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NEW QUESTION 320
Which of the following is a red flag associated with improper asset valuation?
- A. Unusual increase in gross margin.
- B. Recurring positive cash flows from operations.
- C. Unusual decrease in the number of days' purchases in inventory.
- D. Allowance for bad debts that is increasing in percentage terms.
Answer: A
Explanation:
Topic 3, Volume C
NEW QUESTION 321
Which of the following is the primary reason the chief audit executive should consider the organization's strategic plans when developing the annual audit plan?
- A. Strategic plans are helpful to identify major areas of activity, which may direct the allocation of internal audit activity resources.
- B. Strategic plans are likely to show areas of weak financial controls.
- C. Strategic plans reflect the organization's business objectives and overall attitude toward risk.
- D. The strategic plan is a relatively stable document on which to base audit planning.
Answer: C
NEW QUESTION 322
An audit of a company's accounts payable found that the individuals responsible for maintaining the vendor master file could also enter vendor invoices into the accounts payable system. During the exit conference, management agreed to correct this problem. When performing a follow-up engagement of accounts payable, the auditor should expect to find that management has:
- A. Changed the access control system to prevent employees from both entering invoices and approving payments.
- B. Modified the accounts payable system to prevent individuals who maintain the vendor master file from entering invoices.
- C. Transferred the individuals who maintained the vendor master file to another department to ensure that responsibilities are appropriately segregated.
- D. Compared the vendor and employee master files to determine if any unauthorized vendors have been added to the vendor master file.
Answer: B
NEW QUESTION 323
When approving the final engagement report, which of the following is most critical?
- A. Opinions are adequately supported.
- B. Report is clear and concise.
- C. Report is distributed to appropriate parties.
- D. Conclusions are reached for all objectives.
Answer: A
NEW QUESTION 324
A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is most likely to explain the difference in the regional results?
- A. The more successful region spends more money per student on education than does the other region.
- B. The more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only three percent.
- C. The more successful region spends 30 percent more money on education than does the other region.
- D. A higher percentage of the general tax fund is spent on education in the more successful region than in the other region.
Answer: A
NEW QUESTION 325
If the chief audit executive believes that senior management has accepted a level of residual risk that is unacceptable to the organization, they should:
- A. Disclose the issue in the audit report when auditing the area where the risk was identified.
- B. Discuss the concern with management and if not resolved, escalate it to the board.
- C. Report the concern directly to the board.
- D. Accept the decision of senior management as they are ultimately responsible for risk management.
Answer: B
NEW QUESTION 326
Which characteristic of risk assessment makes it a useful tool for audit planning?
- A. It provides a list of auditable activities in the organization.
- B. It evaluates the probability that an event or action may adversely affect the organization.
- C. It provides a process for identifying and analyzing potentially adverse effects.
- D. It ranks the severity of potentially adverse effects on the organization.
Answer: C
NEW QUESTION 327
An organization has an opening for an entry-level internal audit position. When interviewing for the position, which of the following is the least important skill for an entry-level internal auditor?
- A. Time management skills.
- B. Conflict resolution skills.
- C. Interpersonal skills.
- D. Communication skills.
Answer: B
Explanation:
Section: Volume D
NEW QUESTION 328
While preparing the annual audit plan, the newly assigned chief audit executive (CAE) learns that the organization has not yet implemented a risk framework. Which of the following would be the most appropriate action for the CAE to take regarding potential engagements?
- A. Prioritize the engagements that were not done in previous years and schedule them for the upcoming year.
- B. Review all outstanding recommendations from prior audit engagements and focus on them in the upcoming year.
- C. Use the previous three-year audit plan to extrapolate potential engagements for the upcoming year's schedule of engagement.
- D. Consult with senior management and the board and make adjustments regarding risk.
Answer: D
NEW QUESTION 329
Which of the following conditions should a chief audit executive take into account when deciding if a follow-up audit engagement is necessary?
The reported observations were significant and high risk. Internal audit resources and the time it will require for follow-up. Management may not have the resources to take action. Management has previously decided not to take any action.
- A. 2, 3, and 4 only.
---- - B. 1, 3, and 4 only.
- C. 1, 2, and 3 only.
- D. 1, 2, and 4 only.
Answer: D
NEW QUESTION 330
Insurance companies often receive electronic hospitalization claims directly from hospitals.
Which of the following control procedures would be most effective in detecting fraud in such
an environment?
- A. Develop batch controls over all items received from a particular hospital and process those claims in batches.
- B. Use integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing.
- C. Use generalized audit software to match the claimant identification number with a master list of valid policyholders.
- D. Develop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department.
Answer: D
NEW QUESTION 331
According to the International Professional Practices Framework, which of the following would not be considered when performing an initial risk assessment in engagement planning?
- A. Risks in related activities relevant to the activity under review.
- B. Management's process for monitoring, reporting, and resolving risk issues.
- C. The reliability of management's assessment of risk.
- D. Management's methodology for defining risk criteria.
Answer: D
Explanation:
Section: Volume D
NEW QUESTION 332
An internal auditor compares real-time gasoline production data to corresponding final gasoline production reports and finds minor but consistent daily discrepancies. If the auditor is concerned about theft, which of the following next steps is most consistent with IIA guidance?
- A. Review the processes used to collect the production data and to compile the final production reports.
- B. Confront the production manager and ask her to explain the differences between real-time and reported data.
- C. Contact security personnel as evidence suggests gasoline is being stolen from production premises.
- D. Reconcile online data and the final production reports to gasoline sales reports.
Answer: A
NEW QUESTION 333
Direct staff as a percentage of total staff is an example of which of the following types of efficiency measures?
- A. Productivity index.
- B. Productivity ratio.
- C. Operating ratio.
- D. Resource utilization rate.
Answer: C
Explanation:
Section: Volume A
NEW QUESTION 334
During an assurance engagement, an internal auditor discovered that a sales manager approved numerous sales contracts for values exceeding his authorization limit. The auditor reported the finding to the audit supervisor, noting that the sales manager had additional new contracts under negotiation. According to IIA guidance, which of the following would be the most appropriate next step?
- A. The audit supervisor should remind the sales manager of his authority limit for the contracts under negotiation.
- B. The audit supervisor should include the new contracts in the finding for the final audit report.
- C. The audit supervisor should communicate the finding to the supervisor of the sales manager through an interim report.
- D. The auditor should not reference the new contracts, because they are not yet signed and therefore cannot be included in the final report.
Answer: C
NEW QUESTION 335
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