point is incorrectly plotted.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 8
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 A Explanation
Explanation/Reference:
QUESTION 9
Productivity statistics are provided quarterly to a company's board of directors. An auditor checked the ratios and other statistics in the four most recent reports. The auditor used scratch paper and copies of the board reports to verify the accuracy of computations and compared the data used in the computations with supporting documents. The auditor wrote a note describing this work for the workpapers and then discarded the scratch paper and report copies. The auditor's note stated.
“The ratios and other statistics in the quarterly board reports were checked for the last four quarters, and appropriate supporting documents were examined. All amounts appear to be appropriate.”
In this situation:
A. Fourquartersisnotalargeenoughsampleonwhichtobaseaconclusion.
B. Theauditor'sworkpapersarenotsufficienttofacilitateanefficientreviewoftheauditor'swork.
C. The auditor should have included the scratch paper in the workpapers.
D. The auditor should have considered whether the information in the board report was compiled efficiently.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 10
Which of the following is an example of the verification of internal documentary evidence?
A. Reviewingacarrier'sbilloflading.
B. Reconcilingavendor'smonth-endstatement.
C. Vouching a copy of a sales invoice to receivables. D. Recalculating a customer's purchase order.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 11
The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?
I. Financial measures.
II. Internal business process measures. III. Client satisfaction measures.
IV. Innovation and learning measures.
A. Ionly
B. IIandIVonly
C. III and IV only
D. II, III, and IV only
Correct Answer: D
Section: Volume A Explanation
Explanation/Reference: QUESTION 12
An auditor prepared a workpaper that consisted of a list of employee names and identification numbers as well as the following statement:
“A statistical sample of 40 employee personnel files was selected to verify that they contain all documents required by company policy 501 (copy attached). No exceptions were noted.”
The auditor did not place any audit verification symbols on this workpaper. Which of the following changes would most improve the auditor's workpaper?
A. Useofauditverificationsymbolstoshowthateachfilewasexamined. B. Removaloftheemployeenamestoprotecttheirconfidentiality.
C. Justification for the sample size.
D. Listing of the actual documents examined for each employee.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 13
During an interview with a manager in a company's claims department, an auditor noted that the manager became nervous and changed the subject whenever the auditor raised questions about certain types of claims. The manager's answers were consistent with company policies and procedures. When documenting the interview, the auditor should:
A. Documentthemanager'sanswers,notingthenatureofthenonverbalcommunication.
B. Documentthemanager'sanswersbutnotthenonverbalcommunicationbecauseitissubjectiveandisnotcorroborated. C. Conclude that the nonverbal communication is persuasive and that sufficient evidence exists to begin a fraud investigation. D. Disregard the interview entirely because the verbal and nonverbal communications were contradictory.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 14
Which of the following is true of engagement recommendations?
I. Specific suggestions for implementation must be included.
II. The internal auditor's observations and conclusions may serve as the basis. III. Actions to correct existing conditions or improve operations may be included. IV. Approaches to correcting or enhancing performance may be suggested.
A. Ionly
B. IIIonly
C. I, III, and IV only D. II, III, and IV only
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 15
Which of the following performance criteria would be most useful when measuring the performance of a customer service desk?
A. Thenumberofcustomerinquiriesrecordedperday.
B. Thepercentageofcustomerissuesresolvedwithin24hours. C. The number of customer complaints recorded per day.
D. The percentage of total customers served per day.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 16
The efficiency of internal audit operations is best enhanced if workpaper standards:
A. Permittheextentofdocumentationtovaryaccordingtoengagementobjectives.
B. Requiresupervisorstoinitialanddateeachworkpaperthattheyreview.
C. Allowaccesstoworkpapersbyexternalpartiesifapprovedbyseniormanagementortheauditcommittee. D. Mandate the workpaper retention period.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 17
According to the International Professional Practices Framework, which of the following statements is correct regarding the communication of audit results?
I. Summary reports may be issued separately from or in conjunction with the final report.
II. Interim reports may be written or oral.
III. Detailed reports should always be issued to the audit committee.
IV. Interim reports should be used to communicate information which requires immediate attention.
A. IandIIIonly
B. IIandIVonly C. I, II, and IV only D. I, II, III, and IV.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 18
The chief audit executive (CAE) determined that based on management's oral response, the action taken regarding an audit observation was sufficient when weighted against the relative importance of the audit recommendation. Which of the following is the most appropriate step for the internal auditor to take next?
A. Initiateafollow-upaudittoensurethatactionhasreallybeentaken. B. Follow-upwithmanagementuntilawrittenresponseisobtained.
C. Escalate the issue to the board and get their position on the issue.
D. Note in the permanent file that follow-up needs to be performed as part of the next engagement.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 19
Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?
A. Includeboththeauditfindingandtheclient'spositionintheauditreport.
B. Deferreportingtheitemandplantoperformmoredetailedworkduringthenextaudit.
C. Change the finding so that it is acceptable to the client.
D. Address the issue with senior management and the board for resolution prior to issuing the final report.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 20
A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is most likely to explain the difference in the regional results?
