3: Financial, Environmental, and Consulting Engagements

Question 1

Management implicitly or explicitly makes assertions about the _____[1]_____, _____[2]_____, and _____[3]_____ of information in financial statements.

Answer 1

1.Measurement
2.Presentation
3.Disclosure

Question 2

What are the key risks affecting the reliability and integrity of financial information?

Answer 2

Understating liabilities
Overstating assets
Overstating revenues
Understating expenses
Applying unreasonable accounting estimates
Applying accounting principles that are no longer in effect

Question 3

List common accounting cycles.

Answer 3

Sales, Receivables, and Cash Receipts Cycle
Purchases, Payables, and Cash Disbursements Cycle
Production or Conversion Cycle
Financial Capital and Payment Cycle
Personnel and Payroll Cycle
External Financial Reporting Cycle

Question 4

Define fraudulent financial reporting.

Answer 4

Intentional misstatements or omissions to deceive users, such as altering accounting records or documents, misrepresenting or omitting significant information, and misapplying accounting principles.

Question 5

Define misappropriation of assets.

Answer 5

Any theft, embezzlement, or other wrongful appropriation of organizational assets.

Question 6

Define environmental management system.

Answer 6

An organization’s structure of responsibilities and policies, practices, procedures, processes, and resources for protecting the environment and managing environmental issues.

Question 7

What are the seven types of environmental audits according to The IIA Research Foundation?

Answer 7

1.Compliance audits
2.Environmental management systems audits
3.Transactional audits
4.Treatment, storage, and disposal facility audits
5.Pollution prevention audits
6.Environmental liability accrual audits
7.Product audits

Question 8

The risks presented by environmental, health, and safety issues include

Answer 8

Consequences of noncompliance with government regulations
External reputational harm
Internal reputational harm

Question 9

Concerns by employees as a result of actual and potential issues leading to low morale and attrition is representative of

Answer 9

Internal reputational harm.

Question 10

Define consulting services.

Answer 10

Consulting services are advisory and related client service activities that are agreed upon with the client. They are intended to add value and improve an organization’s governance, risk management, and control processes without the internal auditor assuming management responsibility.

Question 11

The nature of consulting services must be defined in __________.

Answer 11

The internal audit charter.

Question 12

List types of consulting services.

Answer 12

Formal
Informal
Special
Emergency
Advisory
Educational
Facilitative

Question 13

What is the proper action if impairments to the internal auditor’s independence or objectivity develop during the consulting engagement?

Answer 13

Immediate disclosure to management.

Question 14

If internal auditors have potential impairments to _____[1]_____ or _____[2]_____ relating to proposed consulting services, _____[3]_____ must be made to the engagement client _____[4]_____ to accepting the engagement.

Answer 14

Independence
Objectivity
Disclosure
Prior

Question 15

Independence and objectivity may be impaired if assurance services are provided within _________ after a formal consulting engagement.

Answer 15

1 year.

Question 16

Internal auditors must exercise due professional care during a consulting engagement by considering the

Answer 16

Needs and expectations of clients, including the nature, timing, and communication of engagement results;
Relative complexity and extent of work needed to achieve the engagement’s objectives; and
Cost of the consulting engagement in relation to potential benefits.

Question 17

Can an internal auditor provide consulting services relating to operations for which he or she had previous responsibilities?

Answer 17

Yes.

Question 18

Define benchmarking.

Answer 18

A continuous evaluation of the practices of the best organizations in their class and the adaptation of processes to reflect the best of these practices.

Question 19

List the types of benchmarking.

Answer 19

Competitive
Process (function)
Strategic
Internal
Generic
Performance

Question 20

What does benchmarking enable?

Answer 20

Comparison of processes, operations, or products.

Question 21

Define due diligence auditing.

Answer 21

A service in which internal auditors and others (external auditors, tax experts, finance professionals, attorneys, etc.) determine the business justification for a major transaction (business combination, joint venture, divestiture, etc.) and whether that justification is valid.

Question 22

The ethical culture of an organization is linked to the ____[1]____ and is the most important ____[2]____ control.

Answer 22

1.Governance process
2.Soft

Question 23

What does reengineering involve?

Answer 23

Process innovation and core process redesign. Instead of improving existing procedures, it finds new ways of doing things.