What is audit risk?
A. Internal and external risk factors that exist when there are no controls implemented.
B. The amount of risk that is reduced through risk management operations.
C. An incorrect conclusion based on evidence uncovered during an audit.
D. The risk that remains after management has executed risk management activities.
Which of the following statements describes a control weakness?
A. Purchasing procedures are well designed and are followed even when the purchasing supervisor wishes to direct otherwise.
B. Pre-numbered blank purchase orders are secured within the purchasing department.
C. Normal operational purchases fall in the range from $500 to $1, 000, with a single signature required for purchases over $1, 000.
D. The purchasing agent in a personal capacity invests in a publicly-traded mutual fund that lists the stock of one of the company's suppliers in its portfolio.
Which of the following is an example of a preventive control activity for risk related to pollution caused by waste disposal?
A. Offering an education program delivered by environmental experts.
B. Maintaining strict security around environmental department files.
C. Seeking legal consultation from a firm with experience in environmental law.
D. Taking periodic samples of the area at risk and logging the results.
An organization has developed a model to determine the most profitable rate of production. The organization varies the cost of labor in the model to determine how much the changes affect the optimal production level. Which type of analysis does this scenario demonstrate?
A. Forecast.
B. Sensitivity.
C. Critical path.
D. Decision.
A fast-food company is developing a computer simu-lation involving arrival time at a drive- through restaurant. The distribution for arrival times is: Time Single-Digit Random
Between Arrivals Probability Number Assigned
2 minutes
0.1 3 minutes
0.2 1, 2
4 minutes
0.3 3, 4, 5
5 minutes
0.4 6, 7, 8, 9
Six random numbers are selected to represent the arrival of six cars: 1, 6, 9, 0, 5, 6. What is the mean time between arrivals in this run of the simu-lation model?
A. 2 minutes.
B. 3 minutes.
C. 4 minutes.
D. 5 minutes.
Which fraudulent act is designed primarily to benefit the organization?
A. Fictitious sale or assignment of assets.
B. Authorization of payment for hours not worked.
C. Theft or misappropriation of funds.
D. Acceptance of bribes or kickbacks.
An internal auditor is testing whether payments to outside contractors have been charged to the proper account. Which of the following sampling methods would be most useful in completing this task?
A. Haphazard sampling.
B. Probability-proportional-to-size sampling.
C. Attribute sampling.
D. Judgmental sampling.
While conducting an audit, an internal auditor notices an unusual increase in sales among a small number of units within the organization. The units also experienced persistent negative cash flows despite reported earnings and earnings growth. Which type of fraud do the auditor's findings most likely indicate?
A. Employee collusion with customer organizations.
B. Improper asset valuation.
C. Inventory theft.
D. Fictitious revenues.
An internal auditor for a large computer company suspects that returned computer systems are being repackaged as new products and shipped to other customers before the defects have been repaired. Which of the following would be the most persuasive piece of evidence in support of the auditor's suspicions?
A. Credit memos issued after year end for goods shipped before year end.
B. Evidence of returned goods in the shipping and receiving area.
C. An unusual number of customer complaints.
D. The results of a complete physical inventory taken at year end.
A product manager occasionally overrides established purchasing policies in order to expedite the introduction of new products in a competitive industry. The manager's overrides are:
A. Unacceptable as they are not consistent with the purchasing policy.
B. Only acceptable if the override is within the manager's spending limit.
C. Only acceptable if a policy governing such overrides is in place and they are reported.
D. Acceptable due to the highly competitive nature of the industry.
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