Chapter 1 Internal Auditing

Front 1

An internal auditor engages in the preparation of income tax returns during the tax season. For which of the following activites might the auditor most likely be in violation of the code of ethics?
a. Writing a tax guide that is intended for publication and sale to the general public.
b. Preparing the personal tax return, for a fee, for one of the organization's division managers without the consent of senior management.
c. Teaching an evening tax seminar, for a fee, at a local univeristy.
d. Preparing tax returns for elderly citizens, regardless of their associations, as a public service.

Back 1

B

Front 2

Under what circumstances would an internal auditor be required to forfeit the CIA designation?
A. Upon leaving the internal auditing profession.
b. After action by The IIA's International Ethics Committee.
c. When found by The IIA's Board of Directors to be in violation of the Code of Ethics.
d. Upon comission of a felony or other action resulting in serious criminal charges.

Back 2

C

Front 3

An audit of a foreign subsidiary disclosed payments to local government officals in return for orders. What action does the code of ethics suggest for internal auditors in such a case?
a. Refrain from any action that might be detrimental to their employers.
b. Report the incident to appropriate regulatory authorities.
c. Inform appropriate organization officials.
d. Report the practice to the Board of Directors of the IIA.

Back 3

C

Front 4

During the audit of one of its organization's nuclear power plants, an internal auditing team discovered serious instances of violations of safety procedures. The Code of Ethics requires the audit team to:
a. Present sufficient factual evidence without revealing confidental information that could be detrimental to their organization.
b. Disclose all material evidence obtained by the audit team as of the date of the audit report.
c. Report factual evidence gathered within established time and budget restraints.
d. Reveal material facts known to the audit team that could distort the report if not disclosed

Back 4

D

Front 5

Which of the following would constitute a violation of the code of ethics?
a. Discussing your organization's data processing control system at a trade convention.
b. Purchasing stock in a target after overhearing an organization executive discussing a possible acquisition.
c. Deleting sensitive information from a report at the request of senior management.
d. Investigating executive expense reports based on rumors of padding.

Back 5

B

Front 6

Auditing to determine whether an entity is managing and using its resources economically and efficiently would most appropriately be classified as:
a. Compliance auditing
b. Financial auditing
c. Operational auditing
d. Program results auditing

Back 6

C

Front 7

According to the Standards, who is responsible for coordinating internal and external audit efforts?
a. Chief audit executive.
b. External auditors.
c. Audit committee of the board of directors
d. Chief financial officer.

Back 7

A

Front 8

One of the purposes of the Standards is to:
a. Establish the certification criteria for a CIA.
b. Specify the content of the internal auditing department's charter.
c. Serve as a guide in determining the reliance that can be placed on the organization's system of internal control.
d. Establish a basis for measuring and guiding internal auditt operations

Back 8

D

Front 9

The purpose of governmental effectiveness or program results auditing is to determine if desired results of a program are being achieved. The first step in conducting such an audit should be to:
a. Evaluate the system used to measure results.
b. Determine the time frame to be audited.
c. Collect quantifiable data on the program's success or failure.
d. Identify the legislative intent of the program being audited.

Back 9

D

Front 10

In a broad sense, society benefits from internal auditing because the internal auditor:
a. Enforces corporate compliance with the standards of public policy.
b. Promotes the efficient and effective use of resources.
c. Evaluates financial data against professional standards.
d. Reviews systems established to ensure compliance with corporate policy.

Back 10

B

Front 11

An internal auditor who had been supervisor of the accounts payable section should not audit that section:
a. Because there is no way to measure a reasonable period of time in which to establish independence.
b. Until enough time has elapsed to allow the new supervisore to influence the system of controls over accounts payable.
c. Until after the next annual review by the external auditors.
d. Until it is clear that the new supervisor has assumed the responsibilities.

Back 11

B

Front 12

The function of internal auditing,as related to internal financial reports, would be to:
a. Ensure compliance with reporting procedures.
b. Review the expenditure items and match each item with the expenses incurred.
c. Determine if there are any employees expending funds without authorization.
d. Identify inadequate controls that increase the likelihood of unauthorized expenditures.

