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NEW QUESTION 62
The chief audit executive of a medium-sized financial institution is evaluating the staffing model of the internal audit activity (IAA). According to IIA guidance, which of the following are the most appropriate strategies to maximize the value of the current IAA resources?
* The annual audit plan should include audits that are consistent with the skills of the IAA.
* Audits of high-risk areas of the organization should be conducted by internal audit staff.
* External resources may be hired to provide subject-matter expertise but should be supervised.
* Auditors should develop their skills by being assigned to complex audits for learning opportunities.
- A. 2 and 3 only
- B. 3 and 4 only
- C. 1 and 4 only
- D. 1 and 2 only
Answer: B
Explanation:
Section: Volume E
Explanation
NEW QUESTION 63
Because of an abundance of high priority requests from management, an internal audit activity no longer has the resources to meet all of its commitments contained in the annual audit plan. Which of the following would be the best course of action for the chief audit executive to follow?
- A. Advise the board immediately and seek their support for additional resources to meet the needs of the plan.
- B. Present a reassessment of the plan to the board and senior management for consideration.
- C. Continue with the plan and seek opportunities to adjust priorities and reallocate resources.
- D. Reassess the plan and either cancel or divert resources away from the lowest priority activities.
Answer: B
Explanation:
Section: Volume C
NEW QUESTION 64
An internal auditor and engagement client are deadlocked over the auditor's differing opinion with management on the adequacy of access controls for a major system. Which of the following strategies would be the most helpful in resolving this dispute?
- A. Conduct a joint brainstorming session with management.
- B. Disclose the client's differing opinion in the final report.
- C. Ask the chief audit executive to mediate.
- D. Escalate the issue to senior management for a decision.
Answer: A
NEW QUESTION 65
Which of the following controls in a computerized consumer loan system of a major bank would be the least effective in detecting a fraudulent loan?
- A. System controls prevent supervisors from delegating their approval authority during vacation periods.
- B. Customer information is matched to payment data prior to funds disbursement.
- C. Loan approvals over a pre-determined limit must have management approval.
- D. All log-in accounts become inaccessible after three incorrect password attempts.
Answer: D
Explanation:
Section: Volume D
NEW QUESTION 66
After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?
I. Manager of disbursements.
II. Controller.
III. Chief operating officer.
IV. Audit committee members.
- A. II, III, and IV only
- B. I and II only
- C. I only
- D. II and III only
Answer: B
Explanation:
Section: Volume B
NEW QUESTION 67
Which of the following situations might allow an employee to steal checks sent to an organization and subsequently cash them?
- A. Only one signature is required on the organization's checks.
- B. Checks are not restrictively endorsed when received.
- C. One employee handles both accounts receivable and purchase orders.
- D. One employee handles both cash deposits and accounts payable.
Answer: B
NEW QUESTION 68
According to IIA guidance, which of the following are benefits to the internal audit activity when conducting an assurance mapping exercise?
- A. Resolution of identified testing errors, and consolidation of risk reporting efforts.
- B. Identification of gaps in risk coverage, and consolidation of risk reporting efforts.
- C. Identification of gaps in risk coverage, and minimization of duplicate assurance efforts.
- D. Resolution of identified testing errors, and miminization of duplicate assurance efforts.
Answer: C
NEW QUESTION 69
While conducting an audit of a third party's Web-based payment processor, an internal auditor discovers that a programming error allows customers to create multiple accounts for a single mailing address. Management agrees to correct the program and notify customers with multiple accounts that the accounts will be consolidated. Which of the following actions should the auditor take?
1. Schedule a follow-up review to verify that the program was corrected and the accounts were consolidated.
2. Evaluate the adequacy and effectiveness of the corrective action proposed by management.
3. Amend the scope of the subsequent audit to verify that the program was corrected and that accounts were consolidated.
4. Submit management's plan of action to the external auditors for additional review.
- A. 1 and 4
- B. 3 and 4
- C. 2 and 3
- D. 1 and 2
Answer: D
Explanation:
Section: Volume E
Explanation/Reference:
NEW QUESTION 70
Which of the following is an effective approach for internal auditors to take to improve collaboration with audit clients during an engagement?
