Passit4sure.QIA.63 questions QIA. Qualified Internal Auditor

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3 Exam A QUESTION 1 The internal auditors of a financial institution are auditing the institution's investing and lending activities. During the last year, the institution has adopted new policies and procedures for monitoring investments and the loan portfolio. The auditors know that the organisation has invested in new types of financial instruments during the year and is heavily involved in the use of financial derivatives to appropriately hedge risks The audit committee has expressed concern that the financial institution has been taking on higher-risk loans in pursuit of short term profit goals. Which of the following audit procedures would provide the least amount of information to address this audit concern? A. Perform an analytical review of interest income as a percentage of the investment portfolio in comparison with a group of peer financial institutions. B. Take a random sample of loans made during the period and compare the riskiness of the loans with that of a random sample of loans made two years ago. C. Perform an analytical review that involves developing a chart to compare interest income plotted over the past ten years. D. Develop a multiple regression time series analysis of income over the past five years, including such factors as interest rate in the economy, size of loan portfolio, and dollar amount of new loans each year. Correct Answer: C /Reference: : QUESTION 2 An operational audit is being performed to evaluate the productivity of telephone sales representatives relative to last year. The organization sells two similar products, one of which is priced 20% higher than the other. Prices did not change during the two years subject to the audit, and the gross profit percentage is the same for both products. The sales representatives are paid a base salary plus a commission. Which one of the following items represents the best evidence that the organization's sales representatives are more productive this year than last year? A. The revenue per representative is higher this year than last year. B. The number of sales calls is higher this year than last year. C. The ratio of the number of new customers to the number of prospects contacted is higher this year than last year. D. Unit sales increased at a higher rate this year than last year. Correct Answer: A

4 /Reference: selection of option is correct. QUESTION 3 An example of an internal non-financial benchmark is A. Thelaborrate of comparably skilled employees at a major competitor's plant. B. The average actual cost per pound of a specific product at the company's most efficient plant becomes the benchmark for the company's other plants. C. The company setting a benchmark of $50,000 for employee training programs at each of the company's plants. D. The percent of customer orders delivered on time at the company's most efficient plant becomes the benchmark for the company's other plants. Correct Answer: D /Reference: correctly answered. QUESTION 4 Reporting to senior management and the board is an important part of the auditor's obligation. Which of the following items is not required to be reported to senior management and/or the board? A. Subsequent to the completion of an audit, but prior to the issuance of an audit report, the audit senior in charge of the audit was offered a permanent position in the auditee's department. B. An annual report summary of the department's audit work schedule and financial budget. C. Significant interim changes to the approved audit work schedule and financial budget. D. An audit plan was approved by senior management and the board. Subsequent to the approval, senior management informed the audit director not to perform an audit of a division because the division's activities were very sensitive. Correct Answer: A /Reference: : QUESTION 5 The requirements for staffing level, education and training, and audit research should be included in

5 A. The internal auditing department's charter. B. The internal auditing department's policies and procedures manual. C. The annual plan for the internal auditing department. D. Job descriptions for the various staff positions. Correct Answer: C /Reference: : QUESTION 6 A personnel department is responsible for processing placement agency fees for new hires. A recruiter established some bogus placement agencies and, when interviewing walk-in applicants, the recruiter would list one of the bogus agencies as referring the candidate. A possible means of detection or deterrence is to A. Process all personnel agency invoices via a purchase order through the purchasing department. B. Verify new vendors to firms listed in a professional association catalogue and/or verify the vendor name and address through the telephone book. C. Monitor the closeness of the relationships of recruiters with specific vendors. D. Require all employees to sign an annual conflict of interest statement. /Reference: selection of option is correct.

