total o! t"e accounts receivable subsidiary accounts accounts di!!ers aterially !ro t"e accounts receivable control account$ 3"is could indicate
PART 1C Management Controls 272 Questions
A$ Credit eoranda bein# bein# iproperly recorded$ recorded$ *$ appin# o! r eceivables$
[1] Source: CIA 1188 1188 II-24 One payroll audit objective is to deterine i! t"ere is proper se#re#ation o! duties$ % "ic" o! t"e !ollo&in# activities is incopatible'
C$ 9eceivables not bein# properly a#ed$ .$ Stateents bein# intercepted prior to ailin#$
A$ (irin# eployees eployees and aut"ori)in# c"an#es c"an#es to pay rates$
[0] Source: CIA 1180 I-7 An auditor noted t"at t"e t"e accounts receivable receivable departent is separate !ro ot"er a ccountin# activities$ activities$ Credit is approved by a separate credit departent$ Control accounts and subsidiary led#ers are balanced ont"ly$ Siilarly accounts are a#ed ont"ly$ 3"e accounts receivable ana#er &rites o!! delin5uent accounts a!ter 1 year or sooner i! a banruptcy or ot"er unusual circustances are involved$ Credit eoranda are prenubered and ust correlate &it" receivin# reports$ %"ic" o! t"e !ollo&in# areas could be vie&ed as an internal control &eaness o! t"e above or#ani)ation'
*$ +reparin# t"e payroll and !ilin# payroll ta, !ors$ C$ Si#nin# and distributin# payroll c"ecs$ .$ +reparin# attendance data and preparin# t"e payroll$ [2] Source: C/A 1280 -28 A proper consideration consideration o! t"e clients clients internal control control structure is an inte#ral part o! t"e independent e,ternal audit$ 3"e results
A$ %rite-o!!s o! delin5uent accounts$ accounts$ *$ Credit approvals$
A$ /ust be reported to t"e s"are"olders$
C$ /ont"ly a#in# o! receivables$
*$ *ear no relations"ip to t"e e,tent o! substantive testin# to be per!ored$
.$ (andlin# o! credit eos$
C$ Are not reported to client ana#eent$ [7] Source: CIA 687 II-24 One control objective o! t"e !inancin#;treasury cycle cycle is t"e proper aut"ori)ation o! copany transactions dealin# &it" debt and e5uity instruents$ %"ic" o! t"e !ollo&in# controls &ould best eet t"is objective'
.$ /ay be used as t"e basis !or deterinin# t"e acceptable level o! detection ris$ [] Source: C/A 080 -14 %"ic" one o! t"e !ollo&in# &ould not be considered an internal control structure policy or procedure relevant to a !inancial stateent audit'
A$ Separation o! responsibility responsibility !or custody custody o! !unds !ro recordin# o! t"e transaction$ *$ %ritten copany policies re5uirin# revie& o! ajor !undin#;repayent proposals by t"e board o! directors$
A$ /aintenance o! control control over unused c"ecs$ c"ecs$ *$ +eriodic reconciliation o! perpetual inventory records to t"e #eneral led#er control account$
C$
C$ Coparison o! p"ysical inventory counts to perpetual inventory records$
.$ 3"e copany serves as its o&n re#istrar and trans!er a#ent$
.$ 3iely reportin# and revie& o! 5uality control results$
[8] Source: CIA 1188 I-2 %"ic" o! t"e !ollo&in# activities per!ored by a payroll cler is a control &eaness rat"er t"an a control stren#t"'
[4] Source: CIA 680 II-17 Appropriate control over obsolete aterials re5uires t"at t"ey be
A$ (as custody o! o! t"e c"ec si#nature si#nature stap ac"ine$
A$ Carried at cost in t"e accountin# records records until t"e actual disposition taes place$
*$ +repares t"e payroll re#ister$
*$ Sorted treated and paca#ed be!ore disposition taes place in order to obtain t"e best sellin# price$
C$ =or&ards t"e payroll re#ister to t"e c"ie! accountant !or approval$
C$ .eterined by an approved aut"ority to be lacin# in re#ular usability$
.$ .ra&s t"e payc"ecs on a separate payroll c"ecin# account$
.$ 9etained &it"in t"e re#ular stora#e area$
[>] Source: CIA 11>2 II-17 3"e cas" receipts !unction s"ould be separated !ro t"e related record eepin# in an or#ani)ation to
[6] Source: CIA 1180 1180 I-0 A copany copany "as coputeri)ed coputeri)ed sales and cas" cas" receipts journals$ 3"e coputer coputer pro#ras !or t"ese t"ese journals "ave been properly debu##ed$ 3"e auditor discovered t"at t"e
A$ +"ysically +"ysically sa!e#uard t"e cas" cas" receipts$
1
*$ ?stablis" ?stablis" accountability accountability &"en &"en t"e cas" cas" is !irst received$
C$ 9e5uire supervisory approval o! eployee tie cards$
C$ +revent payin# cas" disburseents !ro cas" receipts$
.$ %itness t"e distribution o! payroll c"ecs$
.$ /inii)e undetected isappropriations o! cas" receipts$
[14] Source: CIA 687 III-22 %"ic" o! t"e !ollo&in# are coponents o! a !eedbac control syste'
[1] Source: CIA 11> II-11 In an audit o! a purc"asin# departent &"ic" o! t"e !ollo&in# ordinarily &ould be considered a ris !actor'
A$ .etectors coparators coparators activators$ *$ Sender ediu receiver$
A$ +urc"ase speci!ications speci!ications are developed developed by t"e departent re5uestin# t"e aterial$
C$ Ac"ieveent reco#nition aptitude$ .$ +lannin# or#ani)in# directin#$
*$ +urc"ases are ade a#ainst blanet or open purc"ase orders !or certain types o! ites$ [16] Source: CIA 118> I-> An internal auditor noted noted t"at several s"ipents s"ipents &ere not billed$ 3o prevent recurrence o! suc" nonbillin# t"e or#ani)ation s"ould
C$ +urc"ases are ade !ro parties related to buyers or ot"er copany o!!icials$ .$ 3"ere is a !ailure to rotate purc"ases aon# suppliers included on an approved vendor list$
A$ uerically se5uence and independently independently account !or all controllin# docuents suc" as pacin# slips and s"ippin# ordersB &"en sales journal entries are recorded$
[11] Source: CIA 1180 I-> /ana#eent &is"es to include in its internal controls over !actory payroll a procedure to ensure t"at eployees are paid only !or &or actually per!ored$ 3o eet t"is objective &"ic" o! t"e !ollo&in# internal control actions &ould be ost appropriate'
*$
A$ Copare piece&or records &it" inventory inventory additions !ro production$
.$
*$ (ave supervisors distribute payc"ecs to eployees in t"eir sections$ C$
[10] Source: CIA 11>2 I-18 Controls can be classi!ied accordin# to t"e !unction t"ey are intended to per!orD !or e,aple to discover t"e occurrence o! an un&anted event detectiveB to avoid t"e occurrence o! an un&anted event preventiveB or to ensure t"e occurrence o! a desirable event directiveB$ %"ic" o! t"e !ollo&in# is a directive control'
.$ @eep unclaied payc"ecs in a vault$ [12] Source: CIA 1187 I-4 %"ic" o! t"e ! ollo&in# credit approval procedures &ould be t"e basis !or developin# a de!iciency !indin# !or a &"olesaler'
A$ /ont"ly ban stateent stateent reconciliations$ reconciliations$ A$ 3rade-credit 3rade-credit standards are revie&ed revie&ed and approved by t"e !inance coittee o! t"e board o! directors$
*$ .ual si#natures on all disburseents over a speci!ic dollar aount$
*$ Custoers not eetin# trade-credit standards are s"ipped erc"andise on a cas"-on-delivery C$O$.$B basis only$
C$ 9ecordin# every transaction on t"e day it occurs$ .$ 9e5uirin# all ebers o! t"e internal auditin# departent to be CIAs$
C$ Salespeople are responsible !or evaluatin# and onitorin# t"e !inancial condition o! prospective and continuin# custoers$
[17] Source: CIA 11>2 II-2 An audit o! t"e payroll payroll !unction revealed several instances instances in &"ic" a p ayroll cler "ad added !ictitious eployees to t"e payroll and deposited t"e c"ecs in accounts o! close relatives$ %"at control s"ould "ave prevented suc" actions'
.$ An aut"ori)ed si#nature !ro t"e credit departent denotin# approval o! t"e custoers credit is to appear on all credit-sales orders$ [1] Source: CIA 6>1 I-2 A eans o! ensurin# t"at payroll payroll c"ecs are dra&n dra&n !or properly aut"ori)ed aounts is to
A$
A$ Conduct periodic !loor veri!ication veri!ication o! eployees on t"e payroll$
C$ (avin# t"e treasurers o!!ice si#n payroll c"ecs$ *$ 9e5uire t"at undelivered c"ecs be returned to t"e cas"ier$
.$ Allo&in# c"an#es to t"e payroll to be aut"ori)ed
2
only by t"e personnel personnel departent$
C$ +er!or operational audits$ .$
[18] Source: CIA 11> I-12 An audit o! t"e receivin# receivin# !unction at t"e copanys distribution center revealed inade5uate control over receipts$ %"ic" o! t"e !ollo&in# controls &ould be appropriate !or t"e receivin# !unction'
[22] Source: C/A 084 -2> %"ic" one o! t"e !ollo&in# is ost liely to be considered a reportable condition'
A$ 3o ensure ade5uate separation separation o! duties t"e &are"ouse receivin# cler s"ould &or independently !ro t"e &are"ouse ana#er$
A$ 3"e petty cas" cas" custodian "as t"e ability to steal steal petty cas"$ .ocuentation !or all disburseents !ro t"e !und ust be subitted &it" t"e re5uest !or replenis"ent o! t"e !und$
*$ ?nsure t"at t"e &are"ouse receivin# departent "as a purc"ase order copy &it" t"e units described but bot" prices and 5uantities oitted$
*$ An inventory control cler at a anu!acturin# plant "as t"e ability to steal one copleted television set !ro inventory a year$ 3"e t"e!t probably &ill never be detected$
C$ 9e5uire t"at all receipts receive t"e approval o! t"e &are"ouse ana#er$
C$ An accounts receivable cler &"o approves sales returns and a llo&ances receives custoer reittances and deposits t"e in t"e ban$ iited supervision is aintained over t"e eployee$
.$ ?nsure t"at t"e &are"ouse receivin# departent "as a true copy o! t"e ori#inal purc"ase order$ [1>] Source: C/A 12>4 2- 3"ere are t"ree coponents o! audit ris: in"erent ris control ris and detection ris$ In"erent ris is
.$ A cler in t"e invoice processin# departent !ails to atc" a vendors invoice &it" its related receivin# report$ C"ecs are not si#ned unless all appropriate docuents are attac"ed to a vouc"er$
A$ 3"e susceptibility susceptibility o! an assertion assertion to a aterial aterial isstateent assuin# t"at t"ere are no related internal control structure policies or procedures$
[2] Source: C/A 08> -16 %"ic" one o! t"e !ollo&in# situations represents an internal control &eaness in accounts receivable'
*$ 3"e ris t"at t"e auditor ay unno&in#ly !ail to appropriately odi!y "is or "er opinion on !inancial stateents t"at are aterially isstated$
A$ Internal auditors con!ir con!ir custoer accounts accounts periodically$
C$ 3"e ris t"at a aterial isstateent t"at could occur in an assertion &ill not be prevented or detected on a tiely basis by t"e entitys internal control structure policies or procedures$
*$ .elin5uent accounts are revie&ed only by t"e sales ana#er$ C$ 3"e cas"ier is denied access to custoers records and ont"ly stateents$
.$ 3"e ris t"at t"e auditor &ill not detect a aterial isstateent t"at e,ists in an assertion$
.$ Custoers stateents are ailed ont"ly by t"e accounts receivable departent$ [2] Source: CIA 68> III-2 3"e director o! internal auditin# at a lar#e ultinational !ir is evaluatin# t"e dra!t o! a ne& travel policy t"at re5uires preparation o! a travel plannin# !or !or all travel$ 3"e travel plannin# !or ust be approved by t"e eployees supervisor and t"e re#ional vice president$ 3"e director o! internal auditin# s"ould
[24] Source: C/A 0> -20 Control ris is t"e ris t"at a aterial isstateent in an account &ill not be prevented or detected on a tiely basis by t"e clients internal control structure policies or procedures$ 3"e best control procedure to prevent or detect !ictitious payroll transactions is
A$ Avoid Avoid involveent involveent in revie&in# policies policies and procedures because suc" involveent &ould ipair audit independence$
A$ 3o use and account !or !or prenubered payroll c"ecs$
*$ ?nsure t"at e,aples o! all si#natures are on !ile to use durin# travel reiburseent procedures$
*$ +ersonnel departent aut"ori)ation !or "irin# pay rate job status and terination$
C$ Su##est t"at a copy o! t"e travel plannin# !or s"ould be sent to t"e internal audit departent$
C$ Internal veri!ication o! aut"ori)ed pay r ates coputations and a#reeent &it" t"e payroll re#ister$
.$ Address &"et"er t"e ne& travel approval policy is an e!!ective control and an e!!icient use o! tie !or t"e supervisors and vice presidents involved$
.$ +eriodic independent ban reconciliations o! t"e payroll ban account$
[21] Source: C/A 128 -16 =or an internal audit departent to be considered as a relevant internal control by t"e e,ternal auditor t"e internal auditor ust
[26] Source: C/A 0> -27 One o! t"e steps in assessin# control ris in a coputeri)ed in!oration control syste is identi!yin# necessary controls to prevent data !ro bein# lost added duplicated or altered durin# processin#$ An e,aple o! t"is type o! control is t"e
A$ *e independent o! o! t"e accountin# !unction$ !unction$ *$ *e cost e!!ective$
A$ Aut"ori)ation Aut"ori)ation and approval o! data in user departents and screenin# o! data by data control
3
#roups$ *$ 9evie& o! data output by data control #roups$
[] Source: C/A 0> -2 3"e priary reason an auditor assesses control ris in conjunction &it" !inancial stateent audits is to
C$
A$ Identi!y t"e causes o! errors or irre#ularities in an internal control structure$ *$ Identi!y t"e results o! errors or irre#ularities in an internal control structure$
[20] Source: C/A 1280 -2> One c"aracteristic o! an e!!ective internal control structure is t"e proper se#re#ation o! duties$ 3"e cobination o! responsibilities t"at &ould not be considered a violation o! se#re#ation o! !unctional responsibilities is
C$ =ul!ill t"e role o! adviser to ana#eent by desi#nin# e!!ective and e!!icient internal control structures !or ana#eent$
A$ Si#nin# o! payc"ecs and custody o! blan payroll c"ecs$
.$ .eterine t"e nature tiin# and e,tent o! substantive tests$
*$ +reparation o! payc"ecs and c"ec d istribution$ [1] Source: C/A 0> -26 Auditors docuent t"eir understandin# o! ana#eents internal control structure &it" 5uestionnaires !lo&c"arts and narrative descriptions$ A 5uestionnaire consists o! a series o! 5uestions concernin# controls t"at auditors consider necessary to prevent or detect errors and irre#ularities$ 3"e ost appropriate 5uestion desi#ned to contribute to t"e auditors understandin# o! t"e copleteness o! t"e e,penditure cycle &ould concern t"e
C$ Approval o! tie cards and preparation o! payc"ecs$ .$ 3ieeepin# and preparation o! payroll journal entries$ [27] Source: C/A 128 -11 %"en an or#ani)ation "as a stron# internal control structure ICSB ana#eent can e,pect various bene!its$ 3"e bene!it least liely to occur is
A$ Internal veri!ication o! 5uantities prices and at"eatical accuracy o! sales invoices$
A$ 9educed cost o! an e,ternal audit$
*$
*$ ?liination o! eployee !raud$
C$ .isposition o! cas" receipts$
C$ Availability o! reliable data !or decision-ain# purposes$
.$ Euali!ications o! accountin# personnel$
.$ Soe assurance o! copliance &it" t"e =orei#n Corrupt +ractices Act o! 1>77$
[2] Source: CIA 68> II-7 %"ic" o! t"e !ollo&in# controls could be used to detect ban deposits t"at are recorded but never ade'
[28] Source: C/A 1288 -21 Accordin# to SAS 66 A< 1>B Consideration o! t"e Internal Control Structure in a =inancial Stateent Audit an entitys internal control structure ICSB consists o! t"e policies and procedures establis"ed to provide reasonable assurance t"at speci!ic entity objectives &ill be ac"ieved$ Only soe o! t"ese objectives policies and procedures are relevant to a !inancial stateent audit$ %"ic" one o! t"e !ollo&in# &ould ost liely be considered in suc" an audit'
A$ ?stablis"in# accountability !or receipts at t"e earliest possible tie$ *$ inin# receipts to ot"er internal accountabilities i$e$ collections to eit"er accounts receivable or salesB$ C$ Consolidatin# cas" receivin# points$ .$ (avin# ban reconciliations per!ored by a t"ird party$
A$ 3iely reportin# and revie& o! 5uality control results$ *$ /aintenance o! control over unused c"ecs$
[] Source: C/A 1288 -20 In a &ell-desi#ned internal control structure in &"ic" t"e cas"ier receives reittances !ro t"e ail roo t"e cas"ier s"ould not
C$ /aretin# analysis o! sales #enerated by advertisin# projects$ .$ /aintenance o! statistical production analyses$
A$ ?ndorse t"e c"ecs$ *$ +repare t"e ban deposit slip$
[2>] Source: C/A 1288 -26 3"e priary responsibility !or establis"in# and aintainin# an internal control structure rests &it"
C$ .eposit reittances daily at a local ban$ .$ +ost t"e receipts to t"e accounts receivable subsidiary led#er cards$
A$ 3"e e,ternal auditor$ *$ /ana#eent$
[4] Source: C/A 1288 -2 I! internal control is &ell-desi#ned t&o tass t"at s"ould be per!ored by di!!erent persons are
C$ 3"e controller$ .$ 3"e treasurer$
A$ Approval o! bad debt &rite-o!!s and
4
reconciliation o! t"e accounts payable subsidiary led#er and controllin# account$
aster price list$ 3"e annotated pacin# slip is t"en !or&arded to inventory control and #oods are autoatically oved to t"e retail sales area$ 3"e ost si#ni!icant control stren#t" o! t"is activity is
*$ .istribution o! payroll c"ecs and approval o! sales returns !or credit$
A$ /atc"in# 5uantity received &it" t"e pacin# slip$ C$ +ostin# o! aounts !ro bot" t"e cas" receipts journal and cas" payents journal to t"e #eneral led#er$
*$
.$ 9ecordin# o! cas" receipts and preparation o! ban reconciliations$
.$ =or&ardin# t"e annotated pacin# slip to inventory control$ [6] Source: C/A 08> -10 %"ic" one o! t"e !ollo&in# situations represents an internal [>] Source: +ublis"er 3"e audit ris a#ainst &"ic" t"e auditor and t"ose &"o rely on "is;"er opinion re5uire reasonable protection is a cobination o! t"ree separate riss at t"e account-balance or class-o!-transactions level$ 3"e !irst ris is in"erent ris$ 3"e second ris is t"at aterial isstateents &ill not be prevented or detected by internal control$ 3"e t"ird ris is t"at
control &eaness in t"e payroll departent' A$ +ayroll departent personnel are rotated in t"eir duties$ *$ +ayc"ecs are distributed by t"e eployees iediate supervisor$ C$ +ayroll records are reconciled &it" 5uarterly ta, reports$
A$ 3"e auditor &ill reject a correct account balance as incorrect$
.$ 3"e tieeepin# !unction is independent o! t"e payroll departent$
*$ /aterial isstateents t"at occur &ill not be detected by t"e audit$ C$ 3"e auditor &ill apply an inappropriate audit procedure$
[0] Source: C/A 08> -17 %"ic" one o! t"e !ollo&in# situations represents a stren#t" in t"e internal control structure !or purc"asin# and accounts payable'
.$ 3"e auditor &ill apply an inappropriate easure o! audit ateriality$
A$ +renubered receivin# reports are issued randoly$
[4] Source: C/A 1280 -20 Soe account balances suc" as t"ose !or pensions or leases are t"e results o! cople, calculations$ 3"e susceptibility to aterial isstateents in t"ese types o! accounts is de!ined as
*$ Invoices are approved !or payent by t"e purc"asin# departent$ C$
A$ Audit ris$
.$ Fendors invoices are atc"ed a#ainst purc"ase orders and receivin# reports be!ore a liability is recorded$
*$ .etection ris$ C$ Saplin# ris$ .$ In"erent ris$
[7] Source: CIA 68> II-1 %"ic" o! t"e ! ollo&in# observations ade durin# t"e preliinary survey o! a local departent stores disburseent cycle re!lects a control stren#t"'
[41] Source: +ublis"er Audit ris consists o! in"erent ris control ris and detection ris$ %"ic" o! t"e !ollo&in# stateents is true'
A$ Individual departent ana#ers use prenubered !ors to order erc"andise !ro vendors$
A$ Cas" is ore susceptible to t"e!t t"an an inventory o! coal because it "as a #reater in"erent ris$
*$ 3"e receivin# departent is #iven a copy o! t"e purc"ase order coplete &it" a description o! #oods 5uantity ordered and e,tended price !or all erc"andise ordered$
*$ 3"e ris t"at aterial isstateent &ill not be prevented or detected on a tiely basis by internal control can be reduced to )ero by e !!ective controls$
C$ 3"e treasurers o!!ice prepares c"ecs !or suppliers based on vouc"ers prepared by t"e accounts payable departent$
C$ .etection ris is a !unction o! t"e e!!iciency o! an auditin# procedure$ .$ 3"e e,istin# levels o! in"erent ris control ris and detection ris can be c"an#ed at t"e discretion o! t"e auditor$
.$ Individual departent ana#ers are responsible !or t"e oveent o! erc"andise !ro t"e receivin# doc to stora#e or sales areas as appropriate$
[42] Source: +ublis"er Accordin# to A< 12 and A< 1> t"e auditor uses t"e assessed level o! control ris to#et"er &it" t"e assessed level o! in"erent risB to deterine t"e acceptable level o! detection ris !or !inancial stateent assertions$ As t"e
[8] Source: CIA 6> II-11
5
acceptable level o! detection ris decreases t"e auditor ay do one or ore o! t"e !ollo&in# e,cept c"an#e t"e
activities in!oration and counication systes and onitorin#$
A$ ature o! substantive tests to ore e!!ective procedures$
C$ 9is assessent bacup !acilities responsibility accountin# and natural la&s$
*$ 3iin# o! substantive tests suc" as per!orin# t"e at year-end rat"er t"an at an interi date$
.$ e#al environent o! t"e !ir ana#eent p"ilosop"y and or#ani)ational structure$
C$ ?,tent o! substantive tests suc" as usin# lar#er saple si)es$
[40] Source: +ublis"er Control activities constitute one o! t"e ! ive coponents o! internal control$ Control activities do not encopass
.$ Assurances provided by substantive tests to a lo&er level$
A$ +er!orance revie&s$ [4] Source: +ublis"er Accordin# to A< 12 Audit 9is and /ateriality in Conductin# an Audit t"e concepts o! audit ris and ateriality are interrelated and ust be considered to#et"er by t"e auditor$ %"ic" o! t"e !ollo&in# is true'
*$ In!oration processin#$ C$ +"ysical controls$ .$ An internal audit !unction$
A$ Audit ris is t"e ris t"at t"e auditor ay unno&in#ly e,press a odi!ied opinion &"en in !act t"e !inancial stateents are !airly stated$
[47] Source: C/A 1284 -22 3"e situation ost liely to be re#arded as a stren#t" in internal control by t"e e,ternal auditor is
*$ 3"e p"rase in t"e auditors standard report Gpresent !airly in all aterial respects in con!ority &it" #enerally accepted accountin# principlesG indicates t"e auditors belie! t"at t"e !inancial stateents taen as a &"ole are not aterially isstated$
A$ 3"e per!orance o! !inancial audits by internal auditors$ *$ 3"e per!orance o! operational audits by internal auditors$
C$ I! isstateents are not iportant individually but are iportant in t"e a##re#ate t"e concept o! ateriality does not apply$
C$ 3"e routine supervisory revie& o! production plannin#$ .$ 3"e e,istence o! a preventive aintenance pro#ra$
.$ /aterial !raud but not aterial errors cause !inancial stateents to be aterially isstated$
[48] Source: CIA 11>6 I-00 /onitorin# is an iportant coponent o! internal control$ %"ic" o! t"e !ollo&in# ites &ould not be an e,aple o! onitorin#'
[44] Source: +ublis"er A< 6 #ives a !orula !or ris relations"ips$ Overall allo&able audit ris A9B is t"e ris t"at onetary isstateents e5ual to tolerable isstateent ay reain undetected$ Control ris C9B is t"e auditors assessent o! t"e ris t"at internal control ay not prevent or detect aterial isstateents$ In"erent ris I9B is t"e susceptibility o! an assertion to aterial isstateent #iven no related controls$ In t"e audit ris !orula A+ is t"e auditors assessent o! t"e ris t"at analytical procedures and ot"er relevant substantive tests &ill !ail to detect aterial isstateents not detected by t"e relevant controls$ 3. is t"e allo&able ris o! incorrect acceptance !or a substantive test o! details #iven t"at aterial isstateents occur in an assertion and are not detected by internal control or by analytical procedures and ot"er substantive tests$ %"ic" odel represents t"e overall allo&able audit ris'
A$ /ana#eent re#ularly copares divisional per!orance &it" bud#ets !or t"e division$ *$ .ata processin# ana#eent re#ularly #enerates e,ception reports !or unusual transactions or volues o! transactions and !ollo&s up &it" investi#ation as to causes$ C$ .ata processin# ana#eent re#ularly reconciles batc" control totals !or ites processed &it" batc" controls !or ites subitted$ .$ /ana#eent "as ased internal auditin# to per!or re#ular audits o! t"e controls over cas" processin#$
A$ A9 H I9 , C9 , A+ , 3.$ *$ A9 H I9 C9 A+ 3.$
[4>] Source: C/A 086 -17 One o! t"e auditors ajor concerns is to ascertain &"et"er internal control is desi#ned to provide reasonable assurance t"at
C$ A9 H I9 C9 - A+ 3.B$ .$ A9 H I9 C9 - A+ , 3.B$
A$ +ro!it ar#ins are a,ii)ed and operational e!!iciency is optii)ed$ [46] Source: C/A 0>6 4-28 %"ic" o! t"e ! ollo&in# best describe t"e interrelated coponents o! internal control'
*$ 3"e c"ie! accountin# o!!icer revie&s all accountin# transactions$
A$ Or#ani)ational structure ana#eent p"ilosop"y and plannin#$
C$ Corporate orale probles are addressed iediately and e!!ectively$
*$ Control environent ris assessent control
.$ =inancial stateents are !airly presented$
