The Internal Auditing Handbook 2nd Edition K. H. Spencer Pickett - Solutions

Select the most appropriate term (efficiency or economy) for items a–d.A systems-based approach to an (a) review would consider the standards, plans, direction and type of information that management applies to controlling their operations. The investigative approach, on the other hand,
Insert the missing word:Much material may be gathered where the auditor compiles his/her own performance indicators (PIs) and thereby isolates potential poor performance. This may be carried out by:• comparing similar operations,• comparing one operation over defined time periods or•
Insert the missing word:The starting place for . . . . . . . . . . . audit is to reassess the public image of the organization.a. internalb. socialc. efficiencyd. compliance
Which stage of the approach to performing consulting investigations is inappropriate?a. Initial terms of reference for the workb. Preliminary surveyc. Establish suppositionsd. Audit planning and work programmee. Detailed field workf. Determine underlying causes of problems g. Define and evaluate
Which practical reason that organizations need to change is inappropriate?a. Increasing competition means the flexible, ever-changing organization is now the norm.b. More participation by employees and therefore increased innovation forms a firm foundation upon which change initiatives may be
Insert the missing word:It is possible to extend this model to cover evaluating major options with a material affect on the organization. In the past, management has considered options via two-dimensional criteria:1. Economic feasibility.2. Social acceptability.Change management requires management
Which statement is inappropriate?Where members of the organization have adopted a change resistance strategy there will be problems in implementing the changes. Justified resistance to change may derive from:a. Uncertainty as to the effects of the changes through lack of information.b.
The driving forces push for change so that the organization advances to a better position.The resisting forces on the other hand, maintain an equilibrium by negating the power of these driving forces. Indicate for each force whether it is a driver (D) or a resister (R):a. A genuine fear of change
Which structure is inappropriate?Furthermore, there are many options underpinning the type of structure that should be in place, which have to be considered and decided on. Some of these options for structuring the internal audit department are:a. Decentralizationb. Centralizationc. Service-basedd.
Insert the missing word/s:Any audit objective must be linked directly into the organization’s own objectives (or mission). The starting place for setting audit’s role is to isolate what the . . . . . . . . . . . . . . . . .is trying to achieve and then see how audit resources can assist this.a.
Which statement is least appropriate?A risk survey necessitates discussion with middle management and involves:a. A definition of the audit unit.b. An assessment of the relative risks inherent in each unit.c. Research into the type of problems units attract.d. History of disciplinary action in the
Insert the missing words:A further aspect of audit strategy relates to the need to . . . . . . . . . . . . . . . . . . . . in the process. There is a temptation to become trapped inside the struggle to preserve audit independence, wherein contact with the outside world is avoided. Our plans and
Which statement is least appropriate?Areas that need attention might jeopardize the welfare of audit. It is vital these are identified and dealt with via the strategy. Common problems are:a. Excessive non-recoverable hoursb. Low staff moralec. Lack of audit proceduresd. Out-of-date audit manuale.
Insert the missing words (they apply to both sentences):We may feel pressured into conceding that long-term planning must establish formal terms of reference for these planned audits. Fortunately, the . . . . . . . . . . . . . . . . . comes to the rescue since we need not provide detailed plans for
Which statement is most appropriate?a. Strategic development is getting auditors to work together re-actively to drive the audit service forward in the right direction. The need to rally round a clear goal is fundamental to the success of any strategy.b. Strategic development is getting auditors to
Which statement is least appropriate?The next stage in the recruitment procedure is to formally define the requirements of the post. The process of setting the job description is one of considering the ensuing contract of employment that will be entered into by the incoming appointee. This process
Which statement is most appropriate?a. The only useful reference is a questionnaire that is sent direct to a colleague of the applicant’s current or last employer.b. The only useful reference is a questionnaire that is sent direct to a named person nominated by the applicant.c. The only useful
Which statement is least appropriate?Whatever the view, it is essential that auditors are appraised in a positive fashion. This in turn depends on:a. Keeping the accent on praise.b. Using appraisal to ease poor performers out of contact with clients.c. Not using the appraisal scheme to criticize
Select the most appropriate description of skills 1, 2 or 3 for levelsa, b and c in the diagram.Types of skills:1. technical skills 2. writing skills 3. conceptualizing skills 4. listening skills 5. communicating skills CIA Audit High a.................. skills managers b................skill...
