Questions and Answers of Internal Auditing Assurance

Professional skepticism means that internal auditors beginning an assurance engagement should:a. Assume client personnel are dishonest until they gather evidence that clearly indicates otherwise.b.
You are studying in the campus library for your next internal audit exam with Mark and Ann, two of your classmates. Mark says: “I really don’t understand this vouching and tracing stuff. For
The purpose of this case is to familiarize you with the ACL software and give you an opportunity to practice its application.A. Print and read the Getting Started manual.B. Print the ACL in Practice
What does “reasonable assurance” mean? Why do internal auditors provide reasonable assurance rather than absolute assurance?
Which of the following statements regarding audit evidence would be the least appropriate for an internal auditor to make?a. “I consider the level of risk involved when deciding the kind of
The purpose of this case is to familiarize you with the CaseWare IDEA software and give you an opportunity to practice its application.A. Print the IDEA Tutorial. Read:■ The Foreword and
What are the defining characteristics of persuasive audit evidence?
The following information is available for MVF Company (dollar amounts are in millions):a. Calculate the following ratios for each year:• Gross profit percentage.• Inventory turnover.• Cost of
Audit evidence is generally considered sufficient when:a. It is appropriate.b. There is enough of it to support well-founded conclusions.c. It is relevant, reliable, and free from bias.d. It has been
Companies are facing heightened regulatory expectations. One area of particular interest is information or data produced or manipulated by employees or company systems that is relied on by management
Documentary evidence is one of the principal types of corroborating information used by an internal auditor. Which one of the following examples of documentary evidence generally is considered the
What do internal auditors mean when they refer to the nature, extent, and timing of audit procedures?
An internal auditor must weigh the cost of an audit procedure against the persuasiveness of the evidence to be gathered. Observation is one audit procedure that involves cost-benefit tradeoffs. Which
Internal auditors are required to document their work in working papers that provide complete, accurate, and concise documentation of the engagement process. Discuss the potential adverse
What are some common characteristics of effective interviewers?
Your audit objective is to determine that purchases of office supplies have been properly authorized. If purchases of office supplies are made through the purchasing department, which of the
What is the difference between vouching and tracing?
A production manager of MSM Company ordered excessive raw materials and had them delivered to a side business he operated. The manager falsified receiving reports and approved the invoices for
What types of analytical procedures are used by internal auditors?
An internal auditor is concerned that fraud, in the form of payments to fictitious vendors, may exist. Company purchasers, responsible for purchases of specific product lines, have been granted the
What are some common types of CAATs?
Which of the following most completely describes the appropriate content of internal audit assurance engagement working papers?a. Objectives, procedures, and conclusions.b. Purpose, criteria,
What types of data analysis procedures can internal auditors perform with generalized audit software?
Internal audit engagement teams prepare working papers primarily for the benefit of the:a. Auditee.b. Internal audit function.c. Board and senior management.d. Independent outside auditor.
What are the two predominant generalized audit software programs used by internal auditors?
Which of the following represents the most competent evidence that trade receivables actually exist?a. Positive confirmations.b. Sales invoices.c. Receiving reports.d. Bills of lading.
What are the purposes of internal audit working papers?
Competent evidence is best defined as evidence that:a. Is reasonably free from error and bias and faithfully represents that which it purports to represent.b. Is obtained by observing people,
What are some common types of working papers?
Workpaper summaries, if prepared, can be used to:a. Promote efficient workpaper review by internal audit supervisors.b. Replace the detailed workpaper files for permanent retention.c. Serve as an
What are the key characteristics of well-prepared working papers?
An internal auditor gathered the following accounts receivable trend and ratio analysis information:Which of the following is the least reasonable explanation for the changes observed by the
When using a rational decision-making process, the next step after defining the problem is:a. Developing alternative solutions.b. Identifying acceptable levels of risk.c. Recognizing the gap between
What is internal audit data analytics?
In which phase(s) of the internal audit engagement can data analytics be used?I. Planning the individual engagement.II. Testing effectiveness and efficiency of controls.III. Assessing risk to
The CAE of HVR Company has asked you to explain the fundamental differences between statistical and non statistical sampling in a manner that will help him make an informed decision about the nature
Review the video for TeamMate Analytics at http://www.teammatesolutions.com/data-analytics.aspx. After reviewing the video, download a university-allocated version of TeamMate Analytics (Note:
What are the key steps involved when the internal audit function performs data analytics?
Which of the following is true?a. Continuous monitoring is the CAE’s responsibility.b. If a control breakdown is identified through continuous auditing, it should be reported to management on a
You and a friend are studying audit sampling together. Your friend is having a hard time understanding the various aspects of risk associated with attribute sampling and has put together the
A division of your company purchased a large quantity of new desktop computers during the current fiscal year. An internal audit manager has asked you to audit the process used to acquire the
Describe the challenges that internal audit functions encounter when implementing a successful data analytics program.
AVF Company processes an average of 400 vouchers payable every month. Each voucher package contains a copy of the check disbursed and supporting documents such as vendor invoices, receiving reports,
Which of the following is/are barriers to widespread use of data analytics by internal audit functions?I. The scope of the intended use of data analytics is not well defined.II. The amount of time
Review the video for TeamMate Analytics at http://www.teammatesolutions.com/data-analytics.aspx. After reviewing the video, download a university-allocated version of TeamMate Analytics (Note:
What are some of the key areas to which internal auditors can apply the use of data analytics?
