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3rd Year > OPERATIONS AUDITING PRELIMS > Flashcards

OPERATIONS AUDITING PRELIMS Flashcards

1
Q

The primary stakeholders are
A. Customers
B. Shareholders
C. Lenders
D. Employee union

A

B. Shareholders

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2
Q

The goal of corporate governance and business ethics education is to:
A. Teach students their professional accountability and to uphold their personal integrity to society.
B. Change the way in which ethics is taught to students,
C. Create more ethics standards by which corporate professionals must operate.
D. Increase the workload for accounting students.

A

C. Create more ethics standards by which corporate professionals must operate

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3
Q

The corporate governance structure of a company reflects the
individual companies’:
A. Cultural and economic system.
B. Legal and business system.
C. Social and regulatory system.
D. All of the above.

A

D. All of the above.

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4
Q

The internal audit function is least effective when the department:
A. Is non-independent.
B. Is competent.
C. Is objective.
D. Exhibits integrity.

A

A. Is non-independent.

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5
Q

Under the_____, both internal and external corporate governance mechanisms are intended to induce managerial actions that maximize profit and shareholder value.
A. Shareholder theory.
B. Agency theory,
C. Stakeholder theory
D. Corporate governance theory

A

A. Shareholder theory.

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6
Q

An organization’s appropriate tone at the top promoting ethical conduct is an example of:
A. Ethics sensitivity.
B. Ethics incentives.
C. Ethical behavior.
D. Consequentialist

A

C. Ethical behavior

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7
Q

An independent director is one who:
A. Did not attend a school supported by the company.
B. Does not have outside relationships with other directors.
C. Does not have any other relationships with the company other than his or her directorship.
D. All of the above

A

C. Does not have any other relationships with the company other than his or her directorship.

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8
Q

The chairperson of the board of directors and CEO should be leaders with
A. Vision and problem-solving skills.
B. The ability to motivate.
C. Business acumen
D. All of the above

A

D. All of the above

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9
Q

The first step in the auditing process should be to secure the commitment of:
A. employees.
B. top executives and directors.
C. stockholders.
D. customers

A

B. top executives and directors

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10
Q
  1. Which of the following regarding agency theory is correct?
    A. Agency theory only applies to large entities.
    B. Agents act in the best interest of the principal.
    C. Agents are assumed to be in a position of power.
    D. Agency theory defines the relationship between agents and directors.
A

B. Agents act in the best interest of the principal.

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11
Q

Where in the annual report would you expect to find mandatory social and environmental reporting?
A. The financial statements and the chairman’s report.
B. Notes to the financial statements and directors’ report.
C. Corporate governance information and the auditor’s report.
D. The Directors’ declaration and the Chief Executive Officer’s report

A

B. Notes to the financial statements and directors’ report.

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12
Q

Which of the following descriptions applicable to different types of directors and their independence is incorrect?
A. Independent executive director.
B. Independent non-executive director.
C. Non-independent executive director.
D. Non-independent non-executive director

A

A. Independent executive director.

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13
Q

Which of the following is not an example of a duty or responsibility of directors?
A. Having a conflict of interest but declaring it to the board of
B. continuing to transact with creditors when the company’s liabilities exceed the assets.
C. Researching and asking questions relating to the company’s operations so as to be informed.
D. Choosing to personally carry out instructions from the board rather than requesting subordinates to do

A

B. continuing to transact with creditors when the company’s liabilities exceed the assets.

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14
Q

Which of the following is not one the underlying principles of the corporate governance Combined Code of Practice?
A. Openness
B. Integrity
C. Accountability
D. Acceptability

A

D. Acceptability

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15
Q

A ________ is a problem, situation, or opportunity requiring an individual, group, or organization to
choose among several actions that must be evaluated as right or wrong.
A. crisis
B. ethical issue
c. indictment
d. fraud

A

B. ethical issue

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16
Q

A stakeholder orientation includes all of the following activities except:
A. generating data about stakeholder groups.
B. assessing the firm’s effects on stakeholder groups. mole
C. distributing stakeholder information throughout the firm.
D. minimizing the influence of stakeholder information on the firm.

