The Internal Auditing Handbook 3rd Edition K. H. Spencer Pickett - Solutions

Which item is least appropriate?Standard testing Techniques include:a. Re-performanceb. Observationc. Corroborationd. Analytical reviewe. Inspectionf. Reconciliation g. Expert opinion h. Interviews i. Assumptions j. Review of published reports/research k. Independent confirmation l. Mathematical
Which statement is most appropriate?a. The auditor should recognize there is no such thing as 100% perfection in any business system. All systems have some imperfection that results in ‘error conditions’ discovered through audit testing. These errors may have a significant effect on the
Insert the missing words:Testing provides direct material that can underwrite the audit report and conclusions that are contained therein. This is the proper relationship where . . . . . . . . . . . . . . . . . . . . . . . . .backs up the action the auditor believes should be taken in seeking to
Insert the missing words:We need to deal with an important development that has growing support and is changing the direction of internal audit. This is the ‘ . . . . . . . . . . . . . . . . . . . . . . . . . ’ where the auditor uses automated techniques to examine all relevant data on a
Which statement is most appropriate?a. Our audit is not a series of interrogations of information systems but a considered opinion on the adequacy and effectiveness of managerial systems of control.b. Our audit is not a series of interrogations of information systems but a considered opinion on the
Insert the missing words:. . . . . . . . . . . . . . . . . . . . . . . . . . . seeks to establish the degree to which control mechanisms are being applied as prescribed and the results should highlight non-compliance in pursuit of the defined test objective. Often what is meant to happen does not,
Insert the missing words:Systems of internal control operate together and where one part is weak (i.e. not adhered to) then another part may well take over. Auditors may need to look for these. . . . . . . . . . . . . . . . . controls.a. unusualb. compensatingc. complianced. internal
Which statement is most appropriate?a. Do we need to mistrust everyone and everything? Testing applies the principle of asking what, where, when and why, which is ingrained into the auditor as part of training and experience.b. Do we need to mistrust everyone and everything? Testing applies the
Select the best description (from choicesa, b, c ord) for the attributes of evidence the auditor uses for the audit opinion (1–4):Attribute: Description (a,b, c or d):1. Sufficient.2. Reliable.3. Relevant.4. Practical.Descriptions:a. One would weigh up the evidence required, the cost and time
Which statement is least appropriate?Test results will be contained in working papers held in audit files. Working papers should:a. set out the objectives of the work. All documentation is prepared or secured for a reason and this reason should be defined at the outset.b. be clear. The working
Permanent files contain standing information of a permanent nature while current files record the results of the audit assignment. Note whether the items below belong more to the permanent files (P) or current files (C):1. Audit review notes.2. Budgets and other financial data.3. Committee
Which statement is most appropriate?a. Most auditors need knowledge of statistical sampling and it is advisable to adopt a clear policy regarding use.b. All auditors need knowledge of statistical sampling although it is difficult to adopt a clear policy regarding use.c. All auditors need knowledge
Which statement is least appropriate?Advantages of statistical samplinga. Results may be defended against bias. Bias conjures up images of the auditor being subject to favouritism, narrow-mindedness, one-sidedness and partiality.b. A defined sample size is provided. A close examination of
Select the best description (from choicesa, b, orc) for the types of sampling (1–3):Types of sampling: Description:1. Judgement sampling.2. Indiscriminate sampling.3. Statistical sampling.a. A predetermined sample size will be provided and one may indicate how reliable and accurate the results
Select the best description (from choicesa, b,c, d ore) for the types of sampling (1–5):Methods used to define numbers tested are called sampling plans. This section deals with sampling methods and these may be set out as:Type of sampling: Description:1. Random sampling.2. Stratified sampling.3.
Select the best description (from choicesa, b,c, ord) for the statistical terms (1–4):With statistical sampling one has to set the criteria within which the results should be evaluated and this falls under three basic parameters:Statistical term: Description (a,b, c or d):1. Error rate.2.
