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NEW QUESTION # 184
The audit process used by the internal audit activity of a large wholesale clothing company does not include an engagement letter or project approval document. The most serious consequence of this deficiency in the process is that the:
- A. Audit schedule may not be optimal from the engagement client's perspective.
- B. Audit plan priority may have changed.
- C. Audit objectives may not be understood by management of the area being audited.
- D. Audit resources may not be sufficient.
Answer: C
NEW QUESTION # 185
A daily report which lists unsuccessful attempts to log on to a computer system is A.
- A. Compensating control.
- B. Detective control.
- C. Preventive control.
- D. Corrective control.
Answer: B
Explanation:
Section: Volume B
NEW QUESTION # 186
Which of the following statements is most accurate with respect to the required elements of the quality assurance and improvement program?
- A. Internal assessments provide sufficient objectivity to provide evidence to the board that the internal audit activity understands the organization's control processes.
- B. In order to comply with the Standards, the internal audit activity must obtain an objective assessment of its processes and function at least once a year.
- C. Internal auditors completing internal assessments must demonstrate certification to perform quality assessments.
- D. Quality assessments focus on the internal audit activity's structure, relationships with stakeholders, compliance with the Standards, and internal audit staff proficiency.
Answer: D
Explanation:
The most accurate statement with respect to the required elements of the quality assurance and improvement program is that quality assessments focus on the internal audit activity's structure, relationships with stakeholders, compliance with the Standards, and internal audit staff proficiency. This description aligns with the IIA's standards on quality assurance, emphasizing the comprehensive scope of internal assessments, which are integral for ensuring the internal audit function operates effectively and adheres to professional standards.References: IIA's International Standards for the Professional Practice of Internal Auditing and Guidance on Quality Assurance.
NEW QUESTION # 187
Feedback on engagements from audit clients, annual benchmarking of the internal audit activity's (IAA's) performance against best practice, and analyses of project budgets and audit plan completion are all tools that can best be used by the IAA for which purpose?
- A. Identifying conflicts of interest.
- B. Completing internal assessments.
- C. Determining the level of residual risk.
- D. Developing control processes.
Answer: B
Explanation:
Section: Volume D
Explanation/Reference:
NEW QUESTION # 188
The chief audit executive (CAE) is planning to conduct an internal assessment of the internal audit activity (IAA). Part of this assessment will include benchmarking. According to IIA guidance,which of the following qualitative metrics would be appropriate for the CAE to use?
1.Average client customer satisfaction score for a given year.
2.Client survey comments on how to improve the IAA.
3.Auditor interviews once an audit has been completed.
4.Percentage of audits completed within 90 days.
- A. 2 and 3.
- B. 1 and 3.
- C. 1 and 2.
- D. 3 and 4.
Answer: A
NEW QUESTION # 189
Which of the following demonstrates that the internal audit activity exercises due professional care?
- A. A self-assessment is conducted through the quality assurance and improvement program every five years
- B. Supervisors provide feedback to internal auditors after workpapers are reviewed
- C. Internal auditors are required to give absolute assurance of regulatory compliance
- D. The chief audit executive reports functionally to the board
Answer: B
NEW QUESTION # 190
According to IIA guidance, which of the following corporate social responsibility (CSR) evaluation activities may be performed by the internal audit activity?
1. Consult on CSR program design and implementation.
2. Serve as an advisor on CSR governance and risk management.
3. Review third parties for contractual compliance with CSR terms.
4. Identify and mitigate risks to help meet the CSR program objectives.
- A. 1 2, and 4.
- B. 1, 3, and 4.
- C. 2, 3, and 4.
- D. 1,2, and 3,
Answer: A
Explanation:
According to IIA guidance, the internal audit activity can consult on CSR program design and implementation, serve as an advisor on CSR governance and risk management, and identify and mitigate risks to help meet the CSR program objectives. These roles enable the internal audit to add value through both advisory and assurance services regarding CSR, aligning with their expertise in governance, risk management, and control.References: IIA guidance on the role of internal auditing in corporate social responsibility; Standards on advisory services.
NEW QUESTION # 191
Which of the following is an example of sharing risk?
- A. An organization redesigned a business process to change the risk pattern.
- B. An organization sold an unprofitable business unit to its competitor.
- C. An organization outsourced a portion of its services to a third-party service provider.
- D. In order to spread total risk, an organization used multiple vendors for critical materials.
Answer: C
Explanation:
Section: Volume A
NEW QUESTION # 192
In a manufacturing company, which department would be the internal audit activity's most reliable source of information on the controls over minimizing defective goods?
