Certified Internal Auditor - Part 2, Conducting the Internal Audit Engagement v8.0 (IIA-CIA-Part2)

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Total 777 questions

In forming a team to investigate an organization's potential adoption of an activity-based costing system, the best reason to include an internal auditor on the team would be the auditor's knowledge of:

  • A. Activities and cost drivers.
  • B. Information processing procedures.
  • C. Current product cost structures.
  • D. Internal control alternatives.


Answer : D

Given the scarcity of internal audit resources, a chief audit executive (CAE) decided not to schedule a follow-up of audit recommendations when developing engagement work schedules. Does the CAEs decision violate the Standards?

  • A. No, because the Standards do not specify whether follow-up is needed.
  • B. No, because when there is evidence of sufficient motivation by the client, there is no need for follow-up action.
  • C. Yes, because scarcity of resources is not a sufficient reason to omit follow-up action.
  • D. Yes, because the Standards require the auditors to determine whether the client has appropriately implemented all of the auditor's recommendations.


Answer : C

An auditor for a major retail company suspects that inventory fraud is occurring at three stores which have high costs of goods sold. Which of the following audit activities would provide the most persuasive evidence that fraud is occurring?

  • A. Use an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF and investigate all differences.
  • B. Interview the three individual store managers to determine if their explanations about the observed differences are the same, and then compare their explanations to that of the section manager.
  • C. Schedule a surprise inventory audit to include a physical inventory and investigate areas of inventory shrinkage.
  • D. Select a sample of individual store prices and compare them with the sales entered on the cash register for the same items.


Answer : C

Which of the following procedures would be most helpful in providing additional evidence when an auditor suspects that an unidentified employee is submitting and approving invoices for payment?

  • A. Use generalized audit software to identify invoices from vendors with post office box numbers or other unusual features. Select a sample of those invoices and trace to supporting documents such as receiving reports.
  • B. Select a sample of payments made during the year and investigate each one for approval.
  • C. Select a sample of receiving reports representative of the period under investigation and trace to approved payment. Note any items not properly processed.
  • D. Select a sample of invoices paid during the past month and trace them to appropriate vendor accounts.


Answer : A

Insurance companies often receive electronic hospitalization claims directly from hospitals. Which of the following control procedures would be most effective in detecting fraud in such an environment?

  • A. Use integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing.
  • B. Develop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department.
  • C. Use generalized audit software to match the claimant identification number with a master list of valid policyholders.
  • D. Develop batch controls over all items received from a particular hospital and process those claims in batches.


Answer : B

During an audit of executive travel, an auditor noted that the president's travel expense reimbursements were approved by an executive secretary who reported to the president. The organization's reimbursement policy requires all travel expense reimbursements to be approved by the traveler's supervisor, but it does not address the president's reimbursements. Which of the following represents the auditor's best recommendation in this situation?

  • A. The organization's reimbursement policy should be amended to grant the president's executive secretary the authority to approve the president's travel expense reimbursements.
  • B. The approval policy for executive travel should be considered at the next meeting of the audit committee of the board of directors.
  • C. The president's travel expense reimbursements should be reviewed and approved by the chief financial officer.
  • D. The president's noncompliance should be considered immaterial.


Answer : B

Which of the following, if observed, would not indicate the need to extend the search for other indicators of fraud in a purchasing department?

  • A. The standard of living of one of the purchasing agents has increased.
  • B. The internal control structure has significant weaknesses.
  • C. The purchasing agents have convinced management to adopt a policy of paying vendors on a more timely basis in order to avoid incurring penalty charges.
  • D. The cost of goods procured seems to be excessive in comparison with previous years.


Answer : C

Which of the following does not represent a difficulty in using red flags as fraud indicators?

  • A. Many common red flags are also associated with situations where no fraud exists.
  • B. Some red flags are difficult to quantify or to evaluate.
  • C. Red flag information is only gathered in extraordinary circumstances.
  • D. The red flags literature is not well enough established to have a positive impact on auditing.


Answer : D

Which of the following might alert an auditor to the possibility of fraud in a division?
I. The division is not scheduled for an external audit this year.
II. Sales have increased by 10 percent.
III. A significant portion of management's compensation is directly tied to reported net income of the division.

  • A. I only
  • B. III only
  • C. I and II only
  • D. I, II, and III


Answer : B

The most common motivation for management fraud is the existence of:

  • A. Vices, such as a gambling habit.
  • B. Job dissatisfaction.
  • C. Financial pressures on the organization.
  • D. The challenge of committing the perfect crime.


Answer : C

Which of the following conditions is the strongest indicator of possible fraud?

  • A. An assistant treasurer who refuses to take vacations.
  • B. Independent reconciliations of subsidiary to general ledgers that are not always completed on a timely basis.
  • C. A condition of excess manufacturing waste material.
  • D. A manager who is often over budget at the end of a reporting period.


Answer : A

Which sampling plan requires no additional sampling once the first error is found?

  • A. Stratified sampling.
  • B. Attributes sampling.
  • C. Stop-or-go sampling.
  • D. Discovery sampling.


Answer : D

After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use.

  • A. Simple random sampling to select a sample of vouchers processed by the department during the past year.
  • B. Probability-proportional-to-size sampling to select a sample of vouchers processed by the department during the past year.
  • C. Discovery sampling to select a sample of vouchers processed by the department during the past year.
  • D. Judgmental sampling to select a sample of vouchers processed by clerks who were identified by the department manager as acting suspiciously.


Answer : C

Which of the following processes real-transaction data through auditor-developed test programs?

  • A. Generalized audit software.
  • B. Tracing.
  • C. Parallel simulation.
  • D. Mapping.


Answer : C

Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?

  • A. Develop a cost-per-product analysis for products developed over the past five years.
  • B. Develop a report on revenue generated by or cost savings directly attributable to newly developed products.
  • C. Compare research as a percentage of revenue between this company and all major competitors in the same industry.
  • D. Compare the number of this year's new product developments to the number of new product developments for the past five years.


Answer : B

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Total 777 questions