When interviewing an individual in relation to a fraud investigation, which course of action should the internal auditor follow?
A. Assure the individual that the results of the interview will remain confidential.
B. Establish a rapport with the subject to encourage openness.
C. Discontinue questioning once the individual has confessed to the fraud.
D. Refrain from deviating from the list of questions prepared before the interview.
An audit of an organization's fulfillment department discovered that problems in the order processing system led to a significant number of orders being fulfilled multiple times. During the exit conference, the head of the department informed the auditors that the processing system would be enhanced within six months to correct the problems. Which course of action should the chief audit executive follow?
A. Adjust the scope of the next scheduled audit to determine that the problems have been resolved.
B. Monitor the status of corrective action and schedule a follow-up engagement when appropriate.
C. Meet with the audit committee to determine the appropriate follow-up action.
D. Assess the status of corrective action in a follow-up engagement in six months.
A consumer electronics company is considering acquiring a small flash memory manufacturer. An internal auditor has been assigned to determine if the manufacturer's accounts payable contain all outstanding liabilities. Which audit procedure is not relevant for this objective?
A. Verify the period of liability of subsequent cash disbursements using related supporting documentation.
B. Send confirmations, including zero-balance accounts, to vendors with whom the manufacturer normally does business.
C. Trace receiving reports issued before the period end to the accounts payable list and vendor invoices.
D. Verify a sample of accounts payable by using related invoices, receiving reports, and purchase orders.
An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?
A. Trace a sample of shipping documents to related sales invoices to verify proper billing.
B. Send accounts receivable balance confirmations to customers.
C. Compare the division's sales and gross margins to those of the prior three-month period.
D. Estimate the sales and cost of goods sold for the three-month period by using regression analysis.
As part of a preliminary survey of the purchasing function, an internal auditor reads the department's policies and procedures manual and concludes that the manual describes the processing steps clearly and contains an appropriate internal control design. The next engagement objective is to evaluate the operating effectiveness of internal controls. Which procedure would fulfill this objective most effectively?
A. Perform a design test.
B. Perform a compliance test.
C. Perform a systems test.
D. Perform an efficiency test.
An organization has recently incurred significant cost overruns on one of its construction projects.
Management suspects that these overruns were caused by the contractor improperly charging for costs
related to contract change orders.
Which of the following procedures are appropriate for testing this suspicion?
1.
Determine if the contractor has received proper approval of change orders from management.
2.
Determine if the contractor has billed for original contract work cancelled by the change orders.
3.
Determine if the contractor has charged change orders with costs already billed to the original contract.
4.
Determine if the contractor has been paid for change orders that have not yet been completed.
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 3 only
D. 3 and 4 only
Management has asked the internal audit activity to perform an operational audit of a division that recently reported an increase in expenditures in addition to a decrease in profits. However, existing internal audit resources are currently engaged in a legal compliance audit. Which factor would be considered least important in deciding whether resources should be removed from the legal compliance audit to the operational audit?
A. The increase in expenditures at the division over the past year.
B. The probability that the legal compliance audit will detect fraud.
C. The results of the external auditor's most recent financial audit.
D. The potential for regulatory fines associated with the legal compliance audit.
Given the scarcity of internal audit resources, a chief audit executive (CAE) decides not to schedule a follow-up of audit recommendations when developing engagement work schedules. Why does the CAE's decision violate the Standards?
A. It is not the CAE's responsibility to establish a process for a follow-up.
B. Lack of resources is not a sufficient reason to forgo a follow-up.
C. Follow-up actions should take priority over new engagements in scheduling.
D. When resources are scarce, the follow-up can be incorporated into the next engagement.
An internal audit manager is supervising an engagement. A senior auditor deviates from the approved engagement plan but meets all deadlines in the approved time schedule. Which activity is not required for the audit manager to provide proper engagement supervision?
A. Actively participate in audit procedures.
B. Ensure that all engagement objectives are met.
C. Approve the deviation from the engagement plan.
D. Ensure compliance with the time schedule.
Which of the following statements is correct regarding the assessment of risk in the annual audit planning process?
1.
Activities requested by management should be considered higher risk than those requested by the audit committee.
2.
Activities with lower budgets can be as high risk as those with higher budgets.
3.
The potential financial or adverse exposure should always be considered in the assessment of risk.
A. 1 only
B. 2 only
C. 3 only
D. 2 and 3 only
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