A. Themoresuccessfulregionspends30percentmoremoneyoneducationthandoestheotherregion.
B. Ahigherpercentageofthegeneraltaxfundisspentoneducationinthemoresuccessfulregionthanintheotherregion.
C. The more successful region spends more money per student on education than does the other region.
D. The more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only three percent.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 21
Which of the following would constitute a violation of the IIA Code of Ethics?
A. Aninternalauditor,whohasrecentlyjoinedtheorganization,hasacceptedanassignmenttoaudittheelectronicsmanufacturingdivision.Theauditorpreviously served as senior auditor for the external audit of that division and has audited many electronics companies during the past two years.
B. Aninternalauditorhasacceptedanassignmenttoauditthewarehousingfunctionsixmonthsfromnow.Theauditorhasnoexpertiseinthatareabuthassigned up for courses in warehousing that will be completed before the assignment begins.
C. An internal auditor has no ambitions for promotion and has not engaged in training or other professional development activities during the last three years. The auditor's performance assessments indicate consistent quality of work.
D. Aninternalauditordiscoveredaninternalfinancialfraudduringtheyear,andthefinancialstatementswereadjustedtoproperlyreflectthelossassociatedwith the fraud. The auditor discussed the fraud with the external auditor during the external auditor's review of the working papers detailing the incident.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 22
An auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory. The analysis would be potentially useful in:
I. Identifying products for which management has not been attuned to changes in market demand. II. Identifying potential problems in purchasing activities.
III. Identifying obsolete inventory.
A. IIIonly
B. IandIIonly C. II and III only D. I, II, and III
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 23
An internal auditor provided the following statement about division A's performance during the month: "Because supplies of raw material X were scarce, division A's profits declined by 15 percent."
Which of the following can be validly concluded from the auditor's statement?
I. Division A's production level declined by 15 percent.
II. Division A could have sold more products than it produced. III. Division A usually sells all of the products that it produces.
A. Ionly
B. IIonly
C. III only
D. IandIIonly
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 24
As part of an operational audit of the shipping department, an auditor selected a sample of 45 daily shipping logs from the department's files. On 44 of the days, the log contained a sufficient number of shipments to meet the department's daily quota. Based on this test, the auditor concluded that the shipping department was effective at meeting its quotas. Which of the following is true about the auditor's conclusion?
A. Thenumberofitemsselectedfortestingisinadequatetojustifytheconclusion. B. Theshippingdepartmentiseffectiveinmeetingitsresponsibilities.
C. This conclusion would negate any need to perform tests of efficiency.
D. None of the above.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 25
An internal audit activity implemented an integrated test facility to test payroll processing. The auditors identified the key controls and processing steps built into the computer program and developed test data to test them. The auditors submitted test transactions throughout the year and did not find any differences in their test results. The auditors can conclude that:
A. Thesystemisproperlycapturingthehoursworkedbyemployeesduringtheyearandthehourshavebeenproperlysubmittedtopayrollandprocessed correctly.
B. Allemployeeswerecorrectlypaidduringtheyearandtheirpaywascorrectlycomputed.
C. The computer application and its control procedures were processing payroll transactions correctly during the past year.
D. All of the above.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 26
A code of ethics within the internal auditing profession is necessary in order to:
A. Reducethelikelihoodthatmembersoftheprofessionwillbesuedforsubstandardwork.
B. Ensurethatallmembersoftheprofessionperformatapproximatelythesamelevelofcompetence.
C. Provide guidance to internal auditors in their service to others.
D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 27
An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?
A. Reviewthecontrolsoverpayrollinboththecompanyandtheservicebureau.
B. Reviewonlythecompany'scontrolsoverdatasenttoandreceivedfromtheservicebureau.
C. Review only the controls over payments to the service bureau based on the contract.
D. Cancel the engagement because the processing is being performed outside of the organization.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 28
An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to:
A. Limitaccesstothedatatabletomanagementandlinesupervisorswhohavetheauthoritytodeterminepayrates.
B. Requireasupervisorinthedepartment,whodoesnothavetheabilitytochangethetable,tocomparethechangestoasignedmanagementauthorization. C. Ensure that adequate edit and reasonableness checks are built into the automated system.
D. Require that all pay changes be signed by the employee to verify that the change goes to a bona fide employee.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 29
What is the most important risk in determining the validity of construction delay claims? A. Contractorclaimsmaybesubmittedpriortocompletionofthework.
B. Contractorclaimsmayincludecostsconsideredinthefixed-priceportionofthework.
C. Contractor claims may include subcontractor estimates of balances due to the subcontractor. D. Contractor claims may be understated.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 30
During an audit of a branch bank, an internal auditor learned that a series of system failures had resulted in a four-day delay in processing customers' scheduled payroll direct deposits. The first failure was that of a disk drive, followed by software and other minor failures. Which of the following controls should the auditor recommend to avoid similar delays in processing?
A. Contingencyplanning. B. Redundancychecks.
C. Process monitoring.
D. Preventive maintenance.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 31
An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time. The application controls being verified by this analysis are:
A. Editandvalidationcontrols.
B. Rejectedandsuspenseitemcontrols.
C. Controls over update access to the database. D. Programmed balancing controls.
Correct Answer: A Section: Volume A
Explanation Explanation/Reference:
QUESTION 32
During the development of a purchasing system, an auditor reviewed the payment authorization program. Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?
