Strategic Role of Internal Audit Flashcards
As part of the process to improve auditor–auditee relations, it is very important to deal with how internal auditing is perceived. Certain types of attitudes in the work performed will help create these perceptions. From a management perspective, which attitude is likely to be themostconducive to a positive perception? Interrogatory. Investigative. Consultative. Objective.
Consultative.
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? Staffing and communicating. Staffing and decision making. Planning and communicating. Planning and organizing.
Planning and communicating.
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 these 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?
Requests by management for special projects are not considered.
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.
Measurability criteria and targeted dates of completion are not provided.
A service company is currently experiencing a significant downsizing and process reengineering. Its board of directors has redefined the business goals and established initiatives using technology developed in house to meet these goals. As a result, a more decentralized approach has been adopted to run the business functions by empowering the business branch managers to make decisions and perform functions traditionally done at a higher level.
The internal auditing staff is made up of the director, two managers, and five staff auditors, all with financial background. In the past, the primary focus of successful audit activities has been the service branches and the six regional division headquarters, which support the branches. These division headquarters are the primary targets for possible elimination. The support functions, such as human resources, accounting, and purchasing, will be brought into the national headquarters, and technology will be enhanced to enable and augment these operations.
Up to this point, internal auditing has reported to the chief operating officer. Due to the significant changes, there has been some discussion as to changing this reporting relationship. What would be the best reporting relationship for internal auditing?
Administrative to the president, functional to the board.
Administrative and functional to the president.
Administrative and functional to the chief operating officer.
Administrative to the chief financial officer and functional to the president.
Administrative to the president, functional to the board.
A service company is currently experiencing a significant downsizing and process reengineering. Its board of directors has redefined the business goals and established initiatives using technology developed in house to meet these goals. As a result, a more decentralized approach has been adopted to run the business functions by empowering the business branch managers to make decisions and perform functions traditionally done at a higher level.
The internal auditing staff is made up of the director, two managers, and five staff auditors, all with financial background. In the past, the primary focus of successful audit activities has been the service branches and the six regional division headquarters, which support the branches. These division headquarters are the primary targets for possible elimination. The support functions, such as human resources, accounting, and purchasing, will be brought into the national headquarters, and technology will be enhanced to enable and augment these operations.
Branch managers view the internal auditing function as a watchdog for top management. What is the best way for internal auditing to change this view to one that is more cooperative?
Increase technical skills.
Increase solicitation of auditee concerns.
Increase focus on control responsibilities.
Increase confidentiality of investigative audits to minimize fear.
Increase solicitation of auditee concerns.
In which of the following duties would the audit director least likely have a primary role? Determine the need for expanded testing. Select or approve team members. Review the summary findings sheet. Organize and draft the audit report.
Organize and draft the audit report.
The capabilities of individual staff members are key features in the effectiveness of an internal auditing department. Select the primary consideration used when staffing an internal auditing department. Job descriptions. Continuing education. Background checks. Organizational orientation.
Job descriptions.
In some organizations, consideration is being given to the possibility of outsourcing internal audit functions. Management in a large organization should recognize that the external auditor might have an advantage, compared to the internal auditor, because of the external auditor?s:
Size. It can hire experienced, knowledgeable, and certified staff.
Structure. It may more easily accommodate audit requirements in distant locations.
Size. It is able to offer continuous availability of staff unaffected by other priorities.
Familiarity with the organization. Its annual audits provide an in-depth knowledge of the organization.
Structure. It may more easily accommodate audit requirements in distant locations.
Which of the following is most essential for guiding the audit staff in maintaining daily compliance with the department?s standards of performance? Performance appraisals. Policies and procedures. Quality control reviews. Position descriptions.
Policies and procedures.
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:
Should not hire the engineer because of the lack of knowledge of internal auditing standards.
May hire the engineer in spite of the lack of knowledge of internal auditing standards.
Should not hire the engineer because of the lack of knowledge of accounting and taxes.
