An organization's chief audit executive (CAE) determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following would be the best course of action for the CAE to follow?
A. Outsource the audit engagement to a qualified external auditing firm without burdening the audit committee with the decision.
B. Determine the requisite knowledge needed, and obtain the proper training for auditors, even if the training will significantly push back the project's timeframe as outlined by the audit committee.
C. Notify the audit committee of the problem, and assign the most competent auditors on staff to perform the audit engagement.
D. Employ the skills of a financial derivatives expert to consult on the project, and supplement the consulting with a local seminar on financial derivatives.
Which of the following would provide the best guidance to a chief audit executive who is setting internal audit staff requirements?
A. A review of audit staff education and training records.
B. Information about the audit staff size and composition of comparable organizations.
C. Results from discussions of audit needs with executive management and the audit committee.
D. The results of the audit staff's most recent performance reviews.
An internal auditor for a large retail chain suspects that a store manager has been stealing money from cash sales by listing the sales as accounts receivable and then writing off the accounts as bad debts. Which of the following irregularities is the most likely cause of the auditor's suspicion?
A. A much higher bad debt expense as a percentage of sales than that of previous years.
B. A much higher bad debt expense as a percentage of sales than that of other stores.
C. A much higher percentage of past-due accounts receivable than that of other stores.
D. A much higher percentage of past-due accounts receivable than that of previous years.
Which of the following is a valid statement about the use of visual observations during an audit engagement?
1.
Visual observations can be used to detect ineffective controls, idle resources, and safety hazards.
2.
Visual observations can be used during both preliminary survey and fieldwork stages of the audit engagement.
3.
Visual observations can provide unsubstantiated facts to management if the internal auditor believes the information is useful.
4.
Visual observations can assist an auditor in determining if a material observation should be communicated through informal means to the organization's senior management.
A. 1 and 2 only
B. 1 and 4 only
C. 2 and 3 only
D. 3 and 4 only
What is the primary purpose of a fishbone diagram?
A. To depict the areas of responsibility for departments in an organization.
B. To plan and control complex projects, such as internal audits.
C. To represent the frequencies of adverse conditions in a given process.
D. To identify the possible causes of adverse conditions.
In which of the following scenarios would a customer service hotline receive a high volume of complaints regarding payments not being applied to customers' accounts?
A. Invoices are not being mailed to customers.
B. An employee is tampering with customer checks.
C. Employees are submitting fraudulent expense reports.
D. The customer service department is not forwarding complaints to the accounts receivable department.
During an interview with a data-entry clerk in the human resources department, an internal auditor recognizes a potentially significant weakness with a database system used to track employee performance ratings. Which of the following actions should the auditor take after discovering the weakness?
A. Schedule a series of follow-up interviews with the data-entry clerk.
B. Avoid either directly or indirectly confronting the data-entry clerk about the system weakness.
C. Question the data-entry clerk indirectly to help obtain more factual information about the weakness.
D. Immediately document the weakness and write a report to the data-entry clerk's superior.
Internal control processes in an organization require that all investments exceeding $20, 000 receive authorization from both the president and treasurer. After conducting a sample of these transactions, an auditor determined that 10 of the 500 investments in the sample had not included both required authorizations. The sample has a five percent acceptable error rate. Based on this sample, which of the following actions should the auditor take?
A. Confirm all of the investments with the organization's internal finance department.
B. Contact the organization's investment broker and confirm all investments.
C. Complete a comprehensive review of the organization's investment activity and compare variations over prior years.
D. Determine that no further testing of investment authorizations is required.
An internal auditor wants to use ratio analysis to examine efficiencies in an organization's accounting department. Which of the following statements identifies a weakness of ratio analysis that should be considered by the auditor?
A. It requires a substantial investment of money.
B. It is only helpful for making comparisons across industries.
C. Computer software is required in order to draw conclusions from the data.
D. It utilizes financial information that may not have been checked for validity and reliability.
A manufacturing organization's multi-step sales and shipping process starts when the organization's headquarters receives the sales order. Headquarters then shares that data with the individual manufacturing facility that compiles the shipment. Finally, the individual manufacturing facility sends the shipments to the customer. Which method should the internal auditor use to document this process in a flowchart?
A. Trace the entire process, from the receipt of the sales order at headquarters to when the goods are shipped to the customer.
B. Request a copy of each individual manufacturing facility's flowcharts, speak with facility managers to confirm that they have been updated and then use the information in a flowchart.
C. Trace the entire process in reverse, beginning with the shipped goods and ending with the receipt of the sales order at headquarters.
D. Obtain information on how management sets sales prices, find documentation about how the organization approves the change of sales prices, and prepare an overview flowchart that links the sales price details.
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