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IIA IIA-CIA-Part2 Practice of Internal Auditing Exam Practice Test

Practice of Internal Auditing Questions and Answers

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Question 1

Which of the following recommendations made by the internal audit activity (IAA) is most likely to help prevent fraud?

Options:

A.

A review of password policy compliance found that employees frequently use the same password more than once during a year. The IAA recommends that the access control software reject any password used more than once during a 12-month period.

B.

A review of internal service-level agreement compliance in financial services found that requests for information frequently are fulfilled up to two weeks late. The IAA recommends that the financial services unit be eliminated for its ineffectiveness.

C.

A vacation policy compliance review found that employees frequently leave on vacation before their leave applications are signed by their manager. The IAA recommends that the manager attend to the leave applications in a more timely fashion.

D.

A review of customer service-level agreements found that orders to several customers are frequently delivered late. The IAA recommends that the organization extend the expected delivery time advertised on its website.

Question 2

Which of the following sources of testimonial evidence would be considered the most reliable regarding whether a process is effectively performed according to its design?

Options:

A.

The person responsible for performing the task

B.

Two or more people that work in the area

C.

The supervisor in charge of the process

D.

The manager that wrote the steps to be followed

Question 3

Which of the following describes the primary objective of an internal audit engagement supervisor?

Options:

A.

Uphold the quality of the internal audit actively

B.

Provide engagement progress updates to management of the area under review

C.

Assure risks and controls are identified and assessed

D.

Ensure timely completion of the engagement

Question 4

An internal auditor s examination of accounts receivable generates the following results:

What is the projected misstatement for the population if ratio estimation is used?

Options:

A.

$84,000

B.

$238,095

C.

$700,000

D.

$2100.000

Question 5

During a consulting engagement an internal auditor wants to determine whether all principal stakeholders are involved in a project. Which tool should the auditor use?

Options:

A.

RACI (responsible, accountable, consult and inform) chart

B.

Flowchart

C.

SWOT{strengths. weaknesses opportunities, and threats) analysis

D.

Workflow analysis

Question 6

According to IIA guidance, which of the following are the most important objectives for helping to ensure the appropriate completion of an engagement?

1. Coordinate audit team members to ensure the efficient execution of all engagement procedures.

2. Confirm engagement workpapers properly support the observations, recommendations, and conclusions.

3. Provide structured learning opportunities for engagement auditors when possible.

4. Ensure engagement objectives are reviewed for satisfactory achievement and are documented properly.

Options:

A.

1, 2, and 3

B.

1, 2, and 4

C.

1, 3, and 4

D.

2, 3, and 4

Question 7

When forming an opinion on the adequacy of management's systems of internal control, which of the following findings would provide the most reliable assurance to the chief audit executive?

• During an audit of the hiring process in a law firm, it was discovered that potential employees' credentials were not always confirmed sufficiently. This process remained unchanged at the following audit.

• During an audit of the accounts payable department, auditors calculated that two percent of accounts were paid past due. This condition persisted at a follow up audit.

• During an audit of the vehicle fleet of a rental agency, it was determined that at any given time, eight percent of the vehicles were not operational. During the next audit, this figure had increased.

• During an audit of the cash handling process in a casino, internal audit discovered control deficiencies in the transfer process between the slot machines and the cash counting area. It was corrected immediately.

Options:

A.

1 and 3 only

B.

1 and 4 only

C.

2 and 3 only

D.

2 and 4 only

Question 8

An organization is experiencing a significant risk that threatens its financial well-being Senior management requested that the chief audit executive (CAE) meet with them to discuss the risk. Which of the following would best describe the CAE's responsibility at the meeting?

Options:

A.

Inform senior management of the appropriate actions they should take to control the risk

B.

Recommend that the internal audit activity provide consulting services to help minimize the risk

C.

Assume the responsibility of resolving the significant risk that will affect the organization

D.

Determine whether senior management accepted risk that may be deemed unacceptable for the organization

Question 9

According to IIA guidance which of the following statements is true regarding heat maps?

Options:

A.

A heat map sets likelihood to have higher priority than impact.

B.

A heat map sets impact to have higher priority than likelihood.

C.

A heat map recognizes that the priority of impact and likelihood can vary.

D.

A heat map recognizes impact and likelihood as equally important

Question 10

Which of the following is the primary purpose of financial statement audit engagements?

Options:

A.