A. Issueanexceptionreport.
B. Paytheamountbilledandadjusttheinventoryaccountforthedifference.
C. Return the invoice to the vendor for correction.
D. Authorize payment of the full invoice, but maintain an open purchase order record for the missing goods.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 33
The most common motivation for management fraud is the existence of:
A. Vices,suchasagamblinghabit.
B. Jobdissatisfaction.
C. Financial pressures on the organization.
D. The challenge of committing the perfect crime.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 34
Which of the following conditions is the strongest indicator of possible fraud?
A. Anassistanttreasurerwhorefusestotakevacations.
B. Independentreconciliationsofsubsidiarytogeneralledgersthatarenotalwayscompletedonatimelybasis. C. A condition of excess manufacturing waste material.
D. A manager who is often over budget at the end of a reporting period.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 35
Which sampling plan requires no additional sampling once the first error is found?
A. Stratifiedsampling. B. Attributessampling. C. Stop-or-go sampling. D. Discoverysampling.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 36
After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use.
A. Simplerandomsamplingtoselectasampleofvouchersprocessedbythedepartmentduringthepastyear.
B. Probability-proportional-to-sizesamplingtoselectasampleofvouchersprocessedbythedepartmentduringthepastyear.
C. Discovery sampling to select a sample of vouchers processed by the department during the past year.
D. Judgmental sampling to select a sample of vouchers processed by clerks who were identified by the department manager as acting suspiciously.
Correct Answer: C Section: Volume A
Explanation Explanation/Reference:
QUESTION 37
Which of the following processes real-transaction data through auditor-developed test programs?
A. Generalizedauditsoftware. B. Tracing.
C. Parallel simulation.
D. Mapping.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 38
Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?
A. Developacost-per-productanalysisforproductsdevelopedoverthepastfiveyears.
B. Developareportonrevenuegeneratedbyorcostsavingsdirectlyattributabletonewlydevelopedproducts.
C. Compare research as a percentage of revenue between this company and all major competitors in the same industry.
D. Compare the number of this year's new product developments to the number of new product developments for the past five years.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 39
A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically.
If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation.
All of the applicable documents are electronically marked, cross-referenced, and retained in open files. Both an integrated test facility and a systems control audit review file (SCARF) have been included in the system.
An auditor wants to determine the extent to which items are not matched at year end and to investigate the potential causes of the unmatched items. Which of the following audit procedures would be most effective in determining the items to investigate?
A. Usegeneralizedauditsoftwaretoreadtheelectronicallymarkedunmatcheditems.
B. Usegeneralizedauditsoftwaretoreadthepurchaseordersandtracetoapplicablereceivingandvendorinvoicefiles. C. Use the SCARF to identify unusual items. Select an attributes sample and trace to the underlying documentation.
D. Submit test data to identify attributes of unmatched items. Follow up by investigating the identified attributes.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 40
An auditor receives anonymous information that fraud is occurring in the operation being audited, but no details are given as to the type of fraud or the individuals involved. There are several areas in which fraud could occur. The auditor should:
A. Identifytheareathathasthegreatestvolumeoftransactionsanddesignasamplingplanforsubstantivetesting. B. Applyanalyticalprocedurestoareasthatmightbeimpactedbypossiblefraudulentactivities.
C. Interview employees to identify areas where the fraud could be occurring.
D. Plan detailed tests of the areas that have the highest dollar amount of transactions.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 41
A company has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly accounting for costs related to contract change orders. Which of the following procedures would be appropriate for testing this suspicion?
I. Verify that the contractor has not charged change orders with costs that have already been billed to the original contract. II. Determine if the contractor has billed for original contract work that was canceled as a result of change orders.
III. Verify that the change orders were properly approved by management.
A. Ionly
B. IIIonly
C. IandIIonly D. I and III only
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 42
An internal audit activity is participating in the due diligence work for an acquisition that a company is considering. One engagement objective is to determine if the acquisition's accounts payable contain all outstanding liabilities. Which of the following audit procedures would not be relevant for this objective?
A. Examinesupportingdocumentationofsubsequent(after-period)cashdisbursementsandverifyperiodofliability.
B. Sendconfirmations,includingzero-balanceaccounts,tovendorswithwhomthecompanynormallydoesbusiness.
C. Select a sample of accounts payable from the accounts payable list and verify the supporting receiving reports, purchase orders, and invoices. D. Trace receiving reports issued before the period end to the related vendor invoices and accounts payable list.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 43
Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?
I. Physically inspect all assets on the organization's property.
II. Select a sample department and physically inspect assets in the department.
III. Select a sample from the organization's records of physical assets and physically locate each asset. IV. Identify assets at a sample of locations and trace to the organization's records.
A. Ionly
B. IandIVonly C. II and III only D. III and IV only
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 44
Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?
A. Integratedtestfacility.
B. Parallelsimulation.
C. Test data.
D. Embedded audit routines.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 45
Access control software on an organization's mainframe computer records detailed information concerning both successful and unsuccessful log-on attempts to applications. Which of the following audit tools would be best suited to review the access information that has been recorded?
