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OPERATIONS AUDITING > CHAPTER 2 > Flashcards

CHAPTER 2 Flashcards

1
Q

The IIA Code of Ethics is based on all but which of the following ethical principles?
A. Integrity
B. Independence
C. Competency
D. Confidentiality

A

B. Independence

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2
Q

Internal auditors are responsible to:
A. the board of directors.
B. management.
C. both A and B.
D. neither A nor B.

A

C. both A and B.

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3
Q

Which of the following is not one of the broad categories of operational audits?
A. Functional audits.
B. Organizational audits.
C Single Audit Act audits.
D. Special assignment audits.

A

C Single Audit Act audits.

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4
Q

Which of the following is not a similarity between external and internal auditors?
A. Both must be independent of the company.
B. Both must be competent.
C. Both use similar methodologies in performing their work.
D. Both consider risk and materiality in their work

A

A. Both must be independent of the company.

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5
Q

External auditors consider internal auditors effective if they are:
A. independent of the operating units being evaluated.
B. competent and well trained.
C. have performed relevant audit tests of the internal controls and financial statements.
D. All of the above.

A

D. All of the above.

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6
Q

Auditing standards ________ external auditors to use the internal auditors for direct assistance on the audit.
A. discourage
B. prohibit
C. encourage
D. permit

A

D. permit

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7
Q

Which of the following groups could not be involved in an operational audit?
A. CPA firms.
B. Internal auditors.
C. Government auditors.
D. All of the above could be involved.

A

D. All of the above could be involved

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8
Q

The professional organization which is responsible for providing guidance for internal auditors is the:
A. ACPACI
B. IIA
C. PICPA
D. AIA.

A

B. IIA

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9
Q

Which of the following is not one of the three phases in an operational audit?
A. Planning.
B. Training and supervising employees.
C. Evidence accumulation and evaluation.
D. Reporting and follow-up.

A

B. Training and supervising employees.

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10
Q

An audit designed to evaluate the efficiency and effectiveness of an organization, or some part of an organization would not be called a(n):
A. performance audit
B. management audit.
C. operational audit.
D. compliance audit.

A

D. compliance audit

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11
Q

Which of the following is not one of the major differences between financial and operational auditing?
A. The financial audit is oriented to the past, but an operational audit concerns performance for the future.
B. The financial audit report is distributed to many readers, but the operational audit report goes to a few managers.
C. Financial audits deal with the information on the financial statements, but operational audits are concerned with the information in the ledgers.
D. Financial audits are limited to matters that directly affect the financial statements, but operational audits cover any aspect of efficiency and effectiveness.

A

C. Financial audits deal with the information on the financial statements, but operational audits are concerned with the information in the ledgers

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12
Q

Before an operational audit for effectiveness can be performed, there must be
A. a financial audit by an independent auditor
B. a financial audit by an internal auditor
C. a review performed by either an independent or an internal auditor.
D. specific criteria developed to define effectiveness.

A

D. specific criteria developed to define effectiveness.

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13
Q

Which of the following statements regarding types of operational audits is false?
A. A functional audit has the advantage of permitting specialization by auditors.
B. An advantage of functional auditing is its ability to evaluate interrelated functions.
C. The emphasis in an organizational audit is on how efficiently and effectively functions interact.
D. Special operational auditing assignments arise at the request of management.

A

B. An advantage of functional auditing is its ability to evaluate interrelated functions.

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14
Q

The two most important qualities for an operational auditor are:
A. personality and appearance.
B. independence and competence
C. competence and technical training
D. academic background and sufficient experience.

A

B. independence and competence

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15
Q

Which of the following is not a difference between operational auditing and financial auditing?
A. Both must be CPAs
B. Operational audit reports are usually of a restricted distribution while financial audit reports are widely distributed.
C. Operational audits often cover non-financial issues while financial audits do not.
D. None of the above is a difference.

A

A. Both must be CPAs

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16
Q

A typical objective of an operational audit is to determine whether an entity’s:
A. internal control is adequately operating as designed.
B. financial statements present fairly the results of operations.
C. specific operating units are functioning efficiently and effectively.
D. operational information is in accordance with generally accepted government auditing standards.