6
detected and corrected &it"in a tiely period by eployees in t"e course o! per!orin# t"eir assi#ned duties$
[6] Source: +ublis"er Internal control can provide only reasonable assurance o! ac"ievin# entity control objectives$ One !actor liitin# t"e lieli"ood o! ac"ievin# t"ose objectives is t"at
*$ /ana#eents plans "ave not been circuvented by &orer collusion$
A$ 3"e auditors priary responsibility is t"e detection o! !raud$
C$ 3"e internal auditin# departents #uidance and oversi#"t o! ana#eents per!orance is accoplis"ed econoically and e!!iciently$
*$ 3"e board o! directors is active and independent$ .$ /ana#eents plannin# or#ani)in# and directin# processes are properly evaluated$
C$ 3"e cost o! internal control s"ould not e,ceed its bene!its$ .$ /ana#eent onitors internal control$
[66] Source: +ublis"er %"ic" #roup "as t"e priary responsibility !or t"e establis"ent ipleentation and onitorin# o! ade5uate controls in t"e postin# o! accounts receivable'
[61] Source: +ublis"er A!ter #ainin# an understandin# o! internal control t"e auditor ay attept to assess control ris at less t"an t"e a,iu$ =or t"is purpose t"e auditor s"ould 1B identi!y speci!ic controls t"at are liely to prevent or detect aterial isstateents in t"e relevant !inancial stateent assertions and 2B per!or tests o! controls$ 3"e purpose o! t"ese tests is to
A$ ?,ternal auditors$ *$ Accounts receivable sta!!$ C$ Internal auditors$ .$ Accountin# ana#eent$
A$ Assure t"at t"e auditor "as an ade5uate understandin# o! internal control$ [60] Source: CIA 11> II-7 %"ic" o! t"e !ollo&in# !eatures o! a lar#e anu!acturin# copanys or#ani)ation structure &ould be a control &eaness'
*$ ?valuate t"e e!!ectiveness o! suc" controls$ C$ +rovide recoendations to ana#eent to iprove internal control$
A$ 3"e in!oration systes departent is "eaded by a vice president &"o reports directly to t"e president$
.$ ?valuate in"erent ris$
*$ 3"e c"ie! !inancial o!!icer is a vice president &"o reports to t"e c"ie! e,ecutive o!!icer$
[62] Source: +ublis"er 3ests o! controls are least liely to be oitted &it" re#ard to
C$ 3"e audit coittee o! t"e board consists o! t"e c"ie! e,ecutive o!!icer t"e c"ie! !inancial o!!icer and a ajor s"are"older$
A$ Accounts believed to be subject to ine!!ective controls$
.$ 3"e controller and treasurer report to t"e c"ie! !inancial o!!icer$
*$ Accounts representin# !e& transactions$ C$ Accounts representin# any transactions$
[67] Source: C/A 12>6 4-27 %"ic" one o! t"e !ollo&in# best re!lects t"e basic eleents o! a data !lo& dia#ra'
.$ Subse5uent events$ [6] Source: CIA 11>6 I-07 Auditors re#ularly evaluate controls$ %"ic" o! t"e !ollo&in# best describes t"e concept o! control as reco#ni)ed by internal auditors'
A$ .ata sources data !lo&s coputer con!i#urations !lo&c"art and data stora#e$ *$ .ata source data destination data !lo&s trans!oration processes and data stora#e$
A$ /ana#eent re#ularly disc"ar#es personnel &"o do not per!or up to e,pectations$
C$ .ata !lo&s data stora#e and pro#ra !lo&c"art$
*$ /ana#eent taes action to en"ance t"e lieli"ood t"at establis"ed #oals and objectives &ill be ac"ieved$
.$ .ata !lo&s pro#ra !lo&c"art and data destination$
C$ Control represents speci!ic procedures t"at accountants and auditors desi#n to ensure t"e correctness o! processin#$
[68] Source: CIA 11> II-8 Corporate directors ana#eent e,ternal auditors and internal auditors all play iportant roles in creatin# a proper control environent$ 3op ana#eent is priarily responsible !or
.$ Control procedures s"ould be desi#ned !ro t"e Gbotto upG to ensure attention to detail$
A$ ?stablis"in# a proper environent and speci!yin# an overall internal control structure$ [64] Source: CIA 6>2 II-10 Accordin# to 3"e IIA internal controls are desi#ned to provide reasonable assurance t"at
*$ 9evie&in# t"e reliability and inte#rity o! !inancial in!oration and t"e eans used to collect and report suc" in!oration$
A$ /aterial errors or !raud &ill be prevented or
7
C$ ?nsurin# t"at e,ternal and internal auditors ade5uately onitor t"e control environent$
C$ =raud involves actions o! ana#eent but e,cludes t"e actions o! eployees or t"ird parties$
.$ Ipleentin# and onitorin# controls desi#ned by t"e board o! directors$
.$ An audit rarely involves t"e aut"entication o! docuentationD t"us !raud ay #o undetected by t"e auditor$
[6>] Source: +ublis"er =irs subject to t"e reportin# re5uireents o! t"e Securities ?,c"an#e Act o! 1>4 are re5uired by t"e =orei#n Corrupt +ractices Act o! 1>77 to aintain satis!actory internal control$ 3"e role o! t"e independent auditor relative to t"is act is to
[0] Source: CIA 68> III-18 3"e diaond-s"aped sybol is coonly used in !lo&c"artin# to s"o& or represent a A$ +rocess or a sin#le step in a procedure or pro#ra$
A$ 9eport clients &it" unsatis!actory internal control to t"e S?C$
*$ 3erinal output display$
*$ +rovide assurances to users as part o! t"e traditional audit attest !unction t"at t"e client is in copliance &it" t"e present le#islation$
C$ .ecision point conditional testin# or branc"in#$ .$ +rede!ined process$
C$ ?,press an opinion on t"e su!!iciency o! t"e clients internal control to eet t"e re5uireents o! t"e act$
[04] Source: +ublis"er %"ic" o! t"e !ollo&in# is a true stateent about an auditors responsibility re#ardin# consideration o! !raud in a !inancial stateent audit'
.$ Attest to t"e !inancial stateents$
A$ 3"e auditor s"ould consider t"e clients internal control and plan and per!or t"e audit to provide absolute assurance o! detectin# all aterial isstateents$
[0] Source: C/A 1286 - 3"e re5uireent o! t"e =orei#n Corrupt +ractices Act o! 1>77 to devise and aintain ade5uate internal control is assi#ned in t"e act to t"e
*$ 3"e auditor s"ould assess t"e ris t"at errors ay cause t"e !inancial stateents to contain aterial isstateents and deterine &"et"er t"e necessary controls are prescribed and are bein# !ollo&ed satis!actorily$
A$ C"ie! !inancial o!!icer$ *$ *oard o! directors$ C$ .irector o! internal auditin#$
C$ 3"e auditor s"ould consider t"e types o! isstateents t"at could occur deterine &"et"er t"e necessary controls are prescribed and are bein# !ollo&ed but need not speci!ically assess t"e ris o! !raud$
.$ Copany as a &"ole &it" no desi#nation o! speci!ic persons or positions$ [01] Source: +ublis"er In a !inancial stateent audit t"e auditor s"ould consider cate#ories o! !raud ris !actors relatin# to isstateents arisin# !ro 1B !raudulent !inancial reportin# and 2B isappropriation o! assets$ %"ic" o! t"e !ollo&in# is a cate#ory o! ris !actors t"at s"ould be considered in relation to isstateents arisin# !ro isappropriation o! assets'
.$ 3"e auditor s"ould speci!ically assess t"e ris o! aterial isstateent due to !raud$ [06] Source: +ublis"er Certain ana#eent c"aracteristics ay "ei#"ten t"e auditors concern about t"e ris o! aterial isstateents$ 3"e c"aracteristic t"at is least liely to cause concern is t"at ana#eent
A$ Industry conditions$ *$ Operatin# c"aracteristics$
A$ Operatin# and !inancin# decisions are ade by nuerous individuals$
C$ /ana#eents c"aracteristics$ *$ Coits to unduly a##ressive !orecasts$ .$ Controls$ C$ (as an e,cessive interest in increasin# t"e entitys stoc price t"rou#" use o! unduly a##ressive accountin# practices$
[02] Source: +ublis"er Auditin# standards re5uire t"at auditors be a&are o! relevant !actors relatin# to !raudulent r eportin#$ %"ic" o! t"e !ollo&in# stateents is !alse concernin# !raudulent reportin#'
.$ Is interested in inappropriate et"ods o! inii)in# earnin#s !or ta, purposes$ [00] Source: +ublis"er 3"e concept o! ateriality &it" respect to t"e attest !unction
A$ =raud !re5uently involves a pressure or an incentive to coit !raud and a perceived opportunity to do so$
A$ Applies only to publicly "eld !irs$ *$ 3&o types o! !raud relevant to t"e auditor include aterial isstateents arisin# !ro !raudulent !inancial reportin# and aterial isstateents arisin# !ro isappropriation o! assets$
*$ (as #reater application to t"e standards o! reportin# t"an t"e ot"er #enerally accepted auditin# standards$
8
C$ 9e5uires t"at relatively ore e!!ort be directed to t"ose assertions t"at are ore susceptible to isstateent$
C$ ?ncoura#e copliance &it" or#ani)ational objectives$ .$ ?nsure t"e accuracy reliability and tieliness o! in!oration$
.$ 9e5uires t"e auditor to ae jud#ents as to &"et"er isstateents a!!ect t"e !airness o! t"e !inancial stateents$
[72] Source: +ublis"er Internal controls ay be preventive detective or corrective$ %"ic" o! t"e !ollo&in# is preventive'
[07] Source: +ublis"er Accordin# to A< 1> a!ter obtainin# a su!!icient understandin# o! internal control t"e auditor assesses
A$ 9e5uirin# t&o persons to open ail$
A$ 3"e need to apply JAAS$
*$ 9econcilin# t"e accounts receivable subsidiary !ile &it" t"e control account$
*$ .etection ris to deterine t"e acceptable level o! in"erent ris$
C$
C$ .etection ris and in"erent ris to deterine t"e acceptable level o! control ris$
.$ +reparin# ban reconciliations$
.$ Control ris to deterine t"e acceptable level o! detection ris$
[7] Source: CIA 1187 I-1 3"e internal auditor reco#ni)es t"at certain liitations are in"erent in any internal control syste$ %"ic" one o! t"e !ollo&in# scenarios is t"e result o! an in"erent liitation o! internal control'
[08] Source: +ublis"er *asic to a proper control environent are t"e 5uality and inte#rity o! personnel &"o ust per!or t"e prescribed procedures$ %"ic" is not a !actor in providin# !or copetent personnel'
A$ 3"e coptroller bot" aes and records cas" deposits$ *$ A security #uard allo&s one o! t"e &are"ouse eployees to reove copany assets !ro t"e preises &it"out aut"ori)ation$
A$ Se#re#ation o! duties$ *$ (irin# practices$
C$ 3"e !ir sells to custoers on account &it"out credit approval$
C$ 3rainin# pro#ras$ .$ +er!orance evaluations$
.$ An eployee &"o is unable to read is assi#ned custody o! t"e !irs coputer tape library and run anuals t"at are used durin# t"e t"ird s"i!t$
[0>] Source: +ublis"er Internal control cannot be desi#ned to provide reasonable assurance re#ardin# t"e ac"ieveent o! objectives concernin#
[74] Source: C/A 128 -14 A proper se#re#ation o! duties re5uires
A$ 9eliability o! !inancial reportin#$
A$ 3"at an individual aut"ori)in# a transaction records it$
*$ ?liination o! all !raud$ *$ 3"at an individual aut"ori)in# a transaction aintain custody o! t"e asset t"at resulted !ro t"e transaction$
C$ Copliance &it" applicable la&s and re#ulations$ .$ ?!!ectiveness and e!!iciency o! operations$
C$ 3"at an individual aintainin# custody o! an asset be entitled to access t"e accountin# records !or t"e asset$
[7] Source: CIA 682 I-4 ?!!ective internal control
.$ 3"at an individual recordin# a transaction not copare t"e accountin# record o! t"e asset &it" t"e asset itsel!$
A$ 9educes t"e need !or ana#eent to revie& e,ception reports on a day-to-day basis$ *$ ?liinates ris and potential loss to t"e or#ani)ation$
[76] Source: C/A 078 6-1 A docuent !lo&c"art represents
C$ Cannot be circuvented by ana#eent$ A$ 3"e se5uence o! lo#ical operations per!ored durin# t"e e,ecution o! a coputer pro#ra$
.$ Is una!!ected by c"an#in# circustances and conditions encountered by t"e or#ani)ation$
*$ 3"e possible cobinations o! alternative lo#ic conditions and correspondin# courses o! action !or eac" condition in a coputer pro#ra$
[71] Source: +ublis"er A reason to establis" internal control is to A$ Sa!e#uard t"e resources o! t"e or#ani)ation$
C$ 3"e !lo& o! data t"rou#" a series o! operations in an autoated data processin# syste$
*$ +rovide reasonable assurance t"at t"e objectives o! t"e or#ani)ation are ac"ieved$
.$ 3"e !lo& o! !ors t"at relate to a particular transaction t"rou#" an or#ani)ation$
9
[70] Source: CIA 11>1 II-1 =actors t"at s"ould be considered &"en evaluatin# audit ris in a !unctional area include:
*$ Are a #ood #uide to potential se#re#ation o! duties$ C$ Are #enerally ept up to date !or systes c"an#es$
1$ Folue o! transactions$ 2$ .e#ree o! syste inte#ration$ $ Kears since last audit$ 4$ Si#ni!icant ana#eent turnover$ 6$ .ollarB value o! assets at ris$ 0$ Avera#e value per transaction$ 7$ 9esults o! last audit$ =actors t"at best de!ine t"e ateriality o! audit ris are A$ 1 t"rou#" 7
.$ S"o& only coputer processin# not anual processin#$ [81] Source: CIA 6> I-> %"ic" o! t"e !ollo&in# activities represents bot" an appropriate personnel departent !unction and a deterrent to payroll !raud'
*$ 2 4 and 7 A$ .istribution o! payc"ecs$ C$ 1 6 and 0 *$ Aut"ori)ation o! overtie$ .$ 4 and 0 C$ Aut"ori)ation o! additions and deletions !ro t"e payroll$ [77] Source: CIA 6>2 II-17 An ade5uate syste o! internal controls is ost liely to detect a !raud perpetrated by a
.$ Collection and retention o! unclaied payc"ecs$
A$ Jroup o! eployees in collusion$
[82] Source: CIA 6>1 I-26 3"e ost appropriate et"od to control t"e !re5uent oveent o! trailers loaded &it" valuable etal scrap !ro t"e anu!acturin# plant to t"e copany scrap yard about 1 iles a&ay &ould be to
*$ Sin#le eployee$ C$ Jroup o! ana#ers in collusion$ .$ Sin#le ana#er$
A$ +er!or coplete p"ysical inventory o! t"e scrap trailers be!ore leavin# t"e plant and upon arrival at t"e scrap yard$
[78] Source: CIA 1188 I-10 Controls t"at are desi#ned to provide ana#eent &it" assurance o! t"e reali)ation o! speci!ied iniu #ross ar#ins on sales are
*$ 9e5uire e,istin# security #uards to lo# t"e tie o! plant departure and scrap yard arrival$ 3"e elapsed tie s"ould be revie&ed by a supervisor !or irre#ularities$
A$ .irective controls$ C$
*$ +reventive controls$ C$ .etective controls$
.$ Contract &it" an independent "auler !or t"e reoval o! scrap$
.$ Output controls$ [8] Source: CIA 11>1 I-12 3"e treasurer aes disburseents by c"ec and reconciles t"e ont"ly ban stateents to accountin# records$ %"ic" o! t"e !ollo&in# best describes t"e control ipact o! t"is arran#eent'
[7>] Source: CIA 11>2 II-16 SIAS 1 Control: Concepts and 9esponsibilities adds a #uideline to t"e Standards$ %"ic" o! t"e !ollo&in# is a suary o! t"at #uideline' A$ Control is t"e result o! proper plannin# or#ani)in# and directin# by ana#eent$
A$ Internal control &ill be en"anced because t"ese are duties t"at t"e treasurer s"ould per!or$
*$ Controls are t"e broadest stateents o! &"at t"e or#ani)ation c"ooses to accoplis"$
*$ 3"e treasurer &ill be in a position to ae and conceal unaut"ori)ed payents$
C$ Control is provided &"en cost-e!!ective actions are taen to restrict deviations to a tolerable level$
C$ 3"e treasurer &ill be able to ae unaut"ori)ed adjustents to t"e cas" account$
.$ Control accoplis"es objectives and #oals in an accurate and tiely !as"ion &it" inial use o! resources$
.$ Controls &ill be en"anced because t"e treasurer &ill "ave t&o opportunities to discover inappropriate disburseents$
[8] Source: CIA 6>6 I-6 An auditor revie&s and adapts a systes !lo&c"art to understand t"e !lo& o! in!oration in t"e processin# o! cas" receipts$ %"ic" o! t"e !ollo&in# stateents is true re#ardin# t"e use o! suc" !lo&c"arts' 3"e !lo&c"arts
[84] Source: CIA 6>2 II-16 A utility copany &it" a lar#e investent in repair ve"icles &ould ost liely ipleent &"ic" internal control to reduce t"e ris o! ve"icle t"e!t or loss' A$ 9evie& insurance covera#e !or ade5uacy$
A$ S"o& speci!ic control procedures used suc" as edit tests t"at are ipleented and batc" control reconciliations$
*$ Systeatically account !or all repair &or orders$
10
C$ +"ysically inventory ve"icles and reconcile t"e results &it" t"e accountin# records$
[8>] Source: CIA 11>6 I-10 A restaurant !ood c"ain "as over 08 restaurants$ All !ood orders !or eac" restaurant are re5uired to be input into an electronic device &"ic" records all !ood orders by !ood servers and transits t"e order to t"e itc"en !or preparation$ All !ood servers are responsible !or collectin# cas" !or all t"eir orders and ust turn in cas" at t"e end o! t"eir s"i!t e5ual to t"e sales value o! !ood ordered !or t"eir I$.$ nuber$ 3"e ana#er t"en reconciles t"e cas" received !or t"e day &it" t"e coputeri)ed record o! !ood orders #enerated$ All di!!erences are investi#ated iediately by t"e restaurant$ Corporate "ead5uarters "as establis"ed onitorin# controls to deterine &"en an individual restaurant i#"t not be recordin# all its revenue and transittin# t"e applicable cas" to t"e corporate "ead5uarters$ %"ic" one o! t"e !ollo&in# &ould be t"e best e,aple o! a onitorin# control'
.$ /aintain ve"icles in a secured location &it" release and return subject to approval by a custodian$ [86] Source: CIA 6>2 II-22 Corporate ana#eent "as a role in t"e aintenance o! internal control$ In !act ana#eent soeties is a control$ %"ic" o! t"e !ollo&in# involves ana#erial !unctions as a control device' A$ Supervision o! eployees$ *$
A$ 3"e restaurant ana#er reconciles t"e cas" received &it" t"e !ood orders recorded on t"e coputer$
.$ Internal auditin#$ [80] Source: CIA 11>2 II-10 3o inii)e t"e ris t"at a#ents in t"e purc"asin# departent &ill use t"eir positions !or personal #ain t"e or#ani)ation s"ould
*$ All !ood orders ust be entered on t"e coputer and t"ere is se#re#ation o! duties bet&een t"e !ood servers and t"e coos$ C$ /ana#eent prepares a detailed analysis o! #ross ar#in per store and investi#ates any store t"at s"o&s a si#ni!icantly lo&er #ross ar#in$
A$ 9otate purc"asin# a#ent assi#nents periodically$ *$ 9e5uest internal auditors to con!ir selected purc"ases and accounts payable$
.$ Cas" is transitted to corporate "ead5uarters on a daily basis$
C$ Speci!y t"at all ites purc"ased ust pass value per unit o! cost revie&s$ [>] Source: CIA 118> II-7 3"e procedure re5uirin# preparation o! a prelistin# o! incoin# cas" receipts &it" copies o! t"e prelist #oin# to t"e cas"ier and to accountin# is an e,aple o! &"ic" type o! control'
.$ .irect t"e purc"asin# departent to aintain records on purc"ase prices paid &it" revie& o! suc" bein# re5uired eac" 0 ont"s$ [87] Source: CIA 11> II-8 Corporate directors ana#eent e,ternal auditors and internal auditors all play iportant roles in creatin# a proper control environent$ 3op ana#eent is priarily responsible !or
A$ +reventive$ *$ Corrective$ C$ .etective$
A$ ?stablis"in# a proper environent and speci!yin# an overall internal control structure$
.$ .irective$
*$ 9evie&in# t"e reliability and inte#rity o! !inancial in!oration and t"e eans used to collect and report suc" in!oration$
[>1] Source: CIA 11> I-18 A ultinational corporation "as an o!!ice in a !orei#n branc" &it" a onetary trans!er !acility$ ?!!ective internal control re5uires t"at
C$ ?nsurin# t"at e,ternal and internal auditors ade5uately onitor t"e control environent$
A$ 3"e person ain# &ire trans!ers not reconcile t"e ban stateent$
.$ Ipleentin# and onitorin# controls desi#ned by t"e board o! directors$
*$ 3"e branc" ana#er not deliver payroll c"ecs to eployees$
[88] Source: CIA 11>4 I-20 /ana#eent can best stren#t"en internal control over t"e custody o! inventory stored in an o!!-site &are"ouse by ipleentin#
C$ =orei#n currency translation rates be coputed separately by t&o branc" eployees in t"e sae departent$
A$ 9econciliations o! trans!er slips to;!ro t"e &are"ouse &it" inventory records$
.$ 3"e "irin# o! individual branc" eployees be approved by t"e "ead5uarters o!!ice$
*$ Increases in insurance covera#e$ [>2] Source: CIA 118> I-1 %"ic" o! t"e !ollo&in# describes t"e ost e!!ective preventive control to ensure proper "andlin# o! cas" receipt transactions'
C$ 9e#ular reconciliation o! p"ysical inventories to accountin# records$ .$ 9e#ular con!iration o! t"e aount on "and &it" t"e custodian o! t"e &are"ouse$
A$ *an reconciliations are prepared by an eployee not involved &it" cas" collections and t"en are revie&ed by a supervisor$
11
*$ One eployee issues a prenubered receipt !or all cas" collectionsD anot"er eployee reconciles t"e daily total o! prenubered receipts to t"e ban deposits$
*$ Ipleentation o! speci!ications !or purc"ases$ C$ 3iely !ollo&-up on un!avorable usa#e variances$ .$ .eterination o! spoila#e at t"e end o! t"e anu!acturin# process$
C$ +redeterined totals "as" totalsB o! cas" receipts are used to control postin# routines$ .$ 3"e eployee &"o receives custoer ail receipts prepares t"e daily ban deposit &"ic" is t"en deposited by anot"er eployee$
[>7] Source: CIA 11>1 I-1 In auditin# a cost-plus construction contract !or a ne& catalo# s"o&roo t"e internal auditor s"ould be co#ni)ant o! t"e ris t"at
[>] Source: CIA 11> I-1 %"ic" o! t"e !ollo&in# controls &ould be t"e ost appropriate eans to ensure t"at terinated eployees "ad been reoved !ro t"e payroll'
A$ 3"e contractor could be c"ar#in# !or t"e use o! e5uipent not used in t"e construction$ *$ Incoe ta,es related to construction e5uipent depreciation ay "ave been calculated erroneously$
A$ /ailin# c"ecs to eployees residences$ C$ Contractor cas" bud#ets could "ave been inappropriately copiled$
*$ ?stablis"in# direct-deposit procedures &it" eployees bans$
.$ +ayroll ta,es ay "ave been inappropriately oitted !ro billin#s$
C$ 9econcilin# payroll and tie-eepin# records$ .$ ?stablis"in# coputeri)ed liit c"ecs on payroll
[>8] Source: CIA 6>2 II-10 Internal controls are desi#ned to provide reasonable assurance t"at
rates$ [>4] Source: CIA 68> II-1 %"ic" o! t"e ! ollo&in# observations ade durin# t"e preliinary survey o! a local departent stores disburseent cycle re!lects a control stren#t"'
A$ /aterial errors or !raud &ill be prevented or detected and corrected &it"in a tiely period by eployees in t"e course o! per!orin# t"eir assi#ned duties$
A$ Individual departent ana#ers use prenubered !ors to order erc"andise !ro vendors$
*$ /ana#eents plans "ave not been circuvented by &orer collusion$
*$ 3"e receivin# departent is #iven a copy o! t"e purc"ase order coplete &it" a description o! #oods 5uantity ordered and e,tended price !or all erc"andise ordered$
C$ 3"e internal auditin# departents #uidance and oversi#"t o! ana#eents per!orance is accoplis"ed econoically and e!!iciently$ .$ /ana#eents plannin# or#ani)in# and directin# processes are properly evaluated$
C$ 3"e treasurers o!!ice prepares c"ecs !or suppliers based on vouc"ers prepared by t"e accounts payable departent$
[>>] Source: CIA 11>2 I-18 Controls can be classi!ied accordin# to t"e !unction t"ey are intended to per!orD !or e,aple to discover t"e occurrence o! an un&anted event detectiveB to avoid t"e occurrence o! an un&anted event preventiveB or to ensure t"e occurrence o! a desirable event directiveB$ %"ic" o! t"e !ollo&in# is a directive control'
.$ Individual departent ana#ers are responsible !or t"e oveent o! erc"andise !ro t"e receivin# doc to stora#e or sales areas as appropriate$ [>6] Source: CIA 11> II-8 An internal auditor !ound t"at eployee tie cards in one departent are not properly approved by t"e supervisor$ %"ic" o! t"e ! ollo&in# could result'
A$ /ont"ly ban stateent reconciliations$ *$ .ual si#natures on all disburseents over a speci!ic dollar aount$
A$ .uplicate payc"ecs i#"t be issued$ *$ 3"e &ron# "ourly rate could be used to calculate #ross pay$
C$ 9ecordin# every transaction on t"e day it occurs$ .$ 9e5uirin# all ebers o! t"e internal auditin# departent to be CIAs$
C$ ?ployees i#"t be paid !or "ours t"ey did not &or$ .$ +ayroll c"ecs i#"t not be distributed to t"e appropriate payees$
[1] Source: CIA 11>4 I-46 A retailer o! "i#"-priced durable #oods operates a catalo#-orderin# division t"at accepts custoer orders by telep"one$ 3"e retailer runs !re5uent price prootions$ .urin# t"ese ties t"e telep"one operators enter t"e prootional prices$ 3"e ris o! t"is practice is t"at
[>0] Source: CIA 11> II-> %"ic" o! t"e ! ollo&in# controls &ould ost liely inii)e de!ects in !inis"ed #oods because o! poor 5uality ra& aterials'
A$ Custoers could systeatically be c"ar#ed lo&er prices$
A$ +roper "andlin# o! &or-in-process inventory to prevent daa#e$
*$ =re5uent price c"an#es could overload t"e order
12
entry syste$
III$ Is not necessary because eac" product ana#er is evaluated on pro!it #enerated t"us t"is control is redundant A$ II and III$
C$ Operators could #ive copetitors notice o! t"e prootional prices$ .$ Operators could collude &it" outsiders !or unaut"ori)ed prices$
*$ I II and III$ C$ I only$
[=act +attern L1] A*C is a ajor retailer &it" over 62 departent stores$ 3"e aretin# departent is responsible !or
.$ III only$ [1] Source: +ublis"er A sall entity ay use less !oral eans to ensure t"at internal control objectives are ac"ieved$ =or e,aple e,tensive accountin# procedures sop"isticated accountin# records or !oral controls are least liely to be needed i!
