Internal 4 – Flashcards
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1. The internal auditor completed work on a segment of the engagement work program. As a result, the auditor determined that a modification of the organization's distribution procedures is required. The auditee agreed and has implemented revised procedures. The internal auditor should: a. Research the problem and recommend in the final engagement communication measures that should be taken. b. Jointly develop and communicate an appropriate recommendation. c. Communicate the problem and assume that management will take appropriate action. d. Indicate in the final engagement communication that the client determined and implemented corrective action.
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d
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2. Internal auditors should communicate engagement results promptly but should be careful about communicating matters with legal ramifications. Thus, the roles of the internal audit activity and legal counsel should be defined and policies should be established regarding methods of communication. These measures should address how internal auditors' communications may appropriately be shielded from being sued against the organization during legal proceedings. Assuming that the law applies to such matters, communications are most likely to be protected when they: a. Consist of documents delivered to an attorney before the attorney- client relationship came into existence. b. Are created for self-evaluation after the events resulting in a private litigant's claim. c. Are made to an attorney whether or not in confidence. d. Are part of the internal auditors' work product and are sought by a government agency.
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b
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It is the policy of some organizations to have auditees respond to audit reports by writing to an administrative vice president who has the primary responsibility for follow-up. Under such arrangements, copies of responses are usually sent to the auditing department which reviews them for adequacy. If the auditing department considers the response to a particular report inadequate, which of the following would be the most appropriate course of action? a. Perform a follow-up audit immediately. b. Follow up in connection with the next regularly scheduled audit. c. Schedule a follow-up audit within six months. d. Inform the administrative vice president that the response is not considered adequate, and coordinate with the vice president on any additional follow-up
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d
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Management is beginning to take corrective action on personnel department deficiencies reported during the last internal audit. According to the Standards, the internal auditor should a. Oversee the corrective action. b. Postpone the next audit of the personnel department until the corrective action is completed. c. Refrain from judging whether the corrective action will remedy the deficiencies. d. Follow up to see that the corrective action satisfies the audit recommendations.
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d
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During an audit of purchasing, internal auditors found violations of company policy concerning competitive bidding. The same condition had been reported in an audit report last year and corrective action had not been taken. Which of the following best describes the appropriate action concerning this repeat finding? a. The audit report should note that this same condition had been reported in the prior audit. b. During the exit interview, management should be made aware that a finding from the prior report had not been corrected. c. The director of internal auditing should determine whether management or the board has assumed the risk of not taking corrective action. d. The director of internal auditing should determine whether this condition should be reported to the independent auditor and any regulatory agency.
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c
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Recommendations in audit reports may, or may not, actually be implemented. Which of the following best describes internal auditing's role in follow-up on audit recommendations? Internal auditing a. Has no role; follow-up is management's responsibility. b. Should be charged with the responsibility for implementing audit recommendations. c. Should follow up to ascertain that appropriate action is taken on audit recommendations. d. Should request that independent auditors follow up on audit recommendations
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c
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After an audit report with adverse findings has been communicated to appropriate auditee personnel, proper action is to a. Schedule a follow-up review. b. Implement corrective action indicated by the findings. c. Examine further the data supporting the findings. d. Assemble new data to support the findings.
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a
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According to the Standards, the internal audit director should ensure follow-up of prior audit findings and recommendations. a. To determine if corrective action was taken and is achieving the desired results. b. Unless management rejected the recommendation in their initial response. c. Unless the audit schedule does not allow time for follow-up. d. Unless management has accepted the recommendation.
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a
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Why should organizations require auditees to promptly reply and outline the corrective action that has been implemented on reported deficiencies? a. To remove items from the pending list as soon as possible. b. To effect savings or to institute compliance as early as possible. c. To indicate concurrence with the audit findings. d. To ensure that the audit schedule is kept up to date
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b
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If an auditor finds that no corrective action has been taken on a prior audit finding that is still valid, the Standards state that the auditor should a. Restate the prior finding along with the findings of the current audit. b. Determine whether management or the board has assumed the risk of not taking corrective action. c. Seek the board's approval to initiate corrective action. d. Schedule a future audit of the specific area involved.