Which statement is least appropriate?There are several matters to be considered when designing a performance appraisal scheme, including the following:a. The scheme must in fact address the auditor’s performance.b. The scheme should attempt to meet employees’ needs that should be based around a
Which paragraph is most appropriate?a. The concept of appraising staff must attach to some form of professional foundation for it to have any real meaning. If it is not seen as part of a career development programme, then we return once more to the view that appraisals can have a demotivating
Which set of performance measures are most appropriate?For example, a target for a senior auditor may be:To prepare and implement a new and revised audit manual that complies with best practice and adopted audit standards by date X (using 100 audit hours).Attached to this would be various
Which statement is least appropriate?Even where a time monitoring system is in place, there may still be excess hours charged to jobs. This occurs where:a. The budget was not set properly.b. The budget is not seen as a serious issue.c. Authorization was not secured for extended hours.d. The audit
Which paragraph is most appropriate?a. Findings from internal audit reports and files play an important role. It is insulting to produce a report for management that only has supporting documentation prepared for general impressions. Even where the report is accepted by management, we should be
Which statement is least appropriate?A loss of direction can be the difference between a good audit and a boring report.Demotivated auditors are a problem for audit management even where they do their work and keep within budget. They will not contribute to the development of the audit function nor
Which statement is least appropriate?Another weakness is lack of follow-up procedures. Auditors adopt the attitude that they do the audit and simply walk away. The follow-up procedure is less of a formality and more an acceptance of responsibility for the audit. The internal auditor needs to:a.
Place the following planning tasks (a–f) in chronological order, with the suggested months for each annual activity:The planning timetable needs to be both fixed and flexible to take on board new developments. One planning system in use follows the pattern below:a. Analyse information and talk to
Insert the missing word:The level of . . . . . . . . . . . . . . . . . depends on the type of work and auditors employed. For more senior staff, this may be based mainly around the final review procedure, with little involvement from audit management during field work. For less senior staff, a lead
Which statement is least appropriate?Audit management must avoid delays in releasing the draft audit report by using the following approach:a. Introduce technology to ensure reports can be prepared, copied and quickly bound in-house.b. Set clear reporting standards so that structure and style are
Insert the missing words:We have moved on from internal audit rubber stamping parts of the system and being part of line operations. The problems are more subtle now where although removed from line roles, internal audit is still locked into the system. This occurs where managers refer their
Which statement is most appropriate?Our definition of the audit manual is:a. A report that involves the accumulation and dissemination of all those documents, guidance, direction and instructions issued by audit management that affect the way the audit service is delivered.b. A document that
Which statement is least appropriate?Audit manuals fulfil the following roles:a. Defining standards and methods of work.b. Communicating this to auditors.c. Establishing a base from which to measure the expected standards of performance.d. Providing a mechanism for communicating the audit role to
Which statement is least appropriate?There is an abundance of material on the advantages of standardization and a number of features can be highlighted:a. The most familiar standardized procedures are in the form of internal control questionnaires and audit programmes that are developed by many
Insert the missing words:The . . . . . . . . . . . . . . . . . . . . . . . . . is the device that allows audit management to consider, formulate and apply suitable audit procedures aimed at ensuring efficiency as well as compliance with standards. It is difficult to visualize any other way that
Insert the missing word:There appears to be a direct conflict between the extent of direction and standardization that a comprehensive audit manual provides, and the auditor’s professional . . . . . . . . . . .Both are essential for enhancing audit productivity.a. statusb. standingc. autonomyd.