To assess the efficiency and effectiveness of the accounting department.

B.

To evaluate organizational and departmental structures, including assessments of process flows related to financial matters.

C.

To provide a review of routine financial reports, including analyses of selected accounts for compliance with generally accepted accounting principles.

D.

To provide an analysis of business process controls in the accounting department, including tests of compliance with internal policies and procedures.

Question 11

An internal auditor is examining the organization's internal control processes. Which of the following would the auditor do to test the reliability of a customer database1?

Options:

A.

Perform a site visit to see whether the organization's servers are operational

B.

Interview end users to determine whether they understand how to use the database information

C.

Determine whether policies are in place on how to use the database information

D.

Review for indications of potential issues with the database information

Question 12

The chief audit executive can illustrate the value of the internal audit activity by reporting which of the following to the board?

Options:

A.

The overall performance resulting from the internal audit balanced scorecard

B.

The number of outstanding and overdue management actions

C.

The experience of the organization's internal auditors

D.

The number of audits in the annual audit plan relative to similar organizations

Question 13

A healthcare organization's chief audit executive (CAE) noted that the organization's IT team relies heavily on a vendor. Therefore an IT vendor assessment review was added to the annual audit plan. During the review, the audit team discovered that the vendor had not been performing proper monitoring to ensure that the subcontractors it hired comply with the organization requirements. The organization's chief information officer (ClO) does not agree with the audit team's recommendation for the IT team to monitor the compliance level of vendor subcontractors. How should the audit team proceed to resolve this situation?

Options:

A.

Write a risk acceptance memo for the CIO to sign acknowledging the observation and indicating a willingness to accept the risk.

B.

Provide an example of the attestation form that vendors must use. Then, recommend that the IT team require vendors to submit the attestation form on a regular basis.

C.

Escalate the issue to the audit committee, as the CIO is unwilling to implement the recommended action plan.

D.

Escalate the issue to the CAE to assess whether the ClO's reasoning is acceptable.

Question 14

Which of the following should be described in the recognition element of a typical internal audit repot?

Options:

A.

Positive aspects of the process or area under review

B.

A brief synopsis of the process of area under review

C.

Outcomes and ratings of the process or area under review

D.

Report issuance and the communication process of the engagement.

Question 15

During an audit of suspense accounts the internal auditor found that there were no written policies on how suspense accounts should be treated. The auditor also found that suspense account balances were cleared once per week, not daily. Which of the following is the most appropriate first response by the auditor?

Options:

A.

The auditor should conclude that suspense accounts were not being cleared on a timely basis because they should be cleared daily

B.

The auditor should ask management whether any undocumented policies exist and. if so, determine whether they are adequate

C.

The auditor should conclude that the clearing of suspense accounts was timely and appropriate because weekly clearing is sufficient.

D.

The auditor should rely on his professional judgment and experience to develop criteria for evaluating the existing controls over suspense accounts

Question 16

While planning for an accounts payable audit an internal auditor performs an entity level controls analysis. Which of the following statements is true regarding me approach used by the auditor?

Options:

A.

It enables the auditor to identify the inherent risks to the effective operation of accounts payable process controls.

B.

It enables the auditor to understand the framework of the activities and associated accounts payable subprocesses

C.

it enables the auditor to understand the accounts payable process and its flow, including key steps and systems.

D.

It enables the auditor to categorize the population of transactions within the accounts payable process

Question 17

An internal audit activity is planning its first audit of IT shared services. Which of the following controls would typically be evaluated first?

Options:

A.

Entity-level controls

B.

Application controls

C.

General controls.

D.

Transaction controls

Question 18

Which of the following is true regarding the monitoring of internal audit activities?

Options:

A.

The form and content of monitoring policies could vary by industry

B.

The board of directors is responsible for the establishment of monitoring polities

C.

Both large and small audit departments must have written policies on monitoring.

D.

The chief audit executive must develop all monitoring policies related to the activity

Question 19

Senior management requested that the internal audit activity perform a consulting project to assist in making a decision on a new software system. Which of the following would be used to determine the engagement objectives?

Options:

A.

An assessment of risks to the business objectives

B.

An understanding of the engagement client's expectations

C.

The probability of significant errors fraud or noncompliance

D.

Criteria previously established by the board

Question 20

Which of the following statements about assurance maps is correct?

Options:

A.