ｷ Conductin# aretin# surveys ｷ 9ecoendin# locations !or ne& store openin#s ｷ Orderin# products and deterinin# retail prices !or t"e
products ｷ .evelopin# prootion and advertisin# !or eac" line o! products ｷ .eterinin# t"e pricin# o! special sale ites 3"e aretin# departent "as separate product ana#ers !or eac" product line$ ?ac" product ana#er is #iven a purc"asin# bud#et by t"e aretin# ana#er$ +roduct ana#ers are not rotated aon# product lines because o! t"e need to ac5uire product no&led#e and to build relations"ips &it" vendors$ A subsection o! t"e departent does aretin# surveys$
A$ /ana#eent is closely involved in operations$ *$ 3"e entity is involved in cople, transactions$ C$ 3"e entity is subject to le#al or re#ulatory re5uireents also !ound in lar#er entities$ .$ =inancial reportin# objectives "ave been establis"ed$
In addition to orderin# and pricin# t"e product ana#ers also deterine t"e tiin# and et"od o! product delivery$ +roducts are delivered to a central distribution center &"ere #oods are received retail prices are ared on t"e product and t"e #oods are se#re#ated !or distribution to stores$ 9eceivin# docuents are created by scannin# in receiptsD t"e nuber o! ites scanned in are reconciled &it" t"e price ta#s #enerated and attac"ed to products$ 3"e avera#e product spends bet&een 12 and 72 "ours in t"e distribution center be!ore bein# loaded on trucs !or delivery to eac" store$ 9eceipts are recorded at t"e distribution center t"us t"e copany "as not !ound t"e need to aintain a receivin# !unction at eac" store$
[14] Source: +ublis"er Control activities include procedures t"at pertain to p"ysical controls over access to and use o! assets and records$ A departure !ro t"e purpose o! suc" procedures is t"at A$ Access to t"e sa!e-deposit bo, re5uires t&o o!!icers$ *$ Only storeroo personnel and line supervisors "ave access to t"e ra& aterials storeroo$ C$ 3"e ail cler copiles a list o! t"e c"ecs received in t"e incoin# ail$
?ac" product ana#er is evaluated on a cobination o! sales and #ross pro!it #enerated !ro t"eir product line$ /any products are seasonal and individual store ana#ers can re5uire t"at seasonal products be Gcleared outG to ae space !or t"e ne,t seasons products$
.$ Only salespersons and sales supervisors use sales departent ve"icles$
[11] Source: CIA 6>6 I-12 9e!ers to =act +attern L1B A control de!iciency associated &it" t"e #iven scenario is
[16] Source: +ublis"er 3"e e5uation in A< 6 !or t"e overall allo&able audit ris A9 H I9 , C9 , A+ , 3.B is soeties solved !or 3. t"e allo&able ris o! incorrect acceptance associated &it" a test o! detailsB because
A$ 3"e store ana#er can re5uire ites to be closed out t"us a!!ectin# t"e potential per!orance evaluation o! individual product ana#ers$
A$ 3"e ost iportant eleent is 3.$
*$ 3"e product ana#er ne#otiates t"e purc"ase price and sets t"e sellin# price$
*$ 3"is version o! t"e !orula assists in plannin# a speci!ic substantive test o! details$
C$ ?valuatin# product ana#ers by total #ross pro!it #enerated by product line &ill lead to dys!unctional be"avior$
C$ 3"e overall allo&able audit ris cannot be
.$ 3"ere is no receivin# !unction located at individual stores$
.$ Auditors al&ays consider tests o! details !irst$
deterined$
[10] Source: C/A 1288 -21 Accordin# to SAS 78 A< 1>B Consideration o! Internal Control in a =inancial Stateent Audit only soe o! an entitys controls are relevant to a !inancial stateent audit$ %"ic" one o! t"e !ollo&in# &ould ost liely be considered in suc" an audit'
[12] Source: CIA 6>6 I-14 9e!ers to =act +attern L1B 9e5uests !or purc"ases beyond t"ose initially bud#eted by t"e aretin# ana#er ust be approved by t"e aretin# ana#er$ %"ic" o! t"e !ollo&in# stateents re#ardin# t"is control procedure is correct' 3"e procedure
A$ 3iely reportin# and revie& o! 5uality control results$
I$ S"ould provide !or t"e ost e!!icient allocation o! scarce or#ani)ational resources II$ Is a detective control procedure
*$ /aintenance o! control over unused c"ecs$
13
C$ /aretin# analysis o! sales #enerated by advertisin# projects$
A$ =i#ure 11 *$ =i#ure 12
.$ /aintenance o! statistical production analyses$ C$ =i#ure 1 [17] Source: C/A 1288 -22 Internal control s"ould !ollo& certain basic principles to ac"ieve its objectives$ One o! t"ese principles is t"e se#re#ation o! !unctions$ %"ic" one o! t"e !ollo&in# e,aples does not violate t"e principle o! se#re#ation o! !unctions'
.$ =i#ure 14 [111] Source: C/A 1281 6-16 9e!er to =i#ures 16 t"rou#" 18$B 3"e sybol eployed to represent t"e printin# o! t"e eployees payc"ecs by t"e coputer is
A$ 3"e treasurer "as t"e aut"ority to si#n c"ecs but #ives t"e si#nature bloc to t"e assistant treasurer to run t"e c"ec-si#nin# ac"ine$
A$ =i#ure 16 *$ =i#ure 10
*$ 3"e &are"ouse cler &"o "as t"e custodial responsibility over inventory in t"e &are"ouse ay aut"ori)e disposal o! daa#ed #oods$
C$ =i#ure 17 .$ =i#ure 18
C$ 3"e sales ana#er "as t"e responsibility to approve credit and t"e aut"ority to &rite o!! accounts$
[112] Source: C/A 1281 6-10 9e!er to =i#ures 1> t"rou#" 22$B 3"e sybol eployed to represent t"e eployees c"ecs printed by t"e coputer is
.$ 3"e departent tie cler is #iven t"e undistributed payroll c"ecs to ail to absent eployees$
A$ =i#ure 1> *$ =i#ure 2
[18] Source: C/A 0>6 4-26 3"e ational Coittee on =raudulent =inancial 9eportin# 3read&ay CoissionB recoended t"at
C$ =i#ure 21 .$ =i#ure 22
A$ All public copanies "ave an audit coittee ade up o! ebers o! top ana#eent to assist t"e internal auditor in identi!yin# potential areas o! e,ternal auditor concern$
[11] Source: C/A 1281 6-17 9e!er to =i#ures 2 t"rou#" 20$B 3"e sybol used to represent t"e p"ysical act o! collectin# eployees tie cards !or processin# is
*$ Internal auditors per!or any o! t"e !unctions o! t"e e,ternal auditor in order to inii)e audit !ees &"ile increasin# t"e e!!ectiveness o! audits$
A$ =i#ure 2
C$ Internal audit departents en#a#e in activities t"at en"ance t"e objectivity o! t"eir !unction &it" t"e assistance o! ana#eent and t"e audit coittee$
*$ =i#ure 24
.$ +rivately "eld copanies "ave an internal audit sta!! &it" an ade5uate nuber o! 5uali!ied personnel appropriate !or t"e si)e o! t"e copany$
.$ =i#ure 20
C$ =i#ure 26
[114] Source: C/A 1281 6-18 9e!er to =i#ures 27 t"rou#" $B 3"e sybol used to represent t"e eployees payroll records stored on
[1>] Source: C/A 0>6 4-20 In relation to non!inancial internal audits t"e 3read&ay Coission recoended t"at
a#netic tape is
A$ Internal auditors not be involved in any non!inancial audits because t"eir !indin#s in !inancial audits i#"t be biased$
A$ =i#ure 27
*$ Internal auditors be !ully involved to #ain #reater no&led#e o! t"e copany and a ore in!ored perspective$
C$ =i#ure 2>
*$ =i#ure 28
.$ =i#ure
C$ 3"e public accountant revie& copletely t"e &or per!ored by internal auditors$
[116] Source: C/A 1281 6-1> 9e!er to =i#ures 1 t"rou#" 4$B 3"e sybol used to represent t"e &eely payroll re#ister #enerated by t"e coputer is
.$ 3"e public accountants revie& t"e non!inancial audits prepared by internal auditors and include t"e internal auditors !indin#s in t"eir reports$
A$ =i#ure 1 [11] Source: C/A 1281 6-14 9e!er to =i#ures 11 t"rou#" 14$B 3"e sybol eployed to deterine i! an eployees &a#es are above or belo& t"e a,iu liit !or =ICA ta,es is
*$ =i#ure 2 C$ =i#ure
14
.$ =i#ure 4
*$ =ile t"e daily by batc" nuber$ C$ =or&ard t"e to t"e internal audit departent !or internal revie&$
[110] Source: C/A 1281 6-2 9e!er to =i#ures 6 t"rou#" 8$B 3"e sybol used to represent t"e !ile o! "ard-copy coputer-#enerated payroll reports ept !or !uture re!erence is
.$ =or&ard t"e to t"e treasurer to copare &it" t"e ont"ly ban stateent$
A$ =i#ure 6 [121] Source: C/A 1287 6-1 9e!ers to =act +attern L2B 9e!er to =i#ure 4$B 3"e appropriate description t"at s"ould be placed in sybol . &ould be
*$ =i#ure 0 C$ =i#ure 7 .$ =i#ure 8
A$ Attac" batc" total to report and !ile$
[117] Source: C/A 128> 6-4 9e!er to =i#ure >$B 3"e correct labelin# in order !or t"e !lo&c"art sybols in =i#ure > is
*$ 9econcile cas" balances$ C$ Copare batc" total and correct as necessary$
A$ .ocuent display online stora#e and entry operation$
.$ +roo! report$
*$ /anual operation processin# o!!line stora#e and input-output activity$
[122] Source: C/A 1287 6-11 9e!ers to =act +attern L2B 9e!er to =i#ure 4$B 3"e appropriate description t"at s"ould be placed in sybol ? &ould be
C$ .isplay docuent online stora#e and entry operation$
A$ Accounts receivable aster !ile$ .$ /anual operation docuent online stora#e and entry operation$
*$ *ad debts aster !ile$ C$ 9eittance advice aster !ile$
[=act +attern L2] 3"is !lo&c"art depicts t"e processin# o! daily cas" receipts !or 9ocart /anu!acturin#$
.$ Cas" projection !ile$
[118] Source: C/A 1287 6-7 9e!ers to =act +attern L2B 9e!er to =i#ure 4$B 3"e custoer c"ecs accopanied by t"e control tape re!er to sybol AB &ould be
[12] Source: +ublis"er Corporate social responsibility is A$ ?!!ectively en!orced t"rou#" t"e controls envisioned by classical econoics$
A$ =or&arded daily to t"e billin# departent !or deposit$
*$ .e!ined as t"e obli#ation to s"are"olders to earn a pro!it$
*$ 3aen by t"e ail cler to t"e ban !or deposit daily$
C$ /ore t"an t"e obli#ation to s"are"olders to earn a pro!it$
C$ =or&arded to t"e treasurer !or deposit daily$ .$ .e!ined as t"e obli#ation to serve lon#-ter or#ani)ational interests$
.$ Accuulated !or a &ee and t"en !or&arded to t"e treasurer !or deposit &eely$
[124] Source: +ublis"er A coon ar#uent a#ainst corporate involveent in socially responsible be"avior is t"at
[11>] Source: C/A 1287 6-8 9e!ers to =act +attern L2B 9e!er to =i#ure 4$B 3"e appropriate description t"at s"ould be placed in sybol * &ould be
A$ It encoura#es #overnent intrusion in decision ain#$
A$ @eyin# and veri!yin#$ *$ ?rror correction$
*$ As a le#al person a corporation is accountable !or its conduct$
C$ Collation o! reittance advices$
C$ It creates #ood&ill$
.$ *atc" processin#$
.$ In a copetitive aret suc" be"avior incurs costs t"at place t"e copany at a disadvanta#e$
[12] Source: C/A 1287 6-> 9e!ers to =act +attern L2B 9e!er to =i#ure 4$B 3"e ne,t action to tae &it" t"e custoer reittance advices re!er to sybol CB &ould be to
[126] Source: +ublis"er Inte#rity is an et"ical re5uireent !or all !inancial ana#ers;ana#eent accountants$ One aspect o! inte#rity re5uires
A$ .iscard t"e iediately$
A$ +er!orance o! pro!essional duties in accordance &it" applicable la&s$
15
+ractitioners o! /ana#eent Accountin# and =inancial /ana#eent'
*$ Avoidance o! con!lict o! interest$ C$ 9e!rainin# !ro iproper use o! inside in!oration$
A$ Copetency$ *$ Con!identiality$
.$ /aintenance o! an appropriate level o! pro!essional copetence$
C$ Inte#rity$ .$ Objectivity$
[120] Source: +ublis"er
[1] Source: C/A In accordance &it" Stateents on /ana#eent Accountin# uber 1C S/A 1CB revisedB Standards o! ?t"ical Conduct !or +ractitioners o! /ana#eent Accountin# and =inancial /ana#eent a ana#eent accountant &"o !ails to per!or pro!essional duties in accordance &it" relevant standards is actin# contrary to &"ic" one o! t"e !ollo&in# standards'
A$ Advertise$ *$ ?ncroac" on t"e practice o! anot"er !inancial ana#er;ana#eent accountant$ C$ .isclose con!idential in!oration unless aut"ori)ed or le#ally obli#ated$
A$ Copetency$ .$ Accept ot"er eployent &"ile servin# as a !inancial ana#er;ana#eent accountant$
*$ Con!identiality$ C$ Inte#rity$
[127] Source: +ublis"er In &"ic" situation is a !inancial ana#er;ana#eent accountant peritted to counicate con!idential in!oration to individuals or aut"orities outside t"e !ir'
.$ Objectivity$ [11] Source: +ublis"er auryn is in c"ar#e o! auditin# +alace Co$ S"e deterines +alace "as a control ris o! 16M t"ere is an in"erent ris o! M and s"e "as an acceptable detection ris o! 6M$ %"at is t"e ris o! a aterial isstateent o! an assertion'
A$ 3"ere is an et"ical con!lict and t"e board "as re!used to tae action$ *$ Suc" counication is le#ally prescribed$ C$ 3"e !inancial ana#er;ana#eent accountant no&in#ly counicates t"e in!oration indirectly t"rou#" a subordinate$
A$ 2$26M
.$ An o!!icer at t"e !inancial ana#er;ana#eent accountants ban "as re5uested in!oration on a transaction t"at could in!luence t"e !irs stoc price$
C$ 7$6M
*$ 4$6M
.$ 16M
[128] Source: C/A 1 Accordin# to Stateents on /ana#eent Accountin# uber 1C S/A 1CB revisedB Standards o! ?t"ical Conduct !or +ractitioners o! /ana#eent Accountin# and =inancial /ana#eent a practitioner "as a responsibility to reco#ni)e pro!essional liitations$
[12] Source: +ublis"er %"ile per!orin# an audit Sebastian decides to restrict t"e ris o! isstateent to M$ %"at ust t"e acceptable level o! detection ris be i! in"erent ris is 26M and control ris is 4M' A$ $M
A$ Copetency$
*$ 12M
*$ Con!identiality$
C$ M
C$ Inte#rity$
.$ M
.$ Objectivity$ [1] Source: +ublis"er 3"e auditors o! /aut・ Inc$ "ave discovered t"at t"e copany "as no e!!ective internal controls$ 3"e auditors "ave set detection ris at 6M and in"erent ris at >M$ %"at is t"e allo&able audit ris accordin# to t"e audit ris odel'
[12>] Source: C/A 2 At @ey ?nterprises t"e controller is responsible !or directin# t"e bud#etin# process$ In t"is role t"e controller "as si#ni!icant in!luence &it" e,ecutive ana#eent as individual departent bud#ets are odi!ied and approved$ =or t"e current year t"e controller &as instruental in t"e approval o! a particular line ana#ers bud#et &it"out odi!ication even t"ou#" si#ni!icant reductions &ere ade to t"e bud#ets subitted by ot"er line ana#ers$ As a toen o! appreciation t"e line ana#er in 5uestion "as #iven t"e controller a #i!t certi!icate !or a popular local restaurant$ In considerin# &"et"er or not to accept t"e certi!icate t"e controller s"ould re!er to &"ic" section o! Stateents on /ana#eent Accountin# uber 1C S/A 1CB revisedB Standards o! ?t"ical Conduct !or
A$ M *$ 4$6M C$ 6M .$ 6$0M [14] Source: +ublis"er
16
Courtney and @i are usin# t"e audit ris odel on t"eir audit assi#nent$ 3"ey "ave set in"erent ris at >M control ris at >M t"e allo&able ris o! incorrect acceptance associated &it" a test o! details at 6M and t"e ris t"at analytical procedures and ot"er substantive tests &ill !ail to detect isstateents at >M$ %"at is t"e allo&able audit ris'
A$ Sets !ort" basic principles in t"e practice o! internal auditin#$ *$ C"ar#es IIA ebers to aintain "i#" standards o! conduct$
A$ $06M
C$ ?,plains t"e internal audit pro!essions responsibility to society at lar#e$
*$ 4$6M
.$ States t"at a distin#uis"in# ar o! a pro!ession is
C$ 7$2>M
acceptance by its ebers o! responsibility to t"e interests o! t"ose it serves$
.$ 4$6M [1>] Source: CIA 11> II-47 An auditor discovers soe aterial ine!!iciencies in a purc"asin# !unction$ 3"e purc"asin# ana#er "appens to be t"e auditors ne,t-door nei#"bor and best !riend$ In accordance &it" t"e Code o! ?t"ics t"e auditor s"ould
[16] Source: CIA 68> I-46 Accordin# to t"e Standards due pro!essional care calls !or A$ .etailed audits o! all transactions related to a particular !unction$
A$ Objectively include t"e !acts o! t"e case in t"e audit report$
*$ Consideration o! t"e possibility o! aterial irre#ularities durin# every audit assi#nent$
*$ ot report t"e incident because o! loyalty to t"e !riend$
C$ 3estin# su!!icient to #ive absolute assurance t"at noncopliance does not e,ist$
C$ Include t"e !acts o! t"e case in a special report subitted only to t"e ! riend$
.$ .etailed audits o! all transactions$
.$ ot report t"e !riend unless t"e activity is ille#al$ [10] Source: CIA 68> II-44 A Certi!ied Internal Auditor eployed by a lar#e departent store per!ored an audit o! t"e stores cas" !unction$ %"ic" o! t"e !ollo&in# actions &ould be deeed lacin# in due pro!essional care'
[14] Source: CIA 1184 I-1 In &"ic" o! t"e !ollo&in# auditin# situations &ould an internal auditor "ave a con!lict o! interest under t"e Standards'
A$ A !lo&c"art o! t"e entire cas" !unction &as developed but only a saple o! transactions &ere tested$
A$ Auditin# a !inancial activity in &"ic" t"e auditor "ad been a ey eployee 6 years previously$
*$ 3"e report included a &ell-supported recoendation !or t"e reduction in sta!! alt"ou#" it &as no&n t"at suc" a reduction &ould adversely ipact orale$
*$ Auditin# a purc"asin# activity i! a ajor supplier is a copany o&ned by t"e auditors brot"er-in-la&$ C$ Auditin# a data processin# center t"e auditor "ad audited t"ree ties previously$
C$ *ecause o! a "i#"ly developed syste o! internal controls over t"e cas" !unction t"e audit report assured top ana#eent t"at no irre#ularities e,isted$
.$ Auditin# a coputer syste !or &"ic" t"e auditor "ad been internal auditin#s representative on t"e desi#n tea$
.$ 3"e auditor in!ored appropriate aut"orities &it"in t"e or#ani)ation about suspected &ron#doin#$ o report &as ade to e ,ternal aut"orities$
[141] Source: CIA 6>2 I-47 .urin# t"e course o! an audit an auditor discovers t"at a cler is ebe))lin# copany !unds$ Alt"ou#" t"is is t"e !irst ebe))leent ever encountered and t"e or#ani)ation "as a security departent t"e auditor decides to personally interro#ate t"e suspect$ I! t"e auditor is violatin# t"e Code o! ?t"ics t"e rule violated is ost liely
[17] Source: CIA 1184 II-21 In coplyin# &it" 3"e IIA Code o! ?t"ics a CIA s"ould A$
A$ ac o! loyalty to t"e or#ani)ation$ *$ ?,"ibit loyalty to t"e or#ani)ation even i! it is en#a#ed in ille#al or iproper activities$
*$ ac o! copetence in t"is area$
C$ Jo beyond t"e liitation o! personal tec"nical sills to advance t"e interest o! t"e copany or or#ani)ation$
C$ =ailin# to coply &it" t"e la&$ .$ +rudence in t"e use o! in!oration$
.$
[142] Source: CIA 11>2 I-4> An internal auditin# director learns t"at a sta!! auditor "as provided con!idential in!oration to a relative$ *ot" t"e director and sta!! auditor are CIAs$ Alt"ou#" t"e auditor did not bene!it !ro t"e transaction t"e relative used t"e in!oration to ae a si#ni!icant pro!it$ 3"e ost appropriate &ay !or t"e director to deal &it" t"is proble
[18] Source: CIA 1187 I-48 %"ic" o! t"e !ollo&in# stateents does not describe one o! t"e purposes o! 3"e IIA Code o! ?t"ics' 3"e IIA Code o! ?t"ics
17
is to
[140] Source: CIA 688 I-28 Kou are plannin# a -year e!!ort to audit all branc"es o! a lar#e international car rental a#ency$ /ana#eent is especially concerned &it" standardi)ed operation o! t"e accountin# car rental and inventory !unctions$ %"at type o! audit pro#ra &ould be ost appropriate !or t"is project'
A$ Suarily disc"ar#e t"e auditor and noti!y 3"e Institute$ *$ 3ae no action because t"e auditor did not bene!it !ro t"e transaction$ C$ In!or t"e Institutes *oard o! .irectors and tae t"e personnel action re5uired by copany policy$
A$ A pro !ora audit pro#ra developed and tested by your internal auditin# departent$
.$ In!or t"e police$
*$ Individual audit pro#ras developed by t"e auditor-in-c"ar#e a!ter a preliinary survey o! eac" branc"$
