AUI3702 – MCQ Questions and Answers
A certified internal auditor (CIA) is working in a non-internal audit position as
the director of the Purchasing Department. As part of his duties, the CIA signs a
contract to procure a large order from the supplier with the best price, quality
and performance. Shortly after signing the contract, the supplier presents the
CIA with a gift of significant monetary value. Which one of the following
statements regarding the acceptance of the gift is correct?
Acceptance of the gift would violate the Code of Ethics and would be
prohibited for a CIA.
A certified internal auditor (CIA) performed an assurance engagement to
review a department store’s cash function. Which of the following actions will
be deemed lacking in due professional care?
Because of a highly developed system of internal control over the cash
function, the final engagement communication assured senior management
that no irregularities existed.
A company policy should clearly indicate that defective merchandise returned
by customers is to be delivered to the
receiving clerk
A CPA reviews a client’s payroll procedures. The CPA would consider internal
control to be less than effective if a payroll department supervisor was assigned
the responsibility for
distributing payroll checks to employees.
A flowchart of process activities and controls may provide …
information on where fraud could occur.
an indication of where fraud has occurred in a process
A general control is best described as:
a control that is part of the overall framework of control for computer
activities.
A lack of experienced employees in the revenue and receipts cycle at an audit
client has led you to expect an increase in the rate of deviation for the tests of
controls you are about to conduct on the cycle. Which one of the following
represents the effect this likely would have on the size of the sample you are
about to extract?
No change in the sample size as an increase deviation rate is not a risk
A lower level of sampling risk that the auditor is willing to accept will
Result in a greater sample size
,A manufacturing company has been expanding rapidly and is considering
adding a new product line. Employees are currently working double shifts and
receiving large amounts of overtime pay. Demand for the company’s products
is currently high……………………………….Covid-19 pandemic.
Develop a schedule of employee pay and analyse changes in overtime pay.
A medium-sized publicly owned organisation operating in country Z has grown
to a size which the directors of the organisation believe warrants the
establishment of an internal auditing function. Country Z has legislated internal
auditing requirements for government-owned organisations. The organisation
has therefore changed its articles of association to reflect the establishment of
the internal audit function. The directors have decided that the chief audit
executive (CAE) must be a certified internal auditor (CIA) and will report
directly to the newly established audit committee of the board of directors.
Which one of the following will contribute the most to the new CAE’s
independence?
The CAE will report to the audit committee of the board of directors.
A major distinction between statistical and non-statistical sampling is that
statistical sampling provides an objective means of determining sample size
A misstatement or deviation in a population that is clearly not representative of
the population is termed.
An anomaly
A prerequisite for risk analysis is…
the establishment of organisational objectives.
A production manager for a medium sized manufacturing company began
ordering excessive amounts of raw materials and had the raw materials
delivered to another company, which the manager was running as a sideline
business. The manager falsified receiving documents and approved the invoices
for payment. Which one of the following audit engagement procedures would
most likely detect this fraud?
Perform analytical procedures, comparing production, raw materials purchased
and raw materials inventory levels and investigate differences.
A Production manager of MSM Company ordered excessive raw materials and
had the materials delivered to a side business he operated. The manager
falsified receiving reports and approved the invoices for payment. Which of the
following procedures would most likely detect this fraud?
Perform ratio and trend analysis compare the cost of raw materials purchased
with the cost of goods produced.
,A sales clerk at Schackne Company correctly prepared a sales invoice for $5,200,
but the invoice was entered as $2,500 in the sales journal and similarly posted
to the general ledger and accounts receivable ledger. The customer remitted
only $2,500, the amount on his/her monthly statement. The most effective
procedure for preventing this type of error is to
Use predetermined totals to control posting routines.
A tolerable misstatement relates to.
The monetary amount of misstatement in a population which is acceptable to
the auditor
ABC company has the following control inscribed in its revenue and receipts
policy “before processing the order, checks should be carried out by the credit
controller to establish that the customer is creditworthy and did not surpass his
credit limit” Which of the following risks is this control most mitigating
A sale will be made to a customer who is not creditworthy, resulting in bad
debts for the company.
