Communicate Engagement Results

Question 1

The internal auditing department for a chain of retail stores recently concluded an audit of sales adjustments in all stores in the southeast region. The audit revealed that several stores are costing the company an estimated $85,000 per quarter in duplicate credits to customers’ charge accounts.
The audit report, published eight weeks after the audit was concluded, included the internal auditors’ recommendations to store management that should prevent duplicate credits to customers’ accounts. Which of the following standards for reporting has been disregarded in the above case?
The auditors should have implemented appropriate corrective action as soon as the duplicate credits were discovered.
Auditor recommendations should not be included in the report.
The report was not timely.
The follow-up actions were not adequate.

Answer 1

The report was not timely.

Question 2

An internal auditing department is conducting an audit of the payroll and accounts receivable departments. Significant problems related to the approval of overtime have been noted. While the audit is still in process, which of the following audit reports is appropriate?
A summary report.
An oral report.
A questionnaire-type report.
A written report.

Answer 2

An oral report.

Question 3

Audit fieldwork has identified a number of significant findings. Additional audit tests from the original audit program still have to be performed; however, data are not readily available. Evaluate the following and select the best alternative.
Issue an interim report to management regarding the negative findings noted.
Perform audit tests when the final data is available.
Identify other alternative tests to complete prior to reporting the audit findings.
Do not issue the audit report until all testing has been completed.

Answer 3

Issue an interim report to management regarding the negative findings noted.

Question 4

Which one of the following elements of an audit report is not always required?
An evaluation of the impact of the findings on the activities reviewed.
A statement that identifies the audited activities.
A statement that describes the audit objectives.
Pertinent statements of fact.

Answer 4

An evaluation of the impact of the findings on the activities reviewed.

Question 5

An excerpt from an audit finding indicates that travel advances exceeded prescribed maximum amounts. Company policy provides travel funds to authorized employees for travel. Advances are not to exceed 45 days of anticipated expenses. Company procedures do not require justification for large travel advances. Employees can and do accumulate large, unneeded advances.
In the above audit finding, the element of an audit finding known as condition is:
Employees accumulate large unneeded advances.
Advances are not to exceed estimated expenses for 45 days.
Travel advances exceeded prescribed maximum amounts.
Procedures do not require justification for large advances.

Answer 5

Travel advances exceeded prescribed maximum amounts.

Question 6

Summary written audit reports are generally intended for:
Local operating management.
Midlevel staff management.
High-level management and/or the audit committee.
Review by other auditors only.

Answer 6

High-level management and/or the audit committee.

Question 7

During an audit of sales representatives? travel expenses, it was discovered that 152 of 200 travel advances issued to sales representatives in the past year exceeded the prescribed maximum amount allowed. Which of the following statements is a justifiable audit opinion?
76% of all travel advances exceed the management-prescribed maximum.
The majority of travel advances in the organization exceed the prescribed maximum.
The prescribed maximum travel advance is too low.
Travel advances are not controlled in accordance with existing policy.

Answer 7

Travel advances are not controlled in accordance with existing policy.

Question 8

Which of the following is a proper element in an audit results section of a report?
Personnel used.
Status of findings from prior reports.
Engagement plan.
Significance of deficiencies.

Answer 8

Significance of deficiencies.

Question 9

A company recently experienced a substantially reduced net profit from sales of product line A. Line A is produced in a dedicated machine shop. The internal auditors have been assigned the task of determining the cause of the reduced net profit. The in-charge auditor should, as a first step:
Compare production records with cost standards.
Test material vouchers for validity.
Evaluate the elements of cost and compare to prior periods.
Analyze scrap and surplus records.

Answer 9

Evaluate the elements of cost and compare to prior periods.

Question 10

Providing useful and timely information and promoting improvements in operations are goals of internal auditors. To accomplish this in their reports, auditors should:
Provide top management with reports that emphasize the operational details of defective conditions.
Provide information in written form before it is discussed with the auditee.
Provide reports that meet the expectations and perceptions of both operational and top management.
Provide operating management with reports that emphasize general concerns and risks.

Answer 10

Provide reports that meet the expectations and perceptions of both operational and top management.

Question 11

Certain information may not be appropriate for disclosure to all report recipients because it is privileged, proprietary, or related to improper or illegal acts. If conditions being reported involve improper acts of a senior manager, the report should be distributed to:
The external auditor.
The stockholders.
The board of directors.
Senior management.

Answer 11

The board of directors.

Question 12

The scope statement of an audit report should:
Identify the audited activities and describe the nature and extent of auditing performed.
Communicate the internal auditor?s evaluation of the effect of the findings on the activities reviewed.
Define the standards, measures, or expectations used in evaluating audit findings.
Describe the audit objectives and tell the reader why the audit was conducted.

Answer 12

Identify the audited activities and describe the nature and extent of auditing performed.

Question 13

A senior member of management who is several organizational levels above the head of the operational area being audited has asked for a report of the findings of the audit. The most appropriate means of communicating audit findings to this senior member of management is by:
Orally communicating the findings.
Sending a copy of the final audit report.
Sending copies of interim reports.
Sending the summary section of the report.

Answer 13

Sending the summary section of the report.

Question 14

After an audit report with adverse findings has been communicated to appropriate auditee personnel, proper action is to:
Assemble new data to support the findings.
Examine further the data supporting the findings.
Schedule a follow-up review.
Implement corrective action indicated by the findings.

Answer 14

Schedule a follow-up review.

