Monitor Engagement Outcomes

Question 1

A professional engineer applied for a position in the internal auditing department of a high-technology firm. The engineer became interested in the position after observing several internal auditors while they were auditing the engineering department. The director of internal auditing:
May hire the engineer in spite of the lack of knowledge of internal auditing standards.
May hire the engineer because of the knowledge of internal auditing gained in the previous position.
Should not hire the engineer because of the lack of knowledge of accounting and taxes.
Should not hire the engineer because of the lack of knowledge of internal auditing standards.

Answer 1

May hire the engineer in spite of the lack of knowledge of internal auditing standards.

Question 2

External review of an internal auditing department is not likely to evaluate:
Audit planning documents, particularly those submitted to senior management and the audit committee.
Adherence to the internal auditing department’s charter.
Compliance with the IIAStandards.
Detailed cost/benefit analysis of the internal auditing department.

Answer 2

Detailed cost/benefit analysis of the internal auditing department.

Question 3

The advantage attributed to the establishment of internal auditing field offices for work at remote locations isbestdescribed as:
The possibility of increased objectivity of personnel assigned to a field office.
The increased ease of maintaining uniform company-wide standards.
More contact with senior audit personnel leading to an increase in control.
A reduction of travel time and related travel expense.

Answer 3

A reduction of travel time and related travel expense.

Question 4

If the internal audit staff does not have the skills to perform a particular task, a specialist could be brought in from:
I. The organization’s external audit firm.
II. An outside consulting firm.
III.The department currently being audited.
IV. A college or university.
I, II, and IV.
II and IV.
I and II.
I, II, and III.

Answer 4

I, II, and IV.

Question 5

Follow-up activity may be required to ensure that corrective action has taken place for certain findings. The internal audit department?s responsibility to perform follow-up activities as required should be defined in the:
Mission statement of the audit committee.
Internal auditing department?s written charter.
Engagement memo issued prior to each audit assignment.
Purpose statement within applicable audit reports.

Answer 5

Internal auditing department?s written charter.

Question 6

Upon being appointed, a new director of internal auditing found an inexperienced audit staff that was over budget on most audits. A detailed review of audit working papers revealed no evidence of progressive reviews by audit supervisors. Additionally, there was no evidence that a quality assurance program existed.
As a means of controlling projects and avoiding time-budget overruns, decisions to revise time budgets for an audit should normally be made:
When a significant deficiency has been substantiated.
When inexperienced audit staff is assigned to an audit.
Immediately after the preliminary survey.
Immediately after expanding tests to establish reliability of findings.

Answer 6

Immediately after the preliminary survey.

Question 7

Internal auditing is responsible for reporting fraud to senior management or the board when:
Irregular transactions have been identified and are under investigation.
The review of all suspected fraud-related transactions is complete.
Suspicious activities have been reported to internal auditing.
The incidence of fraud of a material amount has been established to a reasonable certainty.

Answer 7

The incidence of fraud of a material amount has been established to a reasonable certainty.

Question 8

The capabilities of individual staff members are key features in the effectiveness of an internal auditing department. Select theprimaryconsideration used when staffing an internal auditing department.
Background checks.
Job descriptions.
Continuing education.
Organizational orientation.

Answer 8

Job descriptions.

Question 9

The director of a newly formed internal auditing department is in the process of drafting a formal written charter for the department. Which one of the following items, related to the operational effectiveness of the internal audit department, should be included in the charter?
The frequency of the audits to be performed.
The procedures that the internal auditors will employ in investigating and reporting fraud.
The internal auditors’ unlimited access to those records, personnel, and physical properties that are relevant to the performance of the audits.
The manner by which audit findings will be reported.

Answer 9

The internal auditors’ unlimited access to those records, personnel, and physical properties that are relevant to the performance of the audits.

Question 10

If an internal auditor finds that no corrective action has been taken on a prior audit finding that is still valid, the IIAStandardsstates that the internal auditor should:
Determine whether management or the board has assumed the risk of not taking corrective action.
Schedule a future audit of the specific area involved.
Seek the board’s approval to initiate corrective action.
Restate the prior finding along with the findings of the current audit.

Answer 10

Determine whether management or the board has assumed the risk of not taking corrective action.

Question 11

The peer review process can be performed internally or externally. A distinguishing feature of the external review is its objective to:
Identify tasks that can be performed better.
Determine if audit activities meet professional standards.
Provide an independent evaluation.
Set forth the recommendations for improvement.

Answer 11

Provide an independent evaluation.