A. Generalizedauditsoftware. B. Flowcharting.
C. Integrated test facility.
D. Test data.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 46
Which of the following would provide the greatest assurance of the accuracy of a computer program's computation of freight charges for catalog sales?
A. Usediscoverysampling,selectingtransactionsfrominvoiceswhichshouldhavefreightchargesaddedtothem. B. Useeithertestdataorparallelsimulationtotestthecomputerapplication.
C. Use difference estimation, selecting transactions from invoices which should have freight charges added to them. D. Use generalized audit software to select a monetary-unit sample of invoices that have been billed to customers.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 47
If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?
A. Theconfidencelevelcouldnotbequantified.
B. Theprecisionwouldbelarger.
C. The projected value of inventory would be less reliable. D. The risk of incorrect acceptance would be higher.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 48
In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the:
A. Population.
B. Attributeofinterest. C. Sample.
D. Sampling unit.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 49
An internal auditor would most likely use attributes sampling when testing which of the following?
A. Accountsreceivablebalances.
B. Correctcodingofaccountspayabledisbursementvouchers. C. Year-endinventoryvalue.
D. Fixed asset book value.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 50
An audit department has received anonymous information that an employee has allegedly been able to steal and cash checks sent to the organization by customers. What is the most efficient way for an auditor to determine how this type of fraud could occur and who might be the perpetrator?
A. Confirm accounts receivable.
B. Confirm accounts payable.
C. Review the endorsements and banks of deposit on customers' canceled checks. D. Flowchart and analyze key controls in the cash receipts process.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 51
If an auditor expects to find numerous discrepancies between recorded values and audited values of sample selections, which sampling technique would be most appropriate?
A. Attributessampling.
B. Probability-proportional-to-sizesampling. C. Difference estimation sampling.
D. Discoverysampling.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 52
During an audit of a retail organization, an internal auditor found a scheme in which the warehouse director and the purchasing agent diverted approximately $500,000 of goods to their own warehouse, then sold the goods to third parties. The fraud was not found earlier since the warehouse director updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures would have most likely led to the discovery of the missing materials and the fraud?
A. Selectarandomsampleofreceivingreportsandtracetotherecordingintheperpetualinventoryrecords.Notedifferencesandinvestigatebytypeofproduct. B. Selectarandomsampleofpurchaseordersandtracetoreceivingreportsandtotherecordsintheaccountspayabledepartment.
C. Take an annual physical inventory, reconciling amounts with the perpetual inventory records. Note the pattern of differences and investigate.
D. Select a random sample of sales invoices and trace to the perpetual inventory records to see if inventory was on hand. Investigate any differences.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 53
Which of the following factors would increase the confidence level in a variables sampling plan?
I. A larger sample size.
II. A stratified sample.
III. A larger standard deviation.
A. IandIIonly B. IandIIIonly C. II and III only D. I, II, and III
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 54
If an auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk?
A. Theexperienceandknowledgeoftheauditor.
B. Theadverseconsequencesofnoncompliance.
C. The acceptable level of risk of making an incorrect audit conclusion. D. The cost of performing auditing procedures on sample selections.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 55
Which of the following describes an internal auditor's responsibilities to include audit procedures to detect fraud in audits of a multinational organization?
A. InternationalAccountingStandardsrequiretheinternalauditortoincludeauditprocedureswhichwoulddetectfraudifitwouldcauseamaterial misrepresentation of the financial statements.
B. Internalauditorsdonothaveanyspecificresponsibilitieswithrespecttoincludingfraud-relatedauditprocedures.
C. Proper audit procedures, when carried out with due professional care, will guarantee that fraud, if present, will be detected.
D. If significant control weaknesses are detected, additional tests should be directed toward other indicators of fraud.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 56
An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated. Which of the following statistical sampling methods would be most appropriate for this test?
A. Attributessampling.
B. Discoverysampling.
C. Probability-proportional-to-size sampling. D. Mean-per-unit sampling.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 57
Monetary-unit sampling is most useful when the internal auditor:
A. Istestingtheaccountspayablebalance.
B. Cannotcumulativelyarrangethepopulationitems. C. Expects to find several material errors in the sample. D. Is concerned with overstatements.
Correct Answer: D Section: Volume A
Explanation Explanation/Reference:
In order to effectively elicit sensitive information from an employee during an audit engagement, an auditor should:
A. Telltheemployeeapieceofinformationobtainedfromacoworkerinapreviousinterview.
B. Putsensitivequestionsatthebeginningofaquestionnairetoensurethattheyareanswered.
C. Explain that the auditor's reputation for integrity, which is vital to the auditor's business success, would be seriously damaged if confidentiality were breached. D. Point out that management has given the auditor full authority to conduct this interview.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 2
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 A Explanation
Explanation/Reference: QUESTION 3
Direct staff as a percentage of total staff is an example of which of the following types of efficiency measures?
A. Productivityratio.
B. Productivityindex.
C. Operating ratio.
D. Resource utilization rate.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 4
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 A Explanation
Explanation/Reference: QUESTION 5
Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?
A. Observation.
B. Tracing.
C. Re-computation.
D. Vouching.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 6
Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?