[14] Source: CIA 6>4 I-8 .urin# an audit an eployee &it" &"o you "ave developed a #ood &orin# relations"ip in!ors you t"at s"e "as soe in!oration about top ana#eent &"ic" &ould be daa#in# to t"e or#ani)ation and ay concern ille#al activities$ 3"e eployee does not &ant to #o public &it" t"e in!oration and does not &ant "er nae associated &it" t"e release o! t"e in!oration$ %"ic" o! t"e !ollo&in# actions &ould be considered inconsistent &it" t"e Code o! ?t"ics and t"e Standards'
C$ A c"eclist o! branc" standard operatin# procedures$ .$ An industry-developed audit #uide$ [147] Source: CIA 6> I-2 .urin# an operational audit an auditor copares t"e inventory turnover rate o! a subsidiary &it" establis"ed industry standards in order to
A$ Assure t"e eployee t"at you can aintain "er anonyity and listen to t"e in!oration$
A$ ?valuate t"e accuracy o! t"e subsidiarys internal !inancial reports$
*$ Su##est t"e person consider talin# to le#al counsel$
*$ 3est t"e subsidiarys controls desi#ned to sa!e#uard assets$
C$ In!or t"e individual t"at you &ill attept to eep t"e source o! t"e in!oration con!idential and &ill loo into t"e atter !urt"er$
C$ .eterine i! t"e subsidiary is coplyin# &it" corporate procedures re#ardin# inventory levels$
.$ In!or t"e eployee o! ot"er et"ods o! counicatin# t"is type o! in!oration$
.$ Assess t"e per!orance o! t"e subsidiary and indicate &"ere additional audit &or ay be needed$
[144] Source: CIA 68> II-4 In t"eir reportin# Certi!ied Internal Auditors are re5uired by t"e Code o! ?t"ics to
[148] Source: CIA 6> II-1 In a copre"ensive audit o! a not-!or-pro!it activity an internal auditor is priarily concerned &it" t"e
A$ .isclose all aterial evidence obtained by t"e auditor as o! t"e date o! t"e audit report$
A$ ?,tent o! copliance &it" policies and procedures$
*$ Obtain !actual evidence &it"in t"e establis"ed tie and bud#et paraeters$
*$ +rocedures related to t"e bud#etin# process$ C$ ?,tent o! ac"ieveent o! t"e or#ani)ations ission$
C$ 9eveal aterial !acts no&n to t"e auditor t"at could distort t"e report i! not revealed$
.$ Accuracy o! reports on t"e source and use o! !unds$
.$ ?,press an opinion only i! it is based on su!!icient copetent evidence$
[14>] Source: CIA 11>1 II-0 9is odels or ris analysis is o!ten used in conjunction &it" developent o! lon#-ran#e audit sc"edules$ 3"e ey input in t"e evaluation o! ris is
[146] Source: CIA 1184 II-26 %"ic" o! t"e !ollo&in# is t"e best e,planation o! t"e di!!erence i! any bet&een audit objectives and audit procedures'
A$ +revious audit results$ A$ Audit procedures establis" broad #eneral #oalsD audit objectives speci!y t"e detailed &or to be per!ored$
*$ /ana#eent concerns and pre!erences$ C$ Speci!ic re5uireents o! t"e Standards$
*$ Audit objectives are tailor-ade !or eac" assi#nentD audit procedures are #eneric in application$
.$ Nud#ent o! t"e internal auditor$
C$ Audit objectives de!ine speci!ic desired accoplis"entsD audit procedures provide t"e eans o! ac"ievin# audit objectives$
[16] Source: CIA 6>2 I-11 Accordin# to t"e Standards audit plannin# s"ould be docuented and t"e plannin# process s"ould include all t"e !ollo&in# e,cept
.$ Once t"e necessary audit procedures "ave been establis"ed audit objectives can be de!ined$
A$ ?stablis"in# audit objectives and scope o! &or$ *$ Obtainin# bac#round in!oration about t"e
18
activities to be audited$ *$ Supervision is priarily e,ercised at t"e !inal revie& sta#e o! an audit to ensure t"e accuracy o! t"e audit report$
C$ Collectin# audit evidence on all atters related to t"e audit objectives$ .$ .eterinin# "o& &"en and to &"o t"e audit results &ill be counicated$
C$ Supervision is ost iportant in t"e plannin# p"ase o! t"e audit to ensure appropriate audit covera#e$
[161] Source: CIA 11>2 I-1 An audit pro#ra !or a copre"ensive audit o! a purc"asin# !unction s"ould include
.$ Supervision is a continuin# process be#innin# &it" plannin# and endin# &it" conclusion o! t"e audit assi#nent$
A$ %or steps arran#ed by relative priority based upon perceived ris$
[160] Source: CIA 688 II-12 %"ile plannin# an audit an internal auditor establis"es audit objectives to describe &"at is to be accoplis"ed$ %"ic" o! t"e !ollo&in# is a ey issue to consider in developin# audit objectives'
*$ A stateent o! t"e audit objectives o! t"e operation under revie& &it" a#reeent by t"e auditee$ C$ Speci!ic et"ods to accoplis" audit objectives$
A$ 3"e 5uali!ications o! t"e audit sta!! selected !or t"e en#a#eent$
.$ A !ocus on riss a!!ectin# t"e !inancial stateents as opposed to controls$
*$ 3"e auditees objectives and control structure$ C$ 9ecoendations o! t"e auditees eployees$
[162] Source: CIA 6>4 I-67 A director o! internal auditin# "as to deterine "o& an or#ani)ation can be divided into auditable activities$ %"ic" o! t"e !ollo&in# is an auditable activity'
.$ 3"e recipients o! t"e audit report$ [167] Source: CIA 68> II-14 .urin# &"ic" p"ase o! t"e internal audit &ould t"e auditor identi!y t"e objectives and related controls o! t"e activity bein# e,ained'
A$ A procedure$ *$ A syste$ C$ An account$
A$ +reliinary survey$
.$ All o! t"e ans&ers #iven$
*$ Sta!! selection$ C$ Audit pro#ra preparation$
[16] Source: CIA 1186 I-4 %"en audits are per!ored !or t"e internal audit departent by nonsta!! ebers t"e internal audit director is responsible !or
.$ Audit report issuance$ [168] Source: CIA 6>2 I-18 %"ic" et"od o! evaluatin# internal controls durin# t"e preliinary revie& provides t"e auditor &it" t"e best visual #rasp o! a syste and a eans !or analy)in# cople, operations'
A$ /ain# sure t"at t"e audit reports are objective clear and tiely$ *$ 9evie&in# t"e audit pro#ras !or approval$ C$ +rovidin# appropriate audit supervision !ro t"e be#innin# to t"e conclusion o! t"e audit assi#nent$
A$ A !lo&c"artin# approac"$ *$ A 5uestionnaire approac"$
.$ one o! t"e audit &or per!ored by t"ose outside t"e departent$
C$ A atri, approac"$ .$ A detailed narrative approac"$
[164] Source: CIA 6>2 I-10 .eterinin# t"at audit objectives "ave been et is part o! t"e overall supervision o! an audit assi#nent and is t"e ultiate responsibility o! t"e
[16>] Source: CIA 688 II-16 3"e e!!ectiveness o! an audit assi#nent is related to t"e !indin#s and t"e action taen on t"ose !indin#s$ %"ic" o! t"e !ollo&in# activities contributes to assi#nent e!!ectiveness'
A$ Sta!! internal auditor$ *$ Audit coittee$
A$ Conductin# an e,it intervie& &it" auditees$ C$ Internal auditin# supervisor$ *$ Ad"erin# to a tie b ud#et$ .$ .irector o! internal auditin#$ C$ +reparin# &eely tie reports$ [166] Source: CIA 6>1 II-16 %"ic" o! t"e ! ollo&in# best describes audit supervision as envisioned by t"e Standards'
.$ (avin# bud#et revisions approved by t"e project supervisor$
A$ 3"e ana#er o! eac" audit "as t"e ultiate responsibility !or supervision$
[10] Source: CIA 6> II-2 %"at action s"ould an internal auditor tae upon
19
discoverin# t"at an audit area &as oitted !ro t"e audit pro#ra'
.$ o because a sall dollar aount is in error$
A$ .ocuent t"e proble in t"e &orin# papers and tae no !urt"er action until instructed to do so$
[106] Source: CIA 11>1 I-18 /ana#eent believes t"at soe speci!ic sales coissions !or t"e year &ere too lar#e$ 3"e accuracy o! t"e recorded coission e,pense !or speci!ic salespersons is best deterined by
*$ +er!or t"e additional &or needed &it"out re#ard to t"e added tie re5uired to coplete t"e audit$ C$ Continue t"e audit as planned and include t"e un!oreseen proble in a subse5uent audit$
A$ Coputation o! selected sales coissions$ *$ Calculatin# coission ratios$
.$ ?valuate &"et"er copletion o! t"e audit as planned &ill be ade5uate$
C$
[101] Source: CIA 11> II-12 In order to deterine t"e e,tent o! audit tests to be per!ored durin# !ield &or preparin# t"e audit pro#ra s"ould be t"e ne,t step a!ter copletin# t"e
[100] Source: CIA 11>1 II-26 %"ic" o! t"e !ollo&in# audit p rocedures provides t"e best evidence about t"e collectibility o! notes receivable'
A$ +reliinary survey$ A$ +ositive con!iration o! note receivable balances &it" t"e debtors$
*$ Assi#nent o! audit sta!!$ C$ 3ie bud#ets !or speci!ic audit tass$
*$ ?,aination o! notes !or appropriate debtors si#natures$
.$ .eterination o! t"e resources necessary to per!or t"e audit$
C$ 9econciliation o! t"e detail o! notes receivable and t"e provision !or uncollectible aounts to t"e #eneral led#er control$
[102] Source: CIA 6>4 II-2 An internal auditor is intervie&in# t"ree individuals one o! &"o is suspected o! coittin# a !raud$ %"ic" o! t"e !ollo&in# is t"e least e!!ective intervie&in# approac"'
.$ ?,aination o! cas" receipts records to deterine proptness o! interest and principal payents$
A$ As eac" individual to prepare a &ritten stateent e,plainin# "is or "er actions$
[107] Source: CIA 6>2 I-2 An internal auditor &ould trace copies o! sales invoices to s"ippin# docuents in order to deterine t"at
*$ 3ae t"e role o! one seein# t"e trut"$ A$ Custoer s"ipents &ere billed$ C$ isten care!ully to &"at t"e intervie&ee "as to say$ *$ Sales t"at are billed &ere also s"ipped$ .$ Attept to #et t"e suspect to con!ess$ C$ S"ipents to custoers &ere also recorded as receivables$ [10] Source: CIA 6>1 I-17 3"e personnel departent receives an edit listin# o! payroll c"an#es processed at every payroll cycle$ I! it does not veri!y t"e c"an#es processed t"e result could be
.$ 3"e subsidiary accounts receivable led#er &as updated$
A$
[108] Source: CIA 11> II-42
*$ Inaccurate Social Security deductions$ C$ abor "ours c"ar#ed to t"e &ron# account in t"e cost reportin# syste$
A$ oti!y re#ulatory aut"orities o! ana#eents decision$
.$ ?ployees not bein# ased i! t"ey &ant to contribute to t"e copany pension plan$
*$ +er!or additional audit steps to !urt"er identi!y t"e policy violations$ [104] Source: CIA 6>1 I-20 An internal auditor discovered an error in a receivable due !ro a ajor stoc"older$ 3"e receivables balance accounts !or less t"an 1M o! t"e copanys total receivables$ %ould t"e auditor be liely to consider t"e error to be aterial'
C$ Conduct a !ollo&-up audit to deterine &"et"er corrective action &as taen$ .$ Internal audit responsibility "as been disc"ar#ed and no !urt"er audit action is re5uired$
A$ Kes i! audit ris is lo&$ [10>] Source: CIA 6>2 I-4 One objective o! an audit o! t"e purc"asin# !unction is to deterine t"e cost o! late payent o! invoices containin# sales discounts$ 3"e appropriate population !ro &"ic" a saple &ould be dra&n is t"e !ile o!
*$ o i! t"ere &ill be !urt"er transactions &it" t"is stoc"older$ C$ Kes because a related party is involved$
20
A$ 9eceivin# reports$
[174] Source: CIA 6> I-11 S"ipents are ade !ro t"e &are"ouse based on custoer purc"ase orders$ 3"e atc"ed s"ippin# docuents and purc"ase orders are t"en !or&arded to t"e billin# departent !or sales invoice preparation$ 3"e s"ippin# docuents are neit"er accounted !or nor prenubered$ %"ic" o! t"e !ollo&in# substantive tests s"ould be e,tended as a result o! t"is control &eaness'
*$ +urc"ase orders$ C$ Canceled c"ecs$ .$ +aid vendor invoices$ [17] Source: CIA 11>2 I-47 I! an internal auditor !inds t"at no corrective action "as been taen on a prior audit !indin# t"at is still valid t"e Standards state t"at t"e internal auditor s"ould
A$ Select bills o! ladin# !ro t"e &are"ouse and trace t"e s"ipents to t"e related sales invoices$ *$ =oot t"e sales re#ister and trace t"e total to t"e #eneral led#er$
A$ 9estate t"e prior !indin# alon# &it" t"e !indin#s o! t"e current audit$ *$ .eterine &"et"er ana#eent or t"e board "as assued t"e ris o! not tain# corrective action$
C$ 3race 5uantities and prices on t"e sales invoice to t"e custoer purc"ase order and test e,tensions and !ootin#s$
C$ See t"e boards approval to initiate corrective action$
.$ 3race a saple o! purc"ase orders to t"e related sales invoices$
.$ Sc"edule a !uture audit o! t"e speci!ic area involved$
[176] Source: CIA 6> I-17 In an audit o! a nonpro!it or#ani)ations special !und t"e priary audit objective is to deterine i! t"e entity
[171] Source: CIA 11>2 I- In t"e per!orance o! an internal audit audit r is is best de!ined as t"e ris t"at an auditor
A$ Coplied &it" e,istin# !und re5uireents and per!ored speci!ied activities$
A$ /i#"t not select docuents t"at are in error as part o! t"e e,aination$
*$ /ana#ed its resources econoically and e!!iciently$
*$ /ay not be able to properly evaluate an activity because o! its poor internal accountin# controls$
C$ +repared its ! inancial stateents in accordance &it" #enerally accepted accountin# principles$
C$ /ay !ail to detect a si#ni!icant error or &eaness durin# an e,aination$
.$ Applies t"e !unds in a &ay t"at &ould bene!it t"e #reatest nuber o! people$
.$ /ay not "ave t"e e,pertise to ade5uately audit a speci!ic activity$
[170] Source: CIA 6> I-18 .urin# t"e preliinary survey p"ase o! an audit o! t"e or#ani)ations production cycle ana#eent stated t"at t"e sale o! scrap &as &ell controlled$ ?vidence to veri!y t"at assertion can best be #ained by
[172] Source: CIA 11>1 I-46 3"e preliinary survey discloses a prior audit de!iciency &as never corrected$ Subse5uent !ield &or con!irs t"at t"e de!iciency still e,ists$ %"ic" o! t"e ! ollo&in# courses o! action s"ould t"e internal auditor pursue'
A$ Coparin# current revenue !ro scrap sales &it" t"at o! prior periods$
A$ 3ae no action$ 3o do ot"er&ise &ould be an e,ercise o! operational control$
*$ Intervie&in# persons responsible !or collectin# and storin# t"e scrap$
*$ .iscuss t"e issue &it" t"e director o! internal auditin#$ 3"e proble re5uires an ad "oc solution$
C$ Coparin# t"e 5uantities o! scrap e,pected !ro t"e production process &it" t"e 5uantities sold$
C$ .iscuss t"e issue &it" t"e personsB responsible !or t"e proble$ SB"e or t"ey s"ould no& "o& to solve t"e proble$
.$ Coparin# current revenue !ro scrap sales &it" industry nors$
.$ Order t"e personsB responsible to correct t"e proble$ 3"ey "ave "ad lon# enou#" to do so$
[177] Source: CIA 6> I-1> 3o control daily operatin# costs an or#ani)ation decreased t"e nuber o! ties a essen#er service &as used eac" day$ .espite t"ose easures t"e ont"ly bill continued to increase$ %"at procedure s"ould t"e internal auditor use to detect &"et"er iproper services &ere bein# billed'
[17] Source: CIA 11>2 II-2 %"ic" o! t"e ! ollo&in# stateents is an audit objective' A$ Observe t"e deposit o! t"e days cas" receipts$
A$ 9econcile a saple o! essen#er invoices to picup receipts$
*$ Analy)e t"e pattern o! any cas" s"orta#es$ *$ 3est t"e at"eatical accuracy o! a saple o! essen#er invoices$
C$ ?valuate &"et"er cas" receipts are ade5uately sa!e#uarded$
C$ Scan led#er accounts and essen#er invoices$ .$ 9ecopute eac" ont"s ban reconciliation$ .$ Observe daily use o! t"e essen#er service$
21
[18] Source: CIA 6> I- In &"ic" section o! t"e !inal report s"ould t"e internal auditor describe t"e audit objectives'
[178] Source: CIA 11> I-1 An internal auditor &ould ost liely jud#e a isstateent in an account balance to be aterial i! it involves
A$ +urpose$ A$ A lar#e percenta#e o! net incoe$ *$ Scope$ *$ An unveri!ied routine transaction$ C$ Criteria$ C$ An unusual transaction !or t"e copany$ .$ Condition$ .$ A related party$ [184] Source: CIA 6> II- 3"e scope stateent o! an internal audit report s"ould
[17>] Source: CIA 6>2 II-21 %"ic" o! t"e ! ollo&in# is an essential !actor in evaluatin# t"e su!!iciency o! evidence' 3"e evidence ust
A$ Identi!y t"e audited activities and describe t"e nature and e,tent o! auditin# per!ored$
A$ *e &ell docuented and cross-re!erenced in t"e &orin# papers$
*$ .e!ine t"e standards easures or e,pectations used in evaluatin# audit !indin#s$
*$ *e based on re!erences t"at are considered reliable$
C$ Counicate t"e internal auditors evaluation o! t"e e!!ect o! t"e !indin#s on t"e activities revie&ed$
C$ *ear a direct relations"ip to t"e !indin# and include all o! t"e eleents o! a !indin#$
.$ State t"e !actual evidence t"at t"e auditor !ound in t"e course o! t"e e,aination$
.$ *e convincin# enou#" !or a prudent person to reac" t"e sae decision$ [186] Source: CIA 11> II-4 %"ic" o! t"e !ollo&in# is a proper eleent in an audit !indin#s section o! a report'
[18] Source: CIA 11>2 I-4 A copany aes a practice o! investin# e,cess s"ort-ter cas" in tradin# securities$ A reliable test o! t"e valuation o! t"ose securities &ould be anB
A$ Status o! !indin#s !ro prior reports$ *$ +ersonnel used$
A$ Coparison o! cost data &it" current aret 5uotations$
C$ Si#ni!icance o! de!iciencies$
*$ Con!iration o! securities "eld by t"e broer$
.$ ?n#a#eent plan$
C$ 9ecalculation o! investent carryin# value usin# t"e e5uity et"od$
[180] Source: CIA 6>2 I-44 %"ile per!orin# an operational audit o! t"e !irs production cycle an internal auditor discovers t"at in t"e absence o! speci!ic #uidelines soe en#ineers and buyers routinely accept vacation trips paid by certain o! t"e !irs vendors$ Ot"er en#ineers and buyers &ill not accept even a &orin# lunc" paid !or by a vendor$ %"ic" o! t"e !ollo&in# actions s"ould t"e internal auditor tae'
.$ Calculation o! preiu or discount aorti)ation$ [181] Source: CIA 11>2 I-10 3o test &"et"er debits to accounts receivable represent valid transactions t"e auditor s"ould copare ites in t"e A$ Sales journal &it" t"e accounts receivable led#er$
A$ one$ 3"e en#ineers and buyers are pro!essionals$ It is inappropriate !or an internal auditor to inter!ere in &"at is essentially a personal decision$
*$ Accounts receivable led#er &it" t"e cas" receipts journal$ C$ Accounts receivable led#er &it" sales docuentation$
*$ In!orally counsel t"e en#ineers and buyers &"o accept t"e vacation trips$ 3"is "elps prevent t"e possibility o! icbacs &"ile preservin# #ood auditor-auditee relations$
.$ Cas" receipts docuentation &it" t"e accounts receivable led#er$
C$ =orally recoend t"at t"e or#ani)ation establis" a corporate code o! et"ics$ Juidelines o! acceptable conduct &it"in &"ic" individual decisions ay be ade s"ould be provided$
[182] Source: CIA 6>1 I- An auditor "as set an audit objective o! deterinin# &"et"er ail roo sta!! is !ully used$ %"ic" o! t"e !ollo&in# audit tec"ni5ues &ill best eet t"is objective'
.$ Issue a !oral de!iciency report nain# t"e personnel &"o accept vacations but ae no recoendations$ Corrective action is t"e responsibility o! ana#eent$
A$ Inspection o! docuents$ *$ Observation$ C$ In5uiry$
[187] Source: CIA 6> I-7 An operational audit report t"at deals &it" t"e scrap disposal !unction in a anu!acturin# copany s"ould address
.$ Analytical revie&$
22
A$ 3"e e!!iciency and e!!ectiveness o! t"e scrap disposal !unction and include any !indin#s re5uirin# corrective action$
*$ 9eason !or t"e di!!erence bet&een t"e e,pected and actual conditions$ C$ 3"e ris or e,posure because o! t"e condition !ound$
*$ %"et"er t"e scrap aterial inventory is reported as a current asset$
.$ 9esultant evaluations o! t"e e!!ects o! t"e !indin#s$ C$ %"et"er t"e p"ysical inventory count o! t"e scrap aterial a#rees &it" t"e recorded aount$ [1>] Source: CIA 68> I-8 Accordin# to t"e Standards audit !indin#s are t"e result o!