6 QUESTION 7 Internal auditors must exercise due care if they are to meet their responsibilities for fraud detection. Thus, the existence of certain conditions should raise red flags and arouse auditors' professional scepticism concerning possible fraud. Which of the following is most likely to be considered an indication of possible fraud? A. A new management team installed as the result of a takeover. B. Rapid turnover of financial executives. C. Rapid expansion into new markets. D. An Internal Revenue Service audit of tax returns. /Reference: : QUESTION 8 Which of the following is a particular activity of internal audit function? A. Special investigations, for instance, into suspected fraud B. Confirm that the final result (the sum) is correct C. To evaluate the system of internal control that are mainly concerned with the financial statements and accounting D. To give an opinion on overall fairness of the financial statements and accounting Correct Answer: A /Reference: selected answer is right. QUESTION 9 Which of the following is an example of intimidation threat to independence of the auditor? A. The audit firm has been involved in maintaining the accounting records, or undertaking valuations that are incorporated in the financial statements B. The audit firm is acting as a legal advocate for the client in litigation C. Xenia Taliotis is an influential finance director of Winner Plc

7 D. The audit firm is working for long time for its client Correct Answer: C /Reference: : QUESTION 10 Which of the following is not a stage of risk management process? A. Identification B. Assessment C. Migration D. Review Correct Answer: C /Reference: : QUESTION 11 The auditor wants to understand the actual flow of data regarding cash processing. The most convincing evidence would be obtained by A. Reviewing the systems flowchart. B. Performing a "walk-through" of the processing and obtaining copies of all documents used. C. Reviewing the programming flowchart for evidence of control procedures placed into the computer programs. D. Interviewing the treasurer. /Reference: selection of option is correct.

8 QUESTION 12 Which of the following documents would provide the most persuasive evidence concerning the existence and valuation of a receivable? A. A credit approval document supported by the customer's audited financial statements. B. A copy of a sales invoice to the customer in the auditee's records. C. A positive confirmation received directly from the customer. D. A customer's purchase order in the auditee's records related to the credit sale. Correct Answer: C /Reference: satisfied with answer. QUESTION 13 During an interview with a data input clerk to discuss a computerized system used to track employee training requirements and compliance, an auditor identifies a potentially significant weakness in the system. The auditor should A. Not mention the weakness, directly or indirectly, to avoid making the clerk uncomfortable. B. Ask indirect questions that will help get more factual information relating to the potential weakness. C. Ask the clerk about the weakness and determine immediately if the finding should be reported. D. Conduct a second interview after determining whether the weakness actually exists. /Reference: : QUESTION 14 When making a presentation to management, the auditor wants to report findings and to stimulate action. These objectives are best accomplished by A. Delivering a lecture on the findings. B. Showing a series of slides or overheads that graphically depict the findings; limit verbal commentary.

9 C. Using slides/overheads to support a discussion of major points. D. Handing out copies of the report, asking the participants to read the report, and asking for questions. Correct Answer: C /Reference: well answered. QUESTION 15 During an audit of sales representatives' travel expenses, it was discovered that 152 of 200 travel advances issued to sales representatives in the past year exceeded the prescribed maximum amount allowed. Which of the following statements is a justifiable audit opinion? A. The majority of travel advances in theorganizationexceed the prescribed maximum. B. Travel advances are not controlled in accordance with existing policy. C. The prescribed maximum travel advance is too low. D. 76% of all travel advances exceed the management prescribed maximum. /Reference: : QUESTION 16 Due to the small number of staffs, one remote unit's petty cash custodian also had responsibility for the imprest fund checking account reconciliation. The cashier concealed a diversion of funds by altering the beginning balance on the monthly reconciliations sent to the group office. A possible audit test to detect this would be to A. Compare monthly balances and use change and trend analysis. B. Require additional monitoring by headquarters whenever improper segregation of duties exists at remote units. C. Determine if any employees have high personal debt. D. Determine if any employees are leading expensive lifestyles.

10 Correct Answer: A /Reference: appropriate answer. QUESTION 17 One concern of a user of a computer service centre is that one firm's transactions may accidentally be used in the process of updating a second firm's master files. The control procedure that would best provide assurance of the integrity of the master files during updating processes is a check for A. Completeness of input, such as a computer sequence check. B. Correct master files, such as a header label. C. Input accuracy, such as a check of detail reports. D. Accuracy of file maintenance, such as review of exception reports. /Reference: satisfied. QUESTION 18 In order to ensure the proper addition/deletion of authorizations in an operational audit of data access security, an internal auditor would verify that A. Individuals who are not employees have no access privileges. B. Revoked access privileges are cancelled on a weekly cycle. C. Access privileges are activated promptly after they areauthorized. D. A systemsprogramkeeps records of all additions/deletions of access changes. Correct Answer: C /Reference: selection of option is correct. QUESTION 19