May hire the engineer because of the knowledge of internal auditing gained in the previous position.
May hire the engineer in spite of the lack of knowledge of internal auditing standards.
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 Audit committee. Director of internal auditing. Internal auditing supervisor. Staff internal auditor.
Director of internal auditing.
Which audit planning tool is general in nature and used to ensure adequate audit coverage over time? The department budget. The audit program. The long-range schedule. The department charter.
The long-range schedule.
An audit committee should be designed to enhance the independence of both internal and external audit functions and to insulate the audit functions from undue management pressures. Using these criteria, audit committees should be composed of:
Only external members of the board of directors or its equivalent.
Only members from the relevant outside regulatory agencies.
Members from all important constituencies, specifically including representatives from banking, labor, regulatory agencies, shareholders, and officers.
A rotating subcommittee of the board of directors or its equivalent.
Only external members of the board of directors or its equivalent.
Audit committees have been identified as a major factor in promoting independence of both internal and external auditors. Which of the following is the most important limitation on the effectiveness of audit committees?
Audit committee members are compensated by the organization and thus favor a stockholder?s view.
Audit committee members do not normally have degrees in the accounting or auditing fields.
Audit committees may be composed of independent directors. However, those directors may have close personal and professional friendships with management.
Audit committees devote most of their efforts to external audit concerns and do not pay much attention to internal auditing and the overall control environment.
Audit committees may be composed of independent directors. However, those directors may have close personal and professional friendships with management.
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:
Fire the auditor to set an example for other auditors.
Remove the auditor from all audits in that area or in other sensitive areas.
Reprimand the auditor for talking shop at a social function.
Explain that the act is an ethical violation of the profession and that further such action could result in dismissal or other serious effects.
Explain that the act is an ethical violation of the profession and that further such action could result in dismissal or other serious effects.
Who should have the least influence on the appointment of the director of internal audit? The chief executive officer. The external auditor. The controller. The audit committee.
The controller.
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 manner by which audit findings will be reported.
The frequency of the audits to be performed.
The internal auditors’ unlimited access to those records, personnel, and physical properties that are relevant to the performance of the audits.
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.
Which of the following factors serves as a direct input to the internal auditing department’s financial budget?
Auditing department’s charter.
Past effectiveness of the internal auditing department in identifying cost savings.
Audit work schedules.
Activity reports.
Audit work schedules.
The status of the internal auditing function should be free from the impact of irresponsible policy changes by management. The most effective way to ensure that freedom is to:
Have the internal auditing charter approved by both management and the board of directors.
Establish an audit committee within the board of directors.
Adopt policies for the functioning of the auditing department.
Develop written policies and procedures to serve as standards of performance for the department.
Have the internal auditing charter approved by both management and the board of directors.
The consultative approach to auditing emphasizes:
Fraud investigation.
Participation with auditees to improve methods.
Imposition of corrective measures.
Implementation of policies and procedures.
Participation with auditees to improve methods.
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?
Chief financial officer, sales director, and chief executive officer.
Sales director and vice president for marketing.
Chairman of the board, controller, and sales director.
Chairman of the board, chief operating officer, and vice president for marketing.
Sales director and vice president for marketing.
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?
The potential for loss is significantly greater in one department than the other.
The audit staff has recently added an individual with expertise in one of the areas.
There have been major changes in operations in one of the departments.
There are more opportunities to achieve operating benefits in one of the departments than in the other.
The audit staff has recently added an individual with expertise in one of the areas.
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 expanding tests to establish reliability of findings.
Immediately after the preliminary survey.
Immediately after the preliminary survey.
Thebestrationale for rotating internal auditors so that different individuals are assigned to consecutive audits of a given auditee is to:
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.
Promote rapid professional development on the part of internal auditors by exposing them to the full range of organizational activities.
Prevent burnout on the part of the internal auditor, which may lead to excessive turnover in the internal audit department.
Avoid the development of bias toward a given auditee.
Avoid the development of bias toward a given auditee.
