Reference no: EM131404414

Auditing Quiz

1. The internal auditor completed work on a segment of the engagement work program. As a result, the internal auditor determined that a modification of the organization's distribution procedures is required. The engagement client agreed and has implemented revised procedures. The internal auditor should

A. Jointly develop and communicate an appropriate recommendation.
B. Communicate the problem and assume that management will take appropriate action.
C. Indicate in the final engagement communication that the client determined and implemented corrective action.
D. Research the problem and recommend in the final engagement communication measures that should be taken.

2. Management and the board of directors are responsible for following up on observations and recommendations made by the external auditors. What role, if any, should the internal audit activity have in this process?

A. The internal audit activity should become involved only if specifically requested by management or the board of directors.
B. The internal audit activity should only become involved if the chief audit executive has sufficient evidence that the follow-up is not occurring.
C. The internal audit activity should have no role in this process in order to ensure independence.
D. The internal audit activity should establish a monitoring process to review the adequacy and effectiveness of management's follow-up actions.

3. The internal audit activity for a chain of retail stores recently concluded an engagement to evaluate sales adjustments in all stores in the Southeast region. The engagement revealed that several stores are costing the organization substantial sums in duplicate credits to customers' charge accounts. The final engagement communication published 8 weeks after the engagement was concluded incorporated the internal auditors' recommendations to store management that should prevent duplicate credits to customers' accounts. Which of the following standards has been disregarded?

A. The follow-up actions were not adequate.
B. The final engagement communication was not timely.
C. Internal auditor recommendations should not be included in the final engagement communication.
D. The internal auditors should have implemented appropriate corrective action as soon as the duplicate credits were discovered.

4. During a review of purchasing operations, an internal auditor finds that current procedures differ markedly from stated organizational procedures. However, the internal auditor concludes that the procedures currently used represent an increase in efficiency and a decrease in processing time, without a discernible decrease in control. The internal auditor should

A. Report the lack of adherence to documented procedures as an operational risk exposure.
B. Suspend the completion of the engagement until the client documents the new procedures.
C. Develop a flowchart of the new procedures and include it in the report to management.
D. Report the change and suggest that the change in procedures be documented.

5. You are conducting an engagement to evaluate the organization's marketing effort. You agreed to keep the marketing vice president informed of your progress on a regular basis. What method should be used for those progress reports?

A. Written reports signed by the chief audit executive.
B. Briefing by the appropriate marketing first-line supervisor.
C. Oral or written interim reports.
D. Copies of working paper summaries.

6. Which of the following statements is appropriate as a conclusion (opinion) in an internal auditing final communication of the results of an engagement to evaluate the organization's branch operations?

A. The vice-president of branch operations should require the timely review of the daily transaction report as a means of monitoring purchases from the imprest fund.
B. Statistical sampling was used to determine the extent of unauthorized purchases from the imprest fund.
C. Except for the unauthorized purchases from the imprest fund, the system of internal controls over branch operations appears to be working well.
D. The engagement to review branch operations was conducted in accordance with the Standards.

7. Upon reviewing the final communication of engagement results, senior management decided to assume the risk of not implementing corrective action on certain engagement observations. Evaluate the following and select the best alternative for the chief audit executive:

A. Discuss the matter with senior management and possibly the board if the residual risk accepted is excessive.
B. Perform additional engagement procedures to further identify the policy violations.
C. Notify regulatory authorities of management's decision.
D. Conduct a follow-up engagement to determine whether corrective action was taken.

8. According to the Standards, when should a signed report be issued?

A. At the conclusion of an engagement.
B. Only if required by the particular engagement.
C. At predetermined stages as the engagement progresses.
D. Whenever an opinion is expressed.

9. The chief audit executive should ensure follow-up of prior engagement observations and recommendations

A. Unless the engagement work schedule does not allow time for follow-up.
B. Unless management rejected the recommendation in its initial response.
C. To determine if corrective action was taken and is achieving the desired results.
D. Unless management has accepted the recommendation.

10. Which of the following is most appropriate for inclusion in the summary of a final engagement communication?

A. Reference to areas not covered by the engagement.
B. Engagement client responses to recommendations.
C. Discussion of recommendations given in prior years' engagement communications.
D. A concise statement of engagement observations.

11. An engagement communication relating to an engagement performed at a bank categorizes observations as "deficiencies" for major problems and "other areas for improvement" for less serious problems. Which of the following excerpts is properly included under "other areas for improvement?"

A. The bank is incurring unnecessary postage cost by not combining certain special mailings to checking account customers with the monthly mailing of their statements.
B. Many secured loans did not contain hazard insurance coverage for tangible property collateral.
C. At one branch a large amount of cash was placed on a portable table behind the teller lines.
D. Loan officers also prepare the cashier's checks for disbursement of the loan proceeds.

12. Which of the following is false with respect to the use of interim engagement communications? Interim engagement communications

A. Are used to communicate a change in engagement scope for the activity under review.
B. Are used to communicate information that requires immediate attention.
C. Keep management informed of engagement progress when engagements extend over a long period of time.
D. Eliminate the need for issuing final engagement communications.

13. The primary reason for having written formal audit reports is to

A. Provide an opportunity for engagement client response.
B. Document the corrective actions required of senior management.
C. Record observations and recommended courses of action.
D. Provide a formal means by which the external auditor assesses potential reliance on the internal audit activity.