For each sampling plan, indicate whether it is best used for compliance testing (C) or substantive testing (S).The two main types of audit testing are compliance and substantive testing. These two testing conventions require different statistical sampling plans geared into the objectives of the
Insert the missing figure:Monetary unit sampling may give the result that out of a population size of £100,000, 60 items should be examined which are selected at intervals of £ . . . . . . . . . . .a. 1,000b. 1,500c. 1,667d. 2,000
Which statement is least appropriate?Several considerations should be applied when deciding when statistical sampling might be appropriate:a. Only use statistical sampling where it is appropriate. The auditor makes a conscious decision at this stage rather than an instinctive view that it is not
Which statement is most appropriate?a. Statistical sampling is not a mandatory technique although it should not be ignored by the auditor as it can be used to comment on a system through the use of a relatively small sample. The audit department should define a clear policy on the use of this
Which statement is least appropriate?Before the full audit report is produced, one would expect interim reports particularly on larger projects. These have several main uses:a. It forces the auditor to build the report as work is progressed. As such the findings are fresh in the auditor’s mind as
Which statement is most appropriate?a. Executive summaries: A five or six page summary can be attached to the front of the report or issued as a separate document. It provides a concise account of objectives, main conclusions and the steps that management should be taking.b. Executive summaries: A
Insert the missing phrase (this phrase applies to both gaps):Follow-up procedures revolve around the view of . . . . . . . . . . . . . . . . . where the internal auditor has failed to convince the client management that the risk needs addressing then any associated audit recommendations may not be
Which statement is least appropriate?Audit reports are not published documents but are the result of a comprehensive audit reporting process:a. Preliminary survey and assignment plan. The audit report can only be started when the planning, fieldwork and analysis of findings has been completed.b.
Select the best preferred wording (from choices a–k) for the jargonized wording (1–11):One way of ensuring clear reports is to establish a reporting guide and give examples of words that are jargonized (J) and those that are simplified and therefore much preferred (P):Jargon Preferred (a–k)1.
Which statement is most appropriate?a. It must be said that one of the most stressful parts of an audit is the face to face closure meeting that is held once the field work has been completed. Much will depend on the relationship with the client that has been built up during the audit and the
Which two statements are least appropriate?Audit reports are not published documents but are the result of a comprehensive audit reporting process that may be summarized below:a. Preliminary survey and assignment plan. The audit report actually starts with a plan that sets the framework for the
Insert the missing word:A comment from the late Joe Morris made in 1997 is still relevant today: An internal audit report that talks about . . . . . . . . . . . . . . . . . is no good at all.a. problemsb. yesterdayc. managementd. risks
Which statement is least appropriate?It is therefore important that the objectives of this final document are clearly established and this may be one or more of the following:a. To recommend change: The audit report must be first and foremost about securing change in terms of new or improved
Which statement is least appropriate?The internal control evaluation schedule (ICES) contains details of each major control weakness that appears as an audit finding in the published report and should include:a. The operational objective. This is the business objective that is, that which the
Insert the missing phrase (this phrase applies to both gaps):The . . . . . . . . . . . should form a high-level summary of the working papers (properly cross-referenced) that lends itself to being fed directly into the audit report itself. Moreover, relevant material that will enter into the
Which statement is least appropriate?In addition to identifying control weaknesses, the auditor is charged with forming and publishing an opinion based on the audit work performed. This part of the audit report may be based on:a. the results of control evaluation.b. the existing control culture.c.
Which statement is least appropriate?It is not enough to point out problems without providing guidance on required action. This is the positive part of the audit report and when formulating recommendations, we should consider:a. the available options. The audit opinion deals with available options
Which two statements are least appropriate?If work is reviewed as it progresses the draft report will not be delayed awaiting the audit managers’ review. The report review may look for:a. the structure. The report should follow a defined format and reflect what may be called the house style.b.
Insert the missing phrase (this phrase applies to both gaps):Recommendations must be based on . . . . . . . . . . . . . . . . . . . . . . . . . and the extent of this supporting material depends on the importance of establishing the effects of control weaknesses. Where internal auditors are
Which statement is least appropriate?It should be noted that on receipt of a draft audit report the client may exhibit some of the following reactions:a. What does this mean?b. Will I lose out?c. Will I benefit at all?d. How should I play this?e. Will this lead to something bigger?f. Can I use this
Which statement is least appropriate?The CAE should adopt a suitable policy on responses from the client and they may be:a. incorporated into the report. Here adjustment is made throughout the report to reflect the comments received from management.b. built into a management action plan. The
Which three statements are least appropriate?This section summarizes some more features of good audit reports:a. The client should be thanked for cooperation and assistance through a formal acknowledgement in the report.b. The report should normally name the managers and operational staff in the
Which statement is least appropriate?When addressing the topic of audit reports it is vital that the auditor understands the actual role of audit. Managers are responsible for their operations and they will retain this right long after the auditor has done the review and deviated to new fields:a.
