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Question 1:

Which of the following would be a red flag that indicates the possibility of inventory fraud?

I. The controller has assumed responsibility for approving all payments to certain vendors.

II. The controller has continuously delayed installation of a new accounts payable system, despite a corporate directive to implement it.

III. Sales commissions are not consistent with the organization\’s increased levels of sales.

IV.

Payments to certain vendors are supported by copies of receiving memos, rather than originals.

A.

I and II only

B.

II and III only

C.

I, II, and IV only

D.

I, III, and IV only

Correct Answer: C


Question 2:

During an operational audit of a chain of pizza delivery stores, an auditor determined that cold pizzas were causing customer dissatisfaction. A review of oven calibration records for the last six months revealed that adjustments were made on over 40 percent of the ovens. Based on this, the auditor:

A. Has enough evidence to conclude that improperly functioning ovens are the cause.

B. Needs to conduct further inquiries and reviews to determine the impact of the oven variations on the pizza temperature.

C. Has enough evidence to recommend the replacement of some of the ovens.

D. Must search for another cause since approximately 60 percent of the ovens did not require adjustment.

Correct Answer: B


Question 3:

When assessing the risk associated with an activity, an internal auditor should:

A. Determine how the risk should best be managed.

B. Provide assurance on the management of the risk.

C. Modify the risk management process based on risk exposures.

D. Design controls to mitigate the identified risks.

Correct Answer: B


Question 4:

Which of the following procedures would provide the best evidence of the effectiveness of a credit-granting function?

A. Observe the process.

B. Review the trend in receivables write-offs.

C. Ask the credit manager about the effectiveness of the function.

D. Check for evidence of credit approval on a sample of customer orders.

Correct Answer: B


Question 5:

Which of the following situations might allow an employee to steal checks sent to an organization and subsequently cash them?

A. Checks are not restrictively endorsed when received.

B. Only one signature is required on the organization\’s checks.

C. One employee handles both accounts receivable and purchase orders.

D. One employee handles both cash deposits and accounts payable.

Correct Answer: A


Question 6:

An internal auditor is assigned to conduct an audit of security for a local area network (LAN) in the finance department of the organization. Investment decisions, including the use of hedging strategies and financial derivatives, use data and financial models which run on the LAN. The LAN is also used to download data from the mainframe to assist in decisions. Which of the following should be considered outside the scope of this security audit engagement?

A. Investigation of the physical security over access to the components of the LAN.

B. The ability of the LAN application to identify data items at the field or record level and implement user access security at that level.

C. Interviews with users to determine their assessment of the level of security in the system and the vulnerability of the system to compromise.

D. The level of security of other LANs in the company which also utilize sensitive data.

Correct Answer: D


Question 7:

An audit of management\’s quality program includes testing the accuracy of the cost-of-quality reports provided to management. Which of the following internal control objectives is the focus of this testing?

A. To ensure compliance with policies, plans, procedures, laws, and regulations.

B. To ensure the accomplishment of established objectives and goals for operations or programs.

C. To ensure the reliability and integrity of information.

D. To ensure the economical and efficient use of resources.

Correct Answer: C


Question 8:

When internal auditors provide consulting services, the scope of the engagement is primarily determined by:

A. Internal auditing standards.

B. The audit engagement team.

C. The engagement client.

D. The internal audit activity\’s charter.

Correct Answer: C


Question 9:

A manufacturing process could create hazardous waste at several production stages, from raw materials handling to finished goods storage. If the objective of a pollution prevention audit engagement is to identify opportunities for minimizing waste, in what order should the following opportunities be considered?

I. Recycling and reuse.

II. Elimination at the source.

III. Energy conservation.

IV.

Recovery as a usable product Treatment.

A.

V, II, IV, I, III.

B.

IV, II, I, III, V.

C.

I, III, IV, II, V.

D.

III, IV, II, V, I.

Correct Answer: B


Question 10:

An organization\’s internal auditors are reviewing production costs at a gas-powered electrical generating plant. They identify a serious problem with the accuracy of carbon dioxide emissions reported to the environmental regulatory agency, due to computer errors. The auditors should immediately report the concern to:

A. The regulatory agency.

B. Plant management.

C. A plant health and safety officer.

D. The risk management function.

Correct Answer: B


Question 11:

Which of the following would be an appropriate improvement to controls over large quantities of consumable material that are charged to expense when placed in bins which are accessible to production workers?

A. Relocate bins to the inventory warehouse.

B. Require management to compare the cost of consumable items used to the budget.

C. Lock the bins during normal working hours.

D. None of the above actions are needed for items of minor cost and size.

Correct Answer: B


Question 12:

Which of the following is a weakness that is inherent in the use of the test data method to test internal controls in a computer-based accounting system?

A. The auditor must test many transactions with the same condition in order to achieve assurance that the condition is being detected.

B. Conditions that were not specifically considered by the auditor may go untested.

C. The approach requires the creation of “dummy companies,” possibly destroying or altering actual company data in the process.

D. Inclusion of atypical data in the test data may cause errors to be noted on the exception report.

Correct Answer: B


Question 13:

Which of the following would be most helpful to a governmental auditor searching for the existence of multiple welfare claims that were filed under different names but used the same address?

A. Tagging and tracing.

B. Generalized audit software.

C. Integrated test facility.

D. Spreadsheet analysis.

Correct Answer: B


Question 14:

What would be used to determine the collectability of accounts receivable balances?

A. The file of related shipping documents.

B. Negative accounts receivable confirmations.

C. Positive accounts receivable confirmations.

D. An aged accounts receivable listing.

Correct Answer: D


Question 15:

Which of the following would provide the best evidence of compliance with an airline\’s standard of having aircraft refueled and cleaned within a specified time of arrival at an airport?

A. Vendor fuel invoices that have been reconciled to inventory records.

B. Time cards completed by aircraft cleaning and fueling crews.

C. Observation of selected aircraft while they are being refueled and cleaned.

D. Comparison of the standard hourly labor costs for cleaning and fueling personnel with actual labor charges.

Correct Answer: C


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