A

D. minimizing the influence of stakeholder information on the firm.

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17
Q

company listed on the American stock exchange. It has an audit committee comprising four members. Two members are independent non-executive directors with engineering and mining qualifications. The nomination committee is currently looking to appoint an additional member to the audit committee. In terms of the existing principles, which of the following would most likely be the best candidate for appointment?
A. An independent non-executive director with a qualification in finance.
B. An executive director with a qualification in accounting.
C. A non-independent non-executive director with qualifications in accounting and auditing.
D. A non-executive director who was previously the CFO of JOY Ltd a year ago.

A

A. An independent non-executive director with a qualification in finance.

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18
Q

An organization’s obligation to act to protect and improve society’s welfare as well as its own interests is referred to as
A. organizational social responsibility.
B. organizational social responsiveness.
C. corporate obligation.
D. business ethics.

A

A. organizational social responsibility.

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19
Q

Which of the following regarding corporate governance is correct?
A. Corporate governance can temper growth.
B. Good corporate governance can result in excessive risk-taking.
C. Corporate governance often results in prompt and effective decision-making
D. The aim of corporate governance is to protect the interests of shareholders and the local economies.

A

C. Corporate governance often results in prompt and effective decision-making

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20
Q

Code of conduct and code of ethics
A. are formal statements that describe what an organization expects of its employees.
B. become necessary only after a company has been in legal trouble.
C. are designed for top executives and managers, not regular employees.
D. rarely become an effective component of the ethics and compliance program.

A

A. are formal statements that describe what an organization expects of its employees.

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21
Q

Consider the following recommendations:
- a minimum of three members
- chaired by an independent director
- a majority of independent directors
- can comprise executive directors
In terms of the CG Principles, the above requirements relate to the composition of which committees?
A. The nomination and risk committees.
B. The audit and remuneration committees.
C. The remuneration, audit, risk and nomination committees.
D. The remuneration, risk and nomination committees but not the audit committee.

A

D. The remuneration, risk and nomination committees but not the audit committee.

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22
Q

In terms of the CG Principles, which of the following regarding the composition of the nomination committee of a listed company is most correct?
a. A minimum of three members chaired by an executive director.
B. A majority of independent directors chaired by an independent director.
C. A majority of three members of whom most are independent directors.
D. A minimum of one independent director who also chairs the committee.

A

B. A majority of independent directors chaired by an independent director.

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23
Q

Most companies begin the process of establishing organizational ethics programs by developing:
A. ethics training programs.
B. code of conduct.
C. ethics enforcement mechanisms.
D. hidden agendas.

A

B. code of conduct.

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24
Q

Stakeholders are considered more important to an organization when:
A. they can make use of their power on the organization.
B. they do not emphasize the urgency of their issues.
C. their issues are not legitimate.
D. they can express themselves articulately.

A

A. they can make use of their power on the organization

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25
Q

The four types of social responsibility include:
A. legal, philanthropic, economic, and ethical.
B. ethical, moral, social, and economic.
C. philanthropic, justice, economic, and ethical.
D. legal, moral, ethical, and economic.

A

A. legal, philanthropic, economic, and ethical.

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26
Q

To be successful, business ethics training programs need to:
A. focus on personal opinions of employees.
B. be limited to upper executives.
C. educate employees on formal ethical frameworks and models of ethical decision making.
D. promote the use of emotions in making tough ethical decisions.

A

C. educate employees on formal ethical frameworks and models of ethical decision making.

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27
Q

Which of the following regarding agency theory is correct?
A. Agency theory only applies to large entities.
B. Agents act in the best interest of the principal.
C. Agents are assumed to be in a position of power.
D. Agency theory defines the relationship between agents and directors.

A

B. Agents act in the best interest of the principal.

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28
Q

Which of the following is NOT one of the primary elements of a strong organizational compliance program?
A. A written code of conduct
B. An ethics officer
C. Significant financial expenditures
D. A formal ethics training program

A

C. Significant financial expenditures

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29
Q

Related-party transactions may consist of
A. Managers becoming entrenched.
B. Tunnelling and transfer pricing.
C. Transactions between shareholders of the same political persuasion.
D. None of the above.

A

B. Tunnelling and transfer pricing.

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30
Q

The following are the principles of IIA’s Code of Ethics except:
A. Integrity
B. Confidentiality
C. Professional Competence and Due Care
D. Objectivity

A

C. Professional Competence and Due Care

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31
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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32
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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33
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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34
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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35
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.