Which statement is least appropriate?The extent to which the audit manual is kept up to date is one measure of efficiency.Procedures must be completely relevant or they will not be complied with. If not:a. It gives out signals that the manual is not considered important by audit management and
Select the most appropriate heading (A, B, C or D) for the four columns of the diagram below which is based on four main planks of the audit manual process:A–D headings: Insert A, B, C, or D 1. It must play a role in evaluating auditor’s performance 2. The manual has to be used by auditors 3.
Which three statements are least appropriate?We want to move towards our target position by developing the ‘professional auditor’:a. Ensure that very comprehensive guidance is always provided.b. Leave general reference material outside the main audit manual.c. Indicate whether a particular
Which statement is most appropriate?a. The audit manual should be a dynamic mechanism for directing auditors and as such represents standard best practice. Accordingly there should be no need to make regular changes either adding to the material in the manual or amending sections.b. The audit
What is x?x . . . . . . . . . . . . . . forces management to set clear objectives and develop their staff.Senior auditors may spend hours on an obscure project that provides no end-product.x . . . . . . . . . . . creates the drive for the audit manager to define and communicate exactly what is to
Select the most appropriate description (a, b orc) for the three terms (1, 2 and 3):The final view of information is one based on the type of action that it is meant to stimulate, which may be classified in the following manner:Term Description (a,b, or c)1. Strategic 2. Managerial 3. Operational
List five attributes of good information:1.2.3.4.5.
Which statement is least appropriate?Any auditor time monitoring coding system must be based on clear rules that will vary between different audit sections – some general observations:a. Code the work in line with the adopted reporting framework. The audit committee may have a view on this. In
Which two statements are least appropriate?The situation where a newly formed internal audit function has to be developed is not unusual and key issues include:a. The Audit charter: This sets out the role and objectives of internal audit and is at the core of the delivery of audit services. This is
Insert the missing words:Some internal audit shops are turning towards a partnering arrangement, where they use parts of an external firm’s expertise to fill in the gaps between strategic requirements and current capacity. This ‘ . . . . . . . . . . . . . . . . . . . . . . ’ model has various
Which four statements are least appropriate?There are several hot tips for organizations when going to the market for competitive bid including the following:a. Make a good business case for the contract.b. Be clear about the solution being offered by the firms and how they add value to the
Which statement is least appropriate?The main steps in the overall planning process are noted below:Some explanations follow:a. Organizational objectives. The starting place for audit planning must be in the objectives of the organization. If these objectives are based on devolution of corporate
Which statement is least appropriate?The features of a corporate risk assessment for audit planning include the following:a. Meeting with managers is an opportunity not only to get to know them but also to introduce the audit role to clients and gain an appreciation of their concerns.b. It provides
Insert the missing words:Audit will be required to publish an annual audit plan formally approved by the. . . . . . . . . . . . . . . . . . . . . .a. chief executive officerb. CAEc. senior managementd. audit committee
Which statement is least appropriate?Some of the features of the annual audit plan are as follows:a. It contains key audit areas for the next 12 months and explains why they were selected through a suitable preamble.b. Following from the above, the annual plan needs to be interfaced with the annual
Insert the missing words:Many internal audit shops have moved on from the risk assessment checklists and entered into a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . about how the audit resource can be used to the best effect, that is, utilizing the corporate assessment
Explain the agency concept and discuss why is it important to secure accountability in companies where ownership is separated from management.
Describe why a corporate code of ethics is important and list some of the matters that may be covered in a typical code.
Outline two well-known scandals that have demonstrated the need for proper corporate governance and suggest reasons why these problems have occurred.
Discuss the concept of corporate governance and describe some of the issues that are addressed in international stock exchanges (and public sector) codes.
Describe the matters that organizations are reporting in their published annual corporate governance statements and suggest ways that these reports can be improved.
Describe the role of external audit and explain the difference between the external and internal auditing roles.
Discuss why audit committees are becoming popular and describe the areas that may fall under the remit of the audit committee.