.$ %"et"er t"e scrap aterial inventory is valued at t"e lo&er o! cost or aret$
A$ Coparin# &"at s"ould be &it" &"at is$ [188] Source: CIA 1187 I-41 3"e priary reason !or "avin# &ritten !oral internal audit reports is to
*$ .eterinin# t"e ipact on t"e or#ani)ation o! &"at s"ould be$
A$ +rovide an opportunity !or auditee response$
C$ Analy)in# di!!erences bet&een or#ani)ational and departental objectives$
*$ .irect senior ana#eent to corrective actions$
.$ 3"e internal auditors conclusions opinionsB$
C$ +rovide a !oral eans by &"ic" t"e e,ternal auditor assesses potential reliance on t"e internal audit departent$
[1>4] Source: CIA 6> II-7 An internal auditor "as just copleted an audit o! a division and is in t"e process o! preparin# t"e a udit report$ Accordin# to t"e Standards t"e !indin#s in t"e audit report s"ould include
.$ 9ecord !indin#s and r ecoended courses o! action$
A$ Stateents o! opinion about t"e cause o! a !indin#$ [18>] Source: CIA 687 II-44 3"e scope section o! an internal audit report s"ould identi!y
*$ +ertinent !actual stateents concernin# t"e control &eanesses uncovered durin# t"e course o! t"e audit$
A$ 3"e audit tec"ni5ues used$ *$ Any liitations iposed$
C$ Stateents o! bot" !act and opinion developed durin# t"e course o! t"e audit$
C$ 3"e saplin# et"odolo#y eployed$ .$ Stateents concernin# potential !uture events t"at ay be "elp!ul to t"e audited division$
.$ Any unresolved di!!erences &it" auditees$ [1>] Source: CIA 1188 I-4 An objective report is one t"at is described as
[1>6] Source: CIA 6> II-4 In be#innin# an audit an internal auditor revie&s &ritten procedures t"at detail se#re#ations o! responsibility adopted by ana#eent to stren#t"en internal controls$ 3"ese &ritten procedures s"ould be vie&ed as &"ic" attribute o! a !indin#'
A$ 3"rou#" content and tone desi#ned to "elp t"e auditee as &ell as t"e or#ani)ation$ *$ o#ical and easily understood$
A$ Criteria$ C$ 3o t"e point and !ree o! unnecessary detail$ *$ Condition$ .$ =actual unbiased and !ree !ro distortion$ C$ ?!!ect$ [1>1] Source: CIA 688 II-4 Audit report content and !orat ay varyD but accordin# to t"e standards &"ic" o! t"e !ollo&in# is a necessary eleent'
.$ Opinion$ [1>0] Source: CIA 688 II-46 3o en"ance counications &it" top ana#eent soe internal auditin# departents include a suary report &it" eac" &ritten audit report$ %"at in!oration s"ould be included in suc" a suary report'
A$ Stateent o! audit objectives$ *$ Status o! !indin#s !ro prior reports$ C$ 9elated activities not audited$
A$ 3"e sae in!oration as t"e &ritten report but in dia#ra !or$
.$ .ocuentation o! previous oral counications$ *$ (i#"li#"ts o! t"e audit results$ [1>2] Source: CIA 11>2 I-44 Internal audit reports s"ould contain t"e purpose scope and results$ 3"e audit results s"ould contain t"e criteria condition e!!ect and cause o! t"e !indin#$ 3"e cause can best be described as
C$ Internal auditin#s assessent o! t"e ade5uacy o! internal controls$ .$ Only t"at in!oration needed to resolve t"e disa#reeents bet&een t"e auditees and internal auditin#$
A$ =actual evidence t"at t"e internal auditor !ound$
23
[1>7] Source: CIA 1187 I-42 %"ic" o! t"e !ollo&in# situations is ost liely to be t"e subject o! a &ritten interi report to auditee ana#eent'
.$ 3"e advertisin# ana#er$ [22] Source: CIA 11> I-42 Suary &ritten audit reports are ordinarily intended !or
A$ 7M o! t"e planned audit &or "as been copleted &it" no si#ni!icant adverse !indin#s$
A$ ocal operatin# ana#eent$ *$ 3"e auditors "ave decided to substitute survey procedures !or soe o! t"e planned detailed revie& o! certain records$
*$ 9evie& by ot"er internal auditors only$ C$ (i#"-level ana#eent and;or t"e audit coittee$
C$ 3"e audit pro#ra "as been e,panded because o! indications o! possible !raud$
.$ Independent e,ternal auditors only$ .$ Open burnin# at a subsidiary plant is a possible violation o! pollution re#ulations$ [2] Source: CIA 6> I-8 An internal auditor "as uncovered ille#al acts coitted by a eber o! senior ana#eent$ Accordin# to t"e Standards suc" in!oration
[1>8] Source: CIA 6> II-6 Interi reports are issued durin# an audit to A$ ?,plain t"e purpose o! t"e audit$
A$ S"ould be e,cluded !ro t"e internal auditors report and discussed orally &it" t"e senior ana#er$
*$ ?liinate t"e need !or a !inal report$ *$ /ust be iediately reported to t"e appropriate local aut"orities$
C$ Counicate in!oration re5uirin# iediate attention$
C$ /ay be disclosed in a separate report and .$ .e!ine t"e scope o! t"e audit so t"e !inal report can be brie!$
distributed to all senior ana#eent$ .$ /ay be disclosed in a separate report and distributed to t"e copanys audit coittee o! t"e board o! directors$
[1>>] Source: CIA 687 I-44 %"ic" o! t"e ! ollo&in# is a possible disadvanta#e &"en t"e dra!t report is provided to local ana#eent !or revie& and coent'
[24] Source: CIA 6> II-> %"ic" o! t"e !ollo&in# &ould not be considered an objective o! t"e audit closin# or e,it con!erence'
A$ ocal ana#eent ay tae corrective action be!ore t"e !inal report is issued$ *$ ocal ana#eent &ill "ave an opportunity to rebut !indin#s and recoendations$
A$ 3o resolve con!licts$ *$ 3o discuss t"e !indin#s$
C$ Jenuine consideration !or t"e auditee &ill be deonstrated$
C$ 3o identi!y concerns !or !uture audits$
.$ .iscussion o! t"e report i#"t center unduly on &ords rat"er t"an on t"e substantive issues$
.$ 3o identi!y ana#eents actions and responses to t"e !indin#s$
[2] Source: CIA 1187 I-44 %"ic" o! t"e ! ollo&in# individuals &ould norally not receive an internal auditin# report related to a revie& o! t"e purc"asin# cycle'
[26] Source: CIA 11>4 II-17 Several levels o! ana#eent are interested in t"e results o! t"e aretin# departent audit$ %"at is t"e best et"od o! counicatin# t"e results o! t"e audit'
A$ 3"e director o! purc"asin#$ A$ %rite detailed reports !or eac" level o! ana#eent$
*$ 3"e independent e,ternal auditor$ C$ 3"e #eneral auditor$
*$ %rite a report to t"e aretin# ana#eent and #ive suary reports to o t"er ana#eent levels$
.$ 3"e c"air o! t"e board o! directors$ C$ .iscuss results &it" aretin# ana#eent and issue a suary report to top ana#eent$ [21] Source: CIA 68> II-41 3"e internal auditin# departent "as just copleted an audit report t"at outlines several de!iciencies !ound in t"e copanys product distribution c"annels$ %"ic" one o! t"e !ollo&in# persons s"ould receive a copy o! t"e audit report to ensure a,iu bene!its !or t"e copany'
.$ .iscuss results &it" all levels o! ana#eent$ [20] Source: CIA 687 I-4 %"en ana#eent a#rees &it" a !indin# and "as a#reed to tae corrective action t"e appropriate treatent is to
A$ 3"e aretin# director$ A$ 9eport t"at ana#eent "as a#reed to tae corrective action$
*$ 3"e sales representative$ C$ 3"e treasurer$
24
*$ Oit t"e !indin# and recoendation$
A$ A cell$
C$ 9eport t"at ana#eent "as already taen corrective action$
*$ A acro$ C$ A teplate$
.$ Include t"e !indin# and recoendation irrespective o! ana#eents a#reeent$
.$ A screen$
[27] Source: CIA 11>1 I-44 %"y s"ould or#ani)ations re5uire auditees to proptly reply and outline t"e corrective action t"at "as been ipleented on reported de!iciencies'
[212] Source: CIA 6>4 III-2> %"at is t"e best t"in# a icrocoputer user s"ould do i! a pro#ra taes lon#er t"an usual to load or e,ecute' A$ 3est t"e syste by runnin# a di!!erent application pro#ra$
A$ 3o reove ites !ro t"e pendin# list as soon as possible$
*$ 9eboot t"e syste$ *$ 3o e!!ect savin#s or to institute copliance as early as possible$
C$ 9un antivirus so!t&are$
C$ 3o indicate concurrence &it" t"e audit !indin#s$
.$ ?rase t"e pro#ra$
.$ 3o ensure t"at t"e audit sc"edule is ept up to date$
[21] Source: C/A 0>6 4-26 3"e ational Coittee on =raudulent =inancial 9eportin# 3read&ay CoissionB recoended t"at
[28] Source: CIA 11>2 II-46 %"ic" o! t"e ! ollo&in# individuals &ould norally not receive an internal auditin# report related to a revie& o! t"e purc"asin# cycle'
A$ All public copanies "ave an audit coittee ade up o! ebers o! top ana#eent to assist t"e internal auditor in identi!yin# potential areas o! e,ternal auditor concern$
A$ 3"e director o! purc"asin#$ *$ Internal auditors per!or any o! t"e !unctions o! t"e e,ternal auditor in order to inii)e audit !ees &"ile increasin# t"e e!!ectiveness o! audits$
*$ 3"e independent e,ternal auditor$ C$ 3"e #eneral auditor$
C$ Internal audit departents en#a#e in activities t"at en"ance t"e objectivity o! t"eir !unction &it" t"e assistance o! ana#eent and t"e audit coittee$
.$ 3"e c"air o! t"e board o! directors$ [2>] Source: CIA 6>4 III-> %"ic" o! t"e ! ollo&in# icrocoputer applications &ould be least "elp!ul in preparin# audit &orpapers'
.$ +rivately-"eld copanies "ave an internal audit sta!! &it" an ade5uate nuber o! 5uali!ied personnel appropriate !or t"e si)e o! t"e copany$
A$ Spreads"eet so!t&are$ [214] Source: C/A 0>6 4-20 In relation to non!inancial internal audits t"e 3read&ay Coission recoended
*$ %ord processin# so!t&are$ C$
A$ 3"at internal auditors not be involved in any non!inancial audits because t"eir !indin#s in !inancial audits i#"t be biased$
.$ .atabase so!t&are$ [21] Source: CIA 6>4 III-1 Jenerali)ed Audit So!t&are JASB is desi#ned to allo& auditors to
*$ 3"e !ull involveent o! internal auditors to #ive t"e #reater no&led#e o! t"e copany and a ore in!ored perspective$
A$ /onitor t"e e,ecution o! application pro#ras$
C$ 3"at t"e public accountant revie& copletely t"e &or per!ored by internal auditors$
*$ +rocess test data a#ainst aster !iles t"at contain real and !ictitious entities$
.$ 3"at t"e public accountants revie& t"e non!inancial audits prepared by internal auditors and include t"e internal auditors !indin#s in t"eir reports$
C$ Select saple data !ro !iles and c"ec coputations$ .$ Insert special audit routines into re#ular application pro#ras$
[216] Source: C/A 082 -17 =ro a odern internal auditin# perspective &"ic" one o! t"e !ollo&in# stateents represents t"e ost iportant bene!it o! an internal audit departent to ana#eent'
[211] Source: CIA 6>4 III-2 3"e internal audit departent desi#ned a trans!erable spreads"eet !ile to assess a particular type o! process t"at occurs at several #eo#rap"ic locations$ %"ic" o! t"e !ollo&in# ters describes t"is !ile &"ic" "as no speci!ic data but contains colun "eadin#s !orulas and !orattin# instructions'
A$ Assurance t"at publis"ed !inancial stateents are correct$ *$ Assurance t"at !raudulent activities &ill be detected$ C$ Assurance t"at t"e or#ani)ation is coplyin# &it"
25
le#al re5uireents$ *$ Copare reittance advices and duplicate deposit slips to postin#s in t"e cas" receipts journal and t"e accounts receivable subsidiary led#er cards$
.$ Assurance t"at t"ere is reasonable control over day-to-day operations$
C$ +repare a proo! o! cas"$ [210] Source: C/A 084 -1 3"e priary objective o! internal auditin# is to
.$ Control all cas" receipts !or a business day on an unannounced basis$
A$ ocate errors and !raud$ *$ Attest to t"e !airness o! !inancial stateents$
[221] Source: C/A 087 -16 Operational audits are desi#ned to
C$ Assist ebers o! t"e or#ani)ation in t"e e!!ective disc"ar#e o! t"eir responsibilities$
A$ +roduce an opinion on t"e !airness o! t"e !irs !inancial stateents$
.$ +rovide audit assistance and #uidance to t"e e,ternal accountant$
*$ +roduce an opinion on t"e accuracy o! a !irs !inancial accountin# syste$
[217] Source: CIA 11>2 I-2 3o identi!y s"orta#es o! speci!ic ites in an inventory o! e,pensive #oods "eld !or retail sale t"e ost appropriate audit &or step is to
C$ +roduce recoendations !or iprovin# t"e accuracy o! a !irs !inancial accountin# syste$ .$ 9evie& per!orance o! an or#ani)ation or soe portion o! an or#ani)ation e$#$ departent !unction etc$B usin# soe pre-establis"ed standard as t"e priary evaluation criterion$
A$ Apply t"e retail et"od o! inventory valuation$ *$ Copare p"ysical inventory counts &it" perpetual records$
[222] Source: C/A 087 -17 %"ic" one o! t"e !ollo&in# ites is included in an operational audit but is not re5uired in a !inancial audit conducted by an e,ternal auditor'
C$ .evelop inventory estiates based on t"e #ross pro!it percenta#e et"od$ .$ Analy)e current and previous inventory turnover rates$
A$ +lannin# and control over t"e &or done by an audit tea$
[218] Source: C/A 084 - %"ile assistin# t"e e,ternal auditor in t"e per!orance o! substantive tests or tests o! controls t"e internal auditor s"ould
*$ Supervision o! t"e audit teas activities and output$ C$ =act-!indin# analysis and docuentation$
A$ ?stablis" liits o! ateriality t"at are belo& t"e usual liits set by t"e e,ternal auditor$
.$ 9ecoendations !or iproveent$
*$ ?stablis" liits o! ateriality t"at are above t"e usual liits set by t"e e,ternal auditor$
[22] Source: C/A 087 -10 An e,aple o! t"e subject o! an operational audit &ould be
C$ *e supervised by t"e e,ternal auditor$
A$ 3"e incoe ta, return in!oration o! a anu!acturer$
.$ *e independent o! t"e e,ternal auditor$ *$ 3"e per!orance statistics on t"e delivery o! a citys services$ [21>] Source: C/A 080 -1> .urin# an audit o! a copanys !inancial stateents by an e,ternal auditor t"e audit procedure t"at is ost liely to be per!ored by a eber o! t"e copanys internal audit sta!! under t"e supervision o! t"e e,ternal auditor is t"e deterination o! t"e
C$ 3"e veri!ication o! t"e dollar aount o! royalties due to t"e developer o! a anu!acturin# process !ro t"e user o! t"at process$ .$ 3"e 6-year revenue and e,penses !orecast by an entrepreneur seein# to raise venture capital !or "is prospective operation$
A$ e#itiacy o! con!iration e,ceptions received durin# accounts receivable con!iration$ *$ Saple si)e !or t"e con!iration o! accounts receivable$
[224] Source: C/A 087 -18 In conductin# an operational audit &"ic" one o! t"e !ollo&in# activities &ould not be e,pected o! t"e internal auditor'
C$ ?!!ect o! &eanesses in t"e credit sales syste$ .$ ?,tent o! procedures used to test t"e validity o! accounts receivable$
A$ /ae an objective observation and copre"ensive analysis o! speci!ic activities$ *$ Observe per!orance o! personnel$
[22] Source: C/A 1286 -1 I! an internal auditor suspects t"at a booeeper !or a sall plant &as en#a#in# in lappin# t"e internal auditor s"ould
C$ Assess per!orance as copared &it" establis"ed policies$
A$ +repare a sc"edule o! interban trans!ers$
.$ +er!or t"e operational activity o! t"e line
26
personnel$
C$ Coparison &it" bud#ets and !orecasts$ .$ 9atio analyses$
[226] Source: C/A 087 -1> In operational audits &"en !raud is not an issue t"e results o! t"e operational audit are ideally e,posed initially to
[2] Source: CIA 6> I-4 3"e internal auditin# departent !or a c"ain o! retail stores recently concluded an audit o! sales adjustents in all stores in t"e sout"east re#ion$ 3"e audit revealed t"at several stores are costin# t"e copany an estiated 86 per 5uarter in duplicate credits to custoers c"ar#e accounts$ 3"e audit report publis"ed 8 &ees a!ter t"e audit &as concluded included t"e internal auditors recoendations to store ana#eent t"at s"ould prevent duplicate credits to custoers accounts$ %"ic" o! t"e !ollo&in# standards !or reportin# "as been disre#arded in t"e above case'
A$ 3"e ana#er in c"ar#e o! t"e subject departent or !unction$ *$ 3"e supervisor o! t"e ana#er in c"ar#e o! t"e subject departent or !unction$ C$ 3"e c"ie! e,ecutive o!!icer o! t"e corporation$ .$ 3"e divisional controller or corporate controller o! t"e subject departent or !unction$
A$ 3"e !ollo&-up actions &ere not ade5uate$ [220] Source: C/A 082 -18 3"e internal auditor s"ould !ollo& up to ascertain t"at appropriate action is taen on d e!iciency !indin#s$ 3o accoplis" t"is t"e internal auditor s"ould
*$ 3"e auditors s"ould "ave ipleented appropriate corrective action as soon as t"e duplicate credits &ere discovered$
A$ %or closely &it" t"e e,ternal auditor$
C$ Auditor recoendations s"ould not be included in t"e report$
*$ *e #uided by t"e &is"es o! t"e audit coittee$
.$ 3"e report &as not tiely$
C$ iit internal audit ! ollo&-up to receivin# &ritten con!iration !ro t"e auditee t"at appropriate corrective action "as been taen$
[21] Source: CIA 68> II-2 Accordin# to t"e Stateent o! 9esponsibilities t"e aut"ority o! t"e internal auditin# departent is liited to t"at #ranted by
.$ /ae any !ield tests needed to provide assurance t"at t"e condition "as been corrected$
A$ 3"e board o! directors and t"e controller$ [227] Source: C/A 0>0 4-28 In conductin# internal audits secondary evidence is used to support priary evidence$ Secondary evidence ay include a copy o! &ritten evidence or oral evidence$ % "ic" one o! t"e !ollo&in# is t"e &eaest !or o! supportive evidence'
*$ Senior ana#eent and t"e Standards$ C$ /ana#eent and t"e board o! directors$ .$ 3"e audit coittee and t"e c"ie! !inancial o!!icer$
A$ .irect evidence$
[22] Source: CIA 6>4 II-16 Intervie&in# tec"ni5ues are used !re5uently by internal auditors$ %"en considerin# t"e potential use o! intervie&in# tec"ni5ues to #at"er audit evidence auditors s"ould be a&are t"at intervie&s
*$ Circustantial evidence$ C$ Corroborative evidence$ .$ Conclusive evidence$
A$ Are ore objective t"an 5uestionnaires in #at"erin# data$
[228] Source: C/A 0>0 4-2> In assessin# relative riss internal auditors s"ould be least concerned &it"
*$ +rovide a systeatic !orat to ensure audit covera#e$ C$ S"ould be corroborated by #at"erin# objective data$
A$ 9eliability and inte#rity o! in!oration$ *$ Copliance &it" internal and e,ternal rules and re#ulations$
.$ Are best suited to reac"in# audit conclusions$
C$ Statistical saplin# tec"ni5ues$
[2] Source: CIA 6>4 II-6 An internal auditor is conductin# intervie&s o! t"ree eployees &"o "ad access to a valuable asset t"at "as disappeared$ In conductin# t"e intervie&s t"e internal auditor s"ould:
.$ Sa!e#uardin# o! assets$ [22>] Source: C/A 0>0 4- 3o deterine t"e reasonableness o! !inancial data auditors use analytical revie&s$ %"ic" one o! t"e !ollo&in# is least liely to be considered an analytical reasonableness revie&'
A$ 9espond to noncooperation by t"reatenin# adverse conse5uences o! suc" be"avior$ *$ Conduct t"e intervie&s in a #roup$
A$ 3rend analysis$
C$ ot indicate t"at ana#eent &ill !or#o prosecution i! restitution is ade$
*$ +"ysical inventories$ .$ Allo& a suspect to return to &or a!ter t"e
27
intervie& so as not to arouse suspicions$ [2>] Source: CIA 6>4 II-14 %"ic" o! t"e !ollo&in# is true about intervie&in# an individual durin# t"e investi#ation o! suspected !raud'
[24] Source: CIA 6>2 I-28 A standardi)ed internal audit pro#ra is not appropriate !or &"ic" situation'
A$ 3"e internal auditors role involves collectin# !acts$ A$ A stable operatin# environent under#oin# only inial c"an#es$
*$ Internal auditors s"ould be epo&ered to con!ine !raud suspects to t"e o!!ice but only !or t"e purpose o! intervie&in# t"e$
*$ A cople, or c"an#in# operatin# environent$ C$ /ultiple locations &it" siilar operations$
C$ 3"e internal auditors role involves atteptin# to obtain con!essions o! #uilt$
.$ Subse5uent inventory audits per!ored at t"e sae location$
.$ Internal auditors are aut"ori)ed to &aive punis"ent o! t"e eployee i! t"e eployee restores t"e itesB stolen$
[26] Source: CIA 6>2 II-18 Audit pro#ras testin# internal controls s"ould [24] Source: CIA 6>6 I-0 It "as been establis"ed t"at an internal auditin# c"arter is one o! t"e ore iportant !actors positively a!!ectin# t"e internal auditin# departents independence$ 3"e Standards "elp clari!y t"e nature o! t"e c"arter by providin# #uidelines as to t"e contents o! t"e c"arter$ %"ic" o! t"e !ollo&in# is not su##ested in t"e Standards as part o! t"e c"arter'
A$ *e tailored !or t"e audit o! eac" operation$ *$ *e #enerali)ed to !it all situations &it"out re#ard to departental lines$ C$ *e #enerali)ed so as to be usable at all locations o! a particular departent$
A$ 3"e departents access to records &it"in t"e or#ani)ation$
.$ 9educe costly duplication o! e!!ort by ensurin# t"at every aspect o! an operation is e,ained$
*$ 3"e scope o! internal auditin# activities$ [20] Source: CIA 11>2 I-21 An internal auditor "as just copleted an on-site survey to becoe !ailiar &it" t"e copanys payroll operations$ %"ic" o! t"e !ollo&in# s"ould be per!ored ne,t'
C$ 3"e len#t" o! tenure !or t"e internal auditin# director$ .$ 3"e departents access to personnel &it"in t"e or#ani)ation$
A$ Assi#n audit personnel$ *$ ?stablis" initial audit objectives$
[241] Source: CIA 11>6 I-4 3"e auditor "as planned an audit o! t"e e!!ectiveness o! t"e 5uality assurance !unction as it a!!ects t"e receivin# o! #oods t"e trans!er o! t"e #oods into production and t"e scrap costs related to de!ective ites$ 3"e auditee ar#ues t"at suc" an audit is not &it"in t"e scope o! t"e internal auditin# !unction and s"ould coe under t"e purvie& o! t"e 5uality assurance departent only$ %"at &ould be t"e ost appropriate audit response'
C$ %rite t"e audit pro#ra$ .$ Conduct !ield &or$ [27] Source: CIA 1184 I-14 3"e priary di!!erence bet&een operational auditin# and !inancial auditin# is t"at in operational auditin#
A$ 9e!er to t"e audit departent c"arter and t"e approved audit plan t"at includes t"e area desi#nated !or audit in t"e current tie period$
A$ 3"e auditor is not concerned &it" &"et"er t"e audited activity is #eneratin# in!oration in copliance &it" !inancial accountin# standards$
*$ *ecause 5uality assurance is a ne& !unction see t"e approval o! ana#eent as a ediator to set t"e scope o! t"e audit$
*$ 3"e auditor is seein# to "elp ana#eent use resources in t"e ost e!!ective anner possible$ C$ 3"e auditor starts &it" t"e !inancial stateents o! an activity bein# audited and &ors bac&ard to t"e basic processes involved in producin# t"e$
C$ Indicate t"at t"e audit &ill e,aine t"e !unction only in accordance &it" t"e standards set by and approved by t"e 5uality assurance !unction be!ore be#innin# t"e audit$
.$ 3"e auditor can use analytical sills and tools t"at are not necessary in !inancial auditin#$
.$ 3erinate t"e audit because an operational audit &ill not be productive &it"out t"e auditees cooperation$
[28] Source: CIA 11>0 II-14 %"ic" o! t"e !ollo&in# is not a ajor purpose o! an audit report'
[242] Source: CIA 11>6 I-47 /ana#eent "as re5uested t"e internal auditin# departent to per!or an operational audit o! t"e telep"one aretin# operations o! a ajor division and to recoend procedures and policies !or iprovin# ana#eent control over t"e operation$ 3"e auditor s"ould
A$ In!or$ *$ Jet results$ C$ Assi#n responsibility$
A$ ot accept t"e en#a#eent because recoendin# controls &ould ipair !uture
.$ +ersuade$
28