36
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

37
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.

38
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

39
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.

40
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.

41
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.

42
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

43
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

44
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

45
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

46
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.

47
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

48
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.

49
Q

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

A

D. organizational

50
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.

51
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.

52
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

53
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

54
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.

55
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.

56
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.

57
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.

58
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.

59
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.

60
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.

61
Q

This identifies what the internal audit function will review based on available resources and the needs and priorities of the organization.
A. Audit Checklist
B. Audit Plan
C. Operations Manual
D. Audit Manual

A

B. Audit Plan

62
Q

________ factors are conditions and other variables that in their present, or absence, as the case may be, either exacerbate or diminish the underlying risk.
A. Risk
B. Audit
C. Operations
D. Planning

A

A. Risk

63
Q

The following questions/inquiries can be used in determining risk, EXCEPT:
A. Where are the people, processes, systems, or assets vulnerable?
B. What could go wrong?
C. What is the passcode lock of that computer?
D. How could that unit fail?

A

C. What is the passcode lock of that computer?

64
Q

Audit Evidence can be in the form of the following, EXCEPT:
A. Observation
B. Workpapers
C. Flowcharts
D. None of the above. All options are forms of audit evidence.

A

D. None of the above. All options are forms of audit evidence.

65
Q

A review of how an organization’s management and its operating procedures are functioning with respect to their effectiveness and efficiency in meeting stated objectives.
A. Internal Audit
B. Operational Audit
C. Cash Audit
D. External Audit

A

B. Operational Audit

66
Q

The auditor faces a risk that the audit will not detect material misstatements in the financial statements. In regard to minimizing this risk, the auditor primarily relies on:
A. Substantive procedures
B. Tests of controls
C. Internal control
D. Statistical analysis

A

A. Substantive procedures

67
Q

Which of the following is least likely to be included in an auditor’s inquiry of management while obtaining information to identify the risks of material misstatement due to fraud?
A. Are all financial reporting operations at one location?
B. Does it have knowledge of fraud or suspect fraud?
C. Does it have programs to mitigate fraud risks?
D. Has it reported to the audit committee the nature of the company’s internal control?

A

A. Are all financial reporting operations at one location?

68
Q

The primary purpose of the internal auditors’ evaluation of internal control is to:
A. Determine if management has planned and implemented activities needed to attain goals and objectives.
B. Determine the extent of tests of controls needed during field work.
C. Identify areas for fraud investigation.
D. Determine if employees have incompatible duties that have compromised the control environment.

A

A. Determine if management has planned and implemented activities needed to attain goals and objectives.

69
Q

The internal auditing department provides information about control and quality of performance to:
A. Management and the board of directors.
B. A level in the organization sufficient to ensure acceptance of all recommendations
C. Outside agencies for regulatory and financial compliance.
D. Any member of the organization upon request.

A

A. Management and the board of directors.

70
Q

The scope of an internal audit is initially defined by the:
A. Audit objectives
B. Scheduling and time estimates
C. Preliminary survey
D. Audit program

A

A. Audit objectives

71
Q

Interviewing operating personnel, identifying the objectives of the auditee, identifying standards used to evaluate performance, and assessing the risk inherent in the auditee’s operations are activities typically performed in which phase of an internal audit?
A. The fieldwork phase
B. The preliminary survey phase
C. The audit programming phase
D. The reporting phase

A

B. The preliminary survey phase

72
Q

Which of the following best describes the scope of internal auditing as it has developed to date?
A. Internal auditing involves appraising the economy and efficiency with which resources are employed.
B. Internal auditing involves evaluating compliance with policies, plans, procedures, laws, and regulations.
C. Internal auditing has evolved to verifying the existence of assets and reviewing the means of safeguarding assets.
D. Internal auditing has evolved to more of an operational orientation from a financial orientation.

A

D. Internal auditing has evolved to more of an operational orientation from a financial orientation.

73
Q

Which of the following statements best describes why the profession of certified public accountants has deemed it essential to promulgate a code of professional conduct and to establish a mechanism for enforcing observation of the code?
A. A distinguishing mark of a profession is its acceptance of responsibility to the public.
b. A prerequisite to success is the establishment of an ethical code that stresses primarily the professional’s responsibility to clients and colleagues.
C. A requirement of most state laws calls for the profession to establish a code of ethics.
D. An essential means of self-protection for the profession is the establishment of flexible ethical standards by the professions.

