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NEW QUESTION # 120
A company's cellular phone costs vary significantly by sales representative and by month. Which of the following would be the most appropriate approach for a consulting project concerning this issue?
- A. Business process review of cellular phone needs.
- B. Benchmarking with other cellular phone users.
- C. Performance measurement and design of the budgeting process.
- D. Control self-assessment involving sales representatives.
Answer: A
NEW QUESTION # 121
Which of the following conditions is the strongest indicator of possible fraud?
- A. Independent reconciliations of subsidiary to general ledgers that are not always completed on a timely basis.
- B. A condition of excess manufacturing waste material.
- C. An assistant treasurer who refuses to take vacations.
- D. A manager who is often over budget at the end of a reporting period.
Answer: C
NEW QUESTION # 122
The following are potential sources of evidence regarding the effectiveness of a division's total quality management program. The least persuasive evidence would be a comparison of:
- A. Customer returns before and after program implementation.
- B. Employee morale before and after program implementation.
- C. Scrap and rework costs before and after program implementation.
- D. Manufacturing and distribution costs per unit before and after program implementation.
Answer: B
Explanation:
Section: Volume B
NEW QUESTION # 123
Which of the following types of contracts would provide the least incentive for a contractor to achieve economy and efficiency?
- A. Indefinite delivery contract.
- B. Lump-sum contract.
- C. Cost-plus contract.
- D. Unit-price contract.
Answer: C
NEW QUESTION # 124
A code of business conduct should include which of the following to increase its deterrent effect?
1. Appropriate descriptions of penalties for misconduct.
2. A notification that code of conduct violations may lead to criminal prosecution.
3. A description of violations that injure the interests of the employer.
4. A list of employees covered by the code of conduct.
- A. 1 and 3
- B. 1 and 2
- C. 2 and 4
- D. 3 and 4
Answer: B
NEW QUESTION # 125
Which of the following situations justifies the release of an interim report to management and the board?
The internal auditor is convinced that the audit observations require immediate attention.
The internal auditor would like to communicate a change in engagement scope for the activity under review.
The internal auditor notes that the engagement may extend over a longer time period.
The audit supervisor believes that issuing interim reports eases supervisory review and controls over working papers.
- A. 2 and 3 only
- B. 2, 3, and 4 only
- C. 1, 2, and 3 only
- D. 1 and 3 only
Answer: C
NEW QUESTION # 126
During an interview with a manager in a company's claims department, an auditor noted that the manager became nervous and changed the subject whenever the auditor raised questions about certain types of claims. The manager's answers were consistent with company policies and procedures. When documenting the interview, the auditor should:
- A. Document the manager's answers but not the nonverbal communication because it is subjective and is not corroborated.
- B. Disregard the interview entirely because the verbal and nonverbal communications were contradictory.
- C. Conclude that the nonverbal communication is persuasive and that sufficient evidence exists to begin a fraud investigation.
- D. Document the manager's answers, noting the nature of the nonverbal communication.
Answer: D
NEW QUESTION # 127
According to IIA guidance, which of the following is true regarding audit supervision?
1. Supervision should be performed throughout the planning, examination, evaluation, communication, and follow-up stages of the audit engagement.
2. Supervision should extend to training, time reporting, and expense control, as well as administrative matters.
3. Supervision should include review of engagement workpapers, with documented evidence of the review.
- A. 2 and 3 only
- B. 1, 2, and 3
- C. 1 and 3 only
- D. 1 and 2 only
Answer: B
NEW QUESTION # 128
While preparing the annual audit plan, the newly assigned chief audit executive (CAE) learns that the organization has not yet implemented a risk framework. Which of the following would be the most appropriate action for the CAE to take regarding potential engagements?
- A. Consult with senior management and the board and make adjustments regarding risk.
- B. Prioritize the engagements that were not done in previous years and schedule them for the upcoming year.
- C. Use the previous three-year audit plan to extrapolate potential engagements for the upcoming year's schedule of engagement.
- D. Review all outstanding recommendations from prior audit engagements and focus on them in the upcoming year.
Answer: A
Explanation:
Section: Volume D
NEW QUESTION # 129
In reviewing the appropriateness of the minimum quantity level of inventory established by a department, an auditor would be least likely to consider:
- A. Seasonal variations in forecasting inventory demand.
- B. The potential for obsolescence of inventory items.
- C. Stockout costs, including lost customers.
- D. Optimal order sizes determined by an economic order quantity model.
Answer: D
Explanation:
Section: Volume C
NEW QUESTION # 130
Due to a recent system upgrade, an audit is planned to test the payroll process. Which of the following audit objectives would be most important to prevent fraud?
- A. Verify that benefits deductions are accurate.
- B. Verify that payments are on time.
- C. Verify that amounts are correct.
- D. Verify that recipients are valid employees.
Answer: D
NEW QUESTION # 131
Which of the following best describes the most important criteria when assigning responsibility for specific tasks required in an audit engagement?
- A. Auditors must be given assignments based primarily upon their years of experience.
- B. Tasks must be assigned to the audit team member who is most qualified to perform them.