I. Facilitated meeting
II. Survey
III. Management-produced analysis
A. Ionly
B. IandIIIonly C. II and III only D. I, II, and III
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 7
What does the following scatter gram suggest?
A. Salesrevenueisrelatedtotrainingcosts.
B. Thetrainingprogramisnoteffective.
C. Increases in training costs consistently increase sales revenue. D. One data point is incorrectly plotted.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 8
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 A Explanation
Explanation/Reference:
QUESTION 9
Productivity statistics are provided quarterly to a company's board of directors. An auditor checked the ratios and other statistics in the four most recent reports. The auditor used scratch paper and copies of the board reports to verify the accuracy of computations and compared the data used in the computations with supporting documents. The auditor wrote a note describing this work for the workpapers and then discarded the scratch paper and report copies. The auditor's note stated.
“The ratios and other statistics in the quarterly board reports were checked for the last four quarters, and appropriate supporting documents were examined. All amounts appear to be appropriate.”
In this situation:
A. Fourquartersisnotalargeenoughsampleonwhichtobaseaconclusion.
B. Theauditor'sworkpapersarenotsufficienttofacilitateanefficientreviewoftheauditor'swork.
C. The auditor should have included the scratch paper in the workpapers.
D. The auditor should have considered whether the information in the board report was compiled efficiently.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 10
Which of the following is an example of the verification of internal documentary evidence?
A. Reviewingacarrier'sbilloflading.
B. Reconcilingavendor'smonth-endstatement.
C. Vouching a copy of a sales invoice to receivables. D. Recalculating a customer's purchase order.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 11
The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?
I. Financial measures.
II. Internal business process measures. III. Client satisfaction measures.
IV. Innovation and learning measures.
A. Ionly
B. IIandIVonly
C. III and IV only
D. II, III, and IV only
Correct Answer: D
Section: Volume A Explanation
Explanation/Reference: QUESTION 12
An auditor prepared a workpaper that consisted of a list of employee names and identification numbers as well as the following statement:
“A statistical sample of 40 employee personnel files was selected to verify that they contain all documents required by company policy 501 (copy attached). No exceptions were noted.”
The auditor did not place any audit verification symbols on this workpaper. Which of the following changes would most improve the auditor's workpaper?
A. Useofauditverificationsymbolstoshowthateachfilewasexamined. B. Removaloftheemployeenamestoprotecttheirconfidentiality.
C. Justification for the sample size.
D. Listing of the actual documents examined for each employee.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 13
During an interview with a manager in a company's claims department, an auditor noted that the manager became nervous and changed the subject whenever the auditor raised questions about certain types of claims. The manager's answers were consistent with company policies and procedures. When documenting the interview, the auditor should:
A. Documentthemanager'sanswers,notingthenatureofthenonverbalcommunication.
B. Documentthemanager'sanswersbutnotthenonverbalcommunicationbecauseitissubjectiveandisnotcorroborated. C. Conclude that the nonverbal communication is persuasive and that sufficient evidence exists to begin a fraud investigation. D. Disregard the interview entirely because the verbal and nonverbal communications were contradictory.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 14
Which of the following is true of engagement recommendations?
I. Specific suggestions for implementation must be included.
II. The internal auditor's observations and conclusions may serve as the basis. III. Actions to correct existing conditions or improve operations may be included. IV. Approaches to correcting or enhancing performance may be suggested.
A. Ionly
B. IIIonly
C. I, III, and IV only D. II, III, and IV only
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 15
Which of the following performance criteria would be most useful when measuring the performance of a customer service desk?
A. Thenumberofcustomerinquiriesrecordedperday.
B. Thepercentageofcustomerissuesresolvedwithin24hours. C. The number of customer complaints recorded per day.
D. The percentage of total customers served per day.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 16
The efficiency of internal audit operations is best enhanced if workpaper standards:
A. Permittheextentofdocumentationtovaryaccordingtoengagementobjectives.
B. Requiresupervisorstoinitialanddateeachworkpaperthattheyreview.
C. Allowaccesstoworkpapersbyexternalpartiesifapprovedbyseniormanagementortheauditcommittee. D. Mandate the workpaper retention period.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 17
According to the International Professional Practices Framework, which of the following statements is correct regarding the communication of audit results?
I. Summary reports may be issued separately from or in conjunction with the final report.
II. Interim reports may be written or oral.
III. Detailed reports should always be issued to the audit committee.
IV. Interim reports should be used to communicate information which requires immediate attention.
A. IandIIIonly
B. IIandIVonly C. I, II, and IV only D. I, II, III, and IV.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 18
The chief audit executive (CAE) determined that based on management's oral response, the action taken regarding an audit observation was sufficient when weighted against the relative importance of the audit recommendation. Which of the following is the most appropriate step for the internal auditor to take next?
A. Initiateafollow-upaudittoensurethatactionhasreallybeentaken. B. Follow-upwithmanagementuntilawrittenresponseisobtained.
C. Escalate the issue to the board and get their position on the issue.
D. Note in the permanent file that follow-up needs to be performed as part of the next engagement.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 19
Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?