Question 15

When making a presentation to management, the auditor wants to report findings and to stimulate action. These objectives are best accomplished by:
Showing a series of slides or overheads that graphically depict the findings; limit verbal commentary.
Delivering a lecture on the findings.
Handing out copies of the report, asking participants to read the report, and asking for questions.
Using slides/overheads to support a discussion of major points.

Answer 15

Using slides/overheads to support a discussion of major points.

Question 16

During the course of an audit of cash handling, the auditor notices that considerable cash is stored overnight in a work area that has ready access from a busy street. Furthermore, there is no security system or any armed guard in the vicinity. When discussed with the appropriate manager, the auditor is informed, ?We have never experienced a robbery or loss of cash from this fund; why should we spend unnecessary amounts to improve security?? The auditor should:
Explain all the facts but allow management the opportunity to tell its story so that corrective action is more likely to be adopted.
Make a verbal interim report. In the final report, concentrate on the corrective measures to be taken.
Widely distribute the report; this is a big problem that everyone in the company needs to know about.
Since the company has never suffered any losses from the cash-handling procedures, there is no need to report the finding.

Answer 16

Make a verbal interim report. In the final report, concentrate on the corrective measures to be taken.

Question 17

An internal auditor observed that assembly line personnel without protective clothing were being exposed to dangerous chemicals. The auditor should immediately notify management through the use of a(n):
Summary written report.
Formal written report.
Oral report.
Follow-up report.

Answer 17

Oral report.

Question 18

An internal auditor can use oral reports to:
Give immediate information to management and more accurately exchange thoughts with a face-to-face discussion.
Eliminate the need for a lengthy final report by reaching verbal agreement on the handling of significant findings with the auditee.
Report interim findings more efficiently by eliminating the preparation time for a written report.
Impress the auditee with a polished presentation using graphics to enhance the credibility of audit findings.

Answer 18

Give immediate information to management and more accurately exchange thoughts with a face-to-face discussion.

Question 19

An internal auditor found that employees in the maintenance department were not signing their time cards. This situation also existed during the last audit. The auditor should:
Withhold conclusions about payroll internal control in the maintenance department.
Include this finding in the current audit report.
Instruct the employees to sign their time cards.
Ask the manager of the maintenance department to assume the resulting risk.

Answer 19

Include this finding in the current audit report.

Question 20

An audit of a company’s payroll department has revealed various control weaknesses. These weaknesses along with recommendations for corrective actions were addressed in the internal audit report. This report should be most useful to the company’s:
Audit committee of the board of directors.
Payroll manager.
President.
Treasurer.

Answer 20

Payroll manager.

Question 21

Which of the following statements conveys negative information in such a way that a favorable response from the auditee may still be achieved?
Unfortunately, your bookkeeper has not taken the time to reconcile the bank statement each month.
Your bookkeeper has failed to reconcile the bank statement each month.
The bank statements have not been reconciled each month.
You have apparently failed to inform your bookkeeper that the bank statements should be reconciled on a timely basis.

Answer 21

The bank statements have not been reconciled each month.

Question 22

An excerpt from an audit finding indicates that travel advances exceeded prescribed maximum amounts. Company policy provides travel funds to authorized employees for travel. Advances are not to exceed 45 days of anticipated expenses. Company procedures do not require justification for large travel advances. Employees can and do accumulate large, unneeded advances. The cause of the above audit finding is:
Travel advances have not been cleared in timely manner.
Company policy provides travel funds to authorized employees.
Employees accumulate large travel advances.
Company advance procedures do not require specific justification.

Answer 22

Company advance procedures do not require specific justification.

Question 23

Interim reports are issued during an audit to:
Eliminate the need for a final report.
Explain the purpose of the audit.
Define the scope of the audit so the final report can be brief.
Communicate information requiring immediate attention.

Answer 23

Communicate information requiring immediate attention.

Question 24

In beginning an audit, an internal auditor reviews written procedures that detail segregation of duties adopted by management to strengthen internal controls. These written procedures should be viewed as the following attribute of a finding:
Effect.
Condition.
Criteria.
Cause.

Answer 24

Criteria.

Question 25

An operational audit report that deals with the scrap disposal function in a manufacturing company should address:
Whether the scrap material inventory is reported as a current asset.
Whether the scrap material inventory is valued at the lower of cost or market.
The efficiency and effectiveness of the scrap disposal function and include any findings requiring corrective action.
Whether the physical inventory count of the scrap material agrees with the recorded amount.

Answer 25

The efficiency and effectiveness of the scrap disposal function and include any findings requiring corrective action.

Question 26

An audit report with routine findings in the accounts payable department is being issued. Distribution should include the accounts payable supervisor, manager, and unit general manager. It may also be sent to the:
External auditors, the corporate controller, and the chairman of the board of directors.
External auditors and the corporate controller.
Unit receiving manager, the purchasing manager, and the operations director.
Unit purchasing manager and the operations director.

Answer 26

External auditors and the corporate controller.

Question 27

The auditor completed work on a segment of the audit program. It was clear that a problem existed that would require a modification of the organization’s distribution procedures. The auditee agreed and has implemented revised procedures. The internal auditor should:
Report the problem and assume that management will take appropriate action.
Research the problem and recommend in the audit report measures that should be taken.
Jointly develop and report an appropriate recommendation.
Indicate in the audit report that the auditee determined and implemented corrective action.

Answer 27

Indicate in the audit report that the auditee determined and implemented corrective action.