An assurance map is used by the chief audit executive to coordinate assurance activities with other internal and external assurance providers

B.

An assurance map is a picture of all assurance engagements performed by the internal audit activity across the organization

C.

An assurance map is used by the engagement supervisor to coordinate the roles of various internal audit team members assigned to assurance engagements

D.

An assurance map lists the procedures and testing activities performed by an internal audit team during an assurance engagement

Question 21

Which of the following is the most important concept to be included in a consulting engagement agreement?

Options:

A.

Define the duties and responsibilities needed from management to perform the engagement.

B.

Disclose the fact that auditors who perform the work may not be subject matter experts in the topic of the review.

C.

Clarify that matters discovered during the engagement may also be reported to senior management and the audit committee.

D.

Disclose the fact that follow-up reviews may be conducted to ensure that recommendations are implemented adequately.

Question 22

When presenting an observation m writing which or the Mowing is usually true regarding the level of detail provided?

1. The description of the observation in the final audit report contains more detail then the description m the engagement workpapers

2. The description of the observation m the engagement workpapers contains more detail than the descriptor n a preliminary observation document

3. A preliminary observation document contains more detail than tie observation description in the final audit report

4. A preliminary observation document contains more detail than tie observation description in the engagement workpapers

Options:

A.

1 and 2

B.

1 and 4

C.

2 and3

D.

3 and 4

Question 23

An organization has a mature control environment but limited internal audit resources Given this scenario, on which of the following should the internal auditors focus their testing?

Options:

A.

Detective compensating controls

B.

Preventive compensating controls

C.

Detective Key controls

D.

Preventive key controls

Question 24

The internal audit activity has adopted the balanced scorecard approach to assess its performance According to MA guidance which of the following is a key performance indicator relevant to the audit client?

Options:

A.

Percentage of recommendations implemented by corrective action date

B.

Staff experience

C.

Percentage of planned audits completed

D.

Conformance with the International Professional Practices Framework

Question 25

For an action plan to be effective, it should be designed primarily to address which of the following elements of an observation?

Options:

A.

Condition

B.

Root cause

C.

Criteria

D.

Recommendation

Question 26

According to IIA guidance, which of the following is true when the internal audit activity is asked to investigate potential ethics violations in a foreign subsidiary?

Options:

A.

Communication of any internal ethics violations to external parties may occur with appropriate safeguards.

B.

Cultural impacts are less critical where the organization practices uniform polices around the globe.

C.

Cross-cultural differences should always be handled by the staff of the same cultural background.

D.

Local law enforcement should be involved as they are more familiar with the applicable local laws.

Question 27

Which of the following would most Holy reflect the best possible engagement objectives?

Options:

A.

Engagement objectives derived from risk assessment results from a company's risk function experts.

B.

Engagement objectives derived from senior management's risk assessment results

C.

Engagement objectives derived from the mental audit activity's own risk assessment results

D.

Engagement objectives derived from risk assessment results from both senior management and the company's risk function experts

Question 28

Which of the following is least likely to help ensure that risk is considered in a work program?

Options:

A.

Risks are discussed with audit client.

B.

All available information from the risk-based plan is used.

C.

Client efforts to affect risk management are considered.

D.

Prior risk assessments are considered.

Question 29

The internal auditor and her supervisor are in dispute about a risk that was not tested during an audit of the procurement function. Which of the following tools would best support the auditor's decision not to test the risk?

Options:

A.

A spaghetti map

B.

A heat map.

C.

A process map

D.

An assurance map

Question 30

Upon the completion of an audit engagement an audit manager performs a review of a staff auditor's workpapers. Which of the following actions by the manager is the most appropriate this review''

Options:

A.

Communicate the workpaper review results to management of fie area under review to validate the final report

B.

Update the final report in the file with any necessary corrections based on the workpaper review.

C.

Discuss the workpaper review results with the staff auditor where appropriate as a leaning opportunity

D.

Add the manager's review notes to the final documentation following the review

Question 31

During follow-up. the internal auditor discovered that operational management did not implement effective actions to address a significant control breach If the issue is left unresolved it may result in regulatory sanctions and damage the organization's reputation What is the most appropriate next step for the chief audit executive to lake?

Options:

A.

Report the matter to the board

B.

Implement the recommended control to address the exposure

C.

Discuss the matter with senior management

D.