1. Obtain control concerns from the client before the audit begins so the internal auditor can tailor the scope accordingly.
2. Discuss the engagement plan with the client so the client can understand the reasoning behind the approach.
3. Review test criteria and procedures where the client expresses concerns about the type of tests to be conducted.
4. Provide all observations at the end of the audit to ensure the client is in agreement with the facts before publishing the report.
- A. 1 and 2 only
- B. 3 and 4 only
- C. 2 and 3 only
- D. 1 and 4 only
Answer: A
Explanation:
Section: Volume E
NEW QUESTION 71
Which of the following statements about internal audit's follow-up process is true?
- A. The actions of external auditors and other external assurance providers is not encompassed by internal audit's follow-up process.
- B. The follow-up process must be complete and documented in the working papers in order to conclude the engagement.
- C. Internal auditors have responsibility for determining if management and the board have implemented the recommended action or otherwise accepted the risk.
- D. The nature, timing, and extent of follow-up for assurance engagements is standardized to ensure quality performance.
Answer: C
NEW QUESTION 72
Which of the following statements is false regarding audit criteria?
- A. Audit criteria should equate to good or acceptable management practices.
- B. Audit criteria should provide flexibility but allow identification of nonadherence.
- C. Audit criteria should be consistent across audit assignments.
- D. Audit criteria should represent reasonable standards against which to assess existing conditions.
Answer: C
Explanation:
Section: Volume E
NEW QUESTION 73
Which of the following would be a red flag that indicates the possibility of inventory fraud?
I. The controller has assumed responsibility for approving all payments to certain vendors.
II. The controller has continuously delayed installation of a new accounts payable system, despite a corporate directive to implement it.
III. Sales commissions are not consistent with the organization's increased levels of sales.
IV. Payments to certain vendors are supported by copies of receiving memos, rather than originals.
- A. I and II only
- B. I, III, and IV only
- C. I, II, and IV only
- D. II and III only
Answer: C
Explanation:
Section: Volume A
NEW QUESTION 74
When planning an audit engagement, what should an internal auditor first consider when assessing the risk of fraud in the area to be audited?
- A. Management's risk appetite.
- B. Organizational structure.
- C. Impact of and exposure to fraud.
- D. Existence of evidence of fraud.
Answer: C
Explanation:
Section: Volume C
NEW QUESTION 75
Which of the following would cause a company's accounts receivable turnover ratio to decrease steadily over a three-year period?
- A. Invoices provided on a weekly rather than a monthly basis.
- B. A more liberal credit policy.
- C. An increase in the discount offered for early payment.
- D. Increased cash sales.
Answer: B
Explanation:
Section: Volume B
NEW QUESTION 76
During the planning phase of an audit of the treasury function, an internal auditor conducted a risk assessment of the function in order to:
- A. Comply with the internal audit charter and applicable regulatory requirements.
- B. Determine whether appropriate resources are present to carry out the treasury function.
- C. Identify areas of the treasury function that should be considered for potential engagement objectives.
- D. Report any high-risk exposures of the treasury function to management and the board.
Answer: C
NEW QUESTION 77
A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is most likely to explain the difference in the regional results?
- A. The more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only three percent.
- B. The more successful region spends more money per student on education than does the other region.
- C. The more successful region spends 30 percent more money on education than does the other region.
- D. A higher percentage of the general tax fund is spent on education in the more successful region than in the other region.
Answer: B
Explanation:
Section: Volume A
NEW QUESTION 78
Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?
- A. Change the finding so that it is acceptable to the client.
- B. Address the issue with senior management and the board for resolution prior to issuing the final report.
- C. Defer reporting the item and plan to perform more detailed work during the next audit.
- D. Include both the audit finding and the client's position in the audit report.
Answer: D
NEW QUESTION 79
During an audit of an ethics program, which of the following procedures are most appropriate to evaluate the effectiveness of the program?
- Testing whether corrective actions taken on involved parties breaching the ethics program are adequate. - Testing whether all employees are mandated through policy to comply with the ethics program. - Testing whether all employees are required to confirm in writing their compliance with the ethics program. - Testing through surveys employee's level of understanding and commitment to the ethics program.
- A. 1 and 4 only.