Explain how internal audit fits into the corporate governance equation, and outline what the corporate governance codes say about the value from internal audit.
Describe the links between corporate governance, risk management and internal control.
Prepare a presentation to the board on the importance of preparing a robust statement on the organization’s system of internal control for the published annual report.
Which is the most appropriate statement?a. Corporate Governance has been described by Adrian Cadbury as the way organizations are directed or controlled.b. Corporate Governance has been described by Adrian Cadbury as the way organizations are directed and controlled.c. Corporate Governance has been
Insert the missing phrase:a. Corporate governance codes and policies have come to be relied on to re-establish the performance/conformance balance to ensure . . . . . . . . . . . . . . . . . . . . . . . . .a. integrity, openness and responsibilityb. integrity, fair play and accountabilityc.
Which is the most appropriate statement?a. The directors formulate a corporate strategy to achieve set objectives and meet customers’ expectations, and in turn, employ managers and staff to implement this strategy.b. The directors formulate a corporate strategy to achieve set objectives and meet
Insert the missing phrase:a. All business activity feeds into the accounting system and the directors report the results back to their . . . . . . . . . . . . . . . . . . . . . . . . . in the annual report on performance and accompanying final accounts.a. audit committeeb. shareholdersc. bankersd.
Which is the most appropriate statement?a. The Stewardship concept means directors owe this responsibility to the parties who have a vested interest in the organization. They work for and on behalf of their masters, and need to demonstrate competence, which is not always easy.b. The Stewardship
Insert the missing phrase:a. For public bodies, the owners are the taxpayers and the external auditors have an additional role in . . . . . . . . . . . . . . . . . . . . . . . . . aswell as verifying the financial statements.a. assessing performanceb. assessing value for money (VFM)c. assessing
For central government organizations, the responsible person in terms of corporate governance reporting is . . . . . . . . . . . . . . . . . . . . . . . . .a. the chief executiveb. the accounting officerc. the principle officerd. the reporting officer
Which is the most appropriate statement?a. In general there are two types of stakeholders; those that have a direct influence on the organization’s future activities such as journalists, regulators and shareholders; and those that simply have an interest in the organization, such as local
Which is the odd one out?The Nolan Principles on standards in public life comprise the following:a. Selflessnessb. Integrityc. Objectivityd. Accountabilitye. Opennessf. Justice g. Honesty h. Leadership
The late Anita Roddick, from the Body Shop has suggested that:I would love it if every shareholder of every company wrote a letter every time they received a company’s annual report and accounts. I would like them to say something like ‘‘Okay that’s fine, very good. But where are the
Which is the most appropriate statement?a. The Public Interest Disclosure Act 1998 applies to England, Scotland and Wales.Disclosures relate to crimes, breaches of legal obligations, miscarriage of justice, inefficient budgeting or the environment and concealing information relating to these
Insert the missing phrase:a. Sir Adrian Cadbury has said: The country’s . . . . . . . . . . . . . . depends on the drive and efficiency of its companies.a. societyb. economyc. successd. reputation
Which is the most appropriate statement?a. Enron collapsed because of its complicated trading activities, and staff manipulation.b. Enron collapsed because of its complicated market conditions, and financial manipulation.c. Enron collapsed because of its complicated trading activities, and
Which is the most appropriate statement?a. Companies listed on various international stock markets are meant to subscribe to listing rules and must observe the rules.b. Companies listed on various international stock markets are meant to subscribe to listing rules or make clear their reasons (and
Which is the odd one out?Cadbury has described the underpinning principles behind the code:a. Opennessb. Integrityc. Decencyd. Accountability
Which two of the selected extracts from the Turnbull report is wrongly stated?a. Principle D2; The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets.)b. Principle D2.1; The directors should, at least annually, conduct a
Which is the correct quote from the Cadbury report?a. The Chief Executive should be able to stand sufficiently back from the day-to-day running of the business to ensure that their boards are in full control of the company’s affairs and alert to their obligations to their shareholders.b. Chairmen
Insert the missing phrase:In some European countries such as Germany, the executive board runs the company while the . . . . . . . . . . . . . . . . . . . . , half of whose members are employees, supervises and advises the executive board and is responsible for sensitive areas such as executive
Insert the missing phrase:Coming off the scandals of 2002, by November 2002 the US governance rules were revamped to tighten up on accounting and accountability through the . . . . . . . . . . . . . . . . .a. Sarbanish-Oxley Act 2002b. Sarbanes-Oxley Act 2002c. Sardines-Oxtail Act 2002d.
