An internal auditor has completed an audit of an organization's activities and is ready to issue a
report. However, the client disagrees with the internal auditor's conclusions. The auditor should:

A.

Withhold the issuance of the audit report until agreement on the issues is obtained.

B.

Issue the audit report and state both the auditor and client positions and the reasons for the
disagreement.

C.

Issue the audit report and omit the client's conclusion as it is not the opinion of the internal
auditor.

D.

Perform additional work, with the client's concurrence, to resolve the areas of disagreement
and delay the issuance of the report until agreement is reached.

Which of the following is an advantage of an interim report?
I.
An interim report provides timely feedback to the audit engagement client.
II.
An interim report provides a mechanism for communicating information on red flags promptly while
they are being investigated.
III.
An interim report provides an opportunity for auditor follow-up of findings before the engagement is
completed.
IV.
An interim report increases the probability that corrective action will be initiated more quickly.

A.

I and IV only

B.

II and III only

C.

I, III, and IV only

D.

I, II, III, and IV.

An internal auditor recommended that an organization implement computerized controls in its
sales system in order to prevent sales representatives from executing contracts in excess of their
delegated authority levels. A follow-up review found that the sales system had not been modified,
but a process had been implemented to obtain written approval by the vice president of sales for
all contracts in excess of $1 million. The chief audit executive (CAE) would be justified in reporting
this situation to the organization's board iF.
I.
In the opinion of the CAE, the level of residual risk assumed by senior management is too high.
II.
Testing of compliance with the new process finds that all new contracts in excess of $1 million
have been approved by the vice president of sales.
III.
The cost of modifying the sales system to include a preventive control is less than $100,000.

A.

I only

B.

 III only

C.

 I and III only

D.

I, II, and III

Which of the following factors would not be considered in determining appropriate follow-up
procedures?

A.

The significance of the audit finding.

B.

The effort and cost needed to correct the reported condition.

C.

The availability of funds in the audited department's budget to correct the reported condition.

D.

The potential consequences if the corrective action fails.

Persuasive evidence indicates that a member of senior management has been involved in insider
trading that would be considered fraudulent. However, the evidence was encountered during an
operational audit and is not considered relevant to the audit. Which of the following is the most
appropriate action for the chief audit executive to take?

A.

Report the evidence to external legal counsel for investigation. Report the legal counsel
findings to management.

B.

Report the evidence to the chairperson of the audit committee and recommend an
investigation.

C.

Conduct sufficient audit work to conclude whether fraudulent activity has taken place, then
report the findings to the chairperson of the audit committee and to government officials if
appropriate action is not taken.

D.

Discontinue audit work associated with the insider trading since it is not relevant to the existing
audit.

What is the most likely source of information for a detailed schedule of a company's insurance
policies in force?

A.

Ojournal entries found in the cash disbursements journal, along with supporting checks
processed by the bank.

B.

Policies and procedures governing insurance coverage.

C.

The current fiscal year's budget for insurance, together with the beginning balance of the
prepaid insurance account.

D.

The files containing insurance policies with various carriers.

Confirmation would be most effective in addressing the existence assertion for:

A.

The addition of a milling machine to a machine shop.

B.

Sales of merchandise during the regular course of business.

C.

Inventory held on consignment.

D.

The granting of a patent for a special process developed by the organization.

In a payroll audit, a staff auditor suspects that signatures on some of the documents being
sampled for examination are not authentic. What action should the auditor take before proceeding
with the examination?

A.

Suggest to the payroll manager that the suspicious documents should be sent to the
organization's security department for forensic review.

B.

Keep the suspicious documents in the workpaper file until the end of the engagement, and then
discuss the suspicions with the payroll manager.

C.

Discuss the suspicious documents with payroll staff to seek their views on the authenticity of
the signatures.

D.

Review the suspicious documents with the chief audit executive and seek advice concerning
further examination.

In evaluating the validity of different types of audit evidence, which of the following conclusions is
not correct?

A.

Recomputation, though highly valid, is limited in usefulness due to its limited scope.

B.

The validity of documentary evidence is independent of the effectiveness of the control system
in which it was created.

C.

Internally created documentary evidence is considered less valid than externally created
documentary evidence.

D.

The validity of confirmations varies directly with the independence of the party receiving the
confirmation.

Which of the following types of sampling techniques should an internal auditor use when testing
the effectiveness of internal controls?

A.

Mean-per-unit sampling.

B.

Attributes sampling.

C.

Variables sampling.

D.

Dollar-unit sampling

What type of analysis is performed when an auditor tests for unusual variations in information by
comparing the number of employees working at a factory site with the direct cost of production
each month over a period of one year?

A.

Trend analysis.

B.

Ratio analysis.

C.

Regression analysis.

D.

Horizontal analysis.

Which of the following data sources would provide the least valid data for an audit of a retail
store's customer service?

A.

A graph that compares staffing levels for selected times with store traffic (number of customers)
over the same time period.

B.

A random survey of customer satisfaction given to customers as they leave the store.

C.

Interviews of randomly selected service personnel regarding the quality of service that they
provide.

D.

A graph of customer service training across stores, comparing training with overall levels of
service satisfaction.