Which of the following statements is true in regard to policies and procedures for guiding the internal audit activity?
A. A small internal audit activity may be managed informally.
B. All internal audit activities need formal policies and procedures to guide them regardless of size.
C. A large internal audit activity may be managed informally if the chief audit executive decides to do so.
D. There is no need for separate policies and procedures if audits are conducted in accordance with The IIA's International Professional Practices Framework.
At a construction company, an internal auditor is planning an audit of the company's process for designing and building grid connections. The process involves customers making payments in three parts:
The first payment of 10% after approval of the customer's application. The second payment of 70% prior to construction.
The third payment of 20% after construction is complete.
Which of the following key controls should the auditor test to ensure that the company is not taking any unwanted credit risks?
A. Controls that ensure that grid connection design is finalized before construction is approved to begin.
B. Controls that ensure construction orders are initiated after the second invoice is paid.
C. Controls that ensure all three invoices are calculated correctly according to the total project cost.
D. Controls that ensure that applications are verified for approval prior to initiating design and construction.
Prior to performing testing, an internal auditor has determined that a primary process control failed due to design weakness. Which of the following actions should the auditor perform next?
A. Determine whether there are any compensating controls in place to reduce the risk to an acceptable level, and discuss this matter with management of the business area to determine which corrective action is needed.
B. Test the control anyway to determine the likelihood that the control was not performed properly, and discuss this matter with management of the business area to determine which corrective action is needed.
C. Conclude that the process control environment is weak, issue a finding on this conclusion, and report this finding to management of the business area.
D. Confer with a second internal auditor to determine whether the control failure is legitimate, issue a finding on this conclusion, and report this finding to management of the business area.
Which of the following describes the primary reason why a preliminary risk assessment is conducted during engagement planning?
A. To identify the greatest risks organizationwide.
B. To ensure that the engagement work program covers all risk areas.
C. To ensure that risks identified during previous audits of the area have been adequately addressed.
D. To ensure that significant risks are included in the engagement scope.
Which of the following statements is true regarding the use of internal control questionnaires (ICQs)?
A. ICQs are efficient because they minimize the need for follow-up with survey respondents.
B. Controls with positive survey responses can be eliminated from further testing.
C. Answers to survey questions can be easily misinterpreted.
D. ICQs offer limited value for organizations with uniform procedures.
According to IIA guidance, the chief audit executive is directly responsible for which of the following?
A. Maintaining a quality assurance program, even in the absence of management support.
B. Periodically reviewing and approving the internal audit charter.
C. Providing opportunities for all staff auditors to satisfy their professional development requirements.
D. Establishing the objectives, scope, and plan for each engagement.
A chief audit executive (CAE) determined that operational management did not address an open internal control issue, which creates a risk of material misstatement of the organization's financial statements. Which of the following is the best course of action for the CAE to take?
A. Immediately report the issue to the board.
B. Take the necessary corrective action to address the issue.
C. Escalate the issue to senior management.
D. Inform the external auditors about the issue.
An audit observation noted that annual inventory counts of biofuel was not being performed appropriately. Fuel yards were not visited and physical amounts of biofuel were not reconciled with accounting data. Management of the division understood the issue and promised to resolve the problem. When should the internal auditor schedule a follow-up review?
A. As soon as possible; no later than two months after the audit.
B. When convenient for both parties.
C. When management has indicated that the issue has been resolved.
D. Before financial year end.
An internal auditor is asked to determine why the production line for a large manufacturing organization has be experiencing shutdowns due to unavailable parts. The auditor learns that production data used for generating automatic purchases via electronic interchange is collected on personal computers connected by a local area network (LAN). Purchases are made from authorized vendors based on both the production plans for the next month and an authorized materials requirements plan (MRP) that identifies the parts needed per unit of production. The auditor suspects the shutdowns are occurring because purchasing requirements have not been updated for changes in production techniques. Which of the following audit procedures should be used to test the auditor's theory?
A. Compare purchase orders generated from test data input into the LAN with purchase orders generated from production data for the most recent period.
B. Develop a report of excess inventory and compare the inventory with current production volume.
C. Compare the parts needed based on current production estimates and the MRP for the revised production techniques with the purchase orders generated from the system for the same period.
D. Select a sample of production estimates and MRPs for several periods and trace them into the system to determine that input is accurate.
The chief audit executive can illustrate the value of the internal audit activity by reporting which of the following to the board?
A. The overall performance resulting from the internal audit balanced scorecard.
B. The number of outstanding and overdue management actions.
C. The experience of the organization's internal auditors.
D. The number of audits in the annual audit plan relative to similar organizations.
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