Engagement Procedures & Supervision

Question 1

The purpose of including a time budget in an engagement work program is to

Provide an objective means of evaluating the internal auditor’s competence.
Ensure timely completion of the engagement.
Provide a means of controlling and evaluating the progress of the engagement.
Restrict the scope of the engagement.

Answer 1

Provide a means of controlling and evaluating the progress of the engagement.

Question 2

One of the primary roles of an engagement work program is to

Serve as a tool for planning and conducting engagement work.
Document an internal auditor’s evaluations of controls.
Provide for a standardized approach to the engagement.
Assess the risks associated with the activity under review.

Answer 2

Serve as a tool for planning and conducting engagement work.

Question 3

Engagement work programs testing controls ordinarily must

Be specifically designed for each operation evaluated.
Be generalized to fit all situations without regard to departmental lines.
Be generalized so as to be usable at all locations of a particular department.
Reduce costly duplication of effort by ensuring that every aspect of an operation is examined.

Answer 3

Be specifically designed for each operation evaluated.

Question 4

An internal auditor has just completed a survey to become familiar with the organization’s payroll operations as part of an unplanned engagement. Which of the following most likely is performed next?

Assign internal audit personnel.
Establish initial engagement objectives.
Write the engagement work program.
Conduct field work.

Answer 4

Write the engagement work program.

Question 5

Writing an engagement work program most likely occurs at which stage of the engagement?

During the planning stage.
Subsequent to evaluating risk management and control systems.
As the engagement is performed.
At the end of each engagement when the standard work program should be revised for the next engagement to ensure coverage of noted problem areas.

Answer 5

During the planning stage.

Question 6

A work program for a comprehensive assurance engagement to evaluate a purchasing function should include

Procedures arranged by relative priority based upon perceived risk.
A statement of the engagement objectives for the operation under review with agreement by the engagement client.
Procedures to accomplish engagement objectives.
A focus on risks affecting the financial statements as opposed to controls.

Answer 6

Procedures to accomplish engagement objectives.

Question 7

Which result of an analytical procedure suggests the existence of obsolete merchandise?

Decrease in the inventory turnover rate.
Decrease in the ratio of gross profit to sales.
Decrease in the ratio of inventory to accounts payable.
Decrease in the ratio of inventory to accounts receivable.

Answer 7

Decrease in the inventory turnover rate.

Question 8

Which of the following engagement objectives will be accomplished by tracing a sample of accounts receivable debit entries to customer invoices and related shipping documents?

Sales are properly recorded.
Sales are billed at the correct prices.
Accounts receivable represent valid sales.
Customer credit is approved.

Answer 8

Accounts receivable represent valid sales.

Question 9

Vouching entails verifying recorded amounts by examining the underlying documents from the ____ documents to the ____ documents.

Final; original.
Final; previous.
Original; final.
Original; subsequent.

Answer 9

Final; original.

Question 10

A production manager ordered excessive raw materials for delivery to a separate company owned by the manager. The manager falsified receiving documents and approved the invoices for payment. Which of the following audit procedures would most likely detect this fraud.

Select a sample of cash disbursements and compare purchase orders, receiving reports, invoices, and check copies.
Select a sample of cash disbursements and confirm the amount purchased, purchase price, and date of shipment with the vendors.
Observe the receiving dock and count materials received; compare the counts to receiving reports completed by receiving personnel.
Perform analytical tests, comparing production materials purchased, and raw materials inventory levels; investigate differences.

Answer 10

Perform analytical tests, comparing production materials purchased, and raw materials inventory levels; investigate differences.

Question 11

An internal auditor has set an engagement objective of determining whether mail room staff is fully used. Which of the following engagement techniques will best meet this objective?

Inspection of documents.
Observation.
Inquiry.
Analytical review.

Answer 11

Observation.

Question 12

Which of the substantive field work procedures presented below provides the best information about completeness of recorded revenues?

Reconciling the sales journal to the general ledger control account.
Vouching charges made to the accounts receivable subsidiary ledger to supporting shipping records.
Vouching shipping records to the customer order file.
Reconciling shipping records to recorded sales.

Answer 12

Reconciling shipping records to recorded sales.

Question 13

Which of the following procedures provides the most relevant information to determine the adequacy of the allowance for doubtful accounts receivables?