Ask the regulatory agency to persuade management to address the issue

Question 32

During an audit of the accounts receivable (AR) process, an internal auditor noted that reconciliations are still not performed regularly by the AR staff, a recommendation that was made following a previous audit. Monitoring by the financial reporting function has failed to detect the shortcoming. Both the financial reporting function and AR report to the controller, who is responsible for implementing action plans. Which of the following supports the internal auditor's decision to combine both observations into one reported finding?

Options:

A.

The observation was made during the same audit, and the action plan has a common owner.

B.

The observation relates to the same control activity within a common process.

C.

The observation has a common control, and it was noted in a prior audit.

D.

The observation has a common process, and the action plan for the observation has a common owner.

Question 33

The chief audit executive (CAE) should determine whether the internal audit activity has confirmed the status of all of management's corrective actions Doing so would help the CAE assess which of the following?

Options:

A.

Disclosure risk.

B.

Residual risk

C.

Compliance risk

D.

Inherent risk

Question 34

According to IIA guidance, which of re following actions should the internal auditor take immediately after having considered fraud scenarios and identified and prioritized fraud risks?

Options:

A.

Determine which controls if any are in place to mitigate the fraud risks

B.

Follow protocol for internal reporting and investigating fraud allegations

C.

Research frauds that nave occurred t\ similar organizations

D.

Incorporate the fraud risk assessment into the engagement plan

Question 35

The internal audit activity (IAA) wants to measure its performance related to the quality of audit recommendations. Which of the following client survey questions would best help the IAA meet this objective?

Options:

A.

Were audit findings relevant and useful to management?

B.

Does the audit report format present issues clearly and concisely?

C.

Does the IAA work with a high degree of professionalism and objectivity?

D.

Were the findings reported in a timely manner?

Question 36

When addressing the excessive overtime being paid lo employees in an organization's customer service call center, which of the following would be most relevant for the internal auditor to use?

1 Confirmation.

2. Trend analysis.

3 External benchmarking

4. Internal benchmarking

Options:

A.

1.2 and 3

B.

1.2. and 4.

C.

1.3. and 4.

D.

2. 3. and 4.

Question 37

An organization's board would like to establish a formal risk management function and has asked the chief audit executive (CAE) to be involved in the process. According to IIA guidance, which of the following roles should the CAE not undertake?

Options:

A.

Manage and coordinate risk management processes.

B.

Audit risk management processes.

C.

Become involved in risk oversight committees, monitoring activities, and status reporting.

D.

Accept management's responsibility for risk management without board approval.

Question 38

Which of the following behaviors could represent a significant ethical risk if exhibited by an organization's board?

1. Intervening during an audit involving ethical wrongdoing.

2. Discussing periodic reports of ethical breaches.

3. Authorizing an investigation of an unsafe product.

4. Negotiating a settlement of an employee claim for personal damages.

Options:

A.

1 and 2

B.

1 and 4

C.

2 and 3

D.

3 and 4

Question 39

Which of the following statements is true regarding internal controls?

Options:

A.

For assurance engagements internal auditors should plan to assess the effectiveness of all entity-level controls

B.

Poorly designed or deficient entity-level controls can prevent well-designed process controls from working as intended.

C.

During engagement planning, internal auditors should not discuss the identified key risks and controls with management of the area under review to prevent tipping off probable audit lasts

D.

Reviewing process maps and flowcharts is an appropriate method for the internal a auditor to identify all key risks and controls during engagement planning

Question 40

An internal auditor uses a data query tool in the purchasing process to review the vendor master file for authorizations Which of the following describes the control objective likely being tested?

Options:

A.

Effectiveness

B.

Response

C.

Efficiency

D.

Mitigation.

Question 41

An internal audit team leader is having difficulties completing the planning phase of an assurance engagement because the business unit lacks a system of internal controls. Which of the following is the most appropriate course of action for the internal audit team leader?

Options:

A.

Defer the engagement until a system of internal control has been established

B.

Change the scheduled engagement from assurance to consulting to help correct the shortcomings

C.

Add a consulting component to the already scheduled assurance engagement

D.

Seek the involvement of the external auditor to assist with improving the internal controls

Question 42

According to IIA guidance which of the following represents sufficient information?

Options:

A.

Information that is factual adequate and convincing

B.

Information that is best attainable through the use of appropriate engagement techniques

C.

Information that supports engagement objectives and recommendations

D.

