CIA Exam Part 1: Study Unit 5 QUESTIONS AND ANSWERS

Engagement information is usually considered relevant when it is A. Derived through valid statistical sampling. B. Objective and unbiased. C. Factual, adequate, and convincing. D. Consistent with the engagement objectives. Answer (D) is correct. Relevant information supports engagement observations and recommendations and is consistent with the objectives for the engagement (Inter. Std. 2310). To determine the sufficiency of information regarding interpretation of a contract, an internal auditor uses A. The best obtainable information. B. Subjective judgments. C. Objective evaluations. D. Logical relationships between information and issues. Answer (C) is correct. Sufficient information is factual, adequate, and convincing so that a prudent, informed person would reach the same conclusions as the auditor (Inter. Std. 2310). Because the internal auditor must avoid distortion by personal feelings, prejudices, or interpretations, this judgment must be objective. In an operational audit, the internal auditors discovered an increase in absenteeism. Accordingly, the chief audit executive decided to identify information about workforce morale. To achieve this engagement objective, the internal auditors must understand that A. Morale cannot be reliably analyzed. B. Only outcomes that are directly quantifiable can be reliably analyzed. C. Reliable information may be obtained about morale factors such as job satisfaction. D. Morale is always proportional to compensation. Answer (C) is correct. Reliable information is the best information attainable through the use of appropriate engagement techniques (Inter. Std. 2310). Such information need not consist only of quantifiable outcomes, such as rates of workforce turnover and absenteeism. Reliable information may be identified about such difficult-to-measure things as attitudes toward supervisors, other workers, and compensation. For example, surveys may produce statistically valid information about job satisfaction. Reliable information is A. Supportive of the engagement observations and consistent with the engagement objectives. B. Helpful in assisting the organization in meeting prescribed goals. C. Factual, adequate, and convincing so that a prudent person would reach the same conclusion as the internal auditor. D. Competent and the best attainable through the use of appropriate engagement techniques. Answer (D) is correct. Reliable information is the best attainable information through the use of appropriate engagement techniques (Inter. Std. 2310). An original document is the prime example of such information. Which of the following is an essential factor in evaluating the sufficiency of information? The information must A. Be well documented and cross-referenced in the working papers. B. Be based on references that are considered competent. C. Bear a direct relationship to the observation and include all of the elements of an observation. D. Be convincing enough for a prudent person to reach the same decision. Answer (D) is correct. Sufficient information is factual, adequate, and convincing so that a prudent, informed person would reach the same conclusions as the auditor (Inter. Std. 2310). While testing a division's compliance with company affirmative-action policies, an auditor found that 1. 5% of the employees are from minority groups. 2.No one from a minority group has been hired in the past year. The most appropriate conclusion for the auditor to reach is that A. Insufficient evidence exists of compliance with affirmative-action policies. B. The division is violating the company's policies. C. The company's policies cannot be audited and hence cannot be enforced. D. With 5% of its employees from minority groups, the division is effectively complying. Answer (A) is correct. Sufficient information is factual, adequate, and convincing so that a prudent, informed person would reach the same conclusions as the auditor (Inter. Std. 2310). Without knowledge of guidelines for compliance, the auditor cannot draw a reasonable conclusion given the insufficiency of the facts. Thus, the auditor must determine whether management has established adequate criteria or should work with management to develop such criteria. Reliable evidence is best defined as evidence that A. Is the best attainable. B. Is obtained by observing people, property, and events. C. Is supplementary to other evidence already gathered and tends to strengthen or confirm it. D. Proves an intermediate fact, or group of facts, from which still other facts can be inferred. Answer (A) is correct. Reliable information is the best information attainable through the use of appropriate engagement techniques (Inter. Std. 2310). Information is reliable when the auditor's results can be verified by others. Reliable information is also valid. It accurately represents the observed phenomena. Information must be collected using reasonable efforts subject to such inherent limitations as the cost-benefit constraint. Accordingly, internal auditors employ efficient methods, e.g., statistical sampling and analytical auditing procedures. While performing an engagement relating to an organization's cash controls, the internal auditor observed that cash deposits are not deposited intact daily. A comparison of a sample of cash receipts lists revealed that each cash receipt list equaled cash journal entry amounts but not daily bank deposits amounts, and cash receipts list totals equaled bank deposit totals in the long run. This information as support for the internal auditor's observations is A. Sufficient but not reliable or relevant. B. Sufficient, reliable, and relevant. C. Not sufficient, reliable, or relevant. D. Relevant but not sufficient or reliable Answer (B) is correct. The bank deposits can be verified by examining bank statements obtained directly from the bank. Information obtained from an independent source is usually more reliable than information secured solely within the entity. Moreover, it is obviously relevant to the issue of whether cash receipts are deposited intact. A reasonable internal auditor should judge that the comparison of the organization's records with independently obtained bank statements is persuasive of the proposition that cash receipts are not deposited intact. Thus, the information is also sufficient. Which of the following is a false statement about the reliability of audit evidence? A. The more effective the organization's internal control, the more assurance it provides about the accounting data. B. A copy of a document is as reliable as the original. C. Evidence obtained from independent sources outside the organization is more reliable than evidence obtained from internal sources. D. The auditor's direct personal knowledge is more reliable than information obtained indirectly. Answer (B) is correct. Internal auditors must identify sufficient, reliable, relevant, and useful information to achieve the engagement's objectives. Reliable information is best attainable through the use of appropriate engagement (interpretation). Several factors increase the reliability of audit evidence. Evidence is more reliable if it is (1) obtained from sources independent of the engagement client, (2) corroborated by other information, and (3) direct, such as the internal auditor's personal observation. Also, an original document is more reliable than a copy. Which of the following evidence is the most reliable? A. Evidence corroborated by engagement client management. B. Hearsay from an independent source. C. Expert appraisal by audit client engineer. D. Original, signed contract corroborated by a bank's copies of checks. Answer (D) is correct. Evidence is more reliable if it is (1) obtained from sources independent of the engagement client, such as confirmations of receivables or expert appraisals that are timely and made by a source with no connection to the auditee; (2) corroborated by other information; (3) direct, such as the internal auditor's personal observation, rather than indirect, such as hearsay; and (4) an original document, not a copy. The original copy of the contract with CONTINUED......