Topic 2, Volume B
An internal auditor is conducting tests to determine if an organization is in compliance with its
payment approval policies. After reviewing a sample of vouchers selected, the internal auditor
concluded that there were indicators of fraud. Which of the following would be the most
appropriate method to expand the audit test to achieve the audit objective?
I.
Validate the completeness of the accounts payable files.
II.
Examine the sample of vouchers in greater detail.
III.
Increase the number of vouchers in the sample.
IV.
Broaden the scope of the examination to include credits received by accounts payable.
A.
I and II only
B.
II and III only
C.
I, II, and IV only
D.
I, III, and IV only
II and III only
During a review of performance measures in an organization's purchasing function, the preliminary
survey indicates that most of the measures have been in use for some time. The internal auditor
should:
A.
Review the data that was used to develop the measures.
B.
Perform benchmarking in order to verify that the measures being used are meaningful.
C.
Establish the history of the measures and reasons for use.
D.
Report that the measures being used are out-of-date and should be improved.
Perform benchmarking in order to verify that the measures being used are meaningful.
What is the primary reason for having audit management approve audit engagement reports?
A.
To ensure that client concerns are appropriately addressed.
B.
To confirm proper format, grammar, and punctuation.
C.
To verify that senior management supports the report's conclusions.
D.
To validate that report findings are substantiated.
To validate that report findings are substantiated.
Which of the following best defines an audit opinion?
A.
A summary of the significant audit observations and recommendations.
B.
An auditor's evaluation of the effects of the observations and recommendations on the activities
reviewed.
C.
A conclusion which must be included in the audit report.
D.
A recommendation for corrective action
An auditor's evaluation of the effects of the observations and recommendations on the activities
reviewed.
Which of the following is typically not a reason for committing financial statement fraud?
A.
To dispel negative market perception.
B.
To disguise a duplicate payment to a vendor.
C.
To obtain more favorable terms on financing.
D.
To receive performance-related bonuses
To disguise a duplicate payment to a vendor.
Which of the following is a red flag associated with fictitious revenues?
A.
Slow growth or unusually low profitability.
B.
Unusual decrease in the number of days' sales in receivables.
C.
Substantial increase in receivables turnover.
D.
Significant transactions with related parties.
Significant transactions with related parties.
Which of the following is a red flag associated with improper asset valuation?
A.
Unusual increase in gross margin.
B.
Unusual decrease in the number of days' purchases in inventory.
C.
Recurring positive cash flows from operations.
D.
Allowance for bad debts that is increasing in percentage terms.
Unusual increase in gross margin.
To furnish useful and timely information and promote improvements in operations, internal auditors
should provide:
A.
Senior management with reports that emphasize the operational details of defective conditions.
B.
Operating management with reports that emphasize general concerns and risks.
C.
Information in written form before it is discussed with the engagement client.
D.
Reports that meet the expectations of both operational and senior management
Reports that meet the expectations of both operational and senior management
An auditor evaluating excessive product rejection rates should investigatE.
I.
Communication between sales and production departments on sales returns.
II.
Volume of product sales year-to-date in comparison to prior year-to-date.
III.
Changes in credit ratings of customers versus sales to those customers.
IV.
Detailed product scrap accounts and accumulations.
A.
I and III only
B.
I and IV only
C.
II, III, and IV only
D.
I, II, III, and IV.
I and IV only
Which of the following is the correct ratio to use in calculating the dollar value of the population if
the auditor is using ratio estimation?
Number of Items
Audited Value
Carrying Amount
Sample
300
$500,000
$480,000
Population
3,000
$5,000,000
A.
0.10
B.
0.96
C.
1.04
D.
10.00
1.04
During an audit of a major contract, an auditor finds that actual hours and dollars billed are
consistently at or near budgeted amounts. This condition is a red flag for which of the following
procurement fraud schemes?
A.
Defective pricing.
B.
Cost mischarging.
C.
Fictitious vendor.
D.
Bid rotation.
Cost mischarging.
A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing
has a gambling habit. The gambling issue is not directly related to the existing engagement and
there is pressure to complete the current engagement. The auditor notes the problem and
forwards the information to the chief audit executive but performs no further follow-up. The
auditor's actions woulD.
I.
Be in violation of the IIA Code of Ethics for withholding meaningful information.
II.
Be in violation of the Standards because the auditor did not properly follow up on a red flag that
might indicate the existence of fraud.
III.
Not be in violation of either the IIA Code of Ethics or Standards.
A.
I only
B.
II only
C.
III only
D.
I and II only
III only
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