In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be audited. What is the most likely result of that procedure?
A. It creates apprehension about the audit engagement.
B. It involves the engagement client's supervisory personnel in the audit.
C. It is an uneconomical approach to obtaining information.
D. It is only useful for audits of distant locations.
Which of the following best describes the most important criteria when assigning responsibility for specific tasks required in an audit engagement?
A. Auditors must be given assignments based primarily upon their years of experience.
B. All auditors assigned an audit task must have the knowledge and skills necessary to complete the task satisfactorily.
C. Tasks must be assigned to the audit team member who is most qualified to perform them.
D. All audit team members must have the skills necessary to satisfactorily complete any task that will be required in the audit engagement.
A major insurance company provides a discount on automobile insurance if the vehicle meets certain safety criteria. Which of the following audit tests would provide an internal auditor with the best evidence that all qualifying insured automobiles are receiving the discount?
A. Compare the percentage of automobiles receiving discounts this year to that of last year.
B. Ask managers whether they are aware of the discount criteria and whether they are providing the discount to all qualifying automobiles.
C. Select a sample of automobiles that are not receiving the discount and determine if they have been properly excluded.
D. Select a sample of automobiles receiving the discount and determine that the required discount criteria are being met.
The most effective procedure to verify compliance with a requirement that materials be purchased from the lowest-priced source is to compare:
A. Prices paid for selected materials with prices listed on related purchase orders.
B. Bids obtained for selected purchases with related purchase orders.
C. Vendors' current prices with prices listed on related purchase orders.
D. Approved vendor lists with bids obtained for selected purchases.
During a payroll audit of a large organization, an internal auditor noted that the assistant personnel director is responsible for many aspects of the computerized payroll system, including adding new employees in the system; entering direct- deposit information for employees; approving and entering all payroll changes; and providing training for system users. After discussions with the director of personnel, the auditor concluded that the director was not comfortable dealing with information technology issues and felt obliged to support all actions taken by the assistant director. The auditor should:
A. Continue to follow the engagement program because the engagement scope and objectives have already been discussed with management.
B. Review the engagement program to ensure testing of direct deposits to employee bank accounts is adequately covered.
C. Recommend to the chief audit executive that a fraud investigation be started.
D. Test a sample of payroll changes to ensure that they were approved by the assistant director before being processed.
Under what circumstances would internal audit not become involved when intentional misconduct is suspected?
A. Management is involved in wrongdoing.
B. Management is running a parallel investigation.
C. Management does not believe a trusted employee could be guilty.
D. Management does not maintain strong internal controls.
The internal audit activity's primary responsibility in a review or examination of the organization by an external regulatory body is to:
A. Verify that regulatory reviews occur with adequate frequency.
B. Provide follow-up to determine if the regulator's findings are appropriately resolved by management.
C. Prepare documentation for the regulator.
D. Document the responses to the regulator's findings.
Which of the following audit planning activities adds the least value in understanding the current risk exposures facing the corporation?
A. Review of organizational strategic plans and operational plans.
B. Consultation with senior management and the audit committee.
C. Review of the external auditor's risk assessment.
D. Review of corporate performance reporting and benchmarking.
Inadequate risk assessment would have the strongest negative impact in which of the following phases of an audit engagement?
A. Determining the scope.
B. Reviewing internal controls.
C. Testing.
D. Evaluating findings.
The best method for assessing the relative importance of risk factors is to:
A. Change the rating of the factors from a 1-3 scale to a 1-5 scale.
B. Assign weights to the factors based on the comparative impact.
C. List the risk factors in a priority order.
D. Use data from an independent source.
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