11 Which of the following control procedures would provide the greatest assurance that all donations to a non-profit organization are immediately deposited to the organization's account? A. Use a lockbox to receive all donations. B. Perform periodic internal audits of theorganization'scash receipts by tracing deposits to the original posting in the cash receipts records. C. Require that all donations be made by cheque. D. Require issuance of a confirmation receipt to all donors, with the receipt issued by the person who opens and deposits the cash receipts. Correct Answer: A /Reference: : QUESTION 20 Follow-up activity may be required to ensure that corrective action has taken place for certain findings. The internal audit department's responsibility to perform follow-up activities as required should be defined in the A. Internal auditing department's written charter. B. Mission statement of the audit committee. C. Engagement memo issued prior to each audit assignment. D. Purpose statement within applicable audit reports. Correct Answer: A /Reference: : QUESTION 21 Which of the following activities is not included in determining the audit schedule? A. Developing auditprograms. B. Assessing risk factors. C. Planning workload requirements. D. Identifying auditable locations.

12 Correct Answer: A /Reference: properly answered. QUESTION 22 How does CSA differ from traditional methods of auditing? A. Shifts some of the responsibilities away from the auditors towards others such as work teams. B. Allocated additional responsibilities to internal audit. C. Reduces the level of collaboration required between managers and internal auditor. D. Allows assessment to be carried out without any internal audit involvement whatsoever, therefore allowing them to focus their attention on other areas of theorganization. Correct Answer: A /Reference: : QUESTION 23 Which of the following is not an activity of internal audit function? A. Examining financial and operating information B. Review of the economy, efficiency and effectiveness of operations C. Review of compliance with laws, regulations and other external requirements D. Confirming that the final result (the sum) is correct Correct Answer: D /Reference: : QUESTION 24

13 Your assurance firm is auditor of Happy Goods. The audit manager has just become engaged to the managing director's daughter, who he met through a mutual friend. The managing director owns 51% of the shares in Happy Goods. Which of the threat is not there in this case? A. Intimidation threat B. Familiarity threat C. Self-interest threat D. Advocacy threat Correct Answer: D /Reference: satisfactory answer. QUESTION 25 Which of the following is not an argument for principles-based approach to corporate governance? A. The same rules might not be suitable for every company B. There are some aspects of corporate governance that cannot be regulated easily C. Companies do not have the choice of ignoring the rules D. The most suitable corporate governance practices can differ between companies Correct Answer: C /Reference: fine answer. QUESTION 26 The following are potential sources of evidence regarding the effectiveness of the division's total quality management program. Assume that, all comparisons are for similar time periods and duration and current items are compared with similar items before the implementation of the total quality management program. The least persuasive evidence would be a comparison of A. Employee morale over the two time periods. B. Scrap and rework costs over the two time periods. C. Customer returns over the two time periods. D. Manufacturing and distribution costs per unit over the two time periods.

14 Correct Answer: A /Reference: selection of option is correct. QUESTION 27 Which of the following is not a component of audit risk? A. Inherent risk B. Control risk C. Defective risk D. Detection risk Correct Answer: C /Reference: : QUESTION 28 Which of the following types of tests would be the most persuasive if an internal auditor wanted assurance of the existence of inventory stored in a warehouse? A. Examination of the shipping documents supporting recorded transfers to and from the warehouse. B. Obtaining written confirmation from management. C. Physically observing the inventory in the warehouse. D. Examination of warehouse receipts contained in the auditee's records. Correct Answer: C /Reference: : QUESTION 29

15 To identify shortages of specific items in an inventory of expensive goods held for retail sale, the most appropriate audit work step is to A. Apply the retail method of inventory valuation. B. Compare physical inventory counts to perpetual records. C. Develop inventory estimates based on the gross profit percentage method. D. Analyzecurrent and previous inventory turnover rates. /Reference: best suitable answer. QUESTION 30 Which of the following techniques is best for emphasizing a point in a written communication? A. Place the point in the middle rather than at the beginning or end of the paragraph. B. Use passive rather than active voice. C. Highlight the point through the use of nonparallel structure. D. Use a short sentence with one idea rather than a longer sentence with several ideas. Correct Answer: D /Reference: : QUESTION 31 An internal audit director has noticed that staff auditors are presenting more oral reports to supplement written reports.