- A. Research and development.
- B. Inventory management.
- C. Manufacturing.
- D. Quality control.
Answer: D
NEW QUESTION # 193
While conducting an audit, an internal auditor notices an unusual increase in sales among a small number of units within the organization. The units also experienced persistent negative cash flows despite reported earnings and earnings growth. Which type of fraud do the auditor's findings most likely indicate?
- A. Improper asset valuation.
- B. Employee collusion with customer organizations.
- C. Inventory theft.
- D. Fictitious revenues.
Answer: D
Explanation:
Section: Volume D
Explanation/Reference:
NEW QUESTION # 194
According to the Standards,a review team must express an opinion on which of the
following when performing an external assessment of an internal audit activity?
1.Conformance with the Standards and IIA Code of Ethics.
2.Effectiveness of continuous improvement activities.
3.Feedback from internal audit customers and other stakeholder groups.
4.Efficiency and effectiveness of the internal audit activity's administration processes.
- A. 1only
- B. 1 and 2only
- C. 3only
- D. 2 and 4only
Answer: A
NEW QUESTION # 195
Which of the following activities best reflects the scope and status of the internal audit activity as defined in the internal audit policy statement?
- A. The board approves the annual performance evaluation of the chief audit executive.
- B. The audit manager conducts an internal quality assessment of the internal audit activity's adherence to the Standards.
- C. The audit manager refrains from assigning an auditor who was a former payroll clerk to conduct a payroll audit.
- D. The internal auditor reviews the physical access to merchandise during an inventory count.
Answer: D
Explanation:
Section: Volume E
NEW QUESTION # 196
Which of the following actions would best help the internal audit activity promote continuous improvement in control effectiveness within the organization?
- A. Identifying objectives and the risks involved in achieving them.
- B. Determining whether management measures and monitors the costs and benefits of controls.
- C. Developing flowcharts to obtain information about control design adequacy.
- D. Providing training on controls and ongoing self-monitoring processes.
Answer: B
Explanation:
To promote continuous improvement in control effectiveness, it is crucial that the internal audit activity evaluates whether management is effectively measuring and monitoring the costs and benefits of controls. This ensures that controls are not only designed appropriately but are also operating efficiently and providing the intended value to the organization. This proactive evaluation encourages continual refinement and adjustment of controls based on their effectiveness and efficiency.References: IIA guidance on assessing and improving control effectiveness.
NEW QUESTION # 197
Which of the following frauds is most likely to occur in the accounts payable function?
- A. Certain costs are capitalized, rather than expensed.
- B. A related party receives benefits not appropriate in an arm's-length transaction.
- C. Factitious vendors are entered into the system, possibly resulting in improper disbursements.
- D. Bad debt expense is intentionally omitted from the financial statements.
Answer: C
Explanation:
In the accounts payable function, the most likely fraud scenario involves the creation of fictitious vendors.
This fraud can lead to improper disbursements where payments are made to non-existent entities, effectively siphoning money out of the organization. This type of fraud is easier to execute in accounts payable compared to other functions because it can involve relatively straightforward manipulations of vendor master files and payment processes. Such schemes can result in significant financial losses and are a common concern for internal auditors reviewing accounts payable controls.References:
* IIA Practice Guide on Accounts Payable Risks and Controls.
* Association of Certified Fraud Examiners (ACFE) publications on common fraud schemes.
NEW QUESTION # 198
A manufacturing line supervisor joins the internal audit activity for a two-year rotational job assignment and is assigned to an accounts receivable audit. With regard to this assignment, which of the following should be the primary concern of the audit manager?
- A. Organizational independence.
- B. Individual objectivity.
- C. Individual independence.
- D. Due professional care.
Answer: D
NEW QUESTION # 199
An organization's accounts payable function improved its internal controls significantly after
it received an unsatisfactory audit report. When planning a follow-up audit of the function, what level of detection risk should be expected if the audit and sampling procedures used are unchanged from the prior audit?
- A. Detection risk is lower because control risk is higher.
- B. Detection risk is higher because control risk is lower.
- C. Detection risk is unchanged although control risk is lower.
- D. Detection risk is lower because control risk is lower.
Answer: C
NEW QUESTION # 200
According to The IIA's Code of Ethics, which of the following scenarios offers the best example of violating the principle of integrity?
- A. An internal audit manager carries out a technical audit request without seeking expert opinion, despite a lack of the requisite skills.
- B. An internal audit manager collaborates with senior management to provide misleading information to government authorities.