A. Includeboththeauditfindingandtheclient'spositionintheauditreport.
B. Deferreportingtheitemandplantoperformmoredetailedworkduringthenextaudit.
C. Change the finding so that it is acceptable to the client.
D. Address the issue with senior management and the board for resolution prior to issuing the final report.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 20
A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is most likely to explain the difference in the regional results?
A. Themoresuccessfulregionspends30percentmoremoneyoneducationthandoestheotherregion.
B. Ahigherpercentageofthegeneraltaxfundisspentoneducationinthemoresuccessfulregionthanintheotherregion.
C. The more successful region spends more money per student on education than does the other region.
D. The more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only three percent.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 21
Which of the following would constitute a violation of the IIA Code of Ethics?
A. Aninternalauditor,whohasrecentlyjoinedtheorganization,hasacceptedanassignmenttoaudittheelectronicsmanufacturingdivision.Theauditorpreviously served as senior auditor for the external audit of that division and has audited many electronics companies during the past two years.
B. Aninternalauditorhasacceptedanassignmenttoauditthewarehousingfunctionsixmonthsfromnow.Theauditorhasnoexpertiseinthatareabuthassigned up for courses in warehousing that will be completed before the assignment begins.
C. An internal auditor has no ambitions for promotion and has not engaged in training or other professional development activities during the last three years. The auditor's performance assessments indicate consistent quality of work.
D. Aninternalauditordiscoveredaninternalfinancialfraudduringtheyear,andthefinancialstatementswereadjustedtoproperlyreflectthelossassociatedwith the fraud. The auditor discussed the fraud with the external auditor during the external auditor's review of the working papers detailing the incident.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 22
An auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory. The analysis would be potentially useful in:
I. Identifying products for which management has not been attuned to changes in market demand. II. Identifying potential problems in purchasing activities.
III. Identifying obsolete inventory.
A. IIIonly
B. IandIIonly C. II and III only D. I, II, and III
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 23
An internal auditor provided the following statement about division A's performance during the month: "Because supplies of raw material X were scarce, division A's profits declined by 15 percent."
Which of the following can be validly concluded from the auditor's statement?
I. Division A's production level declined by 15 percent.
II. Division A could have sold more products than it produced. III. Division A usually sells all of the products that it produces.
A. Ionly
B. IIonly
C. III only
D. IandIIonly
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 24
As part of an operational audit of the shipping department, an auditor selected a sample of 45 daily shipping logs from the department's files. On 44 of the days, the log contained a sufficient number of shipments to meet the department's daily quota. Based on this test, the auditor concluded that the shipping department was effective at meeting its quotas. Which of the following is true about the auditor's conclusion?
A. Thenumberofitemsselectedfortestingisinadequatetojustifytheconclusion. B. Theshippingdepartmentiseffectiveinmeetingitsresponsibilities.
C. This conclusion would negate any need to perform tests of efficiency.
D. None of the above.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 25
An internal audit activity implemented an integrated test facility to test payroll processing. The auditors identified the key controls and processing steps built into the computer program and developed test data to test them. The auditors submitted test transactions throughout the year and did not find any differences in their test results. The auditors can conclude that:
A. Thesystemisproperlycapturingthehoursworkedbyemployeesduringtheyearandthehourshavebeenproperlysubmittedtopayrollandprocessed correctly.
B. Allemployeeswerecorrectlypaidduringtheyearandtheirpaywascorrectlycomputed.
C. The computer application and its control procedures were processing payroll transactions correctly during the past year.
D. All of the above.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 26
A code of ethics within the internal auditing profession is necessary in order to:
A. Reducethelikelihoodthatmembersoftheprofessionwillbesuedforsubstandardwork.
B. Ensurethatallmembersoftheprofessionperformatapproximatelythesamelevelofcompetence.
C. Provide guidance to internal auditors in their service to others.
D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 27
An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?
A. Reviewthecontrolsoverpayrollinboththecompanyandtheservicebureau.
B. Reviewonlythecompany'scontrolsoverdatasenttoandreceivedfromtheservicebureau.
C. Review only the controls over payments to the service bureau based on the contract.
D. Cancel the engagement because the processing is being performed outside of the organization.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 28
An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to:
A. Limitaccesstothedatatabletomanagementandlinesupervisorswhohavetheauthoritytodeterminepayrates.
B. Requireasupervisorinthedepartment,whodoesnothavetheabilitytochangethetable,tocomparethechangestoasignedmanagementauthorization. C. Ensure that adequate edit and reasonableness checks are built into the automated system.
D. Require that all pay changes be signed by the employee to verify that the change goes to a bona fide employee.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 29
What is the most important risk in determining the validity of construction delay claims? A. Contractorclaimsmaybesubmittedpriortocompletionofthework.
B. Contractorclaimsmayincludecostsconsideredinthefixed-priceportionofthework.
C. Contractor claims may include subcontractor estimates of balances due to the subcontractor. D. Contractor claims may be understated.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 30
During an audit of a branch bank, an internal auditor learned that a series of system failures had resulted in a four-day delay in processing customers' scheduled payroll direct deposits. The first failure was that of a disk drive, followed by software and other minor failures. Which of the following controls should the auditor recommend to avoid similar delays in processing?
