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Internal Auditing Chapter 12

Terms in this set (10)

The tasks performed during an internal audit assurance engagement should address the following questions:
i. what are the reasons for the results?
ii. how can performance be improved?
iii. what resutls are being achieved?
the chronological order in which these questions should be addressed is:
a. iii, i, and ii
b. i, iii, ii
c. iii, ii, i
d. ii, iii, i
a. iii, i, and ii
While planning an assurance engagement, the internal auditors obtains knowledge about the auditee's operations to, among other things:
a. develop an attitude of professional skepticism concerning management assertions
b. make constructive suggestions to management regarding internal control improvements
c. evaluate whether misstatements in the auditee's performance reports should be communicated to senior management and the audit committee
d. develop an undertanding of the audtiee's objectives, risks, and controls
d. develop an undertanding of the audtiee's objectives, risks, and controls
Which of the following statements does not illustrate the concept of inherent business risk?
a. cash is more suceptible to theft than an inventory of sheet metal
b. a broken lock on a security gate allows employees to access a restricted are that they are not authorized to enter.
c. transactions invovling complex calculations are more likely to be misstated than transactions involving simple calculations
d. technological developments might make a particular product obsolete
b. a broken lock on a security gate allows employees to access a restricted are that they are not authorized to enter.
Comprehensive risk assessment involves analysis of both cause and effects. Which of the following statements concerning the analysis of causes and effects is false?
a. Analyzing the causes and effects of a particular risk should only be performed after the internal auditor has first obtained evidence that a probelm has occurred.
b. analyzing the effects of a particular risk provides insights about the objective threatened by the risk
c. analyzing the effects of a particular risk provides inishghts about th relative size of the risk and the realtive importance of the business onjective threatened by the risk.
d. analyzing the root causes of a particular risk helps the internal auditor formualte recommendations for reducing the reisk to an acceptable level.
a. Analyzing the causes and effects of a particular risk should only be performed after the internal auditor has first obtained evidence that a probelm has occurred.
Internal auditors obtain an understanding of controls and perform tests of controls to:
a. detect material misstatements in account balances
b. reduce control risk to an acceptably low level.
c. evaluate the design adequacy and operating effectiveness of the controls.
d. assess the inherent risks associated with transactions.
c. evaluate the design adequacy and operating effectiveness of the controls.
If an internal auditor's evaluation of internal control design indicates that the controls are designed adequately, the appropriate next step would be to:
a. test the operating effectiveness of the controls.
b. prepare a flowchart depicting the system of internal controls.
c. conclude that residual risk is low
d. conclude that control risk is high
a. test the operating effectiveness of the controls.
Reported internal audit observations emerge by a process of comparing "what should be" with "what is." In determining "what should be" during an audit of a company's treasur function, which of the following would be the least desirable criterion against which to judge current operations?
a. best practices of the treasury fucntion in relevant industries.
b. comnpany policies and procedure delegating authority and assigning responsiblitities
c. performance standard established by senior manangement.
d. the operations of the treasury fucntion as documented during the last audit.
d. the operations of the treasury fucntion as documented during the last audit.
Internal auditors sometimes express opinions in addition to stating observations in their reports. Due professional care requires that internal audit opinions be:
a. based on sufficient appropriate evidence.
b. limited to the effectiveness of internal controls
c. expressed only when requested by management or the audit committee
d. based on experience and free from error in judgment
a. based on sufficient appropriate evidence.
Which of the following statements best describes an internal audit function's responsibility for assurance engagement follow-up activities?
a. the internal audit function should dtermine that corrective action has been taken an dis achieving the desired results, or that senior management has assumed the risk associated with not taking corrective action on reported observations.
b. the internal audit function should determine whether management has initiated corrective action but has no responsibility to determine whether the corrective action is achieving the desired results. That determination is management's responsibility.
c. The CAE is responsible for scheduling audit follow-up activities only if asked to do so by senior management or the audit committee. Otherwise, such activities are discretionary.
d. audit follow-up activities are not necessary if the auditee has agreed in writing to implemnt the internal audit function's recommendations.
a. the internal audit function should dtermine that corrective action has been taken an dis achieving the desired results, or that senior management has assumed the risk associated with not taking corrective action on reported observations.
Internal auditors perform both assurance engagements and consulting engagements. Which of the following would be classified as a consulting engagements?
a. directly assessing the organization's compliance with laws and regulations.
b. assessing the design adequacy of the organization's entity-level monitoring activities
c. facilitating senior management's assessment of risks threatening the organization.
d. assisting the independent outside auditor durin gthe financial statement audit engagement.
c. facilitating senior management's assessment of risks threatening the organization.
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