Back 12

D

Front 13

According to the Standards, due professional care calls for:
a. Detailed audits of all transactions related to a particular function.
b. Infallibility and extraordinary performance when the system of internal controls is known to be weak.
c. Consideration of the possibility of material irregularities during every audit assignment.
d. Testing in sufficient detail to give absolute assurance that noncompliance does not exist

Back 13

C

Front 14

According to the standards, the primary purpose for internal auditing's evaluation of the adequacy of an organization's system of internal controls is to determine:
a. If controls are designed to insure that the organization's objectives will be met.
b. The nature, extent, and timing of audit tests.
c. The extent of compliance with key controls.
d. If the application of due professional care will be sufficient to detect all material irregularitites

Back 14

A

Front 15

Which of the following actions would be a violation of auditor independence
a. Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result of a promotion.
b. Reducing the scope of an audit due to budget restrictions
c. Participating on a task force which recommends standards for control of a new distribution system.
d. Reviewing a purchasing agent's contract drafts prior to their execution.

Back 15

A

Front 16

Which of the items below would be a violation of The IIA's code of eithics?
a. Certain facts evidenced in the auditor's working papers that helped to support the basic allegations made by the auditor as to a case of fraud were not included in the audit report.
b. Evidence in the auditor's working papers that proved a criminal act was included in the auditor's report draft. The comments were later removed by audit management.
c. To keep the audit effort within the budgeted time, the auditor was directed to and did curtail testing in an area that looked suspicious and later was proved to contain massive irregularities.
d. A control system that had been recommended by the audit staff during the previous audit was found to be defective. The auditor reported the defective function as a client failure.

Back 16

D

Front 17

When required to select adequate operating standards to evaluate an activity, the internal auditors should:
a. Seek client agreement on a set of appropriate standards.
b. Conclude that internal control is not effective.
c. Choose the standards used in the last audit of the activity.
d. Develop an appropriate set of standards.

Back 17

A

Front 18

According to the Standards, an internal auditor's role with respect to operating objectives and goals includes:
a. Approving the operating objectives or goals to be met.
b. Determining whether underlying assumptions are appropriate.
c. Developing and implementing control procedures.
d. Accomplishing desired operating program results.

Back 18

B

Front 19

The best description of the purpose of internal auditing is that it:
a. Furnishes members of the organization with information needed to effectively discharge their responsibilities.
b. Reviews the reliability and integrity of financial and operating information.
c. Reviews the means of safeguarding assets and, as appropriate, verifies the existence of such assets.
d. Appraises the economy and efficiency with which resources are employed.

Back 19

A

Front 20

According to the Standards, the independence of internal auditors is achieved through:
a. Staffing and supervision.
b. Continuing education and due professional care.
c. Human relations and communications.
d. Organizational status and objectivity.

Back 20

D

Front 21

Which of the following actions by an auditor would violate the code of ethics?
a. An audit of an activity managed by the auditor's spouse.
b. A material financial investment in the organization.
c. Use of an organization car.
d. A significant ownership interest in a non-related business.

Back 21

A

Front 22

The standards requires that the CAE seek the approval of management and acceptance by the board of a formal written charter for the internal auditing department. The purpose of this charter is to:
a. Protect the internal auditing department from undue outside influence.
b. Establish the purpose, authority, and responsibility of the internal auditing department.
c. Clearly define the relationship between internal and external auditing
d. Establish the CAE's status as a staff executive.

Back 22

B

Front 23

An auditor often faces special problems when auditing a foreign subsidiary. Which of the following statements is false with respect to the conduct of international audits?
a. The IIA standards do not apply outside the U.S.
b. The auditor should determine whether managers are in compliance with local laws.
c. There may be justification for having different organization policies in force in foreign branches.
d. It is preferable to have multilingual auditors conduct audits at branches in non-English-speaking nations.

Back 23

A

Front 24

Which of the following could be an organization factor that might adversely affect the ethical behavior of the CAE?
a. The CAE reports directly to an independent audit committee of the board of directors.
b. The CAE is not assigned any operational responsibilities.
c. A CAE may not be appointed or approved without concurrence of the board of directors.
d. The CAE's annual bonuses are based on dollar recoveries or recommended future savings as a result of audits.

