1. Audit engagement programs testing internal controls should

1. Reduce costly duplication of effort by ensuring that every aspect of an operation is examined
2. Be generalized to fit all situations without regard to departmental lines
3. Be tailored for the audit of each operation
4. Be generalized in order to be usable at the various international locations of an organization

2. An external auditor has asked the internal audit function of a large air transportation company for information uncovered during the most recent compliance review by a federal transportation regulatory agency. How should internal auditing respond to this request?

1. Share the information in an effort to reduce time spent by the external auditors, which would reduce cost to the organization.
2. Refuse. Internal audit should not share such information with parties outside the organization.
3. Ask the external auditors to demonstrate a need for specific information in writing before releasing the requested details.
4. Direct the regulatory agency to release the information to the external auditors

3. The form and content of internal audit policies and procedures are:

1. A Specifically prescribed in the IIAs Standards
2. Mandated by the IIAs publication titled, Internal Audit Policies and Procedures.
3. Dependent upon the size and structure of the internal audit activity and the complexity of its work
4. Required by the IIAs Standards to be updated on an annual basis

4. A chief audit executive is coordinating her internal audit teams testing of internal controls over financial reporting with the external auditors. This is an example of which basic function of internal audit management?

1. Planning
2. Directing
3. Monitoring
4. Organizing

5. The primary purpose of budgets is to:

1. Define a companys mission
2. Provide an informal communication network
3. Determine when and how much to limit scope on each engagement
4. Move a company toward its short-and long-term strategic goals

6. When an audit is assigned, management asks the auditor to evaluate the appropriateness of using self-insurance to minimize risk to the organization. Given the scope of the audit requested by management, should the auditor engage an actuarial consultant to assist in the audit if these skills do not exist in staff?

1. No. The audit department is skilled in assessing controls, and insurance control concepts are not distinctly different from other control concepts
2. No, it is a normal audit function to assess risk; this audit engagement is therefore not unique
3. Yes. An actuary is essential to determine whether the insurance premiums are reasonable.
4. Yes. The actuary has skills not usually found among auditors to identify and quantify self-insurance risks.

7. Which of the following budget types would most likely be prepared for an internal audit activity?

1. Activity-based and direct labour budgets
2. Schedule and direct labour budges
3. Activity-based and financial budgets
4. Financial and schedule budgets

8. Which of the following would be an audit step when assessing internal accounting procedures?

1. Determining whether the quality of the goods purchased from the vendors has been satisfactory
2. Determining whether only authorized items have been received from vendors
3. Determining whether agreed-upon lot sizes have been sent by vendors
4. Determining whether the balances owed to vendors are correct

9. Reporting on the internal audit activitys performance relative to its risk-based annual audit plan. Select one:

1. Is a required performance metric for the chief audit executive
2. Is mandated by the Standards for all internal audit activities
3. Is a best practice for audit activities of public companies
4. Is essential for proper audit activity resource allocation

10. New credit policies have been implemented in the automated order entry system to control collectability. These policies prevent entering any new sales order that would cause the customer's accounts receivable balance to exceed average sales for any two-month period in the prior 12-month period. Divisional sales management has compiled over a dozen examples that show decreased sales and delayed order entry. Division management contends that these examples are a direct result of the new credit policy constraints. Sales management's data and information provides:

1. Irrelevant argumentative information
2. Evidence that the new credit policy is not meeting the stated corporate objective to control the collectability of new sales volume
3. Statistically valid conclusion about the impact on customer goodwill concerning the credit policy
4. Feedback control data on the new corporate credit policy

11. During an audit, the internal auditor discovers a scheme in which the warehouse director and the purchasing agent for a retail organization have diverted approximately U.S. $500,000 of goods to their own warehouse and have then sold the goods to third parties. The fraud was not noted earlier since the warehouse director forwarded the receiving reports to the accounts payable department for processing (after updating the perpetual inventory records). Assume that the perpetrators have confessed to the auditors. What is the appropriate auditor action?

1. Request that the perpetrators sign the auditor's summary of the confession and include it in the working papers. Report the details to senior management for further action.
2. Orally report the confession to management and suggest that they report it to legal authorities because a crime was involved. Do not document.
3. Omit the documentation from the working papers because it is subjective and sensitive and may become legal evidence. Report the details to management and have them request legal counsel to document the confession.
4. Inform the perpetrators of their rights, document their confession on tape, and inform the local legal authorities of the crime.

12. Which of the following is a possible assurance engagement objective related to the purchasing function?

1. To ensure that good received are properly reflected in purchasing records
2. To review and authorize purchase eligible for competitive bids
3. To get external auditors to verify receiving reports
4. To run background checks on unauthorized vendors

13. According to the Standards, which of the following would be considered a scope limitation?

1. An audit committee reviews the audit plan for the year and deletes an audit that the chief audit executive thinks is important.
2. A sales manager indicates that certain customers should be contacted with a certain sensitivity because the organization is in the process of negotiating long-term contracts with them.
3. Senior management requests a performance audit of a cellular manufacturing area; the chief audit executive agrees but also decides to omit performance audits from the planned assurance engagement in that area.
4. Divisional management indicates that, since the division is in the process of converting a major computer system, the information systems portion of a planned audit will have to be postponed until next year.

14. The primary reason that bank executives would decide to maintain a separate compliance function is to:

1. Strengthen controls over the banks investments
2. Better manage perceived high risks
3. Ensure the independence of line and senior management
4. Better respond to shareholder expectations

15. Passwords for computer software programs are designed to prevent:

1. Unauthorized access to the computer
2. Inaccurate processing of data
3. Unauthorized use of the software
4. Incomplete updating of data files