Insert the missing words:Research has shown that a typical manager will spend only a few minutes on each item of business before turning to another matter. Auditors who cannot identify with this point will find their work for all intents and purposes ignored. Managers may speak of the ‘ . . . . .
Select the most appropriate descriptions (from choicesa, b, c ord) for the terms (1–4):Standard 2410-1 states that engagement observations and recommendations emerge by a process of comparing what should be with what is:Term: Description:1. Criteria 2. Condition 3. Cause 4. Effect Descriptions:a.
Which statement is least appropriate?On the topic of ensuring the presentation is well planned and delivered, the following should be noted:a. Preparation is the key to success. Where the auditor is comfortable with his/her material, we would expect a better performance.b. Practice makes perfect.
Which statement is least appropriate?We have referred to adequate preparations as a key requirement and this will involve:Notifying the various parties in good time. We will wish to invite the line manager and senior staff in the areas to attend.a. Setting a clear audit objective. For our purpose
Which statement is most appropriate?a. Some auditors see questions as flash points where possible confrontation may arise. The usual motive for questions is a search for more information on specific issues and this is the whole point in having presentations, where feedback can be generated. To
Which five statements are least appropriate?Practical considerations when conducting the presentation are:a. Anticipate questions and ensure full answers are provided. Some auditors see questions as flash points where possible confrontation may arise.b. Ensure that eye contact is avoided with the
Insert the missing word (it is the same for each gap):There is no point in convening a . . . . . . . . . . . . . . . . . where the relationship between internal audit and the client is impoverished or has broken down. The . . . . . . . . . . . . . . . . . then becomes point scoring with little
Which statement is least appropriate?The quarterly reports will tend to include:a. Planning and control matters for the audit department. This will explain whether there are issues and developments that affect the scope and effectiveness of the audit function now and in the near future.b. An
Which two statements are least appropriate?Key points relating to the annual audit report:a. The annual report must be received by the highest levels of the organization, ideally a suitably constituted audit committee.b. Comments relating to particular audits should be based on both draft and final
The Chief Audit Executive is defined by the IIA as:a. The officer who reports to every audit committee meeting.b. The most senior person responsible for promoting risk management in the organization.c. The most qualified internal auditor in post.d. A senior position within the organization
Which is the correct IIA definition of internal auditing?a. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations.b. Internal auditing is an independent, assurance and consulting activity designed to add
Which is the odd one out?Audit consisted mainly of checking, with the probity visits tending to centre on:a. cash incomeb. stocksc. purchasesd. petty cashe. staff complaintsf. stamps g. revenue contracts h. and other minor accounting functions.
Insert the missing phrase:In the past, IA was seen as an integral component of the . . . . . . . . . . . . . . . . . . . . . designed to double-check accounting transactions. The idea was to re-check as many items as possible so as to provide this continuous audit.a. operational handbookb. internal
Insert the missing phrase:The importance of sound organizational systems came to a fore in the US where the Foreign Corrupt Practices Act passed in . . . . . . . stated that an organization’s management were culpable for any illegal payments made by the organization even where they claimed they
Which is the most appropriate statement?a. The ability to understand and evaluate complicated behaviour patterns of employees allows audit to assume wide scope.b. The ability to understand and evaluate complicated systems of managerial and operational controls allows audit to assume wide scope.c.
Which is the most appropriate statement?a. Many IA shops have now moved into risk-based auditing where the audit service is driven by the way the organization perceives controls.b. Many IA shops have now moved into risk-based auditing where the audit service is driven by the way the organization
Insert the missing word (this word applies to all three gaps).There is a view that the organization of the future will revolve around its . . . . . . . . . . . . . .and that the so-called chief risk officer will become the chief . . . . . . . . . . . . . . officer. In turn, the internal audit shop
Insert the missing name.The late Professor . . . . . . . . . . . . . . . . . . . . . . has provided an enlightening poem(Appendix C of the Handbook) to reflect the view that, in the uncertain world in which we are living, the accounting profession has much to be guilty of. Internal audit, on the
Discuss the role of the IS auditor and note some of the controls that may help ensure an information system (e.g. an application such as a payments system) is both reliable, efficient and protected.
Explain the VFM concept and describe the link between economy, efficiency and effectiveness.