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b
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Which of the following is most likely to result in lack of corrective action by operating management on audit findings? a. Exclusion from the written report of those audit findings with which the auditee concurs. b. Omission of any pre-audit meetings. c. Discussion of audit findings with the auditee as they are uncovered. d. Insertion of a summary of the auditee's opposing views in the audit report.
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a
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Discussing audit findings with an auditee in advance of draft¬ing a report is most advantageous when: a. Management has indicated concurrence with the recommendations during informal discussions. b. Corrective action is not needed. c. The findings are significant to operations and correction is needed immediately. d. Management has already taken corrective action.
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c
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Oral audit reports: a. Are a necessity when a manager cannot, or will not, read a written report. b. Usually require less factual support than is needed for formal written reports. c. Tend to only be used when timeliness is not a factor. d. Do not need the careful organization required for written findings.
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a
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After an operational auditor writes a report describing problem areas in need of correction, the next step is to review the report in draft form with the: a. Appropriate vice president. b. Auditee's supervisor. c. Departmental manager for the operations that were audited. d. Treasurer
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c
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The primary reason for having written formal audit reports is to a. Provide an opportunity for auditee response. b. Direct senior management to corrective actions. c. Provide a formal means by which the external auditor assesses potential reliance on the internal audit department. d. Record findings and recommended courses of action.
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d
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When the auditor and the auditee reviewed the draft audit report, they found they interpreted the facts differently. The auditor should a. Eliminate the item from the audit report. b. State only the auditor's position in the report. c. Refer the matter to the auditee's supervisor for review and resolution. d. Report both interpretations.
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d
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In which section of the final report should the internal auditor describe the audit objectives? a. Purpose b. Scope c. Criteria d. Condition
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a
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Which of the following elements of an audit report is not always required? a. A statement that describes the audit objectives. b. A statement that identifies the audited activities. c. Pertinent statements of fact. d. An evaluation of the impact of the findings on the activities reviewed.
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d
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Which of the following statements would be appropriate as a conclusion (opinion) in an internal audit report of the results of an audit of your company's branch operations? a. Statistical sampling was used to determine the extent of unauthorized purchases from the imprest fund. b. The audit of branch operations was conducted in accordance with the Standards. c. The vice-president of branch operations should require the timely review of the daily transaction report as a means of monitoring purchases from the imprest fund. d. Except for the unauthorized purchases from the imprest fund, the system of internal controls over branch operations appears to be working well.
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d
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An objective report is one that is described as a. Through content and tone, designed to help the auditee as well as the organization. b. Logical and easily understood. c. To the point and free of unnecessary detail. d. Factual, unbiased, and free from distortion.
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d
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Audit report content and format may vary; but according to the Standards, which of the following is a necessary element? a. Statement of audit objectives b. Status of findings from prior reports c. Related activities not audited d. Documentation of previous oral communications
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a
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Which of the following would be most appropriate for inclusion in the management summary of a final internal auditing report? a. Auditee responses to recommendations. b. A concise statement of audit findings. c. Reference to areas not covered by the audit. d. Discussion of recommendations given in prior years' reports.
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b
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Which of the following best defines an audit opinion? a. A summary of the significant audit findings. b. The auditor's professional judgment of the situation that was reviewed. c. Conclusions that must be included in the audit report. d. Recommendations for corrective action.
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b
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The internal auditing department for a chain of retail stores recently concluded an audit of sales adjustments in all stores in the southeast region. The audit revealed that several stores are costing the company an estimated $85,000 per quarter in duplicate credits to customers' charge accounts. The audit report, published 8 weeks after the audit was concluded, included the internal auditors' recommendations to store management that should prevent duplicate credits to customers' accounts. Which of the following standards for reporting has been disregarded in the above case? a. The follow-up actions were not adequate. b. The auditors should have implemented appropriate corrective action as soon as the duplicate credits were discovered. c. Auditor recommendations should not be included in the report. d. The report was not timely
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d
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According to the Standards, audit findings are the result of a. Comparing what should be with what is and analyzing the impact. b. Determining the impact on the organization of what should be. c. Communicating the impact on the organization of what should be. d. Analyzing differences between organizational and departmental objectives.