objectivity o! t"e departent re#ardin# t"is auditee$ *$ e#islated internal auditin# re5uireents in Country P$
*$ ot accept t"e en#a#eent because audit departents are presued to "ave e,pertise on accountin# controls not aretin# controls$
C$ 3"e !act t"at t"e director &ill report to t"e audit coittee o! t"e board o! directors$
C$ Accept t"e en#a#eent but indicate to ana#eent t"at recoendin# controls &ould ipair audit independence so ana#eent no&s t"at !uture audits o! t"e area &ould be ipaired$
.$ 3"e !act t"at t"e director is to be a Certi!ied Internal Auditor$
.$ Accept t"e audit en#a#eent because independence &ould not be ipaired$
[240] Source: CIA 11>0 I-20 Audit coittees "ave been identi!ied as a ajor !actor in prootin# bot" t"e internal and e,ternal auditors independence$ %"ic" o! t"e !ollo&in# is t"e ost iportant liitation on t"e e!!ectiveness o! audit coittees'
[24] Source: CIA 11>6 I-46 In considerin# t"e internal auditin# departents independence &"ic" o! t"e !ollo&in# !acts by t"eselves could contribute to a lac o! internal audit independence'
A$ Audit coittees ay be coposed o! independent directors$ (o&ever t"ose directors ay "ave close personal and pro!essional !riends"ips &it" ana#eent$
I$ 3"e C?O accused t"e ne& director o! not operatin# Gin t"e best interests o! t"e or#ani)ation$G II$ 3"e ajority o! audit coittee ebers coe !ro &it"in t"e or#ani)ation$ III$ 3"e internal audit c"arter "as not been approved by t"e board or t"e audit coittee$ A$ I only$
*$ Audit coittee ebers are copensated by t"e or#ani)ation and t"us !avor a s"are"olders vie&$ C$ Audit coittees devote ost o! t"eir e!!orts to e,ternal audit concerns and do not pay uc" attention to internal auditin# and t"e overall control environent$ .$ Audit coittee ebers do not norally "ave de#rees in t"e accountin# or auditin# !ields$
*$ II only$ C$ II and III only$
[247] Source: CIA 11> II-2 Audit in!oration is usually considered relevant &"en it is
.$ I II III$
A$ .erived t"rou#" valid statistical saplin#$ [244] Source: CIA 11>4 I-01 An internal auditor reports directly to t"e board o! directors$ 3"e auditor discovered a aterial cas" s"orta#e$ %"en 5uestioned t"e person responsible e,plained t"at t"e cas" &as used to cover si)able edical e,penses !or a c"ild and a#reed to replace t"e !unds$ *ecause o! t"e corrective action t"e internal auditor did not in!or ana#eent$ In t"is instance t"e auditor
*$ Objective and unbiased$ C$ =actual ade5uate and convincin#$ .$ Consistent &it" t"e audit objectives$ [248] Source: CIA 11>1 II-18 %"at standard o! evidence is satis!ied by an ori#inal si#ned docuent'
A$ (as or#ani)ational independence but not objectivity$ *$ (as bot" or#ani)ational independence and objectivity$
A$ Su!!iciency$ *$ Copetence$
C$ .oes not "ave or#ani)ational independence but "as objectivity$
C$ 9elevance$
.$ .oes not "ave eit"er or#ani)ational independence or objectivity$
.$
[246] Source: CIA 11>4 I-60 A ediu-si)ed publicly o&ned corporation operatin# in Country P "as #ro&n to a si)e &"ic" t"e directors o! t"e corporation believe &arrants t"e establis"ent o! an internal auditin# departent$ Country P "as le#islated internal auditin# re5uireents !or #overnent-o&ned copanies$ 3"e copany c"an#ed t"e corporate by-la&s to re!lect t"e establis"ent o! t"e internal auditin# departent$ 3"e directors decided t"at t"e director o! internal auditin# ust be a Certi!ied Internal Auditor and &ill report directly to t"e ne&ly establis"ed audit coittee o! t"e board o! directors$ %"ic" o! t"e ites discussed above &ill contribute t"e ost to t"e ne& audit directors independence'
[24>] Source: CIA 11>4 I-16 9e!ers to =act +attern LB 3"e or#ani)ation is re5uired to coply &it" certain speci!ic standards related to environental issues$ One o! t"ese standards re5uires t"at certain "a)ardous c"eicals be
A$ 3"e establis"ent o! t"e internal auditin# departent is docuented in corporate by-la&s$
29
placed in certi!ied containers !or s"ipent to a !ederal disposal site$ 3"e container ust bear an inspection seal si#ned &it"in t"e last > days by a !ederal inspector$ *ased on t"e !ollo&in# tests t"e auditor concluded t"at t"e copany &as in copliance !or t"e audit period:
C$ +reliinary survey$ .$ Audit pro#ra$
1$ .eterine !ro eac" c"eical loadin# supervisor t"at copliance re5uireents are understood$ 2$ Inspect sealed containers !or evidence o! leaa#e$ $ As c"eical loadin# personnel about procedures per!ored$ Identi!y &"ic" o! t"e !ollo&in# evidential criteria are violated$
[26] Source: CIA 6>4 I-27 Assue your copany is considerin# purc"asin# a sall to,ic &aste disposal copany$ As internal auditors you are part o! t"e tea doin# a due dili#ence revie& !or t"e ac5uisition$ Kour scope as auditorsB &ould ost liely not include: A$ An evaluation o! t"e erit o! la&suits currently !iled a#ainst t"e &aste copany$
A$ Su!!iciency$ *$ A revie& o! t"e purc"ased copanys procedures !or acceptance o! &aste aterial and coparison &it" le#al re5uireents$
*$ Copetency$ C$ 9elevance$
C$ Analysis o! t"e copanys copliance &it" and disclosure o! loan covenants$
.$ o criteria are violated$
.$ Assessent o! t"e e!!iciency o! t"e &aste copanys operations and pro!itability$
[26] Source: CIA 11>4 I-10 9e!ers to =act +attern LB .urin# t"e plannin# sta#e o! an audit t"e auditor ade an on-site observation o! t"e ve"icle aintenance departent and included t"e !ollo&in# stateent in a eorandu suary o! t"e results:
[264] Source: CIA 6>6 I-62 Internal auditors are o!ten called upon to eit"er per!or or assist t"e e,ternal auditor in per!orin# a due dili#ence revie&$ A due dili#ence revie& is
G%e noted t"at several aintenance #ara#es &ere deterioratin# badly$ =encin# around t"e property &as in need o! repair$G
A$ A revie& o! interi !inancial stateents as directed by an under&ritin# !ir$
Identi!y &"ic" o! t"e !ollo&in# evidential criteria are violated$
*$ An operational audit o! a division o! a copany to deterine i! divisional ana#eent is coplyin# &it" la&s and re#ulations$
A$ Su!!iciency$ C$ A revie& o! operations as re5uested by t"e audit coittee to deterine &"et"er t"e operations coply &it" audit coittee and or#ani)ational policies$
*$ Copetency$ C$ 9elevance$ .$ o criteria are violated$
.$ A revie& o! !inancial stateents and related disclosures in conjunction &it" a potential ac5uisition$
[261] Source: CIA 11>4 I-1> 9e!ers to =act +attern LB In an audit o! t"e e!!ectiveness and validity o! a subsidiarys aretin# e,penditures t"e auditors e vidence consists o!
[266] Source: CIA 68> I-1 3"e objectives o! a !unctional audit could involve evaluatin# t"e copanys
1$ Analytical coparisons o! advertisin# e,penditures and c"an#es in s"oppin# patterns and ite sales 2$ .irect observation o! various advertisin# edia used $ 9evie& o! aretin# survey o! #eneral public reaction to t"e aretin# plan Identi!y &"ic" o! t"e !ollo&in# evidential criteria are violated$
A$ ?ployee educational bene!its pro#ra$ *$ +ersonnel departent$ C$ /anu!acturin# operations$ .$ Construction contracts$ [260] Source: CIA 6> I-6 %"en conductin# !raud investi#ations internal auditin# s"ould
A$ Su!!iciency$ *$ Copetency$
A$ Clearly indicate t"e e,tent o! internal auditin#s no&led#e o! t"e !raud &"en 5uestionin# suspects$
C$ 9elevance$ .$ o criteria are violated$
*$ Assi#n personnel to t"e investi#ation in accordance &it" t"e audit sc"edule establis"ed at t"e be#innin# o! t"e !iscal year$
[262] Source: CIA 11>2 II-22 3"e scope o! an internal audit is initially de!ined by t"e A$ Audit objectives$
C$ +er!or its investi#ation independent o! la&yers security personnel and specialists !ro outside t"e or#ani)ation &"o are involved in t"e investi#ation$
*$ Sc"edulin# and tie estiates$
.$ Assess t"e probable level o! and t"e e,tent o!
30
coplicity in t"e !raud &it"in t"e or#ani)ation$
3"e audit &as per!ored to accoplis" several objectives: ｷ Feri!y t"e e,istence o! unused ac"inery bein# stored in t"e &are"ouse$ ｷ .eterine &"et"er ac"inery "ad been daa#ed durin# stora#e$ ｷ 9evie& t"e "andlin# procedures bein# per!ored by personnel at t"e &are"ouse$ ｷ .eterine &"et"er proper accountin# procedures are bein# !ollo&ed !or ac"inery ept in t"e &are"ouse$ ｷ Calculate t"e current !air aret value o! &are"ouse inventories$ ｷ Copare t"e total value o! t"e ac"inery to copany accountin# records$ It &as con!ired t"at o! t"e ac"ines selected !ro purc"asin# records !or t"e saple 1 &ere present on t"e &are"ouse !loor and anot"er !ive &ere on t"e loadin# doc ready !or conveyance to t"e production !acility$ 3&elve ot"ers "ad already been sent to t"e production !acility at a previous tie$ An e,aination o! t"e accountin# procedures used at t"e &are"ouse revealed t"e !ailure by t"e &are"ouse accountin# cler to reconcile inventory records ont"ly as re5uired by policy$ A saple o! 26 ac"ines &as e,ained !or possible daa#e and all but one &as in #ood condition$ It &as con!ired by t"e auditors t"at "andlin# procedures outlined in t"e &are"ouse policy anual appear to be ade5uate and &are"ouse personnel apparently &ere !ollo&in# t"ose procedures e,cept !or t"e e,aination o! ites bein# received !or inventory$
[267] Source: CIA 11>2 II-4> Internal auditin# is responsible !or reportin# !raud to senior ana#eent or t"e board &"en A$ 3"e incidence o! !raud o! a aterial aount "as been establis"ed to a reasonable certainty$ *$ Suspicious activities "ave been reported to internal auditin#$ C$ Irre#ular transactions "ave been identi!ied and are under investi#ation$ .$ 3"e revie& o! all suspected !raud-related transactions is coplete$ [268] Source: CIA 6> II-46 %"ic" o! t"e !ollo&in# policies is ost liely to result in an environent conducive to t"e occurrence o! !raud' A$ *ud#et preparation input by t"e eployees &"o are responsible !or eetin# t"e bud#et$ *$
[201] Source: CIA 11>0 II-10 9e!ers to =act +attern L4B %"en an auditor is counicatin# &it" auditees bot" situational !actors and essa#e c"aracteristics can daa#e t"e counication process$ An auditor "as only liited control over situational !actors but "as substantial control over essa#e c"aracteristics$ %"ic" o! t"e !ollo&in# &ould see to be a essa#e c"aracteristic t"at t"e auditor &"o prepared t"e above report overlooed'
[26>] Source: CIA 6>4 I-12 %"en coparin# perpetrators &"o "ave ebe))led copany !unds to perpetrators o! !inancial stateent !raud !alsi!ied !inancial stateentsB t"ose &"o "ave !alsi!ied !inancial stateents &ould be less liely to: A$ (ave e,perienced an autocratic ana#eent style$
A$ Se5uence o! essa#e$ *$ ature o! t"e audience$
*$ *e livin# beyond t"eir obvious eans o! support$ C$ oise$ C$ 9ationali)e t"e !raudulent be"avior$ .$ +rior encounters &it" t"e auditee$ .$
0 II-17 9e!ers to =act +attern L4B 3"e objectives o! an audit report are to in!or and to in!luence$ %"et"er t"ese objectives are et depends on t"e clarity o! t"e &ritin#$ %"ic" o! t"e !ollo&in# principles o! report clarity &as violated in t"e above audit report'
[20] Source: CIA 6> I-4> An internal auditor "as detected probable eployee !raud and is preparin# a preliinary report !or ana#eent$ 3"is report s"ould include A$ A stateent t"at an internal audit conducted &it" due pro!essional care cannot provide absolute assurance t"at irre#ularities "ave not occurred$
A$ Appropriately or#ani)e t"e report$
*$ 3"e auditors conclusion as to &"et"er su!!icient in!oration e,ists to conduct an investi#ation$
C$
*$ @eep ost sentences s"ort and siple$
.$ All o! t"e ans&ers are correct$ C$ 3"e results o! a poly#rap" test adinistered to t"e suspected perpetratorsB o! t"e !raud$ [20] Source: CIA 11>0 II-18 9e!ers to =act +attern L4B 3"e !ollo&in# eleents are usually included in !inal audit reports: purpose scope results conclusions and recoendations$ %"ic" o! t"e !ollo&in# describes all o! t"e eleents issin# !ro t"e above report'
.$ A list o! proposed audit tests to "elp disclose t"e e,istence o! siilar !rauds in t"e !uture$ [=act +attern L4] An auditor "as subitted a !irst dra!t o! an audit report to an auditee in preparation !or an e,it intervie&$ 3"e !ollo&in# is an e,cerpt !ro t"at report:
A$ Scope conclusion recoendation$ *$ +urpose result recoendation$
31
to aintain t"e "i#"est standards o! et"ical conduct$ Accordin#ly t"e I/A Code o! ?t"ics e,plicitly re5uires t"at t"ey
C$ 9esult conclusion recoendation$ .$ +urpose scope recoendation$
A$ Obtain su!!icient copetent evidence &"en e,pressin# an opinion$ [204] Source: +ublis"er I! a !inancial ana#er;ana#eent accountant "as a proble in identi!yin# unet"ical be"avior or resolvin# an et"ical con!lict t"e !irst action sB"e s"ould norally tae is to
*$ ot condone violations by ot"ers$ C$ Coply &it" #enerally accepted auditin# standards$
A$ Consult t"e board o! directors$
.$ Ad"ere to #enerally accepted accountin# principles$
*$ .iscuss t"e proble &it" "is;"er iediate superior$ [20>] Source: +ublis"er A !inancial ana#er;ana#eent accountant discovers a proble t"at could islead users o! t"e !irs !inancial data and "as in!ored "is;"er iediate superior$ SB"e s"ould report t"e circustances to t"e audit coittee and;or t"e board o! directors only i!
C$ oti!y t"e appropriate la& en!orceent a#ency$ .$ 9esi#n !ro t"e copany$ [206] Source: +ublis"er S"eila is a !inancial ana#er &"o "as discovered t"at "er copany is violatin# environental re#ulations$ I! "er iediate superior is involved "er appropriate action is to
A$ 3"e iediate superior &"o reports to t"e c"ie! e,ecutive o!!icer no&s about t"e situation but re!uses to correct it$
A$ .o not"in# since s"e "as a duty o! loyalty to t"e or#ani)ation$
*$ 3"e iediate superior assures t"e !inancial ana#er;ana#eent accountant t"at t"e proble &ill be resolved$
*$ Consult t"e audit coittee$ C$ 3"e iediate superior reports t"e situation to "is;"er superior$
C$ +resent t"e atter to t"e ne,t "i#"er ana#erial level$
.$ 3"e iediate superior t"e !irs c"ie! e,ecutive o!!icer no&s about t"e situation but re!uses to correct it$
.$ Con!ront "er iediate superior$ [200] Source: +ublis"er I! a !inancial ana#er;ana#eent accountant discovers unet"ical conduct in "is;"er or#ani)ation and !ails to act sB"e &ill be in violation o! &"ic" et"ical standardsB'
[27] Source: +ublis"er %"ic" et"ical standard is ost clearly violated i! a !inancial ana#er;ana#eent accountant no&s o! a proble t"at could islead users but does not"in# about it'
A$ GActively or passively subvert t"e attainent o! t"e or#ani)ations le#itiate and et"ical objectives$G
A$ Copetence$
*$ GCounicate un!avorable as &ell as !avorable in!oration$G
*$ e#ality$ C$ Objectivity$
C$ GCondone t"e coission o! suc" acts by ot"ers &it"in t"eir or#ani)ations$G
.$ Con!identiality$
.$ All o! t"e ans&ers are correct$ [271] Source: +ublis"er 3"e I/A Code o! ?t"ics includes an inte#rity standard &"ic" re5uires t"e !inancial ana#er;ana#eent accountant to
[207] Source: +ublis"er 3"e I/A Code o! ?t"ics re5uires a !inancial ana#er;ana#eent accountant to !ollo& t"e establis"ed policies o! t"e or#ani)ation &"en !aced &it" an et"ical con!lict$ I! t"ese policies do not resolve t"e con!lict t"e !inancial ana#er;ana#eent accountant s"ould
A$ Identi!y and ae no&n anyt"in# t"at ay "inder "is;"er jud#ent or prevent satis!actory copletion o! any duties$
A$ Consult t"e board o! directors iediately$
*$ 9eport any relevant in!oration t"at could in!luence users o! !inancial stateents$
*$ .iscuss t"e proble &it" t"e iediate superior i! sB"e is involved in t"e con!lict$
C$ .isclose con!idential in!oration &"en aut"ori)ed by "is;"er !ir or re5uired under t"e la&$
C$ Counicate t"e proble to aut"orities outside t"e or#ani)ation$
.$ 9e!use #i!ts !ro anyone$
.$ Contact t"e ne,t "i#"er ana#erial level i! initial presentation to t"e iediate superior does not resolve t"e con!lict$
[272] Source: +ublis"er 3"e I/A Code o! ?t"ics includes a copetence standard &"ic" re5uires t"e !inancial ana#er;ana#eent accountant to
[208] Source: +ublis"er =inancial ana#ers;ana#eent accountants are obli#ated
A$ 9eport in!oration &"et"er !avorable or
32
un!avorable$ *$ .evelop "is;"er pro!essional pro!iciency on a continual basis$ C$ .iscuss et"ical con!licts and possible courses o! action &it" an unbiased counselor$ .$ .iscuss &it" subordinates t"eir responsibilities re#ardin# t"e disclosure o! in!oration about t"e !ir$
33
ana#eent decision-ain# processes
PART 1C Management Controls ANSWERS
A< 1>B$ +roduction controls suc" as 5uality control reports ay !all in t"e latter cate#ory$ [4] Source: CIA 680 II-17
[1] Source: CIA 1188 II-24
Ans&er AB is incorrect because obsolete aterials s"ould be carried at net reali)able value$
Ans&er AB is incorrect because "irin# eployees and aut"ori)in# c"an#es to pay rates are bot" personnel !unctions$
Ans&er *B is incorrect because costs o! sortin# etc$ ay be #reater t"an disposal value$
Ans&er *B is incorrect because preparin# t"e payroll and !ilin# payroll ta, !ors are bot" !unctions o! t"e payroll departent$
Ans&er CB is correct$ Since auditors storeeepers etc$ ay not "ave t"e re5uisite e,pertise to deterine &"et"er aterials are usable t"at decision ust o!ten be ade by a desi#nated independent aut"ority$ 3o provide e!!ective control o! aterials t"is deterination asset custody and aut"ori)ation !or disposal are !unctions t"at s"ould be se#re#ated$
Ans&er CB is incorrect because proper treasury !unctions include si#nin# and d istributin# payroll c"ecs$ Ans&er .B is correct$ Attendance data are accuulated by t"e tieeepin# !unction$ +reparin# t"e payroll is a payroll departent !unction$ =or control purposes t"ese t&o !unctions s"ould be separated to avoid t"e perpetration and concealent o! !raud$
Ans&er .B is incorrect because obsolete aterials s"ould be stored separately$ [6] Source: CIA 1180 I-0 Ans&er AB is correct$ Sales returns and allo&ances re5uire t"e creditin# o! accounts receivable$ 3"e recordin# o! unaut"ori)ed credit eoranda is t"us one e,planation !or t"e discrepancy i! sales and cas" receipts are properly recorded$
[2] Source: C/A 1280 -28 Ans&er AB is incorrect because t"e results are not re5uired to be reported to anyone but ana#eent$ Ans&er *B is incorrect because t"e consideration deterines t"e e,tent o! !uture audit testin#$
Ans&er *B is incorrect because lappin# entails t"e t"e!t o! cas" receipts and t"e use o! subse5uent receipts to conceal t"e t"e!t$ 3"e e!!ect is to overstate receivables but no di!!erence bet&een t"e control total and t"e total o! subsidiary aounts &ould arise$
Ans&er CB is incorrect because ana#eent is responsible !or t"e internal control structure and s"ould t"us receive t"e results$
Ans&er CB is incorrect because a#in# does not involve accountin# entries$
Ans&er .B is correct$ 3"e second standard o! !ield &or re5uires t"at t"e independent auditor obtain a su!!icient understandin# o! t"e internal control structure to plan t"e audit and deterine t"e nature tiin# and e,tent o! tests$ A!ter obtainin# t"is understandin# and assessin# bot" control ris and in"erent ris !or speci!ic !inancial stateent assertions t"e auditor deterines t"e acceptable level o! detection ris in li#"t o! t"e level to &"ic" sB"e &is"es to restrict t"e ris o! a aterial isstateent in t"e !inancial stateents A< 1>B$
Ans&er .B is incorrect because interception o! custoer stateents i#"t indicate !raudulent receivables but &ould not cause t"e subsidiary led#er discrepancy$ [0] Source: CIA 1180 I-7 Ans&er AB is correct$ 3"e accounts receivable ana#er "as t"e ability to perpetrate irre#ularities because sB"e per!ors incopatible !unctions$ Aut"ori)ation and recordin# o! transactions s"ould be separate$ 3"us soeone outside t"e accounts receivable departent s"ould aut"ori)e &rite-o!!s$
[] Source: C/A 080 -14 Ans&er AB is incorrect because it is desi#ned to sa!e#uard assets$ Sa!e#uardin# assets is an objective in"erent in t"e internal control structure relevant to a !inancial stateent audit$
Ans&er *B is incorrect because credit approval is an aut"ori)ation !unction t"at is properly se#re#ated !ro t"e record eepin# !unction$
Ans&er *B is incorrect because it is concerned &it" t"e reliability and accuracy o! accountin# data reported in !inancial stateents$
Ans&er CB is incorrect because ont"ly a#in# is appropriate$
Ans&er CB is incorrect because it is concerned &it" t"e reliability and accuracy o! accountin# data reported in !inancial stateents$
Ans&er .B is incorrect because t"e procedures re#ardin# credit eoranda are standard controls$
Ans&er .B is correct$ +olicies and procedures relevant to a !inancial stateent audit pertain to t"e entitys ability to record process suari)e and report !inancial data consistent &it" t"e assertions in t"e !inancial stateents$ Ot"er policies and procedures ay not be relevant to a !inancial stateent audit e$#$ t"ose concernin# t"e e!!ectiveness econoy and e!!iciency o! certain
[7] Source: CIA 687 II-24 Ans&er AB is incorrect because it concerns t"e objective o! sa!e#uardin# o! assets not aut"ori)ation$ Ans&er *B is correct$ 3"e control objective o! aut"ori)ation concerns t"e proper e,ecution o! transactions in accordance &it" ana#eents
34
&is"es$ One eans o! ac"ievin# t"is control objective is t"e establis"ent o! policies as #uides to action$ %"en a decision a!!ects t"e capitali)ation o! t"e entity a policy s"ould be in !orce re5uirin# revie& at t"e "i#"est level$
Ans&er AB is correct$ +iece&or is production t"at is copensated at a set aount per unit o! output rat"er t"an tie spent on t"e job$ Coparin# production aounts inventory additionsB &it" payents piece&or recordsB is t"ere!ore an appropriate control over payroll$
Ans&er CB is incorrect because it does not state a control but rat"er a speci!ic eans o! issuin# securities$
Ans&er *B is incorrect because !oreen s"ould not distribute payc"ecs since t"ey ay "ave access to tie cards$ 3"e payaster s"ould distribute c"ecs$
Ans&er .B is incorrect because a better control is to use an independent re#istrar and trans!er a#ent$
Ans&er CB is incorrect because soeone ot"er t"an an eployee could punc" "is;"er tie card$ [8] Source: CIA 1188 I-2 Ans&er .B is incorrect because unclaied payc"ecs s"ould be deposited in a ban account$
Ans&er AB is correct$ +ayroll c"ecs s"ould be si#ned by t"e treasurer i$e$ by soeone &"o is not involved in tieeepin# record eepin# or payroll preparation$ 3"e payroll cler per!ors a record-eepin# !unction$
[12] Source: CIA 1187 I-4 Ans&er AB is incorrect because trade-credit standards ay be evaluated and approved by a coittee o! t"e board or dele#ated to ana#eent$
Ans&er *B is incorrect because preparin# t"e payroll re#ister is one o! t"e record-eepin# tass o! t"e payroll cler$
Ans&er *B is incorrect because t"e procedure described is custoary$