Information that helps the organization meet its goals

Question 43

Which of the following should be the focus of the effect section of the preliminary observations document?

Options:

A.

Residual risk

B.

Inherent risk

C.

Compensating controls

D.

Control activities

Question 44

An internal auditor is preparing an internal control questionnaire for the procurement department as part of a preliminary survey. Which of the following would provide the best source of information for questions?

Options:

A.

A relevant procurement law or regulation.

B.

A list of the company's vendors.

C.

A review of a sample of tenders during the audited period.

D.

A summary of the company's expenditures and their categories.

Question 45

The head of customer service asked the chief audit executive (CAE) whether internal auditors could assist her staff with conducting a risk self-assessment in the customer service department The CAE promised to meet with customer service managers analyze relevant business processes and come up with a proposal Who is most likely to be the final approver of the engagement objectives and scope?

Options:

A.

Senior management of the organization

B.

The chief audit executive

C.

The head of customer service

D.

The board of directors

Question 46

In the following risk control map risks have been categorized based on the level of significance and the associated level of control. Which of the following statements is true regarding Risk C?

Options:

A.

The level of control is appropriate given the level of risk

B.

The level of control is excessive given the level of risk

C.

The level of control is inadequate given the level of risk

D.

There is not enough of information to determine whether the controls are appropriate or not

Question 47

Considering the five-attribute approach to documenting deficiencies in an area under review which of the following answers the question. "What should be in place?’’

Options:

A.

Action plan

B.

Recommendation

C.

Condition

D.

Criteria

Question 48

'Internal policy prohibits employees from entering into contacts with financial obligations without proper approval.

A project manager signed a change to an important service agreement without obtaining the proper approval As a result the organization is receiving $5,000 per month less for its services.’’

Which of the following should be added to the observation?

Options:

A.

The reason for not following the internal policy

B.

A description of what constitutes proper approval

C.

The annual impact of the changed agreement on cash flows

D.

Details regarding when the change to the agreement was signed

Question 49

An internal auditor is planning to audit the organization's payroll function, which was recently outsourced. Which of the following is the most appropriate first step for the auditor?

Options:

A.

Review management's organ nationwide risk assessment

B.

Understand the objectives and strategies of the new arrangement

C.

Revise the scope of the audit engagement

D.

Form objectives for the audit engagement

Question 50

Which of the following is not an outcome of control self-assessment?

Options:

A.

Informal, soft controls are omitted, and greater focus is placed on hard controls.

B.

The entire objectives-risks-controls infrastructure of an organization is subject to greater monitoring and continuous improvement.

C.

Internal auditors become involved in and knowledgeable about the self-assessment process.

D.

Nonaudit employees become experienced in assessing controls and associating control processes with managing risks.

Question 51

What is the purpose of an internal control questionnaire?

Options:

A.

To gather information from a sample of people who are geographically dispersed

B.

To assess risks that could prevent an audited area from achieving its objectives.

C.

To evaluate tie level of compliance of remote offices with centrally designed procedures

D.

To perform testing of controls more frequently

Question 52

In a health care organization the internal audit activity provides overall assurance on governance, risk and control The chief audit executive advises and influences senior management, and the audit strategy leverages the organization's management of risk According to HA guidance which of the following stages of internal audit maturity best describes this organization?

Options:

A.

Infrastructure.

B.

Emerging.

C.

Managed.

D.

Initial.

Question 53

Which of the following statements about including consulting engagements in the annual internal audit plan is true?

Options:

A.

All requests for consulting engagements must be included in the annual internal audit plan

B.

Assurance engagements must be included in the annual internal audit plan but there is no requirement to include consulting engagements

C.

Consulting engagements do not need to be included m the annual internal audit plan unless requested by the board

D.

The acceptance of proposed consulting engagements into the annual internal audit plan may depend on their ability to add value

Question 54

The newly appointed chief audit executive (CAE) of a large multinational corporation, with seasoned internal audit departments located around the world, is reviewing responsibilities for engagement reports. According to IIA guidance, which of the following statements is true?

Options:

A.

The CAE is required to review, approve, and sign every engagement report.

B.

The CAE is required to review, approve, and sign all regulatory compliance engagement reports only

C.

The CAE may delegate responsibility for reviewing, approving and signing engagement reports, but should review the reports after they are issued.

D.

The internal audit charter must identify authorized signers of engagement reports.