A

A. A distinguishing mark of a profession is its acceptance of responsibility to the public.

74
Q

A primary purpose for establishing a code of conduct within a professional organization is to:
A. Reduce the likelihood that members of the profession will be sued for substandard work
B. Ensure that all members of the profession perform at approximately the same level of competence
C. Demonstrate acceptance of responsibility to the interests of those served by the profession
D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization

A

C. Demonstrate acceptance of responsibility to the interests of those served by the profession

75
Q

Corporate governance is a process by which the owners and creditors of an organization
A. Exert control.
B. Require accountability.
C. Exert control and require accountability.
D. Neither exerts control nor requires accountability.

A

C. Exert control and require accountability.

76
Q

Governance demands accountability back through the system to the:
A. shareholders
B. audit committee
C. management
D. All of the above.

A

A. shareholders

77
Q

The corporate governance responsibilities of management include:
A. establishing risk management processes.
B. establishing proper internal controls.
C. requiring high ethical standards.
D. All of the above.

A

D. All of the above.

77
Q

All of the following groups have responsibility for ensuring proper corporate governance except:
A. stockholders
B. board of directors
C. regulatory agencies
D. All of the above have responsibility.

A

D. All of the above have responsibility.

78
Q

A proper system of corporate governance is one that demands
A. decision making by auditors in place of management.
B. accountability back through the system to the shareholders.
C. internal audit representation on the board of directors.
D. audit planning to obtain competent and sufficient audit evidence.

A

B. accountability back through the system to the shareholders.

79
Q

Companies with good governance generally have the following characteristic(s):
A. are less likely to engage in “financial engineering”.
B. take the requirements of good internal control over financial reporting seriously.
C. make a commitment to financial competencies needed.
D. All of the above.

A

D. All of the above.`

80
Q

Which of the following statements is/are FALSE?
S1. Operational risk, as opposed to efficiency, is the risk of loss resulting from inadequate internal processes, people, and systems or from external events.
S2. FS audit is concerned on to see that the credit control has been strictly followed while operational audit is concerned on to study the credit control system for suggesting better measures as necessary.

A. Statement I only.
B. Statements I and II.
C. None of the statements.
D. Statement II only.

A

A. Statement I only.

81
Q

After assessment of risk maturity, periodic audit planning is done which results to the production of:
A. Audit report
B. Planning report
C. Audit plan
D. Risk register

A

C. Audit plan

82
Q

Which of the following statements is/are true?
S1. Risk-based audit applies to both internal and external audits.
S2. The scope of internal auditing should encompass the examination of the adequacy and effectiveness of the organization’s system of internal control and the quality of performance in carrying out assigned responsibilities.
A. Statement I only.
B. Statements I and II.
C. None of the statements.
D. Statement II only.

A

B. Statements I and II.

83
Q

The following are planning considerations in operations audit except
A. Conduct a preliminary risk assessment by utilizing a group interview.
B. Gather top management input on the preliminary risk assessment.
C. Prepare a Draft Annual Audit Plan based upon the results of the risk assessment process.
D. Preparation of audit point sheet.

A

D. Preparation of audit point sheet.

84
Q

Who is responsible for reviewing and approving the final engagement communication before its issuance?
A. Chief Executive Officer
B. Chief Audit Executive
C. Chief Operating Officer
D. Audit Committee Chair

A

B. Chief Audit Executive

85
Q

A small CPA firm provides audit services to a large local company Almost 80% of the CPA firm’s revenue come from this client. Which statement is most likely to be true?
A. Appearance of independence may be lacking
B. The small CPA firm does not have the proficiency to perform a larger audit
C. The auditor should provide an emphasis of a matter paragraph to his/her audit report adequately disclosing this information and then it may issue an unqualified opinion.
D. The situation is satisfactory if the auditor exercises due skeptical negative assurance care in the audit

A

A. Appearance of independence may be lacking

86
Q

Which of the following is not a broad category of threat to auditor independence?
A. Familiarity
B. Financial self interest
C. Undue influence
D. Positive work relationship

A

D. Positive work relationship

3rd Year (5 decks)

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