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Internal Auditing Chapter 10

Terms in this set (9)

professional sketpicism means that internal auditors beginning an assurance engagement should:
a. assume client personnel are dishonest until they gather evidence that clearly indicates otherwise.
b. assume client personnel are honest until they gather evidence that clearly indicates otherwise.
c. neither assume client personnel are honest nor assume they are dishonest ineffectively.
d. assume that internal controls are designed inadequately and/or operating ineffectively.
c. neither assume client personnel are honest nor assume they are dishonest ineffectively.
Which of the following statements regarding audit evidence would be the least appropriate for an internal auditor to make?
a. I will consider the level of risk involved when deciding the kind of evidence I will gather.
b. I do not perform procedures that provide persuasive evidence because I must obtain convincing evidence.
c. I evaluate both the usefulness of the evidence I can obtain and the cost to obtain it.
d. I am seldom absolutely certain about the conclusions I reach based on the evidence I examine.
b. I do not perform procedures that provide persuasive evidence because I must obtain convincing evidence.
Audit evidence is generally considered sufficient when:
a. it is appropriate
b. there is enough of it to support well-founded conclusions
c. it is relevant, reliable, and free from bias.
d. it has been obtained via random sampling
b. there is enough of it to support well-founded conclusions
Documentary evidence is one of the principal types of corroborating information used by an internal auditor. Which one of the following examples of documentary evidence generally is considered the most reliable?

a. A vendor's invoice obtained from the accounts payable department.
b. a credit memorandum prepared by the credit manager.
a receiving report obtained from the receiving department.
d. a copy of a sales invoice obtained from the sales department.
a. a vendor's invoice obtained from the accounts payable department.
An internal auditor must weigh the cost of an audit procedure against the persuasiveness of the evidence to be gathered. Observation is one audit procedure that involves cost-benefit tradeoffs. Which of the following statement regarding observation as an audit procedure is/are correct?
I. Observation is limited because individuals may react differently when being watched.
II. Observation is more effective for testing completeness than it is for testing existence.
III. Observation provides evidence about whether certain controls are operating as designed.

a. I only
b. II only
C. I and III
d. I, II, and III
C. I and III
Your audit objective is to determine that purchases of office supplies have been properly authorized. If purchases of office supplies are made through the purchasing department, which of the following procedures is most appropriate?
a. Vouch purchase orders to approved purchase requisitions.
b. Trace approved purchase requisitions to purchase orders.s
c. Inspect purchase requistions for proper approval
a. vouch purchase orders to approved purchase requisitions.
A production manager of MSM Company ordered excessive raw materials and had the materials delivered to a side business he operated. The manager falsified receiving reports and approved the invoices for payment. Which of the following procedures would most likely detect this fraud?
a. vouch cash disbursements to receiving reports and invoices.
b. confirm the amounts of raw materials purchased, purchase prices, and dates of shipment with vendors.
c. perform ratio and trend analysis compare the cost of raw materials purchased with the cost of goods produced.
d. observe the receiving dock and count materials received. Compare the counts with receiving reports completed by receiving personnel.
c. perform ratio and trend analysis compare the cost of raw materials purchased with the cost of goods produced.
An internal auditor is concerned that fraud, in the form of payments to fictitious vendors, may exist. Company purchasers, responsible for purchases of specific product lines, have been granted the authority to approve expenditures up to $10,000. Which of the following applications of generalized audit software would be most effective in addressing the auditor's concern?
a. list all purchases over $10,000 to determine whether they were properly approved.
b. take a random sample of all expenditures under $10,000 to determine whether they were properly approved.
c. List all major vendors by product line. Select a sample of major vendors and examine supporting documentation for goods or services received.
d. List all major vendors by product line. Select a sample of major vendors and send negative confirmations to validate that they actually provided goods or services.
d. List all major vendors by product line. Select a sample of major vendors and send negative confirmations to validate that they actually provided goods or services.
Which of the following most completely describes the appropriate content of internal audit assurance engagement working papers?
a. Objectives, procedures, and conclusions.
b. Purpose, criteria, techniques and conclusions
c. objectives, procedures, facts, conclusions and recommendations.
d. subject, purpose, sampling information, and analysis.
c. objectives, procedures, facts, conclusions and recommendations.
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