Internal Auditing Midterm Exam mc questions

The definition of internal auditing, given by The IIA, includes a focus on:

All of the above.

In which of the following situations does the internal auditor potentially lack objectivity?

A former purchasing assistant performs a review of internal controls over purchasing seven months after being transferred to the internal audit department.

You work for a company with operations in 15 locations around the globe and are assigned to conduct an audit of service contracts (contracts for janitorial services, watercooler services, copy and office equipment maintenance, debt collection, etc.). Which of the following is an example of a potential scope limitation for this engagement?

You exclude locations in Asia and Europe because of restrictions on travel budgets.

The IIA’s Definition of Internal Auditing states that internal auditing:
… helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

A. Define risk management, control, and governance.

B. Describe the role the internal audit function plays in risk management, control, and governance.

A. Risk management is a process that is conducted by management in order to understand and handle uncertainties that could impact the organization's ability to achieve their objectives. Governance are the processes and structures that have been implemented to manage the activities of the organization in order to make sure that the organization is in line with achieving their objectives. A control is a part of risk management where a process is conducted a certain way to diminish risks to an acceptable level.

B. The role that the internal audit function plays in risk management, control, and governance are that they all focus on the achievement of objectives for an organization. The internal audit function plays a role in analyzing and improving these processes and making them more efficient. Internal audit also evaluates the effectiveness of process and controls by providing independent, objective feedback to management and the board.

According to IIA guidance, independence of the internal audit function is achieved through which of the following?

Organizational status and objectivity.

The Core Principles for the Professional Practice of Internal Auditing include all of the following except:

Exhibits professionalism.

Proficiency is a term that includes all of the following except:

Professionalism.

IIA Standard 1320 – Reporting on the Quality Assurance and Improvement Program includes:

All of the above.

The IIA’s Code of Ethics does not include as one of its principles:

Independence

An internal auditor who encounters an ethical dilemma not explicitly addressed by The IIA’s Code of Ethics should always:

Take action consistent with the principles embodied in The IIA's Code of Ethics.

Which of the following best describes the most important objective of an internal audit charter?

To establish the purpose, authority, and responsibility of the internal audit department.

Which of the following situations is a violation of The IIA’s Code of Ethics?

Knowing that management was aware of the situation, an internal auditor purposely left a description of an unlawful practice out of the final report.

During an audit, an employee with whom you have developed a good working relationship informs you that she has some information about top management that would be damaging to the organization and may concern illegal activities. The employee does not want her name associated with the release of the information. Which of the following actions would be considered inconsistent with The IIA’s Code of Ethics and Standards?

Assure the employee that you can maintain her anonymity and listen to the information.

Which of the following is a Core Principle for the Professional Practice of Internal Auditing? The internal audit function:

Provides risk-based assurance.

An internal auditor assigned to audit a vendor’s compliance with product quality standards is the brother of the vendor’s controller. The auditor should:

Notify the CAE of the potential conflict of interest.

The COO has requested the internal audit function advise her regarding the new incentive plan being developed for sales representatives. Which of the following tasks should the CAE decline with respect to providing advice to the COO?

Determining the appropriate bonus formula for inclusion in the plan.

An internal auditor for a university performed an assurance engagement to review the university bookstore’s cash function. Which of the following actions will be deemed lacking in due professional care?

Because of a highly developed system of internal control over the cash function, the final engagement communication assures senior management that no irregularities existed.

The IIA’s Standards require which of the following?

All the above.

If an internal audit function does not have the competencies necessary to conduct a specific assurance engagement, the CAE could do which of the following to comply with The IIA’s Standards?

All the above.

The critical characteristics that individuals, teams, and organizations must have to provide effective internal audit services are described in:

Attribute Standards.

Which of the following would be a violation of IIA’s Code of Ethics?

During an audit, an internal auditor learned that the company was about to introduce a new product that would revolutionize the industry. Because of the probable success of the new product, the product manager suggested that the auditor buy additional stock in the company, which the auditor did.

Which of the following is a Core Principle for the professional practice of internal auditing? The internal audit function:

Demonstrates quality and continuous improvement.

Explain why the internal audit profession needs both a Code of Ethics and the Standards to govern the behavior and activities of internal auditors.

The internal audit profession needs both a Code of ethics and the standards in order to govern the behavior and activities of internal auditors in order to prevent corruption and abuse of the position. This also makes sure that internal auditors are not biased, are independent, and ensures their creditability. The code of ethics promotes ethical behavior through principles rules and conduct while the standards provides guidance for conducting internal audit activities and evaluating performance

When auditing property, plant, and equipment (PP&E), the internal auditor’s approach is generally to:

Examine evidence supporting additions during the year.

A weakness in internal control over recording retirements of equipment may cause an internal auditor to:

Select certain items of equipment from the accounting records and locate them in the plant.

If cash disbursement control procedures leave no audit trail of documentary evidence, the internal auditor most likely will test the procedures by:

Rely on observation and inquiry to test cash disbursement control procedures.

Tracing a sample of purchase requisitions to receiving reports and to the PP&E records is used to test:

Cutoff.

In testing for a proper cutoff of purchases of materials, the internal auditor would most likely examine:

Receiving reports.

What characteristic of information is satisfied by an original signed document?

Reliability.

Which of the following most completely describes the appropriate content of a workpaper?

Purpose, procedures, facts, and conclusions/recommendations.

The internal auditor prepares workpapers primarily for the benefit of:

Internal audit function.

After accounting for a sequence of inventory tags, an internal auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:

Represented by inventory tags are included in the listing.

Which of the following statements regarding audit evidence would be the least appropriate for an internal auditor to make?

"I am always absolutely certain about the conclusions I reach based on the evidence I examined."

In planning an assurance engagement, a survey could assist with all of the following except:

Evaluating the adequacy and effectiveness of controls.

A CAE most likely uses risk assessment for audit planning because it provides:

A systematic process for assessing and integrating professional judgment about probable adverse conditions.

An approved audit plan for the internal audit function is an essential part of:

Planning for the internal audit function.

Which method of evaluating internal controls during the preliminary survey provides the internal auditor with the best visual grasp of a system and a means for analyzing complex operations?

A flowcharting approach.