Which of the following is not typically a barrier to internal auditors using data analytics in achieving the engagement objective?a. Knowing what data exists and where to find it.b. Poorly defining
Probability-proportional-to-size (PPS) sampling is used by internal auditors to reach conclusions regarding monetary amounts.a. Describe the situation in which the application of PPS sampling is most
The purpose of this case is to familiarize you with the attribute sampling functionality of the CaseWare IDEA and ACL software. Your instructor will provide you with instructions for how to access
How is “audit sampling” defined in this chapter?
Data analytics allow internal auditors to focus their resources on high risk transactions and provide management with a higher level of operational assurance. A proven process includes the following
Which of the following is the most significant to the internal audit client in providing information related to the future direction and actions that can improve the operation of the organization?a.
What are the two general types of audit sampling?
The primary reason for an internal auditor to use statistical sampling rather than nonstatistical sampling is to:a. Allow the auditor to quantify, and therefore control, the risk of making an
How is “sampling risk” defined in this chapter? What are the two aspects of sampling risk that an internal auditor considers when performing tests of controls?
Which of the following is an element of sampling risk as opposed to an element of nonsampling risk?a. Determining a sample size that is too small.b. Performing an inappropriate audit procedure.c.
How does nonsampling risk differ from sampling risk?
For which of the following would an internal auditor most likely use attribute sampling?a. Determining whether the year-end inventory balance is overstated.b. Selecting fixed asset additions to
An internal auditor is testing cash disbursement transactions. Internal control policies require every check request to be accompanied by an approved voucher (that is, a package of documents
What factors affect the size of an attribute sample?
An internal auditor selects a sample of sales invoices and matches them to shipping documents. This procedure most directly addresses which of the following assertions?a. All shipments to customers
What are the nine steps involved in attribute sampling?
If all other factors specified in an attribute sampling plan remain constant, changing the expected population deviation rate from 1 percent to 2 percent and changing the tolerable deviation rate
What is attribute sampling? What are the three variations of attribute sampling described?
What steps are involved in evaluating the results of an attribute sampling application?
If all other factors specified in a PPS sampling plan remain constant, changing the specified tolerable misstatement from $200,000 to $100,000 and changing the specified risk of incorrect acceptance
An internal auditor should consider the qualitative aspects of deviations found in a sample in addition to evaluating the number of deviations. For which of the following situations should the
What should an internal auditor do if documents pertinent to tests of controls are missing?
The achieved upper deviation limit is 7 percent and the risk of assessing control risk too low is 5 percent. How should the internal auditor interpret this attribute sampling outcome?a. There is a 7
What is the key advantage of statistical sampling over nonstatistical sampling?
An internal auditor wants to test customers’ accounts receivable balances for overstatement on a sample basis. Which of the following would be the least valid reason for deciding to use PPS
Why do internal auditors sometimes choose to use nonstatistical sampling instead of statistical sampling?
How does the purpose of statistical sampling in tests of monetary values differ from the purpose of statistical sampling in tests of controls?
What factors affect probability-proportional-to-size (PPS) sample sizes?
What are the key advantages of PPS sampling over classical variables sampling? What are the key disadvantages?
Recall the definition of inherent risk. Why is it important for internal auditors to focus on inherent risk during the planning phase of an assurance engagement?
What two types of services do internal auditors provide? Provide three examples of each type of engagement.
One definition of risk is that it is the possibility that an event will occur and adversely affect the achievement of an objective. An illustrative objective and event are presented below:a. Identify
While planning an assurance engagement, the internal auditor obtains knowledge about the auditee’s operations to, among other things:a. Develop an attitude of professional skepticism concerning
Using the audit file from the previous exercise, continue with the audit engagement process. Your task is to work with your audit team to prepare the audit program, perform the procedures specified
What are the three phases of the assurance engagement process?
Which of the following statements does not illustrate the concept of inherent business risk?a. Cash is more susceptible to theft than an inventory of sheet metal.b. A broken lock on a security gate
Consider the following two statements: Evaluating the adequacy of control design is necessary but not sufficient if the objective of an assurance engagement is to reach a conclusion regarding the
What steps are included in the planning phase of an assurance engagement?
Comprehensive risk assessment involves analysis of both causes and effects. Which of the following statements concerning the analysis of causes and effects is false?a. Analyzing the causes and
Reflect on the following ways of expressing overall assurance engagement results introduced in this chapter:■ Listing and prioritizing observations without expressing any level of assurance.■
What is the relationship between business objectives and business assertions?
Internal auditors obtain an understanding of controls and perform tests of controls to:a. Detect material misstatements in account balances.b. Reduce control risk to an acceptable level.c. Evaluate
Internal auditors provide two types of services: assurance services and consulting services.a. How do these two types of services differ in terms of purpose?b. In what other ways do consulting
What does “inherent risk” mean?
If an internal auditor’s evaluation of internal control design indicates that the controls are designed adequately, the appropriate next step would be to:a. Test the operating effectiveness of the
Why is it useful for an internal auditor to express risks in terms of causes and effects?
What purposes does a well-written work program serve?
Reportable internal audit observations emerge by a process of comparing “what should be” with “what is.” In determining “what should be” during an audit of a company’s treasury
What are management’s risk response options?
Internal auditors sometimes express opinions in addition to stating observations in their reports. Due professional care requires that internal audit opinions be:a. Based on sufficient appropriate
What does allocating resources to the engagement involve?
Which of the following statements best describes an internal audit function’s responsibility for assurance engagement follow-up activities?a. The internal audit function should determine that
What steps are included in the performance phase of an assurance engagement?
Internal auditors perform both assurance engagements and consulting engagements. Which of the following would be classified as a consulting engagement?a. Directly assessing the organization’s

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