Question 12

Which of the following would be thebestsource of an internal audit director’s information for planning staffing requirements?
Review audit staff size and composition of similar-size companies in the same industry.
Review of audit staff education and training records.
Interviews with existing audit staff.
Discussions of audit needs with executive management and the audit committee.

Answer 12

Discussions of audit needs with executive management and the audit committee.

Question 13

Recent criticism of an internal auditing department suggested that audit coverage was not providing adequate feedback to senior management on the processes used in the organization?s key lines of business. The problem was further defined as lack of feedback on the recent implementation of automated support systems. Which two functions does the director of internal auditing need to improve?
Planning and organizing.
Planning and communicating.
Staffing and communicating.
Staffing and decision making.

Answer 13

Planning and communicating.

Question 14

Internal audit staff members should be afforded an appropriate means through which they can discuss problems and receive updates regarding departmental policies. The most appropriate forum for this objective is:
Employee evaluation conferences.
The department?s informal communication lines.
Staff meetings.
Intradepartment memoranda.

Answer 14

Staff meetings.

Question 15

While attending a social function, an internal auditor described to a group of friends the elements of a sensitive audit on which he was working. The internal auditing director?s best avenue for proceeding is to:
Reprimand the auditor for talking shop at a social function.
Fire the auditor to set an example for other auditors.
Remove the auditor from all audits in that area, or in other sensitive areas.
Explain that the act is an ethical violation of the profession and that further such action could result in dismissal or other serious effects.

Answer 15

Explain that the act is an ethical violation of the profession and that further such action could result in dismissal or other serious effects.

Question 16

An internal auditor reported a suspected fraud to the director of internal auditing. The director turned the entire case over to the security department. Security failed to investigate or report the case to management. The perpetrator continued to defraud the organization until being accidentally discovered by a line manager two years later. Select the most appropriate action for the audit director.
The director’s actions were correct.
The director should have conducted the investigation.
The director should have discharged the perpetrator.
The director should have periodically checked the status of the case with security.

Answer 16

The director should have periodically checked the status of the case with security.

Question 17

According to the IIA Standards, an internal auditing department?s activity reports should:
List the material findings of major audits.
Report the weekly activities of the individual auditors.
Compare audits completed with audits planned.
List unresolved findings.

Answer 17

Compare audits completed with audits planned.

Question 18

Upon being appointed, a new director of internal auditing found an inexperienced audit staff that was over budget on most audits. A detailed review of audit working papers revealed no evidence of progressive reviews by audit supervisors. Additionally, there was no evidence that a quality assurance program existed.
Determining that audit objectives have been met is part of the overall supervision of an audit assignment and is the ultimate responsibility of the:
Director of internal auditing.
Audit committee.
Staff internal auditor.
Internal auditing supervisor.

Answer 18

Director of internal auditing.

Question 19

Which of the following activities does not constitute audit supervision?
Seeing that audit objectives are achieved.
Preparing a preliminary audit program.
Providing appropriate instructions to the auditors.
Reviewing audit work papers.

Answer 19

Preparing a preliminary audit program.

Question 20

Which of the following activities is not included in determining the audit schedule?
Identifying auditable locations.
Assessing risk factors.
Developing audit programs.
Planning workload requirements.

Answer 20

Developing audit programs.

Question 21

The internal audit director of a multinational company must form an audit team to examine a newly acquired subsidiary in another country. Consideration should be given to which of the following factors?
I.Local customs.
II.Language skills of the auditor.
III.Experience of the auditor.
IV.Monetary exchange rate.
I, II, and III.
I and III.
II, III, and IV.
I and II.

Answer 21

I, II, and III.

Question 22

An internal auditing manager has a small team of employees, but each individual is self-motivated and could be termed a high achiever. The audit manager has been given a particularly difficult assignment. Even for a high achiever, the probability that this job can be completed by one individual by the required deadline is low. Select thebestcourse for the audit manager.
Assign one individual since high achievers thrive on high risks.
Ask company management to cancel the job.
Assign two staff members to moderate the risk of failure.
Assign the entire staff to ensure the risk of failure is low.

Answer 22

Assign two staff members to moderate the risk of failure.

Question 23

Which of the following audit committee activities would be of the greatest benefit to the internal auditing department?
Review and approval of audit programs.
Review and endorsement of all internal audit reports prior to their release.
Support for appropriate follow-up of recommendations made by the internal auditing department.
Assurance that the external auditor will rely on the work of the internal auditing department whenever possible.

Answer 23

Support for appropriate follow-up of recommendations made by the internal auditing department.

