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11 Cards in this Set

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1. To be effective, participative auditing calls for:

a. The internal auditor to be supportive of the auditee.
b. The internal auditor to include auditee personnel in the audit.
c. Management to perform the audit and write the report.
d. The auditor and auditee to work out observed problems together.
e. None of the above.
1. B
2. Internal auditors are functioning in a staff role when:

a. They bring deficiencies to the attention of the chief executive officer.
b. They analyze accounts for the external auditor.
c. They appraise electronic data processing controls before an EDP application is permitted to be activated.
d. They show managers where violations of good management practice caused reportable deficiencies.
e. They write procedures for the manager.
2. D
3. The internal auditing function differs from that of the external auditor because the internal auditor serves:

a. Third parties.
b. Society.
c. As a fraud deterrent.
d. The Institute of Internal Auditors.
e. The needs of management.
3. E
4. The internal auditing profession is believed to have advanced primarily as a consequence of:

a. Increased interest by graduating students and experienced auditors.
b. External audit scopes being limited.
c. Job qualification specifications which include added emphasis on background knowledge and skills.
d. Increased complexity and sophistication of business operations.
4. D
5. Which of the following is generally considered to be a major reason for establishing an internal auditing function?

a. To relieve overburdened management of the responsibility for establishing effective systems of internal control.
b. To ensure that operating activities comply with the policies, plans, and procedures established by management.
c. To safeguard resources entrusted to the organization.
d. To ensure the accuracy, reliability, and timeliness of financial and operating data used in management’s decision making.
e. To assist members of the organization in the measurement and evaluation of the effectiveness of established systems of internal control.
5. E
6. In a broad sense, society benefits from internal auditing because the internal auditor:

a. Encourages corporate compliance with standards of public policy.
b. Promotes the efficient and effective use of resources.
c. Evaluates financial data against professional standards.
d. Ensures that operations respond to the demands of the marketplace.
6. B
7. The potential loss of objectivity is most likely in which of the following situations?

a. Assisting the independent auditor in the annual financial audit.
b. Accepting an auditee’s invitation to attend a luncheon.
c. Reviewing a system designed by an individual who previously was an internal auditing staff member.
d. Assisting in the installation of a payroll system.
7. D
8. The role of internal auditing within an organization should be established by:

a. Generally accepted auditing standards.
b. Management and the board of directors.
c. Organization manual.
d. The external auditor’s management letter.
e. The director of internal auditing.
8. B
9. The effectiveness of an operational audit is best assessed by determining:

a. Whether the audit assisted the auditee in achieving improved utilization of its resources.
b. The number of internal audit recommendations implemented.
c. The number and dollar amount of the deficiency findings.
d. Whether internal controls designed to prevent defalcations have been strengthened.
9. A
10. The primary difference between operational auditing and financial auditing is that in operational auditing:

a. The auditor is not concerned with whether the audited activity is generating information in compliance with financial accounting standards.
b. The auditor is seeking to help management utilize resources in the most effective manner possible.
c. The auditor starts with the financial statements of an activity being audited and works backward to the basic processes involved in producing them.
d. The auditor can use analytical skills and tools that are not necessary in financial auditing.
II. Discussion Problem. Provide your comments for the following statement. Please note that the statement may not be totally true. You are to comment on the subject of the statement.


The most important contribution the internal auditor can make is the recovery of overpayments and the detection of errors.
The most important contribution the internal auditor can make is the recovery of overpayments and the detection of errors.

Comments. Recovering overpayments is important. Achieving savings is also important. Internal auditors have both protective and constructive roles to play. To protest against loss and to recommend improvement in control is more beneficial to the enterprise than having to identify losses and seeking to recover them.