Final Test Seminar IAP

The chief audit executive (CAE) performs a risk assessment before developing the annual audit plan. Which of the following is most likely to increase the assessment of an identified risk?

• A request from senior management to review the strategic plan

• An immaterial, anticipated drop in cash flow after plant closings

• A critical activity had not been subject to a compliance audit during the past year

• An unexpected, significant increase in receivables not related to an increase in sales

An auditor assesses control risk because it

• Affects the level of detection risk that the auditor may accept

• Is relevant to the auditor’s understanding of the control environment

• Provides assurance that the auditor’s materiality levels are appropriate

• Indicates to the auditor where inherent risk may be the greatest

What should the CAE do if the scope of the internal audit plan is insufficient to permit expression of an opinion about risk management and control?

• Hire more internal auditors to increase the scope of the engagement

• Make the decision to outsource the internal audit function so the scope of the audit plan can be sufficient

• Design more procedures to ensure the audit plan becomes sufficient

• The CAE should inform senior management and the board about gaps in audit coverage

Which of the following factors should an internal auditor consider when planning an audit of an activity?

• The objectives of the activity, the significant risks, and the control system

• The objectives of the activity, the number of employees involved, and the control system

• The number of employees involved, the control system, and the recommendations of external auditors

• The qualifications of management, the significant risks, and the control system

In planning an assurance engagement, a survey could assist with all of the following except

• Identifying areas for engagement emphasis.

• Evaluating the adequacy and effectiveness of controls

• Obtaining engagement client comments and suggestions on control problems

• Obtaining preliminary information on controls

Checklists used to assess risk have been criticized for all of the following reasons except

• Decreasing the uniformity of data acquisition

• Being incapable of translating the experience or sound reasoning intended to be captured by each item on the checklist

• Providing a false sense of security that all relevant factors are addressed

• Inappropriately implying equal weight to each item on the checklist

An assurance engagement in the quality control department is being planned. Which of the following is least likely to be used in the preparation of a preliminary survey questionnaire?

• An analysis of quality control documents

• The permanent engagement file

• Management’s charter for the quality control department

• The prior engagement communications

Developing engagement observations, conclusions, and recommendations involves comparing the condition with the relevant standard or criterion. Which of the following choices best represents an appropriate standard or criterion to support engagement observations, conclusions, and recommendations?

• A sound industry practice, based on the internal auditor’s knowledge and experience obtained during many engagement assignments within the organization

• A quality standard operating procedure (number and date) for the department

• All of the answers represent an appropriate standard or criterion to support engagement observations, conclusions, and recommendations

• An internal accounting control principle, cited and copied from a public accounting reference

If an engagement client’s operating standards are vague and thus subject to interpretation, the internal auditor must

• Seek agreement with management as to the criteria to be used to measure operating performance

• Determine best practices in this area and use them as the standard

• Interpret the standards in their strictest sense because standards are otherwise only minimum measures of acceptance

• Omit any comments on standards and the engagement client’s performance in relationship to those standards because such an analysis would be meaningless

In evaluating the effectiveness and efficiency with which resources are employed, an internal auditor is responsible for

• Determining the extent to which adequate operating criteria have been established

• Verifying the existence of assets

• Reviewing the reliability of operating information

• Verifying the accuracy of asset valuation