According to the Code of Ethics, “The integrity of internal auditors establishes
trust and thus provide the basis for reliance on their judgement”. Which one of
the following Rules of Conduct is associated with the integrity principle?
Shall perform their work with honesty, diligence and responsibility.
According to the COSO Internal Control-Integrated Framework, a precondition
for risk assessment is the:
Establishment of organisational objectives
According to the Internal Auditing Standards, the purpose of an internal
auditor’s review for effectiveness of the system of internal control is to
ascertain whether …
the system is functioning as intended.
According to the Professional Practice Framework which pronouncements
represent non-mandatory guidance for implementing the Standards?
Implementation Guides.
According to the IPPF’s International Standards for the Professional Practice of
Internal Auditing, the purpose of an internal auditor’s review of the system of
internal control is to ascertain that …
the system is functioning as intended.
, According to the Standards for the Professional Practice of Internal Auditing,
which of the following is NOT included in the scope of the internal audit
function?
Reviewing the strategic management process, accessing the quality of
management decision making both quantitatively and qualitatively, and
reporting the results to the audit committee.
All employees in XYZ Corporation have to obtain authorisation from their
senior managers before placing an order. This type of control is classified as
preventive control
All of the following stakeholders receive the results of internal and external
quality program assessment of internal audit’s activity from the chief audit
executive (CAE) except:
Functional managers.
An application control is best described as?
a control that contributes to the production of valid, accurate and complete
information.
An approach to sampling which is based on the random selection of the sample
items and the use of probability theory to evaluate sample results is termed
Statistical sampling
An appropriate compliance test to confirm that only valid employees are on the
payroll is to ensure that
Payroll bank accounts are reconciled monthly by appropriate personnel.
An audit committee should be designed to enhance the independence of both
internal and external audit functions and to insulate the audit functions from
undue management pressures. Using these criteria, audit com-mites should be
composed of:
Only external members of the board of directors or its equivalent.
An audit must be performed with an attitude of professional skepticism.
Professional skepticism consists of two primary components: a questioning
mind and:
a critical assessment of the audit evidence.
An audit working paper is complete when?
The audit objective has been met.
A certified internal auditor (CIA) is working in a non-internal audit position as
the director of the Purchasing Department. As part of his duties, the CIA signs a
contract to procure a large order from the supplier with the best price, quality
and performance. Shortly after signing the contract, the supplier presents the
CIA with a gift of significant monetary value. Which one of the following
statements regarding the acceptance of the gift is correct?
Acceptance of the gift would violate the Code of Ethics and would be
prohibited for a CIA.
A certified internal auditor (CIA) performed an assurance engagement to
review a department store’s cash function. Which of the following actions will
be deemed lacking in due professional care?
Because of a highly developed system of internal control over the cash
function, the final engagement communication assured senior management
that no irregularities existed.
A company policy should clearly indicate that defective merchandise returned
by customers is to be delivered to the
receiving clerk
A CPA reviews a client’s payroll procedures. The CPA would consider internal
control to be less than effective if a payroll department supervisor was assigned
the responsibility for
distributing payroll checks to employees.
A flowchart of process activities and controls may provide …
information on where fraud could occur.
an indication of where fraud has occurred in a process
A general control is best described as:
a control that is part of the overall framework of control for computer
activities.
A lack of experienced employees in the revenue and receipts cycle at an audit
client has led you to expect an increase in the rate of deviation for the tests of
controls you are about to conduct on the cycle. Which one of the following
represents the effect this likely would have on the size of the sample you are
about to extract?
No change in the sample size as an increase deviation rate is not a risk
A lower level of sampling risk that the auditor is willing to accept will
Result in a greater sample size
,A manufacturing company has been expanding rapidly and is considering
adding a new product line. Employees are currently working double shifts and
receiving large amounts of overtime pay. Demand for the company’s products
is currently high……………………………….Covid-19 pandemic.
Develop a schedule of employee pay and analyse changes in overtime pay.
A medium-sized publicly owned organisation operating in country Z has grown
to a size which the directors of the organisation believe warrants the
establishment of an internal auditing function. Country Z has legislated internal
auditing requirements for government-owned organisations. The organisation
has therefore changed its articles of association to reflect the establishment of
the internal audit function. The directors have decided that the chief audit
executive (CAE) must be a certified internal auditor (CIA) and will report
directly to the newly established audit committee of the board of directors.