Back 24

D

Front 25

As used by the internal auditing profession, the standards refers to all of the following except:
a. Criteria by which the operations of an internal audit department are evaluated and measured.
b. Criteria which dictate the minimum level of ethical actions to be taken by internal auditors.
c. Statements intended to represent the practice of internal auditing as it should be.
d. Criteria that are applicable to all types of internal audit departments.

Back 25

B

Front 26

According to the standards, internal auditors should possess the knowledge, skills, and disciplines essential to the performance of internal auditing. This means that all internal auditors should be proficient in applying:
a. Internal auditing standards.
b. Quantitative methods.
c. Management principles.
d. Structured systems analysis.

Back 26

A

Front 27

An auditor discovers some material inefficiencies in a purchasing function. The purchasing manager happens to be the auditor's next-door neighbor and best friend. In accordance with the code of eithics, the auditor should:
a. Objectively include the facts of the case in the audit report.
b. Not report the incident because of loyalty to the friend.
c. Include the facts of the case in a special report submitted only to the friend.
d. Not report the friend unless the activity is illegal.

Back 27

A

Front 28

An organization's new president meets the CAE for the first time, and asks him or her to briefly describe the department's overall responsibility. The CAE states that internal audit's overall responsibility is to:
a. Act as an independent appraisal function to review operations as a service to management by measuring and evaluating the effectiveness of controls.
b. Review the means of safeguarding assets and, as appropriate, verify the existence of such assets.
c. Ensure compliance with policies, plans, procedures, laws, and regulations that could have a significant impact on operations and reports.
d. Review the reliability and integrity of financial and operating information and the means used to identify, measure, classify, and report such information.

Back 28

A

Front 29

Which of the following activities would not be presumed to impair the independence of an internal auditor?
I. Recommending standards of control for a new computer application.
II. Drafting procedures for running a new computer application to ensure that proper controls are installed.
III. Performing reviews of procedures for a new computer application before it is installed.
a. I only
b. II only
c. III only
d. I and III only.

Back 29

D

Front 30

Which of the following activities is outside the scope of internal auditing?
a. Assessing an operating department's effectiveness in achieving stated organizational goals.
b. Safeguarding assets.
c. Checking for compliance with laws and regulations.
d. Evaluating established objectives and goals.

Back 30

B

Front 31

In recent years, control self-assessment has become a valuable auditing tool, especially in terms of:
a. Determining the accuracy and understandability of financial events as expressed in financial documents
b. Identifying workers who may have been involved in fraudulent activities.
c. Uncovering problems in areas such as organizational morale and communcation.
d. Conducting employee performance appraisals.

Back 31

C

Front 32

The mission of the 1999 Competency Framework for Internal Auditing (CFIA), a research study commissioned by The IIA Research Foundation, was to:
a. Design a new internal auditing educational program to be adopted by universities, IIA affiliates, and other training institutions around the world.
b. Find the essence of the global profession of internal auditing and update information on the competencies that internal auditors need.
c. Identify differences in internal auditing practices throughout the world and initiate actions that would require all internal auditors to become certified.
d. Establish guidelines that would help internal auditors to maintain their current practices and high standards so that the profession is not compromised by importune changes in the business environment.

Back 32

B

Front 33

Risk management has become an element of ever-increasing importance for modern organizations. As a result, more and more internal auditors are:
a. Reviewing all organizational insurance policies on regular-cycle basis.
b. Concentrating on the regulatory aspects of risk management, since areas such as environmental risk have become so great that they can decimate a corporation.
d. Advising all audit customers to be more aware of the risks within their operations

Back 33

C

Front 34

Upon obtaining factual documentation of unethical business conduct by the vice president in charge of internal auditing, the chief audit executive should:
a. Conduct an investigation to determine the extent of the vice president's involvement in the unethical acts.
b. Confront the vice president with the facts before proceeding.
c. Schedule an audit of the business function involved.
d. Report the facts to the chief executive officer and the audit committee.

Back 34

D