Which statement is most appropriate?a. Variety creates a richness and degree of flexibility in the type of audit work that is undertaken. In many cases, an audit department will contain different types of auditors who collectively discharge the audit function. Internal auditing is about evaluating
What is x?There is an argument that the most efficient use of audit resources occurs where one concentrates on reviewing x as opposed to the examination of individual x transactions.a. proceduresb. detailc. systemsd. accounts
Insert the missing word/s:The premise upon which the handbook is founded considers risk-based systems auditing as a valid interpretation of the assurance role of internal audit, with all other matters falling under the generic term, . . . . . . . . . . . . . . . . . . . . . . . . . – most of
Which is the most appropriate statement?A system may be defined as:a. a set of objects together with relationships between these objects and their attributes connected or related to each other in such a manner as to form an entirety or whole.b. two sets of objects together with relationships
Which statement is wrong?There are a number of concepts that underpin systems theory and these various concepts may be listed:a. connected componentsb. unaffected by being in a systemc. assembly of components does somethingd. assembly identified as being of special interest
Insert the missing words:The . . . . . . . . . . . . . . . . . . . . . . . . . means that the whole processmay be at risk where parts of the link are weak or break down. It is only by understanding the whole system that one is able to determine the effect of changes in any one area on other linked
Which description a–e goes against which concept?Systems concepts: Descriptiona, b,c, d or e 1. Managerial, operational and functional 2. Parent system, main systems and subsystems 3. Subjective system 4. Systematic 5. Systemic Descriptions of the above:a. Here the use of a set system’s
What is this statement referring to?This may be seen as a disorder, disorganization, lack of patterning or randomness of organization of systems.a. randomnessb. entropyc. inefficiencyd. collapse
Insert the missing words:Systems are designed to process transactions and internal audit is concerned with controls that ensure the systems objectives are met. Where this does not happen, the system produces delinquent transactions that breach one or more of the five key control areas. An audit
Indicate whether the statements refer to a systems-based (SBA) or transactions-based approach (TBA)a. Follow company vehicles to see whether they were being used on official business.SBA or TBAb. Observe several vehicles during the course of the audit to check the way these controls are
Insert the missing word:. . . . . . . . . controls are about the way people relate to each other and are motivated (or not). When systems are viewed as dynamic relationships, we can better understand the way control routines are developed and applied.a. Complexb. Dynamicc. Flexibled. Soft
Which three items are wrong?It has been argued that systems-based auditing has a number of benefits:a. It is positive and forward looking and considers the future strengths of control systems as opposed to isolating and reporting a series of past errors.b. It promotes participation by involving the
Which is the most appropriate statement?a. Audit will ascertain the objectives and system to deliver these objectives, and evaluate whether the controls in place are able to handle the significant risks that get in the way of achieving the objectives. Testing will determine whether what should be
Which is the most appropriate statement?a. Control risk self assessment is a tool that is used by businesses to promote risk management in teams, projects, through processes and generally throughout the organization.This tool is used by internal audit to help management.b. Control risk self
Which description a–d goes against which type of workshop?While in practice there are numerous types of CRSA events, we can suggest four basic approaches:Types: Descriptiona, b, c or d 1. Process 2. Projects 3. People 4. Preparedness Descriptions:a. The emphasis is on protection of assets and
Insert the missing word:Many people have argued the value of CRSA:What’s so good about control and risk self assessment? It forces managers and their staff to think very carefully about their . . . . . . . . . . . . . . and those of the organization.a. valuesb. objectivesc. motivesd. systems
Which statement is inappropriate?People will participate and add to a CRSA workshop if they are . . . . . . ..:a. committed to the workshop objectiveb. have something of value to addc. believe that their opinion will be appreciatedd. understand the CRSA process and where it fits into the businesse.
Which description a–d goes against which learning style?Honey and Mumford have developed a learning cycle where people learn from their experiences and plan the next step from this learning. They have also classified different learning styles:Style: Descriptiona, b, c or d 1. Activist 2.