A. Contingencyplanning. B. Redundancychecks.
C. Process monitoring.
D. Preventive maintenance.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 31
An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time. The application controls being verified by this analysis are:
A. Editandvalidationcontrols.
B. Rejectedandsuspenseitemcontrols.
C. Controls over update access to the database. D. Programmed balancing controls.
Correct Answer: A Section: Volume A
Explanation Explanation/Reference:
QUESTION 32
During the development of a purchasing system, an auditor reviewed the payment authorization program. Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?
A. Issueanexceptionreport.
B. Paytheamountbilledandadjusttheinventoryaccountforthedifference.
C. Return the invoice to the vendor for correction.
D. Authorize payment of the full invoice, but maintain an open purchase order record for the missing goods.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 33
The most common motivation for management fraud is the existence of:
A. Vices,suchasagamblinghabit.
B. Jobdissatisfaction.
C. Financial pressures on the organization.
D. The challenge of committing the perfect crime.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 34
Which of the following conditions is the strongest indicator of possible fraud?
A. Anassistanttreasurerwhorefusestotakevacations.
B. Independentreconciliationsofsubsidiarytogeneralledgersthatarenotalwayscompletedonatimelybasis. C. A condition of excess manufacturing waste material.
D. A manager who is often over budget at the end of a reporting period.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 35
Which sampling plan requires no additional sampling once the first error is found?
A. Stratifiedsampling. B. Attributessampling. C. Stop-or-go sampling. D. Discoverysampling.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 36
After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use.
A. Simplerandomsamplingtoselectasampleofvouchersprocessedbythedepartmentduringthepastyear.
B. Probability-proportional-to-sizesamplingtoselectasampleofvouchersprocessedbythedepartmentduringthepastyear.
C. Discovery sampling to select a sample of vouchers processed by the department during the past year.
D. Judgmental sampling to select a sample of vouchers processed by clerks who were identified by the department manager as acting suspiciously.
Correct Answer: C Section: Volume A
Explanation Explanation/Reference:
QUESTION 37
Which of the following processes real-transaction data through auditor-developed test programs?
A. Generalizedauditsoftware. B. Tracing.
C. Parallel simulation.
D. Mapping.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 38
Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?
A. Developacost-per-productanalysisforproductsdevelopedoverthepastfiveyears.
B. Developareportonrevenuegeneratedbyorcostsavingsdirectlyattributabletonewlydevelopedproducts.
C. Compare research as a percentage of revenue between this company and all major competitors in the same industry.
D. Compare the number of this year's new product developments to the number of new product developments for the past five years.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 39
A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically.
If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation.
All of the applicable documents are electronically marked, cross-referenced, and retained in open files. Both an integrated test facility and a systems control audit review file (SCARF) have been included in the system.
An auditor wants to determine the extent to which items are not matched at year end and to investigate the potential causes of the unmatched items. Which of the following audit procedures would be most effective in determining the items to investigate?
A. Usegeneralizedauditsoftwaretoreadtheelectronicallymarkedunmatcheditems.
B. Usegeneralizedauditsoftwaretoreadthepurchaseordersandtracetoapplicablereceivingandvendorinvoicefiles. C. Use the SCARF to identify unusual items. Select an attributes sample and trace to the underlying documentation.
D. Submit test data to identify attributes of unmatched items. Follow up by investigating the identified attributes.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 40
An auditor receives anonymous information that fraud is occurring in the operation being audited, but no details are given as to the type of fraud or the individuals involved. There are several areas in which fraud could occur. The auditor should:
A. Identifytheareathathasthegreatestvolumeoftransactionsanddesignasamplingplanforsubstantivetesting. B. Applyanalyticalprocedurestoareasthatmightbeimpactedbypossiblefraudulentactivities.
C. Interview employees to identify areas where the fraud could be occurring.
D. Plan detailed tests of the areas that have the highest dollar amount of transactions.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 41
A company has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly accounting for costs related to contract change orders. Which of the following procedures would be appropriate for testing this suspicion?
I. Verify that the contractor has not charged change orders with costs that have already been billed to the original contract. II. Determine if the contractor has billed for original contract work that was canceled as a result of change orders.
III. Verify that the change orders were properly approved by management.
A. Ionly
B. IIIonly
C. IandIIonly D. I and III only
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 42
An internal audit activity is participating in the due diligence work for an acquisition that a company is considering. One engagement objective is to determine if the acquisition's accounts payable contain all outstanding liabilities. Which of the following audit procedures would not be relevant for this objective?
A. Examinesupportingdocumentationofsubsequent(after-period)cashdisbursementsandverifyperiodofliability.
B. Sendconfirmations,includingzero-balanceaccounts,tovendorswithwhomthecompanynormallydoesbusiness.
C. Select a sample of accounts payable from the accounts payable list and verify the supporting receiving reports, purchase orders, and invoices. D. Trace receiving reports issued before the period end to the related vendor invoices and accounts payable list.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference: QUESTION 43
Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?
I. Physically inspect all assets on the organization's property.
II. Select a sample department and physically inspect assets in the department.
III. Select a sample from the organization's records of physical assets and physically locate each asset. IV. Identify assets at a sample of locations and trace to the organization's records.