16 The best reason for the increased use of oral reports by the auditors is that they A. Reduce the amount of testing required to support audit findings. B. Can be delivered in an informal manner without preparation. C. Can be prepared using a flexible format, thereby increasing overall audit efficiency. D. Permit auditors to counter arguments and provide additional information that the audience may require. Correct Answer: D /Reference: accurate answer. QUESTION 32 An internal auditor found that employees in the maintenance department were not signing their time cards. This situation also existed during the last audit. The auditor should A. Include this finding in the current audit report. B. Ask the manager of the maintenance department to assume the resulting risk. C. Withhold conclusions about payroll internal control in the maintenance department. D. Instruct the employees to sign their time cards Correct Answer: A /Reference: selection of option is correct. QUESTION 33 In addition to controls over access, processing, program changes, and other functions, a computerized system needs to establish an audit trail of information. Which of the following information would generally not be included in an audit trail log designed to summaries unauthorized system access attempts? A. A list ofauthorizedusers. B. The type of event or transaction attempted. C. The terminal used to make the attempt.

17 D. The data in the program sought. Correct Answer: A /Reference: fine answer. QUESTION 34 Audits vary in their degree of objectivity. Of the following, which is likely to be the most objective? A. Compliance audit of company's overtime policy. B. Operational audit of the personnel function hiring and firing procedures. C. Performance audit of the marketing department. D. Financial control audit over payroll procedures. Correct Answer: A /Reference: : QUESTION 35 The appropriate sampling plan to use to identify at least one irregularity, assuming some number of such irregularities exist in a population, and then to discontinue sampling when one irregularity is observed is A. Stop-and-go sampling. B. Discovery sampling. C. Variables sampling. D. Attributes sampling. /Reference: fine answered.

18 QUESTION 36 In order for internal auditors to be able to recognize potential fraud, they must be aware of the basic characteristics of fraud. Which of the following is not a characteristic of fraud? A. Intentional deception. B. Taking unfair or dishonest advantage. C. Perpetration for the benefit or detriment of theorganization. D. Negligence on the part of executive management. Correct Answer: D /Reference: : QUESTION 37 During the audit of inventories, an internal auditor specified a precision of 5% instead of the 4% contained in the preliminary audit program. What would be the impact of the change in precision? A. A decrease in population standard deviation. B. An increase in population standard deviation. C. A decrease in required sample size D. An increase in required sample size Correct Answer: C /Reference: : QUESTION 38 In a variables sampling application, which of the following factors will vary directly with a change in confidence level from 90% to 95%? A. Standard error of the mean. B. Non-sampling error.

19 C. Achieved precision. D. Point estimate of the arithmetic mean. Correct Answer: C /Reference: real answer. QUESTION 39 An audit team developed a preliminary questionnaire with the following response choices: A. Probably not a problem. II. Possibly a problem. III. Probably a problem. The questionnaire illustrates the use of B. Trend analysis. C. Ratio analysis. D. Unobtrusive measures or observations. E. Rating scales. Correct Answer: D /Reference: properly answer. QUESTION 40 A company with 14,344 customers determines that the mean and median accounts receivable balances for the year are $15,412 and $10,382, respectively. From this information, the auditor can conclude that the distribution of the accounts receivable balances is continuous and A. Negatively skewed. B. Positively skewed. C. Symmetrically skewed. D. Evenly distributed between the mean and median.