Which statement is most appropriate?a. Another way of viewing the workshop process is to suggest that the facilitator may assume a low profile early on as the idea of operational risk management and the CRSA process is sold to the group. As proceedings progress, the facilitator gradually moves into
Insert the missing word:Some argue that this equation is important:Motive + Means + . . . = Frauda. desireb. concealmentc. opportunityd. collusion
Which item is wrong?Frauds may:a. be unintentionalb. be complicatedc. be simpled. be one-off or continuouse. be carefully plannedf. involve regular amounts g. be perpetrated by senior officers h. may involve large amounts
Which statement is least appropriate?When employee fraud or irregularity comes to the attention of the auditor there are a number of alternative courses of action:a. Call the police.b. Search the employee’s car.c. Commence a management enquiry.d. Commence an audit investigation.e. Commence a
Which statement is most appropriate?Surveillance involves observing the activities of defined individuals without their knowledge.Watching, looking and gathering evidence does not generally breach privacy standards and is a useful way of securing information in a fraud investigation:a. It is
Which statement is most appropriate?The formal police caution in the UK runs as follows:a. You do not have to say anything. But it may harm your defence if you do not mention something which you may later rely on in court. Anything you do say may be given in evidence.b. You do not have to say
Which statement is most appropriate?Throughout the investigation interim reports should be issued setting out findings to date, implications and further work recommended:a. It is for audit to suspend staff, instruct the police, search desks, confiscate books and records and the internal auditor
Which statement is most appropriate?All fraud reports should be clearly marked confidential. The number of copies should be restricted and it is best to present them on a need-to-know basis:a. The report is not about giving an opinion of the guilt of the person, it is only to report the results of
Insert the missing words:There tend to be two main results from fraud investigations. One is a referral to the police who will place a case before the Crown Prosecution Service with a view to bringing criminal proceedings against the parties in question. The other is that internal disciplinaries
Which two statements are least appropriate?In terms of taking internal action against an employee, there are certain principles that should be followed:a. Investigate and gather the facts carefully and compile the supporting evidence.b. Be specific about the charges and let the employee know what
List 10 attributes of good working papers (the handbook provides 24 examples).Each fraud investigation must be recorded in a formal file that contains all the relevant documents that have been secured during the course of the investigation. There are a number of general attributes of good working
Which statement is least appropriate?When acting as a witness, there are certain guidelines that should be observed by the auditor:a. Make sure you are familiar with court procedure.b. Refresh your memory by reading your statements.c. Do not discuss your evidence.d. Think before answering
Which two statements are least appropriate?There must be an efficient implementation process whereby fraud response procedures are translated into action and results. A summary of the factors underpinning these procedures can be noted:a. Let the procedures be based on a culture of fraud
Which three statements are least appropriate?A disciplined approach is based on compiling sound evidence from reliable and confirmed sources with the resulting documents put together in a systematic fashion. Practical points to note:a. The police prefer cases to be well presented with the evidence
Which statement is most appropriate?a. There are differing views of IS audit with many believing that all audit sections should employ specialist auditors. Others feel there is no such animal as the IS auditor since tackling computerized applications is part of everyday audit life. Computer audit
Which statement is least appropriate?There are several options for securing the necessary IS/IT skills for internal auditing:a. Use a consortium to provide the necessary skills.b. Use a small number of IS auditors (perhaps one computer expert) to assist the other auditors as they tackle
Which statement is least appropriate?In terms of managing IS audit resources note that:a. A cycle of audits may be planned to cover all of the main computerized applications.b. It will be necessary to set up a constructive liaison with the corporate IS managers.c. The difficulties in recruiting
Select the most appropriate description a–c for types of standby centres.The organization should ensure that it has a contract for standby facilities to take over processing in the event of the computer centre becoming unusable. There may be three main types of contracts:Type: Descriptiona, b or
Which statement is least appropriate?The IS auditor’s role in disaster planning is to:a. recommend that a plan is in placeb. independently test this planc. call out key contacts in the event of an emergencyd. review the contract with the facility’s supplier along with any tendering
Indicate for each control whether it is best classified as an input control (IC), processing control (PC) or an output control (OC). Note that risks to computer applications are mitigated through input controls (on inputs to the system), processing controls (that are set within the underlying
Insert the missing word:. . . . . . . . . . . . is an issue for the internal auditor and during the audit, an assessment will be made of the extent to which the business is adhering to laws, regulations and control standards.a. Complianceb. Professionalismc. Efficiencyd. Effectiveness
Which of the steps is inappropriate?A procedure for carrying out probity audits is:1. The work will be agreed with senior management and this may involve a one-off visit or a series of programmed visits.2. The appropriate line manager should be contacted and a date set for the visit. It is possible
Select the most appropriate name a–c for the given descriptions 1–3.Descriptions:1. Resources required to perform the operation are acquired in the most cost-effective manner.2. Resources are employed to maximize the resulting level of output.3. Final output represents the product that the

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The Internal Auditing Handbook 3rd Edition K. H. Spencer Pickett - Solutions

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