A. Ionly
B. IandIVonly C. II and III only D. III and IV only
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 44
Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?
A. Integratedtestfacility.
B. Parallelsimulation.
C. Test data.
D. Embedded audit routines.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 45
Access control software on an organization's mainframe computer records detailed information concerning both successful and unsuccessful log-on attempts to applications. Which of the following audit tools would be best suited to review the access information that has been recorded?
A. Generalizedauditsoftware. B. Flowcharting.
C. Integrated test facility.
D. Test data.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 46
Which of the following would provide the greatest assurance of the accuracy of a computer program's computation of freight charges for catalog sales?
A. Usediscoverysampling,selectingtransactionsfrominvoiceswhichshouldhavefreightchargesaddedtothem. B. Useeithertestdataorparallelsimulationtotestthecomputerapplication.
C. Use difference estimation, selecting transactions from invoices which should have freight charges added to them. D. Use generalized audit software to select a monetary-unit sample of invoices that have been billed to customers.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference: QUESTION 47
If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?
A. Theconfidencelevelcouldnotbequantified.
B. Theprecisionwouldbelarger.
C. The projected value of inventory would be less reliable. D. The risk of incorrect acceptance would be higher.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference:
QUESTION 48
In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the:
A. Population.
B. Attributeofinterest. C. Sample.
D. Sampling unit.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 49
An internal auditor would most likely use attributes sampling when testing which of the following?
A. Accountsreceivablebalances.
B. Correctcodingofaccountspayabledisbursementvouchers. C. Year-endinventoryvalue.
D. Fixed asset book value.
Correct Answer: B Section: Volume A Explanation
Explanation/Reference:
QUESTION 50
An audit department has received anonymous information that an employee has allegedly been able to steal and cash checks sent to the organization by customers. What is the most efficient way for an auditor to determine how this type of fraud could occur and who might be the perpetrator?
A. Confirm accounts receivable.
B. Confirm accounts payable.
C. Review the endorsements and banks of deposit on customers' canceled checks. D. Flowchart and analyze key controls in the cash receipts process.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 51
If an auditor expects to find numerous discrepancies between recorded values and audited values of sample selections, which sampling technique would be most appropriate?
A. Attributessampling.
B. Probability-proportional-to-sizesampling. C. Difference estimation sampling.
D. Discoverysampling.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 52
During an audit of a retail organization, an internal auditor found a scheme in which the warehouse director and the purchasing agent diverted approximately $500,000 of goods to their own warehouse, then sold the goods to third parties. The fraud was not found earlier since the warehouse director updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing. Which of the following procedures would have most likely led to the discovery of the missing materials and the fraud?
A. Selectarandomsampleofreceivingreportsandtracetotherecordingintheperpetualinventoryrecords.Notedifferencesandinvestigatebytypeofproduct. B. Selectarandomsampleofpurchaseordersandtracetoreceivingreportsandtotherecordsintheaccountspayabledepartment.
C. Take an annual physical inventory, reconciling amounts with the perpetual inventory records. Note the pattern of differences and investigate.
D. Select a random sample of sales invoices and trace to the perpetual inventory records to see if inventory was on hand. Investigate any differences.
Correct Answer: C Section: Volume A Explanation
Explanation/Reference:
QUESTION 53
Which of the following factors would increase the confidence level in a variables sampling plan?
I. A larger sample size.
II. A stratified sample.
III. A larger standard deviation.
A. IandIIonly B. IandIIIonly C. II and III only D. I, II, and III
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 54
If an auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk?
A. Theexperienceandknowledgeoftheauditor.
B. Theadverseconsequencesofnoncompliance.
C. The acceptable level of risk of making an incorrect audit conclusion. D. The cost of performing auditing procedures on sample selections.
Correct Answer: A Section: Volume A Explanation
Explanation/Reference: QUESTION 55
Which of the following describes an internal auditor's responsibilities to include audit procedures to detect fraud in audits of a multinational organization?
A. InternationalAccountingStandardsrequiretheinternalauditortoincludeauditprocedureswhichwoulddetectfraudifitwouldcauseamaterial misrepresentation of the financial statements.
B. Internalauditorsdonothaveanyspecificresponsibilitieswithrespecttoincludingfraud-relatedauditprocedures.
C. Proper audit procedures, when carried out with due professional care, will guarantee that fraud, if present, will be detected.
D. If significant control weaknesses are detected, additional tests should be directed toward other indicators of fraud.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference:
QUESTION 56
An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated. Which of the following statistical sampling methods would be most appropriate for this test?
A. Attributessampling.
B. Discoverysampling.
C. Probability-proportional-to-size sampling. D. Mean-per-unit sampling.
Correct Answer: D Section: Volume A Explanation
Explanation/Reference: QUESTION 57
Monetary-unit sampling is most useful when the internal auditor:
A. Istestingtheaccountspayablebalance.
B. Cannotcumulativelyarrangethepopulationitems. C. Expects to find several material errors in the sample. D. Is concerned with overstatements.
Correct Answer: D Section: Volume A
Explanation Explanation/Reference: