IIA-Certified Internal Auditor - Part 2, Conducting the Internal Audit Engagement Set 17

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IIA-Certified Internal Auditor - Part 2, Conducting the Internal Audit Engagement Set 17

Which of the following would constitute a violation of the IIA Code of Ethics?

An internal auditor, who has recently joined the organization, has accepted an assignment to audit the
electronics manufacturing division. The auditor previously served as senior auditor for the external audit
of that division and has audited many electronics companies during the past two years. ✘ An internal auditor has accepted an assignment to audit the warehousing function six months from now.The auditor has no expertise in that area but has signed up for courses in warehousing that will be
completed before the assignment begins. ✘ An internal auditor has no ambitions for promotion and has not engaged in training or other professionaldevelopment activities during the last three years. The auditor's performance assessments indicate
consistent quality of work. ✘ An internal auditor discovered an internal financial fraud during the year, and the financial statementswere adjusted to properly reflect the loss associated with the fraud. The auditor discussed the fraud with
the external auditor during the external auditor's review of the working papers detailing the incident. ✔

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Answer & Solution

Answer: Option B

Solution:

It provides fallback for IE8.

In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be audited. What is the most likely result of that procedure?

It creates apprehension about the audit engagement. ✘ It involves the engagement client's supervisory personnel in the audit. ✘ It is an uneconomical approach to obtaining information. ✘ It is only useful for audits of distant locations. ✔

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Answer: Option B

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Which of the following would be the least desirable criteria against which to judge current operations of an organization's treasury function?

The operations of the treasury function as documented during the last audit engagement. ✘ Company policies and procedures delegating authority and assigning responsibilities. ✘ Finance textbook illustrations of generally accepted good treasury function practices. ✘ Codification of best practices of the treasury function in relevant industries. ✔

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Answer: Option B

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An internal auditor compared the number of human resources professionals per employee with industry standards. This comparison would assist the auditor in evaluating which of the following areas?

Sufficiency of controls over payroll rate increases. ✘ Current level of performance of the human resources department. ✘ Adequacy of controls over hiring new employees. ✘ Degree of compliance with human resources policies. ✔

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Answer & Solution

Answer: Option B

Solution:

It provides fallback for IE8.

During an audit of a contract for computer security, a governmental auditor finds that a contractor has developed a system that could be the most advanced in the industry. If it seems that the contractor is charging the government for developmental cost of a system that might be sold to other organizations, what is the auditor's best course of action?

Estimate the cost to develop the advanced security system and inform the contractor that it will be a
disallowed cost. ✘ Exclude the observation from the engagement final communication because the contract was vagueand the level of security is clearly acceptable. ✘ Estimate the added cost, report it to management, and suggest that management meet with its lawyersand the contractor to resolve differences. ✘ Compare the cost of the security program with previous costs incurred by governmental operations andinform the contractor that the difference will be a disallowed cost. ✔

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Answer & Solution

Answer: Option B

Solution:

It provides fallback for IE8.

An internal auditor noticed that employees with responsibilities for cash collection had recently issued an unusually large number of credit memos, indicating that the original charges had been made to the wrong customer accounts. From a control standpoint, the auditor would be concerned with the possibility that:

The organization is selling a large number of defective items. ✘ Employees in this function are concealing a theft of cash collected from customers. ✘ Credit memos are not being submitted on a timely basis. ✘ The credit department has not been properly screening customers and, as a result, a large portion ofthe accounts receivable may not be collectible. ✔

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Answer & Solution

Answer: Option B

Solution:

It provides fallback for IE8.

After becoming aware of control weaknesses indicating that a fraud could have been committed, which of the following actions should an internal auditor take next?

Issue a written report identifying the control weaknesses. ✘ Perform tests directed toward the identification of other fraud indicators. ✘ Notify external auditors of the suspicion that fraud has been committed. ✘ Recommend that a fraud investigation be conducted involving internal auditors, lawyers, investigators,security personnel, and other specialists, as appropriate. ✔

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Answer: Option B

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Audit supervision includes approval of the engagement report in order to ensure that:

The client's objectives are met. ✘ Senior management supports the report's conclusions. ✘ Report style and grammar are appropriate. ✘ Report findings are substantiated. ✔

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Answer & Solution

Answer: Option B

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An auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory. The analysis would be potentially useful in:

Identifying products for which management has not been attuned to changes in market demand.
II. Identifying potential problems in purchasing activities.
III. Identifying obsolete inventory. ✘ III only ✘ I and II only ✘ II and III only ✔

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Answer & Solution

Answer: Option B

Solution:

It provides fallback for IE8.

10.

An internal auditor provided the following statement about division A's performance during the month:
"Because supplies of raw material X were scarce, division A's profits declined by 15 percent."
Which of the following can be validly concluded from the auditor's statement?

Division A's production level declined by 15 percent.
II. Division A could have sold more products than it produced.
III. Division A usually sells all of the products that it produces. ✘ I only ✘ II only ✘ III only ✔

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Answer: Option B

Solution:

It provides fallback for IE8.

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IIA-Certified Internal Auditor - Part 2, Conducting the Internal Audit Engagement Set 17

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