- C. An internal audit manager assigned to audit a sales process failed to reveal that the process owner is a relative
- D. An internal audit manager provides sample audit reports and workpapers to a friend without obtaining prior approval
Answer: D
NEW QUESTION # 201
A chief audit executive (CAE) is obtaining information required by a regulatory oversight body and discovers a situation that requires management to take immediate corrective action. What is the best course of action for the CAE to take?
- A. Schedule an engagement to explore the situation in depth, before reporting to either management or the oversight body.
- B. Report the situation to management immediately.
- C. Wait until all of the information has been gathered and reported to the oversight body before reporting the situation to management.
- D. Check with legal counsel to determine whether the situation can be reported to management before all information has been submitted to the oversight body.
Answer: B
NEW QUESTION # 202
During a routine audit of a customer service hotline, an internal auditor noticed that an unusually high number of customer complaints pertained to payments not being applied to the customers' accounts. Which of the following would most likely be the reason for the high volume of complaints?
- A. An ineffective customer service department.
- B. Submission of fraudulent expense reports.
- C. Check tampering by an employee.
- D. Poor controls in the invoice approval processes.
Answer: C
NEW QUESTION # 203
An employee who recently transferred into the internal audit activity has been assigned to audit the accounts payable system.
Which function, if previously performed by the auditor, would represent a conflict of interest?
- A. Writing procedures for the handling of duplicate payments.
- B. Reviewing shipping documents for accuracy.
- C. Signing timekeeping cards for subordinates.
- D. Monitoring the allowance for doubtful accounts.
Answer: A
Explanation:
Section: Volume A
NEW QUESTION # 204
An internal auditor has taken an attributes sample of a bank's existing loan portfolio. Out of a sample of 60 loans, the auditor found:
Four that were not properly collateralized.
Five that were not in compliance with bank policies (other than lack of collateralization).
Four that were part of a related-party group, but were set up as separate loan entities.
Of the 60 loans selected in the sample, these errors were noted on a total of 10 loans.
Several loans had multiple problems.
Which of the following conclusions can the auditor reach from these observations?
1. There is sufficient evidence that fraudulent activity is taking place by one or more of the bank's lending officers.
2. The financial statements will be misstated as a result of these actions.
3. There are significant noncompliance audit findings that should be reported.
- A. 2 and 3 only
- B. 3 only
- C. 1 and 3 only
- D. 1 and 2 only
Answer: B
NEW QUESTION # 205
A company has established its environmental audit activity as part of its legal department rather than part of its internal audit activity, which reports to the audit committee. The board has requested that the chief audit executive (CAE) provide an annual opinion on whether environmental risks are being properly addressed.
In these circumstances, the CAE should recommend to the audit committee that the internal audit activity:
- A. Discuss with the environmental auditors the results of their reviews.
- B. Periodically carry out a quality assessment of the environmental audit activity.
- C. Include a review of environmental issues in some internal audit engagements.
- D. Review the recommendations in all environmental audit reports.
Answer: B
NEW QUESTION # 206
In an assurance engagement focused on the adequacy of organizationwide risk management practices, which of the following best describes a primary area of interest for the engagement?
- A. The alignment of management decisions with the level of risk the organization is willing to accept.
- B. The effectiveness of process-level and transaction-level controls.
- C. Conflicts of interest within the organizational structure of the senior management.
- D. The actions of upper management in response to the internal audit activity's reporting
Answer: A
Explanation:
In an assurance engagement examining the adequacy of organization-wide risk management practices, a primary area of interest would be the alignment of management decisions with the level of risk the organization is willing to accept. This focus helps determine whether the risk management framework is effectively informing strategic decision-making and aligning with the business objectives and risk appetite of the organization. Effective risk management practices should guide management in making decisions that align with the entity's predefined risk thresholds.References: The Institute of Internal Auditors (IIA) - International Standards for the Professional Practice of Internal Auditing
NEW QUESTION # 207
A manufacturer uses improved linkage between order entry, production, and shipping to reduce raw materials and work-in-process inventory. Which type of fraud will these changes likely reduce?
- A. Theft of resources from inventory.
- B. Purchases from a related party.
- C. False reporting of hours worked.
- D. Payment of fraudulent invoices.
Answer: A
NEW QUESTION # 208
According to IIA guidance, which of the following best describes expense reimbursement fraud'?
- A. Theft of assets through fictitious or inflated invoices
- B. Theft of cash after it is recorded in the books
- C. Theft of assets through false mileage travel logs and meal charges
- D. Theft of cash before it is recorded in the books
Answer: C
NEW QUESTION # 209
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