- C. All auditors assigned an audit task must have the knowledge and skills necessary to complete the task satisfactorily.
- D. All audit team members must have the skills necessary to satisfactorily complete any task that will be required in the audit engagement.
Answer: C
NEW QUESTION # 132
An internal audit manager is supervising an engagement. A senior auditor deviates from the approved engagement plan but meets all deadlines in the approved time schedule. Which activity is not required for the audit manager to provide proper engagement supervision?
- A. Approve the deviation from the engagement plan.
- B. Actively participate in audit procedures.
- C. Ensure that all engagement objectives are met.
- D. Ensure compliance with the time schedule.
Answer: B
Explanation:
Section: Volume C
NEW QUESTION # 133
Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?
I.Physically inspect all assets on the organization's property.
II.
Select a sample department and physically inspect assets in the department.
III.
Select a sample from the organization's records of physical assets and physically locate each asset.
IV.
Identify assets at a sample of locations and trace to the organization's records.
- A. I and IV only.
- B. I only.
- C. III and IV only.
- D. II and III only.
Answer: C
NEW QUESTION # 134
Which of the following statements describes an engagement planning best practice?
- A. If the engagement subject matter is not unique, it is not necessary to outline specific testing procedures during the planning phase.
- B. The engagement plan includes the expected distribution of the audit results, which should be kept confidential until the audit report is final.
- C. It is best to determine planning activities on a case-by-case basis because they can vary widely from engagement to engagement.
- D. Engagement planning activities include setting engagement objectives that align with audit client's business objectives.
Answer: D
NEW QUESTION # 135
When interrogating an individual who is suspected of fraud, it is appropriate to:
- A. Discontinue questioning once the individual has confessed to the fraud.
- B. Prepare a list of questions prior to the interrogation and strictly adhere to the list.
- C. Start the interview with questions to which the interviewer already knows the answer.
- D. Tell the individual that any information disclosed in the interrogation will not be disclosed outside of the company.
Answer: C
NEW QUESTION # 136
Which of the following would be an appropriate role of the internal audit function?
- A. Evaluate the effectiveness of the organization's ethics-related activities.
- B. Be responsible for the management of a whistle blowing hotline.
- C. Establish the ethics policies for the organization.
- D. Determine the consequences for ethics violations.
Answer: A
NEW QUESTION # 137
Which of the following is a preventive control strategy against fraud?
- A. Performing background checks on employees.
- B. Implementing control self-assessment.
- C. Performing a surprise audit.
- D. Maintaining a whistleblower hotline.
Answer: A
Explanation:
Section: Volume D
NEW QUESTION # 138
According to the International Professional Practices Framework, which of the following situations is an indicator of a healthy relationship between the audit committee and the internal audit function?
- A. The CAE sends the audit committee all communications between the internal audit department and the audit client in order to keep the audit committee up to date on the engagement.
- B. The chief audit executive (CAE) has direct access to the audit committee and the board but typically does not interact directly with them unless a material weakness in the control environment is identified.
- C. Whenever a potential audit finding or testing exception is first identified, the audit committee is immediately notified, as well as for any subsequent changes in the status of the engagement.
- D. The CAE does not distribute audit reports to the audit committee. However, the audit committee is made aware of the scope and findings of audits performed.
Answer: D
NEW QUESTION # 139
During an audit, an employee, who does not want to be identified, offers to provide information that would be damaging to the organization and may concern illegal activities. Which of the following actions by the auditor would not be consistent with the IIA Code of Ethics and Standards?
- A. Informing the employee of other methods of communicating this type of information.
- B. Informing the employee that an attempt will be made to keep the source of the information confidential while looking into the matter further.
- C. Suggesting that the employee consider talking to legal counsel.
- D. Promising to maintain the employee's anonymity and listening to the information.
Answer: D
NEW QUESTION # 140
Company A has a formal comprehensive corporate code of ethics while company B does not.
Which of the following statements regarding the existence of the code of ethics in company A can be logically inferred?
I. Company A exhibits a higher standard of ethical behavior than does company B.
II. Company A has established objective criteria by which an employee's actions can be evaluated.
III. The absence of a formal corporate code of ethics in company B would prevent a successful audit of ethical behavior in that company.
- A. II only
- B. II and III only
- C. III only
- D. I and II only
Answer: A
NEW QUESTION # 141
An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?
- A. Review only the company's controls over data sent to and received from the service bureau.
- B. Review the controls over payroll in both the company and the service bureau.
- C. Review only the controls over payments to the service bureau based on the contract.
- D. Cancel the engagement because the processing is being performed outside of the organization.
Answer: B
NEW QUESTION # 142
According to IIA guidance, which of the following individuals should receive the final audit report on a compliance engagement for the organization's cash disbursements process?
- A. The accounts payable manager, purchasing manager, and receiving manager.
- B. The accounts payable manager, chief financial officer, and audit committee.
- C. The accounts payable supervisor, accounts payable manager, and controller.
- D. The accounts payable supervisor, controller, and treasurer.
Answer: C
Explanation:
Section: Volume E
Explanation
NEW QUESTION # 143
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