Question 24

Auditors realize that at times corrective action is not taken even when agreed to by the appropriate parties. This should lead an internal auditor to:
Decide the extent of necessary follow-up work.
Decide to conduct follow-up work only if management requests the auditor’s assistance.
Write a follow-up audit report with all findings and their significance to the operations.
Allow management to decide when to follow up, since it is management’s ultimate responsibility.

Answer 24

Decide the extent of necessary follow-up work.

Question 25

The internal auditing department of a large corporation has established its operating plan and budget for the coming year. The operating plan is restricted to the following categories: a prioritized listing of all audits, staffing, a detailed expense budget, and the commencement date of each audit. Which of the followingbestdescribes the major deficiency of this operating plan?
Knowledge, skills, and disciplines required to perform work are ignored.
Opportunities to achieve operating benefits are ignored.
Measurability criteria and targeted dates of completion are not provided.
Requests by management for special projects are not considered.

Answer 25

Measurability criteria and targeted dates of completion are not provided.

Question 26

In some cultures and organizations, managers insist that the internal auditing function is not needed to provide a critical assessment of the organization?s operations. A management attitude such as this will most probably have an adverse effect on the internal auditing department?s:
Policies and procedures.
Operating budget variance.
Charter.
Performance appraisals.

Answer 26

Charter.

Question 27

You have been selected to develop an internal auditing department for your company. Your approach would most likely be to hire:
Internal auditors, each of whom possesses all the skills required to handle all audit assignments.
Inexperienced personnel and train them the way the company wants them trained.
Internal auditors who collectively have the knowledge and skills needed to complete all internal audit assignments.
Degreed accountants since most audit work is accounting related.

Answer 27

Internal auditors who collectively have the knowledge and skills needed to complete all internal audit assignments.

Question 28

The internal auditing department for a large corporation recently concluded an audit of sales department travel expenses. Which of the following groups should receive a copy of the audit report?
Chairman of the board, chief operating officer, and vice president for marketing.
Chief financial officer, sales director, and chief executive officer.
Sales director and vice president for marketing.
Chairman of the board, controller, and sales director.

Answer 28

Sales director and vice president for marketing.

Question 29

During an audit of purchasing, internal auditors found several violations of company policy concerning competitive bidding. The same condition that had been reported in an audit report last year, and corrective action had not been taken. Which of the followingbestdescribes the appropriate action concerning this repeat finding?
During the exit interview, management should be made aware that a finding from the prior report had not been corrected.
The audit report should note that this same condition had been reported in the prior audit.
The director of internal auditing should determine whether this condition should be reported to the independent auditor and any regulatory agency.
The director of internal auditing should determine whether management or the board has assumed the risk of not taking corrective action.

Answer 29

The director of internal auditing should determine whether management or the board has assumed the risk of not taking corrective action.

Question 30

The key factor to the success of an audit organization?s human resources program is:
A well-developed set of selection criteria.
An informal program for developing and counseling staff.
A program for recognizing the special interests of individual staff members.
A compensation plan based on years of experience.

Answer 30

A well-developed set of selection criteria.

Question 31

Upon being appointed, a new director of internal auditing found an inexperienced audit staff that was over budget on most audits. A detailed review of audit working papers revealed no evidence of progressive reviews by audit supervisors. Additionally, there was no evidence that a quality assurance program existed.
To properly evaluate the operations of an internal auditing department, a quality assurance program should include:
External reviews at least once every three years by qualified persons who are independent of the organization.
Periodic rotation of audit managers.
Periodic supervision of internal audit work on a sample basis.
Internal reviews, by other than the internal audit staff, to appraise the quality of department operations.

Answer 31

External reviews at least once every three years by qualified persons who are independent of the organization.

Question 32

The requirements for staffing level, education and training, and audit research should be included in:
Job descriptions for the various staff positions.
The internal auditing department?s charter.
The annual plan for the internal auditing department.
The internal auditing department?s policies and procedures manual.

Answer 32

The annual plan for the internal auditing department.

Question 33

Given the acceptance of the cost savings audits and the scarcity of internal audit resources, the audit manager also decided that follow-up action was not needed. The manager reasoned that cost savings should be sufficient to motivate the auditee to implement the auditor’s recommendations. Therefore, follow-up was not scheduled as a regular part of the audit plan. Does the audit manager’s decision violate the IIAStandards?
Yes. The IIAStandardsrequire the auditors to determine whether the auditee has appropriately implemented all of the auditor’s recommendations.
No. When there is evidence of sufficient motivation by the auditee, there is no need for follow-up action.
Yes. Scarcity of resources is not a sufficient reason to omit follow-up action.
No. The IIAStandardsdo not specify whether follow-up is needed.

