As part of an operational audit, an auditor compared records of current inventory with usage
during the prior two-year period and determined that the spare parts inventory was excessive.
What step should the auditor perform first?

A.

Determine the effects of a stock-out on the organization's profitability.

B.

Determine whether a clear policy exists for setting inventory limits.

C.

Determine who approved the purchase orders for the spare parts.

D.

Determine whether purchases were properly recorded

A performance audit engagement typically involves:

A.

Review of financial statement information, including the appropriateness of various accounting
treatments.

B.

Tests of compliance with policies, procedures, laws, and regulations.

C.

Appraisal of the environment and comparison against established criteria.

D.

Evaluation of organizational and departmental structures, including assessments of process
flows.

An audit identified a number of weaknesses in the configuration of a critical client/server system.
Although some of the weaknesses were corrected prior to the issuance of the audit report,
correction of the rest will require between six and 18 months for completion. Consequently,
management has developed a detailed action plan, with anticipated completion dates, for
addressing the weaknesses. Which of the following is the most appropriate course of action for the
chief audit executive to take?

A.

Assess the adequacy of the action plan and monitor key dates and deliverables.

B.

Schedule a follow-up audit engagement to assess the status of corrective action.

C.

Reassign information systems auditors to assist the information technology department in
correcting the weaknesses.

D.

Evaluate statistics related to unplanned system outages, unauthorized access attempts, and
denials of service to assess the effectiveness of corrections.

QUESTION NO: 149
An internal auditor found that the cost of some material installed on capital projects had been
transferred to the inventory account because the capital budget had been exceeded. Which of the
following would be an appropriate technique for the auditor to use to determine the extent of the
problem?

A.

Identify variances between amounts capitalized each month and the capital budget.

B.

Analyze a sample of capital transactions each quarter to detect instances in which installed
material was transferred to inventory.

C.

 Review all journal entries that transferred costs from capital to inventory accounts.

D.

Compare inventory receipts with debits to the inventory account and investigate discrepancies.

When conducting audit follow-up of a finding related to cash management routines, an internal
auditor would expect to find that all of the following changes have occurred except:

A.

The steps being taken are resolving the condition disclosed by the finding.

B.

Inherent risk has been eliminated as a result of resolution of the condition.

C.

Controls have been implemented to deter or detect a recurrence of the finding.

D.

Benefits have accrued to the entity as a result of resolving the condition.

Which of the following represents appropriate evidence of supervisory review of engagement
workpapers?
I. A supervisor's initials on each workpaper.
II. An engagement workpaper review checklist.
III. A memorandum specifying the nature, extent, and results of the supervisory review of
workpapers.
IV. Performance appraisals that assess the quality of workpapers prepared by auditors.

A.

II and IV only

B.

I, II, and III only

C.

I, III, and IV only

D.

 I, II, III, and IV.

Recommendations should be included in the audit report in order to:

A.

Provide management with options for addressing audit findings.

B.

Ensure that audit findings are resolved in the manner suggested by the auditor.

C.

Minimize the amount of time required to correct audit findings.

D.

Ensure that audit findings are addressed by management

Which of the following is not relevant when developing recommendations for inclusion in audit
reports?

A.

Feasibility.

B.

Cost of implementation.

C.

Underlying causes.

D.

 Timing of follow-up.

As a result of a recent discovery of false information on employment applications, an internal
auditor has reviewed hiring procedures. Which of the following represents a weakness in the
control system?
I. Applicants are not required to have their signed applications legally authenticated.
II. Applicants' educational information is not validated with the educational institution before
employment is offered.
III. Information related to applicants' long-term work history is not validated before employment is
offered.

A.

III only

B.

I and II only

C.

II and III only

D.

I, II, and III

Which of the following must an auditor establish in order to demonstrate that fraud has occurred?

A.

Monetary damage to the victim.

B.

The suspect's intent.

C.

Existence of an internal control deficiency.

D.

Evidence of collusion.

Which of the following would be the least important reason for a company to merge with another
company?

A.

To diversify risk.

B.

As a response to new government policy.

C.

To reduce labor costs.

D.

To increase stock prices.

Which of the following potential performance measures should an auditor recommend excluding
from a performance scorecard?

A.

Number of employees.

B.

Market share.

C.

 Number of customer complaints.

D.

 Training dollars per employee