A

C. specific operating units are functioning efficiently and effectively.

17
Q

Which of the following can affect the independence of operational auditors?
a. responsibilities
b. reporting structure
c. both a and b
d. none of the above

A

c. both a and b

18
Q

Which is not a purpose of an economy and efficiency audit?
A. Whether the entity is acquiring, protecting, and using resources economically and efficiently.
B. The causes of inefficiencies and uneconomical practices.
C. Whether the entity has complied with laws and regulations concerning matters of economy and efficiency.
d. Each of the above is a purpose.

A

d. Each of the above is a purpose

19
Q

A(n) ________ audit emphasizes how efficiently and effectively functions interact.
a. operational
B. compliance
C. financial
D. organizational

A

D. organizational

20
Q

Which of the following is not a purpose of a program audit as performed by government auditors?
A. Determination of the extent to which the desired results established by the legislature are being achieved.
B. Determination of the causes of inefficiencies in sponsored programs.
C. Determination of the effectiveness of organizations, programs and activities.
D. Determination as to whether the entity has complied with laws and regulations applicable to the program.

A

B. Determination of the causes of inefficiencies in sponsored programs.

21
Q

What distinguishes internal control evaluation and testing for financial and operational auditing?
A. Purpose of the work.
B. Scope of the work.
C. Both A and B.
D. Neither A nor B.

A

C. Both A and B.

22
Q

To be effective, an internal audit department must report to:
a. operating departments
b. accounting department
c. both a and b
d. none of the above

A

d. none of the above

23
Q

External financial statement auditors must obtain evidence regarding what attributes of an internal audit department if the external auditors intend to rely on the internal auditor’s work?
a. independence from the audit committee
b. competence
c. both a and b
d. none of the above

A

b. competence

24
Q

The following are the similarities between internal and external auditors except
A. Both must be competent as auditors and remain objective in performing their work and reporting their results.
B. Both follow a similar methodology in performing their audits, including planning and performing tests of controls and substantive tests.
C. Both functions serve the needs of the management.
D. Both consider risk and materiality in deciding the extent of their tests and evaluating results. However, their decisions about materiality and risks may differ because external users may have different needs than management or the board.

A

C. Both functions serve the needs of the management.

25
Q

Below are the criteria which the external auditors typically consider internal auditors effective if they meet the following except:
A. Independent of the operating units being evaluated.
B. Competent and well-trained.
C. Have performed relevant audit tests of the internal controls and financial statements.
D. All of the above are correct.

A

D. All of the above are correct.

26
Q

Operational auditing is the review of an organization for efficiency and effectiveness. Which of the following statements are true?
A. Effectiveness refers to the degree to which the organization’s objectives and goals are accomplished.
B. Efficiency refers to the degree to which costs are reduced without reducing effectiveness.
C. Both a and b are correct.
D. Both a and b are incorrect.

A

C. Both a and b are correct.

27
Q

Which of the following statements is/are correct?
Statement I. Independence is a fundamental ethical principle for internal auditors.
Statement II. Communication skills are also essential not only as it relates to fellow auditors, but also process owners and operators.
Statement III. Adding value and being perceived as trusted advisors to their organizations are perhaps the highest aspirations of internal auditors around the world.
A. Statement III only.
B. Statements I and II.
C. Statements II and III.
D. Statements I, II, and III.

A

C. Statements II and III.

28
Q

Which of the following statements is/are correct?
Statement I. Current professional auditing standards prohibit external auditors from using internal auditors for direct assistance on external audits. Statement II. Current professional auditing standards require external auditors to use internal auditors for direct assistance on external audits.
A. Statement I only.
B. Statements I and II.
C. None of the statements.
D. Statement II only.

A

C. None of the statements.

29
Q

Which of the following statements is/are correct?
Statement I. Operational audits may be performed by internal auditors and government auditors, but not by external auditors.
Statement II. To help them remain independent of the operations they audit, internal auditors should report directly to the controller.
A. Statements I and II.
B. None of the statements.
C. Statement I only.
D. Statement II only.

A

B. None of the statements.

30
Q

Which of the following statements is/are correct?
Statement I. Internal auditors should have the authority to require implementation of suggestions for improvement.
Statement II. One disadvantage of functional auditing is the failure to evaluate interrelated functions.
A. Statements I and II.
B. Statement I only.
C. Statement II only.
D. None of the statements.

A

C. Statement II only

OPERATIONS AUDITING (8 decks)

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