The External Auditor:a. Tests the underlying transactions that form the basis of the financial statements. In this way they may form an opinion on whether or not these statements show a true and fair view.b. Tests the underlying transactions that form the basis of the financial statements. In this
Which two of the following statements are wrong in terms of company external auditors?a. External auditors are generally members of CCAB professional accountancy bodies and are employed under the Companies legislation to audit the accounts of registered companies.b. They are appointed annually at
Which is the most appropriate statement?a. The external auditor seeks to provide an opinion on whether the accounts show a true and fair view. Whereas internal audit forms an opinion on the adequacy and effectiveness of systems of risk management and internal control, which also relates to the main
Insert the missing phrase:Many problems are caused by differing perceptions by external audit and users of financial statements audited by the external auditors. This is commonly known as the‘‘ . . . . . . . . . . . . . . . . . . . . . . . . . ’’a. management gapb. expectations gapc.
Which is the most appropriate statement?a. The external auditor is expected to display a degree of astonishment when they discover indicators of fraud and abuse that impact the reliability of the financial accounts.b. The external auditor is expected to display a degree of anxiety and react when
Insert the missing phrase:Groundbreaking work was performed in the USA by the . . . . . . . . . . . . . . . . . . . . . . . . . who prepared ten key recommendations on improving the effectiveness of audit committee:a. Standards Committeeb. Regularity Committeec. Round Tabled. Blue Ribbon Committee
Insert the missing phrase:We have already suggested that a ‘‘ . . . . . . . . . . . . . . . . . . . . . . . . . ’’ approach to corporate governance structures is unrealistic, which is why most codes are both voluntary and fairly general in the way they define set standards. There is still
Which is the most appropriate statement relating to the Audit Committees?a. Members are appointed by the board and the audit committee should consist of at least three members (and not more than six) being a mix of Non-Executive and Executive Directors.b. Members are appointed by the board and the
Which is the most appropriate statement relating to the Audit Committees?a. Audit Committee meetings should be held at least four times a year and all members should attend unless there are exceptional circumstances.b. Audit Committee meetings should be held at least three times a year and all
Insert the missing word:The Smith Report suggests that at least one member of the audit committee should have significant, recent and relevant . . . . . . . . . . . experience.a. operationalb. industry specificc. audit committeed. financial
Which is the most appropriate statement?a. Moreover the internal auditor can be the best friend of the audit committee and is one of the many parties that can be relied on to give impartial and reliable advice and information.b. Moreover the internal auditor can set up the audit committee and is
Insert the missing word:If controls drive the organization forward and also tackle all known . . . . . . . . that threaten this positive direction, then there is a good system of internal control in place.a. risksb. external factorsc. occurrencesd. persons
Describe the concept of risk and suggest ways that this concept can be applied to business practice.
Discuss the implications of high levels of unmitigated risk in terms of both threats to the business and missed opportunities.
Describe the risk management cycle and discuss each of the main stages.
Discuss the view that high levels of business risk may be addressed through a variety of methods.
Explain the concept of risk registers and how they are affected by the adopted risk appetite.
Describe the contents of a corporate risk policy and explain the role of a chief risk officer in implementing this policy.
Explain what is meant by ‘enterprise-wide risk management’ and describe the way that this concept may be developed for an organization.
Explain how control self-assessment can be used to implement risk management.

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The Internal Auditing Handbook 2nd Edition K. H. Spencer Pickett - Solutions

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