20 /Reference: finely answered. QUESTION 41 An audit of accounts payable was made to determine if the error rate was within the stated policy of 0.5%. One hundred of the 10,000 accounts payable transactions were randomly selected using a 95% confidence level. No errors were found. With 95% certainty, one can conclude that the sample results A. Indicate another sample is needed. B. Prove there are no errors in accounts payable. C. Indicate the null hypothesis is false. D. Fail to prove the error rate is above 0.5%. Correct Answer: D /Reference: : QUESTION 42 The control self-assessment (CSA) is a A. Directive auditing tool. B. Preventive auditing tool. C. Detective auditing tool. D. Corrective auditing tool. /Reference: :

21 QUESTION 43 In planning a system of internal operating controls, the role of the internal auditor is to A. Design the controls. B. Appraise the effectiveness of the controls. C. Establish the policies for controls. D. Create the procedures for the planning process. /Reference: fine answered. QUESTION 44 Auditors realize that at times corrective action is not taken even when agreed to by the appropriate parties. This should lead an internal auditor to A. Decide the extent of necessary follow-up work. B. Allow management to decide when to follow-up, since it is management's ultimate responsibility. C. Decide to conduct follow-up work only if management requests the auditor's assistance. D. Write a follow-up audit report with all findings and their significance to the operations. Correct Answer: A /Reference: definite answer. QUESTION 45 Internal auditing is responsible for reporting fraud to senior management or the board when A. The incidence of fraud of a material amount has been established to a reasonable certainty. B. Suspicious activities have been reported to internal auditing. C. Irregular transactions have been identified and are under investigation. D. The review of all suspected fraud related transactions is complete.

22 Correct Answer: A /Reference: : QUESTION 46 Management is legally required to prepare a shipping document for all movement of hazardous materials. The document must be filed with bills of lading. Management expects 100% compliance with the procedure. Which of the following sampling approaches would be most appropriate? A. Attributes sampling. B. Discovery sampling. C. Targeted sampling. D. Variables sampling. /Reference: reliable answer. QUESTION 47 Which technique is most appropriate for testing the quality of the pre-audit of payment vouchers described in an internal control questionnaire (ICQ)? A. Analysis B. Evaluation C. Verification D. Observation

23 Correct Answer: C /Reference: : QUESTION 48 What evidence is appropriate to determine that recorded purchase transactions were valid and at the best price? A. Purchase requisitions, journal voucher entries, and bid quotes. B. Purchase requisitions, purchase orders, and bid quotes. C. Receiving reports, purchase orders, and purchase requisitions. D. Purchase orders, receiving reports, and bid quotes. Correct Answer: D /Reference: actual answer. QUESTION 49 In an audit of the procurement system, which of the following procedures would an auditor perform to determine whether competitive bidding procedures were adequate? A. Bids are solicited based on properly approved requests. II. A sufficient number of vendors were selected to ensure competition. III. Incoming bids are first returned to the buyer for control purposes. B. I and III. C. II and III. D. I, II, and III. E. I and II. Correct Answer: D

24 /Reference: : QUESTION 50 Working papers serve the following purpose for the internal auditor: A. Provide the auditee a place to make responses to audit recommendations. B. Make the audit report more readable by providing a place to append exhibits. C. Provide the principal evidential support for the internal auditor's report. D. Provide a place to summarise overall audit recommendations. Correct Answer: C /Reference: selection of option is correct. QUESTION 51 Data gathered in support of an audit conclusion can be rated on a continuum of reliability. The most reliable form of evidence would be an A. Internal document obtained from the auditee. B. External document obtained directly from an outside source. C. Internal document subject to rigorous internal review procedures. D. Internal document that has been circulated through an outside party. /Reference: real answer. QUESTION 52 The consultative approach to auditing emphasizes A. Imposition of corrective measures.

25 B. Participation with auditees to improve methods. C. Fraud investigation. D. Implementation of policies and procedures. /Reference: : QUESTION 53 Which of the following audit committee activities would be of the greatest benefit to the internal auditing department? A. Review and approval of auditprograms. B. Assurance that the external auditor will rely on the work of the internal auditing department whenever possible. C. Review and endorsement of all internal audit reports prior to their release. D. Support for appropriate follow-up of recommendations made by the internal auditing department. Correct Answer: D /Reference: Okay. QUESTION 54 During an audit, the internal auditor should consider the following factor(s) in determining the extent to which analytical procedures should be used, Except A. Adequacy of the system of internal control. B. Significance of the area being examined. C. Precision with which the results of analytical audit procedures can be predicted. D. Preparation of employee questionnaire policy. Correct Answer: D /Reference:

26 : QUESTION 55 Accounts payable schedule verification may include the use of analytical evidence. Which of the following is most appropriately described as analytical evidence? A. Comparing the items on the schedule with the accounts payable ledger or unpaid voucher file. B. Comparing the balance on the schedule with the balances of prior years. C. Comparing confirmations received from selected creditors with the accounts payable ledger. D. Examining vendors' invoices in support of selected items on the schedule. /Reference: good answer. QUESTION 56 Which of the following audit procedures would be most effective in determining whether vendor invoices are being processed on a timely basis while maximizing the company's use of cash? A. Determine the length of processing time between the receipt of the vendor's invoice to the payment date for the related disbursement. B. Interview the accounts payable manager to determine the procedures and standards for processing vendor invoices. C. Compare the vendor's invoice due date with the payment date as indicated on the cancelled check. D. Compare the date stamped on the invoice for receipt with the corresponding payment date for the disbursement. Correct Answer: C /Reference: accurate answer. QUESTION 57 An internal auditor would trace copies of sales invoices to shipping documents in order to determine that: A. Customer shipments were billed.

27 B. Sales that are billed were also shipped. C. Shipments to customers were also recorded as receivables. D. The subsidiary accounts receivable ledger was updated. /Reference: QUESTION 58 An organization uses a service bureau to process its hourly payroll transactions. The internal auditor is concerned that the hourly payroll for the year has been processed correctly and, in particular, the computation of employee withholding for pension contributions is in accordance with the union contract, which specifies charges each quarter. Which of the following audit procedures would best accomplish the audit objective? A. Select a random sample of all hourly payroll transactions for the reporting period, re-compute pay and withholding items, and compare the result with that obtained from the service bureau. B. Select a stratified sample of all hourly and salaried payroll transactions for an entire reporting period, perform the necessary activities, and then compare the result with that obtained from the service bureau. C. Select a discovery sampling of all payroll transactions for an entire reporting period and then follow up on any findings. D. Submit a set of test data to the service bureau during an annual audit and compare the service bureau's processing with the auditor's predetermined computations on the same test data. Correct Answer: D /Reference: : QUESTION 59 Computer fraud is discouraged by A. Being willing to prosecute. B. Ostracizingwhistle-blowers. C. Overlooking inefficiencies in the judicial system.

28 D. Accepting the lack of integrity in the system. Correct Answer: A /Reference: satisfied. QUESTION 60 Experience has shown that certain conditions in an organization are symptoms of possible management fraud. Which of the following conditions would not be considered as an indicator of possible fraud? A. Managers regularly assume subordinates' duties. B. Managers dealing in matters outside their profit centre's scope. C. Managers not complying with corporate directives and procedures. D. Managers subject to formal performance reviews on a regular basis. Correct Answer: D /Reference: right answer. QUESTION 61 An auditor selected a random sample of 100 items from a population of 2,000 items. The total dollars in the sample were $10,000, and the standard deviation was $10. If the achieved precision based on this sample was plus or minus $4,000, the minimum acceptable value of the population would be A. $204,000 B. $196,000 C. $199,000 D. $199,800

29 /Reference: : QUESTION 62 To test compliance with a policy regarding sales returns recorded during the most recent year, an auditor systematically selected 5% of the actual returns recorded in March and April. Returns during these two busiest months of the year represented about 25% of total annual returns. Error projections from this sample have limited usefulness because A. The small size of the sample relative to the population makes sampling risk unacceptable. B. The failure to stratify the population according to sales volume results in bias. C. The systematic selection of returns during the two months is not sufficiently random. D. The error rates during the two busiest months may not be representative of the whole year. Correct Answer: D /Reference: very well. QUESTION 63 An internal auditor plans to use an analytical review to verify the correctness of various operating expenses in a division. The use of an analytical review as a verification technique would not be a preferred approach if A. The auditor notes strong indicators of a specific fraud involving this account. B. The company has relatively stable operations that have not changed much over the past year. C. The auditor would like to identify large, unusual, or nonrecurring transactions during the year. D. The operating expenses vary in relation to other operating expenses, but not in relation to revenue. Correct Answer: A /Reference: satisfied.

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