Confirm the receivables.
Analyze the following month’s payments on the accounts receivable balances outstanding.
Test the controls over the write-off of accounts receivable to ensure that management approves all write-offs.
Analyze the allowance through an aging of receivables and an analysis of current economic data.

Answer 13

Analyze the allowance through an aging of receivables and an analysis of current economic data.

Question 14

Which of the following activities does not constitute engagement supervision?

Preparing a preliminary engagement work program.
Providing appropriate instructions to the internal auditors.
Reviewing engagement working papers.
Ensuring that engagement communications meet appropriate criteria.

Answer 14

Preparing a preliminary engagement work program.

Question 15

Supervision of an internal audit engagement should include

Determining that engagement working papers adequately support the engagement observations.
Assigning staff members to the particular engagement.
Determining the scope of the engagement.
Appraising each internal auditor’s performance on at least an annual basis.

Answer 15

Determining that engagement working papers adequately support the engagement observations.

Question 16

Determining that engagement objectives have been met is part of the overall supervision of an engagement and is the ultimate responsibility of the

Staff internal auditor.
Board.
Engagement supervisor.
Chief audit executive.

Answer 16

Chief audit executive.

Question 17

Which of the following best describes engagement supervision?

The manager of each engagement has the ultimate responsibility for supervision.
Supervision is primarily exercised at the final review stage of an engagement to ensure the accuracy of the engagement communications.
Supervision is most important in the planning phase of the engagement to ensure appropriate coverage.
Supervision is a continuing process beginning with planning and ending with the conclusion of the engagement.

Answer 17

Supervision is a continuing process beginning with planning and ending with the conclusion of the engagement.

Question 18

The engagement team leader is least likely to have a primary role in

Allocating budgeted engagement hours among assigned staff.
Updating the permanent files.
Reviewing the working papers.
Preparing the critique sheet for the engagement.

Answer 18

Updating the permanent files.

Question 19

During the working-paper review, an internal auditing supervisor finds that the internal auditor’s observations are not adequately cross-referenced to supporting documentation. The supervisor will most likely instruct the internal auditor to

Prepare a working paper to indicate that the full scope of the engagement was carried out.
Familiarize himself or herself with the sequence of working papers so that (s)he will be able to answer questions about the conclusions stated in the final engagement communication.
Eliminate any cross-references to other working papers because the system is unclear.
Provide a cross-reference system that shows the relationship among observations, conclusions, recommendations, and the related facts.

Answer 19

Provide a cross-reference system that shows the relationship among observations, conclusions, recommendations, and the related facts.

Question 20

Engagement working papers are reviewed to ensure that

They are properly cross-referenced to the engagement communications.
No issues are open at the conclusion of the field work.
They meet or exceed the work standards of the organization’s external auditors.
They are properly referenced for easy follow-up within the year.

Answer 20

No issues are open at the conclusion of the field work.

Question 21

When conducting a performance appraisal of an internal auditor who has been a below-average performer, an inappropriate procedure is to

Notify the internal auditor of the upcoming appraisal several days in advance.
Use objective, impartial language.
Use generalizations.
Document the appraisal.

Answer 21

Use generalizations.

Question 22

One purpose of the exit meeting is for the internal auditor to

Require corrective action.
Review and verify the appropriateness of the engagement communication based upon client input.
Review the performance of internal auditors assigned to the engagement.
Present the final engagement communication to management.

Answer 22

Review and verify the appropriateness of the engagement communication based upon client input.

Question 23

The effectiveness of an internal auditing engagement is related to the results and the action taken on those results. Which of the following activities contributes to engagement effectiveness?

Conducting an exit meeting with engagement clients.
Adhering to a time budget.
Preparing weekly time reports.
Having budget revisions approved by the project supervisor.

Answer 23

Conducting an exit meeting with engagement clients.

Question 24

An internal auditing manager is reviewing the engagement working papers prepared by the staff. Which of the following review comments is true?

Each working paper should include the actual and the budgeted times related to such engagement work.
Including copies of all the forms and directives of the engagement client constitutes over-documentation.
Conclusions need not be documented in the working papers when the engagement objectives are achieved.
Each working papers should include a statement regarding the engagement client’s cooperation.

Answer 24

Including copies of all the forms and directives of the engagement client constitutes over-documentation.