- B. 2 and 3 only.
- C. 1 and 2 only.
- D. 3 and 4 only.
Answer: A
NEW QUESTION 80
An internal auditor is conducting an assessment of the purchasing department. She has worked the full amount of hours budgeted for the engagement; however, the audit objectives are not yet complete. According to IIA guidance, which of the following are appropriate options available to the chief audit executive?
1. Allow the auditor to decide whether to extend the audit engagement.
2. Determine whether the work already completed is sufficient to conclude the engagement.
3. Provide the auditor feedback on areas of improvement for future engagements.
4. Provide the auditor with instructions and directions to complete the audit.
- A. 1, 2, and 4
- B. 1, 2, and 3
- C. 2, 3, and 4
- D. 1, 3, and 4
Answer: C
NEW QUESTION 81
Which of the following topics must the internal audit staff discuss with management during the exit conference?
1. Issues identified during the audit.
2. Evaluation criteria used to select controls for testing.
3. Staff who were interviewed during the audit.
4. The reporting process for the draft and final report.
- A. 2 and 4 only
- B. 1 and 3 only
- C. 2 and 3 only
- D. 1 and 4 only
Answer: D
Explanation:
Section: Volume D
NEW QUESTION 82
While preparing the annual audit plan, the newly assigned chief audit executive (CAE) learns that the organization has not yet implemented a risk framework. Which of the following would be the most appropriate action for the CAE to take regarding potential engagements?
- A. Prioritize the engagements that were not done in previous years and schedule them for the upcoming year.
- B. Review all outstanding recommendations from prior audit engagements and focus on them in the upcoming year.
- C. Consult with senior management and the board and make adjustments regarding risk.
- D. Use the previous three-year audit plan to extrapolate potential engagements for the upcoming year's schedule of engagement.
Answer: C
NEW QUESTION 83
A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The analysis involves rating auditable entities on risk factors using a scale of 1 to 10, with 10 representing the greatest risk. A partial list of risk factors and the ratings given to three of the bank's departments is provided below:
Which of the following statements regarding risk in the department is true?
- A. The nature of department A's control structure may be justified by the nature of the department's assets and the complexity of its transactions.
- B. The internal audit activity should schedule audits of department B more often than audits of department C because of the relative control strength of department C as compared to department B.
- C. As compared to departments A and C, department B has a stronger control system to compensate for the greater complexity of the department's transactions and dollar value of its assets.
- D. The relative ranking of the departments in order of their risk, from greatest to least risk, is: A; C; B.
Answer: A
NEW QUESTION 84
As part of a preliminary survey of the purchasing function, an internal auditor reads the department's policies and procedures manual and concludes that the manual describes the processing steps clearly and contains an appropriate internal control design. The next engagement objective is to evaluate the operating effectiveness of internal controls. Which procedure would fulfill this objective most effectively?
- A. Perform an efficiency test.
- B. Perform a compliance test.
- C. Perform a systems test.
- D. Perform a design test.
Answer: B
NEW QUESTION 85
A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically.
If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation. All of the applicable documents are electronically marked, cross-referenced, and retained in open files. Both an integrated test facility and a systems control audit review file (SCARF) have been included in the system.
An auditor wants to determine the extent to which items are not matched at year end and to investigate the potential causes of the unmatched items. Which of the following audit procedures would be most effective in determining the items to investigate?
- A. Use the SCARF to identify unusual items. Select an attributes sample and trace to the underlying documentation.
- B. Submit test data to identify attributes of unmatched items. Follow up by investigating the identified attributes.
- C. Use generalized audit software to read the purchase orders and trace to applicable receiving and vendor invoice files.
- D. Use generalized audit software to read the electronically marked unmatched items.
Answer: D
Explanation:
Section: Volume A
NEW QUESTION 86
What is the most important risk in determining the validity of construction delay claims?
- A. Contractor claims may be understated.
- B. Contractor claims may include costs considered in the fixed-price portion of the work.
- C. Contractor claims may be submitted prior to completion of the work.
- D. Contractor claims may include subcontractor estimates of balances due to the subcontractor.
Answer: B
Explanation:
Section: Volume A
NEW QUESTION 87
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