Answer 33

Yes. Scarcity of resources is not a sufficient reason to omit follow-up action.

Question 34

Thebestmeans for the internal auditing department to determine whether its goal of implementing broader audit coverage of functional activities has been met is through:
Comparison of the audit plan to actual audit activity.
Implementation of a quality assurance program.
Surveys of management satisfaction with the internal auditing function.
Accumulation of audit findings by auditable area.

Answer 34

Comparison of the audit plan to actual audit activity.

Question 35

Thebestrationale for rotating internal auditors so those different individuals are assigned to consecutive audits of a given auditee is to:
Prevent burnout on the part of the internal auditor, which may lead to excessive turnover in the internal audit department.
Promote rapid professional development on the part of internal auditors by exposing them to the full range of organizational activities.
Increase the diligence exercised by internal auditors who know that the quality of their work will be apparent to the next set of internal auditors.
Avoid the development of bias toward a given auditee.

Answer 35

Avoid the development of bias toward a given auditee.

Question 36

Reporting to senior management and the board is an important part of the auditor’s obligation. Which of the following items isnotrequired to be reported to senior management and/or the board?
Subsequent to the completion of an audit, but prior to the issuance of an audit report, the audit senior in charge of the audit was offered a permanent position in the auditee’s department.
An annual report summary of the department’s audit work schedule and financial budget.
Significant interim changes to the approved audit work schedule and financial budget.
An audit plan was approved by senior management and the board. Subsequent to the approval, senior management informed the audit director not to perform an audit of a division because the division’s activities were very sensitive.

Answer 36

Subsequent to the completion of an audit, but prior to the issuance of an audit report, the audit senior in charge of the audit was offered a permanent position in the auditee’s department.

Question 37

Exit conferences serve to ensure the accuracy of the information used by an internal auditor. A secondary purpose of an exit conference is to:
Get immediate action on a recommendation.
Agree to the appropriate distribution of the final report.
Improve relations with auditees.
Brief senior management on the results of the audit.

Answer 37

Improve relations with auditees.

Question 38

Which of the following ismost essentialfor guiding the audit staff in maintaining daily compliance with the department’s standards of performance?
Performance appraisals.
Position descriptions.
Policies and procedures.
Quality control reviews.

Answer 38

Policies and procedures.

Question 39

Which of the following factors serves as a direct input to the internal auditing department’s financial budget?
Auditing department’s charter.
Audit work schedules.
Past effectiveness of the internal auditing department in identifying cost savings.
Activity reports.

Answer 39

Audit work schedules.

Question 40

Having been given the task of developing a performance appraisal system for evaluating the audit performance of a large internal auditing staff, you should:
Provide primarily for the evaluation of specific accomplishments directly related to the performance of the audit program.
Provide general information concerning the frequency of evaluations and the way evaluations will be performed without specifying their timing and uses.
Provide primarily for the evaluation of criteria such as diligence, initiative, and tact.
Provide for an explanation of the appraisal criteria methods at the time the appraisal results are discussed with the internal auditor.

Answer 40

Provide primarily for the evaluation of specific accomplishments directly related to the performance of the audit program.

Question 41

Why should organizations require auditees to promptly reply and outline the corrective action that has been implemented on reported deficiencies?
To ensure that the auditor performance is evaluated.
To indicate concurrence with the audit findings.
To effect savings as early as possible.
To close the open audit issues as soon as possible.

Answer 41

To effect savings as early as possible.

Question 42

A director of internal auditing has reviewed credentials, checked references, and interviewed a candidate for a staff position. The director concludes that the candidate has a thorough understanding of internal auditing techniques, accounting, and management. However, the director notes that the candidate has limited knowledge of economics and computer science. Which of the following actions would bemostappropriate?
Encourage the candidate to obtain additional training in economics and computer science and then reapply.
Offer the candidate a position despite the lack of knowledge in certain essential areas.
Reject the candidate because of the lack of knowledge required by the IIAStandards.
Offer the candidate a position if other staff members possess sufficient knowledge in economics and computer science.

Answer 42

Offer the candidate a position if other staff members possess sufficient knowledge in economics and computer science.