Ans&er CB is incorrect because t"e payroll re#ister s"ould be approved by an o!!icer o! t"e copany t"is represents a control stren#t"B$
Ans&er CB is correct$ Salespeople s"ould be responsible !or #eneratin# sales and providin# service to custoers$ =or e!!ective control purposes t"e !inance departent s"ould be responsible !or onitorin# t"e !inancial condition o! prospective and continuin# custoers in t"e credit approval process$
Ans&er .B is incorrect because payc"ecs s"ould be dra&n on a separate payroll c"ecin# account t"is is a control stren#t"B$ [>] Source: CIA 11>2 II-17
Ans&er .B is incorrect because t"e credit departent s"ould approve transactions based upon credit in!oration be!ore sales are processed$
Ans&er AB is incorrect because cas" receipts ay be p"ysically sa!e#uarded by suc" easures as aintainin# a secure cas" receivin# point$
[1] Source: CIA 6>1 I-2 Ans&er *B is incorrect because initial accountability ay be !i,ed by issuin# a source docuent a receiptB &"en t"e cas" is received$
Ans&er AB is incorrect because eployees ay be properly included on payroll but t"e aounts paid ay be unaut"ori)ed$
Ans&er CB is incorrect because separatin# cas" receipts and record eepin# does not prevent payin# cas" disburseents directly !ro cas" receipts$
Ans&er *B is incorrect because returnin# undelivered c"ecs to t"e cas"ier provides no evidence re#ardin# t"e validity o! t"e aounts o! c"ecs$
Ans&er .B is correct$ Separatin# cas" receipts and record eepin# prevents an eployee !ro isappropriatin# cas" and alterin# t"e records to conceal t"e irre#ularity$
Ans&er CB is correct$ 9evie& and approval o! tie cards by line supervisors is appropriate because t"ey s"ould no& &"et"er &or "as been per!ored$ Also because t"ey do not distribute payc"ecs t"ey are not in a position to divert !alsely aut"ori)ed c"ecs$
[1] Source: CIA 11> II-11 Ans&er AB is incorrect because t"e re5uestin# departent norally develops speci!ications$
Ans&er .B is incorrect because &itnessin# a payroll distribution does not assure t"at t"e aounts paid are aut"ori)ed$
Ans&er *B is incorrect because open purc"ase orders are custoary !or "i#"-use ites$ Ans&er CB is correct$ +urc"asin# !ro parties related to buyers or ot"er copany o!!icials is a ris !actor because it su##ests t"e possibility o! !raud$ Suc" con!licts o! interest ay result in transactions un!avorable to t"e copany$
[14] Source: CIA 687 III-22 Ans&er AB is correct$ A !eedbac control syste ensures t"at a desired state is attained or aintained$ 3"e control object is t"e variable o! t"e systes be"avior c"osen !or onitorin#$ A detector easures &"at is "appenin# in t"e variable bein# controlled$ A re!erence point represents t"e standards a#ainst &"ic" per!orance ay be easured or atc"ed$ A coparator analy)erB is a device !or assessin# t"e si#ni!icance o! &"at is "appenin# usually by coparin# in!oration supplied by t"e detector &"at is actually "appenin#B &it" t"e establis"ed re!erence points &"at s"ould be "appenin#B$ An activator is a
Ans&er .B is incorrect because an approved vendor list is o!ten aintained as a control !actor to "elp ensure t"at purc"ases are ade only !ro reliable vendors$ (o&ever rotation is not usually appropriate$ [11] Source: CIA 1180 I->
35
decision aer$ It evaluates alternative courses o! corrective action available #iven t"e nature o! t"e deviation identi!ied and transitted by t"e coparator$ 3"e output o! t"e activatin# ec"anis is typically corrective action$
responsible !or aut"ori)in# and e,ecutin# eployee transactions suc" as "irin# !irin# and c"an#es in pay rates and deductions$ Se#re#atin# t"ese !unctions "elps prevent !raud$ 3"us t"e payroll !or eac" period s"ould be copared &it" t"e active eployent !iles o! t"e personnel departent$ Aut"ori)ation by t"e personnel departent is t"e only control placed in t"e transaction !lo& early enou#" to prevent t"e addition o! bo#us eployees to t"e payroll$
Ans&er *B is incorrect because it #ives t"e eleents in a counication net&or$ Ans&er CB is incorrect because it states be"avior otivators$
[18] Source: CIA 11> I-12 Ans&er .B is incorrect because it concerns ana#eent !unctions ot"er t"an controllin#$
Ans&er AB is incorrect because a receivin# !unction can be e!!ective &it"in noral or#ani)ational paraeters$
[16] Source: CIA 118> I-> Ans&er *B is correct$ 3"e receivin# departent s"ould aintain a !ile o! properly aut"ori)ed purc"ase orders so t"at unaut"ori)ed s"ipents are not accepted$ (o&ever prices and 5uantities s"ould be oitted !ro t"ese copies o! t"e orders$ I! t"e receivin# cler does not no& t"e 5uantity ordered an independent count can be assured$
Ans&er AB is correct$ 3"e se5uential nuberin# o! docuents provides a standard control over transactions$ 3"e nuerical se5uence s"ould be accounted !or by an independent party$ A ajor objective is to detect unrecorded and unaut"ori)ed transactions$ Ans&er *B is incorrect because t"is c"ec &ould not prevent or detect unrecorded and unaut"ori)ed transactions$
Ans&er CB is incorrect because ore t"an t"e &are"ouse ana#ers approval is needed$ Ans&er .B is incorrect because t"e receivin# departents copy s"ould oit prices and 5uantities$
Ans&er CB is incorrect because credit approval does not assure billin#$ Ans&er .B is incorrect because it states an analytical procedure not a preventive control$
[1>] Source: C/A 12>4 2- Ans&er AB is correct$ Accordin# to A< 12 GIn"erent ris is t"e susceptibility o! an assertion to a aterial isstateent assuin# t"at t"ere are no related internal control structure policies or procedures$ 3"e ris o! suc" isstateent is #reater !or soe assertions and related balances or classes t"an !or ot"ers$G
[10] Source: CIA 11>2 I-18 Ans&er AB is incorrect because ont"ly ban stateent reconciliation is a detective control$ 3"e events under scrutiny "ave already occurred$ Ans&er *B is incorrect because dual si#natures on all disburseents over a speci!ic dollar aount is a preventive control$ 3"e control is desi#ned to deter an undesirable event$
Ans&er *B is incorrect because t"e ris t"at t"e auditor ay unno&in#ly !ail to appropriately odi!y "is or "er opinion on !inancial stateents t"at are aterially isstated is audit r is$
Ans&er CB is incorrect because recordin# every transaction on t"e day it occurs is a preventive control$ 3"e control is desi#ned to deter an undesirable event$
Ans&er CB is incorrect because t"e ris t"at a aterial isstateent t"at could occur in an assertion &ill not be prevented or detected on a tiely basis by t"e entitys internal control structure policies or procedures is control ris$
Ans&er .B is correct$ 9e5uirin# all ebers o! t"e internal auditin# departent to be CIAs is a directive control$ 3"e control is desi#ned to encoura#e a desirable event to occur i$e$ to en"ance t"e pro!essionalis and level o! e,pertise o! t"e internal auditin# departent$
Ans&er .B is incorrect because t"e ris t"at t"e auditor &ill not detect a aterial isstateent t"at e,ists in an assertion is detection ris$
[17] Source: CIA 11>2 II-2 Ans&er AB is incorrect because t"e cler could circuvent usin# tie cards and attendance records in t"e coputation o! eployee #ross earnin#s$
[2] Source: CIA 68> III-2 Ans&er AB is incorrect because dra!tin# procedures not revie&in# t"e &ould ipair independence$
Ans&er *B is incorrect because t"e proble is &it" !ictitious eployees not close relatives &orin# in t"e sae departent$
Ans&er *B is incorrect because it describes a possible procedure in a !uture audit i! t"e travel approval syste is ipleented$
Ans&er CB is incorrect because "avin# t"e treasurers o!!ice si#n payroll c"ecs taes place a!ter t"e !act$
Ans&er CB is incorrect because no reason e,ists !or internal auditin# to receive copies o! t"ese !ors$ In an audit auditee copies &ill be su!!icient$
Ans&er .B is correct$ 3"e payroll departent is responsible !or asseblin# payroll in!oration record eepin#B$ 3"e personnel departent is
Ans&er .B is correct$ 3"e objectivity o! internal auditors is not ipaired by recoendin# standards
36
o! control !or systes or revie&in# procedures be!ore ipleentation Standard 12B$ Indeed t"e scope o! &or encopasses e,ainin# and evaluatin# t"e ade5uacy and e!!ectiveness o! internal control Standard B$ 3"e revie& ! or ade5uacy concerns e!!iciency and e conoy$ Accordin# to SIAS 1 G?!!icient per!orance accoplis"es objectives and #oals in an accurate and tiely !as"ion &it" inial use o! resources$G 3"e revie& !or e!!ectiveness is to deterine &"et"er t"e syste &ill !unction as intended$ ?!!ective control is present &"en t"ere is reasonable assurance t"at objectives and #oals &ill be ac"ieved$
ont"ly by t"e accounts receivable departent &it"out allo&in# access to t"e stateents by eployees o! t"e cas"iers departent$ 3"e sales ana#er s"ould not be t"e only person to revie& delin5uent accounts because sB"e ay "ave an interest in not declarin# an account uncollectible$ Ans&er CB is incorrect because it states an iportant internal control procedure in t"e area o! accounts receivable$ Ans&er .B is incorrect because it states an iportant internal control procedure in t"e area o! accounts receivable$
[21] Source: C/A 128 -16 [24] Source: C/A 0> -20 Ans&er AB is correct$ 3"e internal auditor and t"e internal audit departent can only be an e!!ective control relevant to !inancial stateent audits i! t"e c"ie! internal auditor reports to t"e board o! directors or soeone else outside t"e accountin# !unction$ Internal auditin# ust be independent to be e!!ective$
Ans&er AB is incorrect because prenuberin# o! payroll c"ecs is a control procedure to ensure t"e copleteness o! accountin# records but it &ill not prevent !ictitious or previously terinated eployees !ro receivin# c"ecs$
Ans&er *B is incorrect because intan#ible bene!its ay render an internal audit !unction an e!!ective control even i! it is not cost e!!ective$ It ay not be #ood ana#eent to "ave an internal auditor &"o is not cost e!!ective but t"at does not a!!ect t"e internal audit !unctions status as a control$
Ans&er *B is correct$ 3"e payroll departent is responsible !or asseblin# payroll in!oration record eepin#B$ 3"e personnel departent is responsible !or aut"ori)in# eployee transactions suc" as "irin# !irin# and c"an#es in pay rates and deductions$ Se#re#atin# t"e recordin# and aut"ori)ation !unctions "elps prevent !raud$
Ans&er CB is incorrect because operational audits deal &it" e!!ectiveness and e!!iciency and t"us &ould not in!luence t"e e!!ectiveness o! t"e auditor as a control relevant to !inancial stateent audits$
Ans&er CB is incorrect because a test !or at"eatical accuracy does not prevent or detect !ictitious transactions$
Ans&er .B is incorrect because an e!!ective control need not use statistical procedures$
Ans&er .B is incorrect because reconcilin# t"e accountin# records to t"e ban stateent is a test o! t"e accuracy o! t"e cas" balance$
[22] Source: C/A 084 -2> [26] Source: C/A 0> -27 Ans&er AB is incorrect because t"e re5uireent !or docuentation &ill reveal a t"e!t &"en t"e !und is reibursed unless t"e docuents can be !alsi!ied$
Ans&er AB is incorrect because aut"ori)ation and approval by users and revie& by control #roups are controls t"at do not !unction durin# processin#$
Ans&er *B is incorrect because t"e aount involved is probably not aterial$
Ans&er *B is incorrect because revie& by control #roups is a control t"at does not !unction durin# processin#$
Ans&er CB is correct$ Separation o! duties aon# ey !unctions is an iportant control procedure$ An accounts receivable cler &"o is peritted to approve sales returns and allo&ances and also receive custoer reittances could isappropriate !unds received and cover t"e s"orta#e by debitin# sales returns and allo&ances$ iited supervision is insu!!icient to copensate !or lac o! se#re#ation o! duties$
Ans&er CB is incorrect because use o! internal and e,ternal labels is an or#ani)ational not a processin# control$ ?,ternal labels allo& t"e coputer operator to deterine &"et"er t"e correct !ile "as been selected !or an application$ ?,ternal labels are #ued-paper labels attac"ed to a tape reel or ot"er stora#e ediu t"at identi!y t"e ! ile$ Internal labels per!or t"e sae !unction t"rou#" t"e use o! ac"ine-readable identi!ication in t"e !irst record in a !ile$
Ans&er .B is incorrect because t"e re5uireent !or docuentation &ill uncover t"e oversi#"t$
Ans&er .B is correct$ A control total is an application control t"at ay consist o! a count o! t"e nuber o! records processed at di!!erent sta#es o! t"e operation$ Coparison o! t"e counts indicates &"et"er all records "ave been processed or soe "ave been added$ A control total i#"t also consist o! a total o! one in!oration !ield !or all records processed suc" as t"e total sales dollars !or a batc" o! sales invoices$ A liit or reasonableness c"ec tests &"et"er t"e value o! a !ield !alls outside a prescribed ran#e$ 3"e ran#e ay be stated in ters o! an upper liit lo&er liit or bot"$ 3"e loss addition etc$ o! data ay result in an unreasonable value$ A se5uence test veri!ies t"e orderin# o! records and ay t"ere!ore detect various anoalies$
[2] Source: C/A 08> -16 Ans&er AB is incorrect because it states an iportant internal control procedure in t"e area o! accounts receivable$ Ans&er *B is correct$ Internal control over accounts receivable be#ins &it" a proper separation o! duties$ (ence t"e cas"ier &"o per!ors an asset custody !unction s"ould not be involved in record eepin#$ Accounts s"ould be periodically con!ired by an auditor and delin5uent accounts s"ould be revie&ed by t"e "ead o! accounts receivable and t"e credit ana#er$ Custoer stateents s"ould be ailed
37
Ans&er CB is incorrect because it concerns t"e e!!ectiveness econoy and e!!iciency o! ana#eent decision processes t"at ordinarily do not relate to an entitys ability to record process suari)e and report !inancial data consistent &it" !inancial stateent assertions$
[20] Source: C/A 1280 -2> Ans&er AB is incorrect because persons &it" record eepin# but not custody o! assets responsibilities s"ould "ave access to blan c"ecs &"ile t"e duty o! si#nin# c"ecs custodians"ipB s"ould be assi#ned to persons e$#$ t"e treasurerB &it" no record eepin# !unction$
Ans&er .B is incorrect because it concerns t"e e!!ectiveness econoy and e!!iciency o! ana#eent decision processes t"at ordinarily do not relate to an entitys ability to record process suari)e and report !inancial data consistent &it" !inancial stateent assertions$
Ans&er *B is incorrect because payroll preparation and payent to eployees s"ould be se#re#ated since t"ey are incopatible record eepin# and custodians"ip !unctions$
[2>] Source: C/A 1288 -26 Ans&er CB is incorrect because approval o! tie cards is an aut"ori)ation !unction t"at is incopatible &it" t"e record eepin# !unction o! preparation o! payc"ecs$
Ans&er AB is incorrect because auditors ust consider t"e internal control structure but t"ey do not establis" and aintain it$
Ans&er .B is correct$ Cobinin# t"e tieeepin# !unction and t"e preparation o! t"e payroll journal entries &ould not be iproper because t"e eployee "as no access to assets or to eployee records in t"e personnel departent$ Only t"rou#" collusion could an ebe))leent be perpetrated$ Accordin#ly t"e !unctions o! aut"ori)ation record eepin# and custodians"ip reain separate$
Ans&er *B is correct$ ?stablis"in# and aintainin# an internal control structure is t"e responsibility o! ana#eent$ An internal control structure is intended to provide reasonable assurance t"at t"e entitys objectives are ac"ieved$ Ac"ieveent o! t"ese objectives is t"e basic !unction o! ana#eent$ Ans&er CB is incorrect because t"is individual is only responsible to t"e e,tent t"at "es"eB is a part o! t"e ana#eent tea$
[27] Source: C/A 128 -11 Ans&er .B is incorrect because t"is individual is only responsible to t"e e,tent t"at "es"eB is a part o! t"e ana#eent tea$
Ans&er AB is incorrect because it is a bene!it o! a stron# internal control structure$ 3"e cost o! t"e e,ternal audit &ill be lo&er because o! t"e reduction o! t"e audit e!!ort related to substantive testin#$
[] Source: C/A 0> -2 Ans&er *B is correct$ ?ven t"e best internal control structure ICSB cannot #uarantee t"e coplete eliination o! eployee !raud$ An e!!ective ICS &ill reduce t"e aount o! eployee !raud and probably detect losses on a tiely basis$
Ans&er AB is incorrect because t"e ultiate purpose o! t"e assessent o! control ris in a !inancial stateent audit is to deterine t"e de#ree o! audit e!!ort to be devoted to substantive tests$
Ans&er CB is incorrect because it is a bene!it o! a stron# internal control structure$ /ana#eent &ill "ave better data !or decision-ain# purposes$
Ans&er *B is incorrect because t"e ultiate purpose o! t"e assessent o! control ris in a !inancial stateent audit is to deterine t"e de#ree o! audit e!!ort to be devoted to substantive tests$
Ans&er .B is incorrect because it is a bene!it o! a stron# internal control structure$ /ana#eent &ill "ave soe assurance o! copliance &it" t"e =C+A$
Ans&er CB is incorrect because advice to ana#eent is only a by-product o! a !inancial stateent audit$
[28] Source: C/A 1288 -21
Ans&er .B is correct$ 3"e assessed levels o! control ris and in"erent ris are used to deterine t"e acceptable level o! detection ris !or !inancial stateent assertions$ 3"is level o! detection ris is t"en used to deterine t"e nature tiin# and e,tent o! t"e auditin# procedures to detect aterial isstateents in !inancial stateent assertions$ +rocedures desi#ned to detect t"ese isstateents are substantive tests$ As t"e acceptable level o! detection ris decreases t"e assurance to be provided by substantive tests increases$
Ans&er AB is incorrect because it concerns t"e e!!ectiveness econoy and e!!iciency o! ana#eent decision processes t"at ordinarily do not relate to an entitys ability to record process suari)e and report !inancial data consistent &it" !inancial stateent assertions$ Ans&er *B is correct$ 3"e policies and procedures ost liely to be relevant to a !inancial stateent audit pertain to t"e entitys ability to record process suari)e and report !inancial data consistent &it" t"e assertions ebodied in t"e !inancial stateents$ /aintenance o! control over unused c"ecs is an e,aple o! a relevant procedure because t"e objective is to sa!e#uard cas"$ 3"e auditor ust understand t"e ICS policies and procedures relevant to t"e assertions about cas" in t"e !inancial stateents$ SB"e ust t"en assess control ris !or t"ose assertionsD t"at is sB"e ust evaluate t"e e!!ectiveness o! t"e ICS in preventin# or detectin# aterial isstateents in t"e assertions$
[1] Source: C/A 0> -26 Ans&er AB is incorrect because deterination o! proper aounts o! sales invoices concerns t"e valuation assertion$ Also sales invoices are part o! t"e sales-receivables revenueB cycle$ Ans&er *B is correct$ A copleteness assertion concerns &"et"er all transactions and accounts t"at s"ould be presented in t"e !inancial stateents are so presented$ 3"e e,clusive use o! se5uentially
38
nubered docuents !acilitates control over e,penditures$ An une,plained #ap in t"e se5uence alerts t"e auditor to t"e possibility t"at not all transactions "ave been recorded$ A !ailure to use prenubered c"ecs &ould t"ere!ore su##est a "i#"er assessent o! control ris$ I! a copany uses prenubered c"ecs it s"ould be easy to deterine e,actly &"ic" c"ecs &ere used durin# a period$
Ans&er *B is incorrect because distribution o! payroll c"ecs and approval o! sales returns are independent !unctions$ +eople &"o per!or suc" disparate tass are unliely to be able to perpetrate and conceal a !raud$ In !act soe copanies use personnel !ro an independent !unction to distribute payroll c"ecs$
Ans&er CB is incorrect because cas" receipts are part o! t"e revenue cycle$
Ans&er CB is incorrect because postin# bot" led#ers &ould cause no con!lict as lon# as t"e individual involved did not "ave access to t"e actual cas"$ I! a person "as access to records but not t"e assets t"ere is no dan#er o! ebe))leent &it"out collusion$
Ans&er .B is incorrect because consideration o! t"e 5uali!ications o! accountin# personnel is not a test o! controls over t"e copleteness o! any cycle$ 3"is procedure is appropriate durin# t"e consideration o! t"e control environent$
Ans&er .B is correct$ 9ecordin# o! cas" establis"es accountability !or assets$ 3"e ban reconciliation copares t"at recorded accountability &it" actual assets$ 3"e recordin# o! cas" receipts and preparation o! ban reconciliations s"ould t"ere!ore be per!ored by di!!erent individuals since t"e preparer o! a reconciliation could conceal a cas" s"orta#e$ =or e,aple i! a cas"ier bot" prepares t"e ban deposit and per!ors t"e reconciliation sB"e could ebe))le cas" and conceal t"e t"e!t by !alsi!yin# t"e reconciliation$
[2] Source: CIA 68> II-7 Ans&er AB is incorrect because t"is control is ipleented be!ore deposits are prepared and recorded in t"e copanys boos$ 3"e proble "ere is t"e detection o! t"e diversion o! !unds t"at "ave been properly recorded upon receipt$ Ans&er *B is incorrect because t"is control is ipleented be!ore deposits are prepared and recorded in t"e copanys boos$ 3"e proble "ere is t"e detection o! t"e diversion o! !unds t"at "ave been properly recorded upon receipt$
[6] Source: C/A 08> -10 Ans&er AB is incorrect because periodic rotation o! payroll personnel in"ibits t"e perpetration and concealent o! !raud$
Ans&er CB is incorrect because t"is control is ipleented be!ore deposits are prepared and recorded in t"e copanys boos$ 3"e proble "ere is t"e detection o! t"e diversion o! !unds t"at "ave been properly recorded upon receipt$
Ans&er *B is correct$ +ayc"ecs s"ould not be distributed by supervisors because an unscrupulous person could terinate an eployee and !ail to report t"e terination$ 3"e supervisor could t"en cloc in and out !or t"e eployee and eep t"e payc"ec$ A person unrelated to eit"er payroll record eepin# or t"e operatin# departent s"ould distribute c"ecs$
Ans&er .B is correct$ (avin# an independent t"ird party prepare t"e ban reconciliations &ould reveal any discrepancies bet&een recorded deposits and t"e ban stateents$ A ban reconciliation copares t"e ban stateent &it" copany records and resolves di!!erences caused by deposits in transit outstandin# c"ecs S= c"ecs ban c"ar#es errors etc$
Ans&er CB is incorrect because t"is analytical procedure ay detect a discrepancy$ Ans&er .B is incorrect because tieeepin# s"ould be independent o! asset custody and eployee records$
