Session IAP 12

Which of the following is true of analytical approaches and process mapping?

• Auditors use flowcharts at the end of an audit to verify the client’s processes and controls.

• Only data flow diagrams apply to computerized systems.

• Data flow diagrams have no symbols for output.

• RACI diagrams are ineffective for cross-functional processes.

Ordinarily, what source of information should most affect the internal auditor’s conclusions?

• Oral.

• External.

• Informal.

• Inquiry.

Which of the following cannot be performed by an auditor using generalized audit software (GAS)?

• Aging accounts receivable.

• Matching identical product information in separate data files.

• Identifying missing check numbers.

• Correcting erroneous data elements, making them suitable for audit testwork.

Which of the following statements concerning the parallel simulation approach when testing a computerized accounting system is false?

• Only real, not fictitious, transactions are reprocessed.

• Transactions are reprocessed only by the client’s computer programs.

• Transactions from throughout the period may be reprocessed.

• It tends to be a very costly method.

In testing the write-off of a deteriorated piece of equipment, the best information about the condition of the equipment is

• The production department’s equipment downtime report.

• The equipment manager’s statement regarding condition.

• A physical inspection of the actual piece of equipment.

• Accounting records showing maintenance and repair costs.

Which of the following is an essential factor in evaluating the sufficiency of information? The information must

• Be based on references that are considered competent.

• Be convincing enough for a prudent person to reach the same decision.

• Be well documented and cross-referenced in the workpapers.

• Bear a direct relationship to the observation and include all of the elements of an observation.

Two major retail organizations, both publicly traded and operating in the same geographic area, have recently merged. Both are approximately the same size and have internal audit activities. Organization A has little EDI experience. Organization B has invested heavily in information technology and has EDI connections with its major vendors.

The board has asked the internal auditors from both organizations to analyze risk areas that should be addressed after the merger. The chief audit executive of Organization B has suggested that the two internal audit activities have a planning meeting to share work programs, scope of engagement coverage, and copies of engagement communications that were delivered to their boards. Management has also suggested that the internal auditors review the compatibility of the organizations’ two computer systems and control philosophy for individual store operations.

The two organizations agree to share data on store operations. The data reveal that three stores in Organization A are characterized by significantly lower gross margins, higher-than-average sales volume, and higher levels of employee bonuses. The three stores are part of a set of six that are managed by a relatively new section manager. In addition, the store managers of the three stores are also relatively new. The most likely cause of the observed data is

• Promotional activities that offer large discounts coupled with the payment of bonuses to employees who reach targeted sales goals.

• The relative inexperience of the store managers.

• Problems with employee training and employee ability to meet customer needs.

• Fraudulent activity whereby goods are taken from the stores, thus resulting in the lower gross margins.

When an auditor tests the internal controls of a computerized system, which of the following is true of the test data approach?

• Test data are processed with the client’s computer and the results are compared to the auditor’s predetermined results.

• Test data programs need not be tailor-made by the auditor for each client’s computer applications.

• Test data programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls.

• Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operations conditions.

Which of the following are least valuable in predicting the amount of uncollectible accounts for an organization?

• Total monthly sales for each of the past 6 months.

• Dollar amounts of accounts actually written off by the organization for each of the past 6 months.

• Published economic indices indicating a general business downturn.

• Written forecasts from the credit manager regarding expected future cash collections.

Smith Corporation has numerous customers. A customer file is kept on disk storage. Each customer record contains the name, address, credit limit, and account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the auditor to follow is to

• Request a printout of a sample of account balances so they can be individually checked against the credit limits.

• Develop test data that would cause some account balances to exceed the credit limit and determine if the system properly detects such situations.

• Request a printout of all account balances so they can be manually checked against the credit limits.

• Develop a program to compare credit limits with account balances and print out the details of any account with a balance exceeding its credit limit.