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a
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Audit findings often emerge by a process of comparing "what should be" with "what is." Findings are based on the attributes of criteria, condition, cause, and effect. From the following descriptions, which one most appropriately describes the effect of the audit finding? a. Reason for the difference between the expected and actual conditions. b. Factual evidence found during the course of the examination. c. Risk or exposure encountered because of the condition. d. Standards, measures, or expectations used in making the evaluation.
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c
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An internal auditor has just completed an audit of a division and is in the process of preparing the audit report. According to the Standards, the findings in the audit report should include a. Statements of opinion about the cause of a finding. b. Pertinent factual statements concerning the control weaknesses uncovered during the course of the audit. c. Statements of both fact and opinion developed during the course of the audit. d. Statements concerning potential future events that may be helpful to the audited division.
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b
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In beginning an audit, an internal auditor reviews written procedures that detail segregations of responsibility adopted by management to strengthen internal controls. These written procedures should be viewed as which attribute of a finding? a. Criteria. b. Condition. c. Cause. d. Effect.
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a
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Interim reports are issued during an audit to a. Explain the purpose of the audit. b. Eliminate the need for a final report. c. Communicate information requiring immediate attention. d. Define the scope of the audit so the final report can be brief.
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c
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As an internal auditor for a multinational chemical company, you have been assigned to perform an operational audit at a local plant. This plant is similar in age, siting, and construction to two other company plants that have been recently cited for discharge of hazardous wastes. In addition, you are aware that chemicals manufactured at the plant release toxic by-products. Assume that you have evidence that the plant is discharging hazardous wastes. As a Certified Internal Auditor, what is the appropriate reporting requirement in this situation? a. Send a copy of your audit report to the appropriate regulatory agency. b. Ignore the issue because the regulatory inspectors are better qualified to assess the danger. c. Issue an interim report to the appropriate levels of management. d. Note the issue in your working papers, but do not report it.
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c
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Which of the following is not an advantage of issuing an interim report? a. Final report-writing time can be minimized. b. An interim report allows information requiring immediate attention to be communicated. c. An interim report can be conducted on an informal basis, and may be communicated only verbally. d. A formal, written interim report may negate the need for a final report in certain circumstances.
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d
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Audit policy requires that final reports not be issued without a management response. An audit with significant findings is complete except for management's response. Evaluate the following courses of action and select the best alternative. a. Issue an interim report regarding the important issues noted. b. Modify audit policy to allow a specific time period for the management response. c. Wait for management's response and then issue the audit report. d. Discuss the situation with the external auditors.
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a
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A relatively new internal auditor is completing an audit report. The final report should most appropriately be signed by a. The auditor because of a greater level of detail knowledge of the report. b. The auditor and the person in charge of the area being audited to indicate review of the report. c. The director of internal auditing. d. The chair of the audit committee of the board of directors.
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c
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Summary written audit reports are ordinarily intended for a. Local operating management. b. Review by other auditors only. c. High-level management and/or the audit committee. d. Mid-level staff management.
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c
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Internal audit reports should: a. Include a section describing the scope of the audit. b. Be written with objectivity. c. Include a section describing the audit procedures. d. All of the above.
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d
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Which of the following is the most appropriate method of reporting disagreement between the auditor and the auditee concerning audit findings and recommendations? a. State the auditor's position because the report is designed to provide the auditor's independent view. b. State the auditee's position because management is ultimately responsible for the activities reported. c. State both positions and identify the reasons for the disagreement. d. State neither position. If the disagreement is ultimately resolved, there will be no reason to report the previous disagreement. If the disagreement is never resolved, the disagreement should not be reported because there is no mechanism to resolve it.
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c
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A purpose of the audit closing conference is to a. Inform members of the board of directors of audit results. b. Present the audit report to the chief executive officer. c. Obtain information to evaluate internal control. d. Generate commitment for appropriate managerial action
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d
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Formal audit reports should be written in a manner directed to the needs of which of the following parties? a. Auditee management and the director of internal auditing. b. The chief executive officer and the audit committee of the board. c. All persons directly and indirectly concerned with the activities covered. d. Auditee management and upper-level management directly concerned with the activities covered.