Question 43

Following a negative performance evaluation by a supervisor, a staff auditor went to the audit director to seek a change in the evaluation. The director was familiar with the auditor’s performance and agreed with the evaluation. The director agreed to meet and discuss the situation. Which of the following is thebestcourse of action for the director to take?
Have the supervisor participate in the meeting, so that there is no misunderstanding about the facts.
Meet privately with the employee. Tell the employee of the director’s agreement with the performance evaluation and express interest in any additional facts the employee may wish to present.
Meet privately with the employee. Encourage discussion by asking for the employee’s side of the issue and disclaiming any agreement with the supervisor.
Have a human resources administrator present to ensure that improper statements are not made.

Answer 43

Meet privately with the employee. Tell the employee of the director’s agreement with the performance evaluation and express interest in any additional facts the employee may wish to present.

Question 44

In which of the following duties would the audit director least likely have a primary role?
Determine the need for expanded testing.
Review the summary findings sheet.
Select or approve team members.
Organize and draft the audit report.

Answer 44

Organize and draft the audit report.

Question 45

A quality assurance program of an internal audit department provides reasonable assurance that audit work conforms to applicable standards. Which of the following activities are designed to provide feedback on the effectiveness of an audit department?
I.Proper supervision.
II.Proper training.
III.Internal reviews.
IV.External reviews.
II, III, and IV.
I, II, III, and IV.
I, III, and IV.
I, II, and III.

Answer 45

I, III, and IV.

Question 46

Why should organizations require auditees to promptly reply and outline the corrective action that has been implemented on reported deficiencies?
To institute compliance as early as possible.
To ensure that the audit schedule is kept up to date.
To indicate concurrence with the audit findings.
To remove items from the pending list as soon as possible.

Answer 46

To institute compliance as early as possible.

Question 47

An internal audit team recently completed an audit of the company’s compliance with its lease-versus-purchase policy concerning company automobiles. The audit report noted that the basis for several decisions to lease rather than purchase automobiles had not been documented and was not auditable. The report contained a recommendation that operating management ensure that such lease agreements not be executed without proper documentation of the basis for the decision to lease rather than buy. The internal auditors are about to perform follow-up work on this audit report.
The primary purpose for performing a follow-up review is to:
Ensure timely consideration of the internal auditors’ recommendations.
Allow the internal auditors to evaluate the effectiveness of their recommendations.
Ascertain that appropriate action was taken on reported findings.
Document what management is doing in response to the audit report and close the audit file in a timely manner.

Answer 47

Ascertain that appropriate action was taken on reported findings.

Question 48

An internal audit team recently completed an audit of the company’s compliance with its lease-versus-purchase policy concerning company automobiles. The audit report noted that the basis for several decisions to lease rather than purchase automobiles had not been documented and was not auditable. The report contained a recommendation that operating management ensure that such lease agreements not be executed without proper documentation of the basis for the decision to lease rather than buy. The internal auditors are about to perform follow-up work on this audit report.
Assume that senior management has decided to accept the risk involved in failure to document the basis for lease-versus-purchase decisions involving company automobiles. In such a case, what would be the auditors’ reporting obligation?
The auditors should issue a follow-up report to management clearly stating the rationale for the recommendation that the basis for lease-versus-purchase decisions be properly documented.
The auditors should inform the external auditor and any responsible regulatory agency that no action has been taken on the finding in question.
Management’s decision and the auditors’ concern should be reported to the company’s board of directors.
The auditors have no further reporting responsibility.

Answer 48

The auditors have no further reporting responsibility.

Question 49

Which audit-planning tool is general in nature and is used to ensure adequate audit coverage over time?
The long-range schedule.
The department budget.
The department charter.
The audit program.

Answer 49

The long-range schedule.

Question 50

The audit team leader is least likely to have a primary role in:
Updating the permanent files.
Allocating budget audit hours among assigned staff.
Preparing the critique sheet for the audit.
Reviewing the working papers.

Answer 50

Updating the permanent files.

Question 51

The director of internal auditing is preparing the work schedule for the next budget year and has limited audit resources. In deciding whether to schedule the purchasing or the personnel department for an audit, which of the following would be theleastimportant factor?
There have been major changes in operations in one of the departments.
The audit staff has recently added an individual with expertise in one of the areas.
There are more opportunities to achieve operating benefits in one of the departments than in the other.
The potential for loss is significantly greater in one department than the other.

Answer 51

The audit staff has recently added an individual with expertise in one of the areas.

Question 52

An element of authority that should be included in the charter of the internal auditing department is:
Identification of the operational departments that the audit department must audit.
Identification of the types of disclosures that should be made to the audit committee.
Access to the external auditor?s working papers.
Access to records, personnel, and physical properties relevant to the performance of audits.

Answer 52

Access to records, personnel, and physical properties relevant to the performance of audits.