Which one of the following will contribute the most to the new CAE’s
independence?
The CAE will report to the audit committee of the board of directors.
A major distinction between statistical and non-statistical sampling is that
statistical sampling provides an objective means of determining sample size
A misstatement or deviation in a population that is clearly not representative of
the population is termed.
An anomaly
A prerequisite for risk analysis is…
the establishment of organisational objectives.
A production manager for a medium sized manufacturing company began
ordering excessive amounts of raw materials and had the raw materials
delivered to another company, which the manager was running as a sideline
business. The manager falsified receiving documents and approved the invoices
for payment. Which one of the following audit engagement procedures would
most likely detect this fraud?
Perform analytical procedures, comparing production, raw materials purchased
and raw materials inventory levels and investigate differences.
A Production manager of MSM Company ordered excessive raw materials and
had the materials delivered to a side business he operated. The manager
falsified receiving reports and approved the invoices for payment. Which of the
following procedures would most likely detect this fraud?
Perform ratio and trend analysis compare the cost of raw materials purchased
with the cost of goods produced.
,A sales clerk at Schackne Company correctly prepared a sales invoice for $5,200,
but the invoice was entered as $2,500 in the sales journal and similarly posted
to the general ledger and accounts receivable ledger. The customer remitted
only $2,500, the amount on his/her monthly statement. The most effective
procedure for preventing this type of error is to
Use predetermined totals to control posting routines.
A tolerable misstatement relates to.
The monetary amount of misstatement in a population which is acceptable to
the auditor
ABC company has the following control inscribed in its revenue and receipts
policy “before processing the order, checks should be carried out by the credit
controller to establish that the customer is creditworthy and did not surpass his
credit limit” Which of the following risks is this control most mitigating
A sale will be made to a customer who is not creditworthy, resulting in bad
debts for the company.
According to the Code of Ethics, “The integrity of internal auditors establishes
trust and thus provide the basis for reliance on their judgement”. Which one of
the following Rules of Conduct is associated with the integrity principle?
Shall perform their work with honesty, diligence and responsibility.
According to the COSO Internal Control-Integrated Framework, a precondition
for risk assessment is the:
Establishment of organisational objectives
According to the Internal Auditing Standards, the purpose of an internal
auditor’s review for effectiveness of the system of internal control is to
ascertain whether …
the system is functioning as intended.
According to the Professional Practice Framework which pronouncements
represent non-mandatory guidance for implementing the Standards?
Implementation Guides.
According to the IPPF’s International Standards for the Professional Practice of
Internal Auditing, the purpose of an internal auditor’s review of the system of
internal control is to ascertain that …
the system is functioning as intended.
, According to the Standards for the Professional Practice of Internal Auditing,
which of the following is NOT included in the scope of the internal audit
function?
Reviewing the strategic management process, accessing the quality of
management decision making both quantitatively and qualitatively, and
reporting the results to the audit committee.
All employees in XYZ Corporation have to obtain authorisation from their
senior managers before placing an order. This type of control is classified as
preventive control
All of the following stakeholders receive the results of internal and external
quality program assessment of internal audit’s activity from the chief audit
executive (CAE) except:
Functional managers.
An application control is best described as?
a control that contributes to the production of valid, accurate and complete
information.
An approach to sampling which is based on the random selection of the sample
items and the use of probability theory to evaluate sample results is termed
Statistical sampling
An appropriate compliance test to confirm that only valid employees are on the
payroll is to ensure that
Payroll bank accounts are reconciled monthly by appropriate personnel.
An audit committee should be designed to enhance the independence of both
internal and external audit functions and to insulate the audit functions from
undue management pressures. Using these criteria, audit com-mites should be
composed of:
Only external members of the board of directors or its equivalent.
An audit must be performed with an attitude of professional skepticism.
Professional skepticism consists of two primary components: a questioning
mind and:
a critical assessment of the audit evidence.
An audit working paper is complete when?
The audit objective has been met.