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d
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Which of the following situations is most likely to be the subject of a written interim report to auditee management? a. Seventy percent of the planned audit work has been completed with no significant adverse findings. b. The auditors have decided to substitute survey procedures for some of the planned detailed review of certain records. c. The audit program has been expanded because of indications of possible fraud. d. Open burning at a subsidiary plant poses a prospective violation of pollution regulations.
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d
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According to the IIA Standards, an opinion should be expressed a. In audit reports as appropriate. b. In each financial audit report. c. In each operational audit report. d. If called for by the audit program.
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a
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The development of a distribution list for each audit report is important because it a. Indicates the people who have responsibilities with regard to the report. b. Limits the circulation of the audit report to the auditee and the auditee's immediate supervisor. c. Ensures that the audit committee and key officers are informed of the contribution of the internal audit department. d. Reinforces the need for audit report to be complete, dealing with all minor and major audit findings.
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a
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Which of the following would represent a material deficiency finding in an audit of accounts payable? a. Failure to record a liability for goods in transit, shipped FOB destination. b. Duplicate payment of a small amount. c. Payment of an invoice a week before its due date. d. Preparation of a trial balance by the accounts payable clerk.
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b
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Which of the following objectives is best achieved by an oral presentation of the audit report? a. Conveying the need for prompt action to key management personnel. b. Suggesting recommendations to be implemented prior to the issue of the final written report. c. Reporting findings to the auditee manager without informing the manager's superior. d. Interacting with key personnel to counter misperceptions and provide additional information.
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d
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The scope section of an internal audit report should identify a. The audit techniques used. b. Any limitations imposed. c. The sampling methodology employed. d. Any unresolved differences with auditees
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b
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The person responsible for audit report distribution should be a. The director of internal auditing or designee. b. The audit committee of the board of directors. c. The vice president responsible for the area being audited. d. The audit supervisor of the audit being performed
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a
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Certain information may not be appropriate for disclosure to all report recipients because it is privileged, proprietary, or related to improper or illegal acts. If conditions being reported involve improper acts of a senior manager, the report should be distributed to a. The external auditor. b. The board of directors. c. The stockholders. d. Senior management.
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b
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The internal auditing unit has recently completed an operational audit of its company's accounts payable function. The audit director decided to issue a summary report in conjunction with the final report. Who would be the most likely recipient of just the summary audit report? a. Accounts payable manager. b. External auditor. c. Controller. d. Audit committee of the board of directors.
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d
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Which of the following would not be considered an objective of the audit closing or exit conference? a. To resolve conflicts. b. To discuss the findings. c. To identify concerns for future audits. d. To identify management's actions and responses to the findings.
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c
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One purpose of the exit conference is for the internal auditor to a. Require corrective action for deficiencies found. b. Review and verify the appropriateness of the audit report based upon auditee input. c. Review the performance of audit personnel assigned to the engagement. d. Present the final audit report to management.
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b
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Exit conferences serve to ensure the accuracy of the information used by an internal auditor. A secondary purpose of an exit conference is to a. Get immediate action on a recommendation. b. Improve relations with auditees. c. Agree to the appropriate distribution of the final report. d. Brief senior management on the results of the audit.
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a
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According to the IIA Standards, if management and the board decide not to take action on an auditor's recommendation, the auditor should a. Continue to make the recommendation in subsequent reports. b. Take the recommendation to the audit committee. c. Document their decision. d. Change the recommendation.
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c
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Who should be directly responsible for assessing the adequacy of reported corrective action on audit finding related to excessive rework? a. The audit committee of the board. b. The chief executive officer's staff. c. The director of quality control d. The internal audit department.
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d
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Upon reviewing the results of the audit report with the audit committee, management agreed to accept the risk of not implementing corrective action on certain audit findings. Select the best alternative for the internal auditing director. a. Notify regulatory authorities of management's decision. b. Perform additional audit steps to further identify the policy violations. c. Conduct a follow-up audit to determine whether corrective action was taken. d. Internal audit responsibility has been discharged, and no further audit action is required.
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d
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When management agrees with a finding and has agreed to take corrective action, the appropriate treatment is to a. Report that management has agreed to take corrective action. b. Omit the finding and recommendation. c. Report that management has already taken corrective action. d. Include the finding and recommendation, irrespective of management's agreement.
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a
