Audit Final Exam(Questions with complete solutions)

An internal auditor has just completed a survey to become familiar with the organization's payroll operations as part of an unplanned engagement. Which of the following most likely is performed next? A. Assign internal audit personnel. B. Write the engagement work program. C. Conduct field work. D. Establish initial engagement objectives. Answer B is correct. The survey allows the internal auditor to become familiar with the engagement client and therefore provides input to the work program. Internal auditors must develop and document a plan for each engagement. The planning process should include all the following except A. Establishing engagement objectives and scope of work. B. Identifying sufficient information to achieve engagement objectives. C. Obtaining background information about the activities to be reviewed. D. Determining how, when, and to whom the engagement results will be communicated Answer B is correct. Internal auditors must develop and document a plan for each engagement, including the engagement's objectives, scope, timing, and resource allocations (Perf. Std. 2200). Identifying sufficient information to achieve engagement objectives is done during field work, not planning. 00:39 00:53 To determine the extent of testing to be performed during field work, preparing the engagement work program should be the next step after completing the A. Survey of company policies. B. Preliminary survey. C. Assignment of audit staff. D. Time budgets for specific audit tasks. Answer B is correct. Planning includes performing, if appropriate, a survey to (1) become familiar with the activities, risks, and controls to be reviewed to identify areas for engagement emphasis and (2) invite comments and suggestions from engagement clients. Writing the work program is the next step. A chief audit executive may use risk analysis in preparing work schedules. Which of the following is not considered in performing a risk analysis? A. Major operating changes. B. Issues relating to organizational governance. C. Skills available on the internal audit staff. D. Results of prior engagements. Answer C is correct. The skills of the internal audit staff do not affect the risk associated with potential engagement clients. The action taken by an internal auditor who discovers a significant area not included in the engagement work program should be to A. Continue the engagement as planned and include the unforeseen area in a subsequent engagement. B. Evaluate whether completion of the engagement as planned will be adequate. C. Document the observation in the working papers and take no further action until instructed to do so. D. Perform the additional work deemed necessary without regard to the additional time needed to complete the engagement. Answer B is correct. A work program documents engagement procedures selected in advance but should be modified, as appropriate, during the course of the engagement. The work program must be approved prior to its implementation, and any adjustments approved promptly (Impl. Std. 2240.A1). Work programs are necessarily tentative because the internal auditors are likely to encounter unexpected situations while performing detailed procedures. If they learn that a significant area is not covered, the internal auditors must determine whether they can achieve the engagement objectives and satisfy their professional responsibilities without modification of the work program. Modification will necessitate consultation with superiors to obtain authorization to adjust time and financial budgets. Of the following, the information collected by the internal auditor during an engagement is best described as A. An intermediate fact, or group of facts, from which the internal auditor can infer the fairness of an assertion being reviewed. B. Detailed documentation for systems that do not achieve desired objectives, actions that were taken improperly, and actions that should have been taken but were not. C. The information documented by the internal auditor and obtained through observing conditions, interviewing people, and examining records. D. The records of preliminary planning and surveys, the engagement work program, and the results of field work. Answer C is correct. The three activities that constitute information-gathering by an internal auditor are observing conditions, interviewing people, and examining records. Which of the following is the best source of a chief audit executive's information for planning staffing requirements? A. Review internal audit staff size and composition of similarly sized organizations in the same industry. B. Review of internal audit staff education and training records. C. Discussions of internal audit needs with senior management and the board. D. Interviews with existing internal audit staff. Answer C is correct. Ensuring the sufficiency of internal audit resources is ultimately a responsibility of the organization's senior management and board. The CAE should assist them in discharging this responsibility. Internal auditors need to determine the extent to which management has established adequate control criteria. For this purpose, which of the following actions may be appropriate? Determining whether objectives have been accomplished Using management's adequate control criteria in their evaluation Working with management to develop appropriate control evaluation criteria A. 1 only. B. 2 only. C. 1, 2, and 3. D. 1 and 2 only. Answer C is correct. "Adequate criteria are needed to evaluate controls. Internal auditors must ascertain the extent to which management has established adequate criteria to determine whether objectives and goals have been accomplished. If adequate, internal auditors must use such criteria in their evaluation. If inadequate, internal auditors must identify appropriate evaluation criteria through discussion with management and/or the board" (Impl. Std. 2210.A3). In the planning phase, the scope of an internal audit engagement is defined by the A. Scheduling and time estimates. B. Engagement objectives. C. Engagement work program. D. Preliminary survey. Answer B is correct. The established scope must be sufficient to satisfy the objectives of the engagement (Perf. Std. 2220). The chief audit executive is preparing the audit work schedule for the next budget year and has limited resources. In deciding whether to schedule the purchasing or the personnel department for an engagement, which of the following is the least important factor? A. Major changes in operations have occurred in one of the departments. B. Updated assessed risk is significantly greater in one department than the other. C. The internal audit staff has recently added an individual with expertise in one of the areas. D. More opportunities to achieve operating benefits are available in one of the departments than in the other. Answer C is correct. The CAE's responsibility is to assign competent internal auditors to the appropriate engagements, not to adjust the workplan to the abilities of the staff. Updating the audit universe is useful in developing the internal audit plan. The audit universe A. May not overlap with the organization's strategic plan. B. Consists of all possible audits. C. Reflects only past organizational strategies. D. Is typically updated every 5 years. Answer B is correct. In developing the internal audit activity's audit plan, many CAEs find it useful to first develop or update the audit universe. The audit universe is a list of all the possible audits that could