[] Source: C/A 1288 -20 Ans&er AB is incorrect because it is a part o! t"e custodial !unction &"ic" is t"e priary responsibility o! a cas"ier$
[0] Source: C/A 08> -17 Ans&er AB is incorrect because prenubered receivin# reports s"ould be issued se5uentially$ A #ap in t"e se5uence ay indicate an erroneous or !raudulent transaction$
Ans&er *B is incorrect because it is a part o! t"e custodial !unction &"ic" is t"e priary responsibility o! a cas"ier$
Ans&er *B is incorrect because invoices s"ould not be approved by purc"asin#$ 3"at is t"e job o! t"e accounts payable departent$
Ans&er CB is incorrect because it is a part o! t"e custodial !unction &"ic" is t"e priary responsibility o! a cas"ier$
Ans&er CB is incorrect because annual revie& o! unatc"ed receivin# reports is too in!re5uent$ /ore !re5uent attention is necessary to reedy de!iciencies in t"e internal control structure$
Ans&er .B is correct$ 3"e cas"ier is an assistant to t"e treasurer and t"us per!ors an asset custody !unction$ Individuals &it" custodial !unctions s"ould not "ave access to t"e accountin# records$ I! t"e cas"ier &ere allo&ed to post t"e receipts to t"e accounts receivable subsidiary led#er an opportunity !or ebe))leent &ould arise t"at could be concealed by !alsi!yin# t"e boos$
Ans&er .B is correct$ A vouc"er s"ould not be prepared !or payent until t"e vendors invoice "as been atc"ed a#ainst t"e correspondin# purc"ase order and receivin# report$ 3"is procedure provides assurance t"at a valid transaction "as occurred and t"at t"e parties "ave a#reed on t"e ters suc" as price and 5uantity$
[4] Source: C/A 1288 -2 Ans&er AB is incorrect because t"ere is no con!lict bet&een &ritin# o!! bad debts accounts receivableB and reconcilin# accounts payable &"ic" are liabilities$
[7] Source: CIA 68> II-1
39
Ans&er AB is incorrect because t"e ana#ers s"ould subit purc"ase re5uisitions to t"e purc"asin# departent$ 3"e purc"asin# !unction s"ould be separate !ro operations$
audit ris are in"erent ris control ris and detection ris$ [4] Source: C/A 1280 -20
Ans&er *B is incorrect because to encoura#e a !air count t"e receivin# departent s"ould receive a copy o! t"e purc"ase order !ro &"ic" t"e 5uantity "as been oitted$
Ans&er AB is incorrect because audit ris is t"e ris t"at t"e auditor ay unno&in#ly !ail to appropriately odi!y an opinion on ! inancial stateents t"at are aterially isstated$
Ans&er CB is correct$ Accountin# !or payables is a recordin# !unction$ 3"e atc"in# o! t"e suppliers invoice t"e purc"ase order and t"e receivin# report and usually t"e purc"ase re5uisitionB s"ould be t"e responsibility o! t"e accountin# departent$ 3"ese are t"e priary supportin# docuents !or t"e payent vouc"er prepared by t"e accounts payable section t"at &ill be relied upon by t"e treasurer in ain# payent$
Ans&er *B is incorrect because detection ris is t"e ris t"at t"e auditor &ill not detect a aterial isstateent t"at e,ists in an assertion$ Ans&er CB is incorrect because saplin# ris is t"e ris t"at a particular saple ay contain proportionately ore or !e&er onetary isstateents or deviations !ro controls t"an e,ist in t"e population as a &"ole A< 6B$
Ans&er .B is incorrect because t"e receivin# departent s"ould trans!er #oods directly to t"e storeroo to aintain security$ A copy o! t"e receivin# report s"ould be sent to t"e storeroo so t"at t"e aount stored can be copared &it" t"e aount in t"e report$
Ans&er .B is correct$ In"erent ris is t"e susceptibility o! an assertion to a aterial isstateent in t"e absence o! related controls$ 3"is ris is #reater !or soe assertions and related balances or classes t"an ot"ers$ =or e,aple cople, calculations are ore liely to be isstated t"an siple ones and cas" is ore liely to be stolen t"an an inventory o! coal$ In"erent ris e,ists independently o! t"e audit A< 12B$
[8] Source: CIA 6> II-11 Ans&er AB is incorrect because atc"in# 5uantity received &it" t"e pacin# slip does not ensure receipt o! t"e 5uantity ordered$
[41] Source: +ublis"er
Ans&er *B is correct$
Ans&er AB is correct$ In"erent ris is t"e susceptibility o! an assertion to aterial isstateent in t"e absence o! related controls$ Soe assertions and related balances or classes o! transactions "ave #reater in"erent ris$ 3"us cas" "as a #reater in"erent ris t"an less li5uid assets$
Ans&er CB is incorrect because #oods ay or ay not be needed in retail sales$ Ans&er .B is incorrect because t"e crucial !unction o! t"e receivin# departent is to ae an independent accurate count o! t"e #oods received$ +acin# slip in!oration is irrelevant$ 3"e buyer needs to no& &"et"er t"e appropriate #oods "ave been received in #ood condition and in t"e 5uantities ordered$
Ans&er *B is incorrect because soe control ris &ill al&ays e,ist$ Internal control "as in"erent liitations$ Ans&er CB is incorrect because detection ris is a !unction o! auditin# e!!ectiveness ac"ievin# resultsB not e!!iciency$
[>] Source: +ublis"er Ans&er .B is incorrect because t"e actual levels o! in"erent ris and control ris are independent o! t"e audit process$ Acceptable detection ris is a !unction o! t"e desired level o! overall audit ris and t"e assessed levels o! in"erent ris and control ris$ (ence detection ris can be c"an#ed at t"e discretion o! t"e auditor but in"erent ris and control ris cannot$ (o&ever t"e auditors preliinary jud#ents about in"erent ris and control ris ay c"an#e as t"e audit pro#resses$
Ans&er AB is incorrect because t"e coponents o! audit ris are in"erent ris control ris and detection ris$ Ans&er *B is correct$ Accordin# to A< 12 one coponent o! audit ris is detection ris &"ic" is t"e ris t"at t"e auditor &ill not detect a aterial isstateent t"at e,ists in an assertion$ .etection ris !or a substantive test o! details "as t&o eleents: 1B t"e ris t"at analytical procedures and ot"er relevant substantive tests &ill !ail to detect isstateents at least e5ual to tolerable isstateent and 2B t"e allo&able ris o! incorrect acceptance !or t"e substantive test o! details$ 3"e auditor assesses control ris t"e second coponentB &"en considerin# t"e clients internal control$ 3"is assessent t"e assessent o! in"erent ris and t"e level to &"ic" t"e auditor &is"es to restrict overall audit ris are t"e !actors t"at t"e auditor uses to deterine t"e acceptable level o! detection ris$
[42] Source: +ublis"er Ans&er AB is incorrect because use o! ore e!!ective substantive tests is a possible response to a decrease in t"e acceptable level o! detection ris$ Ans&er *B is incorrect because c"an#in# t"e tiin# o! substantive tests is a possible response to a decrease in t"e acceptable level o! detection ris$
Ans&er CB is incorrect because t"e coponents o! audit ris are in"erent ris control ris and detection ris$
Ans&er CB is incorrect because c"an#in# t"e e,tent o! testin# is a possible response to a decrease in t"e acceptable level o! detection ris$
Ans&er .B is incorrect because t"e coponents o!
Ans&er .B is correct$ 3"e overall allo&able audit
40
ris o! aterial isstateent in a !inancial stateent assertion e5uals t"e product o! in"erent ris control ris and detection ris e,pressed as probabilitiesB$ 3"e audit ris !orula in A< 6 !urt"er divides detection ris !or a substantive test o! details into 1B t"e ris t"at analytical procedures and ot"er substantive tests &ill !ail to detect isstateents e5ual to tolerable isstateent and 2B t"e allo&able ris o! incorrect acceptance !or t"e substantive test o! details$ A!ter deterinin# t"e level to &"ic" sB"e &is"es to restrict t"e ris o! aterial isstateent and t"e assessed levels o! control ris and in"erent ris t"e auditor per!ors substantive tests to restrict detection ris to t"e acceptable level$ Accordin#ly t"e level o! detection ris t"at an auditor ay accept is inversely related to control ris and in"erent ris$ I! eit"er increases t"e acceptable level o! detection ris decreases and t"e audit or s"ould c"an#e t"e nature tiin# or e,tent o! substantive tests to increase t"e assurance t"ey provide$
structure and ana#eent p"ilosop"y are !actors in t"e control environent coponent$ Ans&er *B is correct$ Internal control includes !ive coponents: t"e control environent ris assessent control activities in!oration and counication and onitorin#$ 3"e control environent sets t"e tone o! an or#ani)ation in!luences control consciousness and provides a !oundation !or t"e ot"er coponents$ 9is assessent is t"e identi!ication and analysis o! relevant riss to ac"ieveent o! objectives$ Control activities "elp ensure t"at ana#eent directives are e,ecuted$ In!oration and counication are t"e identi!ication capture and e,c"an#e o! in!oration in a !or and tie !rae t"at allo& people to eet t"eir responsibilities$ /onitorin# assesses t"e per!orance o! internal control over tie A< 1>B$ Ans&er CB is incorrect because ris assessent is t"e only coponent listed$
[4] Source: +ublis"er
Ans&er .B is incorrect because t"e le#al environent o! t"e !ir ana#eent p"ilosop"y and or#ani)ational structure are !actors in t"e control environent coponent$
Ans&er AB is incorrect because audit ris is t"e ris t"e auditor ay unno&in#ly !ail to appropriately odi!y t"e opinion on ! inancial stateents t"at are aterially isstated$
[40] Source: +ublis"er Ans&er *B is correct$ 3"e opinion para#rap" o! t"e standard report e,plicitly re!ers to ateriality$ (ence !inancial stateents t"at are presented !airly in all aterial respects in con!ority &it" JAA+ are not aterially isstated$ /aterial isstateent can result !ro errors or !raud$
Ans&er AB is incorrect because per!orance revie&s is a cate#ory o! control activities$ Ans&er *B is incorrect because in!oration processin# is a cate#ory o! control activities$
Ans&er CB is incorrect because t"e concept o! ateriality reco#ni)es t"at soe isstateents eit"er individually or in t"e a##re#ate are iportant !or t"e !air presentation o! !inancial stateents$ Eualitative as &ell as 5uantitative !actors a!!ect ateriality jud#ents$
Ans&er CB is incorrect because p"ysical controls is a cate#ory o! control activities$ Ans&er .B is correct$ Control activities are policies and procedures t"at "elp ensure t"at ana#eent directives are carried out$ 3"ey are intended to ensure t"at necessary actions are taen to address riss to ac"ieve t"e entitys objectives$ Control activities "ave various objectives and are applied at various or#ani)ational and !unctional levels$ (o&ever an internal audit !unction is part o! t"e onitorin# coponent$
Ans&er .B is incorrect because bot" aterial errors and aterial !raud cause ! inancial stateents to be aterially isstated$ [44] Source: +ublis"er Ans&er AB is correct$ A< 6 states t"at t"e odel !or t"e overall allo&able audit ris is not intended to be a at"eatical !orula includin# all !actors t"at ay in!luence t"e deterination o! individual ris coponents$ (o&ever t"e odel is soeties use!ul in considerin# and plannin# appropriate ris levels$ A9 is e5ual to t"e joint probability t"at aterial isstateents &ill occur in an assertion t"at internal control &ill not prevent or detect aterial isstateents and t"at subse5uent procedures &ill also not detect t"e$ (ence A9 is e,pressed as t"e product o! I9 C9 A+ and 3.$
[47] Source: C/A 1284 -22 Ans&er AB is correct$ Internal auditin# e,aines and evaluates t"e ade5uacy and e!!ectiveness o! an or#ani)ations controls$ Its scope o! &or includes revie&in# t"e reliability and inte#rity o! !inancial data$ 3"e internal audit !unction is part o! t"e onitorin# coponent o! internal control and t"ere!ore ay "ave an iportant e!!ect on t"e entitys ability to record process suari)e and report !inancial data$ Ans&er *B is incorrect because operational audits are concerned &it" operational e!!iciency and e!!ectiveness$
Ans&er *B is incorrect because t"is is a nonsensical relations"ip$
Ans&er CB is incorrect because routine supervisory revie& o! production plannin# is a concern o! ana#eent but does not directly a!!ect t"e !airness o! t"e !inancial stateents$
Ans&er CB is incorrect because t"is is a nonsensical relations"ip$ Ans&er .B is incorrect because t"is is a nonsensical relations"ip$
Ans&er .B is incorrect because t"e e,istence o! a preventive aintenance pro#ra is not directly relevant to a !inancial stateent audit$
[46] Source: C/A 0>6 4-28 Ans&er AB is incorrect because plannin# is not a coponent o! internal control$ Or#ani)ational
[48] Source: CIA 11>6 I-00
41
Ans&er AB is incorrect because bud#etary coparison is a typical e,aple o! a onitorin# control$
[61] Source: +ublis"er Ans&er AB is incorrect because t"e auditor #ains an understandin# o! internal control priarily t"rou#" previous e,perience &it" t"e entity in5uiries inspection o! docuents and records and observation o! activities$
Ans&er *B is incorrect because investi#ation o! e,ceptions is a onitorin# control used by lo&er-level ana#eent to deterine &"en t"eir operations ay be out o! control$ Ans&er CB is correct$ /onitorin# assesses t"e 5uality o! internal control over tie$ /ana#eent considers &"et"er internal control is properly desi#ned and operatin# as intended and odi!ies it to re!lect c"an#in# conditions$ /onitorin# ay be in t"e !or o! separate periodic evaluations or o! on#oin# onitorin#$ On#oin# onitorin# occurs as part o! routine operations$ It includes ana#eent and supervisory revie& coparisons reconciliations and ot"er actions by personnel as part o! t"eir re#ular activities$ (o&ever reconcilin# batc" control totals is a processin# control$
Ans&er *B is correct$ 3"e purpose o! tests o! controls is to evaluate t"e e!!ectiveness o! t"e desi#n or operation o! controls in preventin# or detectin# aterial isstateents$ 3"e auditor tests &"et"er controls are suitably desi#ned to prevent or detect aterial isstateents in speci!ic assertions$ 3"e auditor also tests "o& a control &as applied by &"o it &as applied and &"et"er it &as applied consistently durin# t"e audit period A< 1>B$ Ans&er CB is incorrect because t"e auditor is not obli#ated to searc" !or reportable conditions but s"ould counicate t"ose o! &"ic" sB"e becoes a&are$
Ans&er .B is incorrect because internal auditin# is a !or o! onitorin#$ It serves to evaluate ana#eents ot"er controls$
Ans&er .B is incorrect because in"erent ris is t"e susceptibility o! an assertion to a aterial isstateent in t"e absence o! related controls$
[4>] Source: C/A 086 -17 Ans&er AB is incorrect because any !actors beyond t"e purvie& o! t"e auditor a!!ect pro!its and t"e controls related to operational e!!iciency are usually not directly relevant to an audit$
[62] Source: +ublis"er Ans&er AB is incorrect because i! as a result o! obtainin# t"e understandin# o! internal control t"e auditor believes t"at controls are unliely to be
Ans&er *B is incorrect because t"e c"ie! accountin# o!!icer need not revie& all accountin# transactions$
e!!ective sB"e ay assess control ris at t"e a,iu and oit tests o! controls$
Ans&er CB is incorrect because controls relevant to a !inancial stateent audit do not concern t"e treatent o! corporate orale probles$
Ans&er *B is incorrect because #iven !e& transactions e,ainin# all transactions is ore e!!icient t"an testin# controls$
Ans&er .B is correct$ Internal control is desi#ned to provide reasonable assurance o! t"e ac"ieveent o! objectives in t"e cate#ories o! 1B reliability o! !inancial reportin# 2B e!!ectiveness and e!!iciency o! operations and B copliance &it" la&s and re#ulations$ Controls relevant to an audit ordinarily pertain to t"e objective o! preparin# e,ternal !inancial stateents t"at are !airly presented in con!ority &it" JAA+ or anot"er copre"ensive basis o! accountin# A< 1>B$
Ans&er CB is correct$ =or "i#"-volue accounts t"e auditor usually ust test controls because cost-bene!it considerations preclude t"e revie& o! all transactions$ I! t"e control ris !or suc" accounts can be assessed at less t"an t"e a,iu as a result o! testin# controls t"e acceptable level o! detection ris &ill be increased$ 3"e e!!ect &ill be to reduce t"e assurance re5uired by substantive tests$ Ans&er .B is incorrect because eac" subse5uent event t"at re5uires consideration by ana#eent and evaluation by t"e independent auditor s"ould be e,ained$ (ence tests o! relevant controls are liely to be oitted$
[6] Source: +ublis"er Ans&er AB is incorrect because t"e auditors responsibility is Gto plan and per!or t"e audit to obtain reasonable assurance about &"et"er t"e !inancial stateents are !ree o! aterial isstateent &"et"er caused by error or !raudG A< 11B$
[6] Source: CIA 11>6 I-07 Ans&er AB is incorrect because terination o! eployees &"o per!or unsatis!actorily is not a copre"ensive de!inition o! control$
Ans&er *B is incorrect because an active and independent board stren#t"ens t"e control environent$
Ans&er *B is correct$ GA control is any action taen by ana#eent to en"ance t"e lieli"ood t"at establis"ed #oals and objectives &ill be ac"ieved$ /ana#eent plans or#ani)es and directs t"e per!orance o! su!!icient actions to provide reasonable assurance t"at objectives and #oals &ill be ac"ieved$ 3"us control is t"e result o! proper plannin# or#ani)in# and directin# by ana#eentG SIAS 1B$
Ans&er CB is correct$ A< 1> states GAnot"er liitin# !actor is t"at t"e cost o! an entitys internal control s"ould not e,ceed t"e bene!its t"at are e,pected to be derived$ Alt"ou#" t"e cost-bene!it relations"ip is a priary criterion t"at s"ould be considered in desi#nin# internal control t"e precise easureent o! costs and bene!its usually is not possible$G Ans&er .B is incorrect because t"e absence o! onitorin# &eaens internal control$
Ans&er CB is incorrect because control is not liited to processin#$ /oreover it is instituted by ana#eent not auditors$
42
Ans&er .B is incorrect because soe control procedures ay be desi#ned !ro t"e botto up but t"e concept o! control !lo&s !ro ana#eent do&n t"rou#" t"e or#ani)ation$
[67] Source: C/A 12>6 4-27 Ans&er AB is incorrect because coputer con!i#uration is not an eleent o! a data !lo& dia#ra$
[64] Source: CIA 6>2 II-10
Ans&er *B is correct$ Structured analysis is a #rap"ical et"od o! de!inin# t"e inputs processes and outputs o! a syste and dividin# it into subsystes$ It is a top do&n approac" t"at speci!ies t"e inter!aces bet&een odules and t"e trans!orations occurrin# &it"in eac"$ .ata !lo& dia#ras are used in structured analysis$ 3"e basic eleents o! a data !lo& dia#ra include data source data destination data !lo&s trans!oration processes and data stora#e$
Ans&er AB is correct$ Accordin# to 3"e IIAs SIAS 1 G9easonable assurance is provided &"en cost-e!!ective actions are taen to restrict deviations to a tolerable level$ 3"is iplies !or e,aple t"at aterial errors and iproper or ille#al acts &ill be prevented or detected and corrected &it"in a tiely period by eployees in t"e noral course o! per!orin# t"eir assi#ned duties$ 3"e cost-bene!it relations"ip is considered by ana#eent durin# t"e desi#n o! systes$ 3"e potential loss associated &it" any e,posure or ris is &ei#"ed a#ainst t"e cost to control it$G
Ans&er CB is incorrect because a pro#ra !lo&c"art is not an eleent o! a data !lo& dia#ra$ Ans&er .B is incorrect because a pro#ra !lo&c"art is not an eleent o! a data !lo& dia#ra$
Ans&er *B is incorrect because collusion is an in"erent liitation o! internal control$ Ans&er CB is incorrect because t"e board o! directors or a siilar body is responsible !or t"e #uidance and oversi#"t o! ana#eent$
[68] Source: CIA 11> II-8 Ans&er AB is correct$ Accordin# to SIAS 1 G/ana#eent plans or#ani)es and directs in suc" a !as"ion as to provide reasonable assurance t"at establis"ed #oals and objectives &ill be ac"ieved$G Also G/ana#eent establis"es and aintains an environent t"at !osters control$G
Ans&er .B is incorrect because t"e e,aination and evaluation o! ana#eent processes is a !unction o! t"e internal auditin# departent$ [66] Source: +ublis"er
Ans&er *B is incorrect because internal auditin# is responsible !or revie&in# t"e reliability and inte#rity o! !inancial in!oration and t"e eans used to collect and report suc" in!oration$
Ans&er AB is incorrect because e,ternal auditors are responsible !or t"e independent outside audit o! !inancial stateents$
Ans&er CB is incorrect because ana#eent cannot dele#ate its responsibilities !or control to auditors$
Ans&er *B is incorrect because accounts receivable sta!! is responsible !or daily transaction "andlin#$
Ans&er .B is incorrect because t"e board "as oversi#"t responsibilities but ordinarily does not becoe involved in t"e details o! operations$
Ans&er CB is incorrect because internal auditors are responsible !or e,ainin# and evaluatin# t"e ade5uacy and e!!ectiveness o! internal control$
[6>] Source: +ublis"er Ans&er .B is correct$ /ana#eent is responsible !or establis"in# #oals and objectives developin# and ipleentin# control procedures and accoplis"in# desired results$
Ans&er AB is incorrect because t"e auditor is not re5uired to report violations o! t"e act to t"e S?C alt"ou#" a duty to disclose outside t"e client ay e,ist in soe circustancesD e$#$ t"e clients !ailure to tae reedial action re#ardin# an ille#al act ay constitute a disa#reeent t"at it ust report on =or 8-@ A< 17B$
[60] Source: CIA 11> II-7 Ans&er AB is incorrect because t"is reportin# relations"ip is a stren#t"$ It prevents t"e in!oration systes operation !ro bein# doinated by a user$
Ans&er *B is incorrect because t"e traditional attest !unction does not involve copliance auditin#$
Ans&er *B is incorrect because eac" is a noral and appropriate reportin# relations"ip$
Ans&er CB is incorrect because t"e =C+A contains no re5uireent t"at an auditor e,press an opinion on internal control$
Ans&er CB is correct$ 3"e audit coittee "as a control !unction because o! its oversi#"t o! internal as &ell as e,ternal auditin#$ It s"ould be ade up o! directors &"o are independent o! ana#eent$ 3"e aut"ority and independence o! t"e audit coittee stren#t"en t"e position o! internal auditin#$ 3"e board s"ould concur in t"e appointent or reoval o! t"e director o! internal auditin# &"o s"ould "ave direct re#ular counication &it" t"e board Standard 11B$
Ans&er .B is correct$ %"et"er a client is in con!ority &it" t"e =orei#n Corrupt +ractices Act is a le#al 5uestion$ Auditors cannot be e,pected to provide clients or users o! t"e !inancial stateents &it" le#al advice$ 3"e role o! t"e auditor is to assess control ris in t"e course o! an en#a#eent to attest to t"e !air presentation o! t"e !inancial stateents$ [0] Source: C/A 1286 -
Ans&er .B is incorrect because eac" is a noral and appropriate reportin# relations"ip$
Ans&er AB is incorrect because copliance &it" t"e =C+A is not t"e speci!ic responsibility o! t"e c"ie!
43
!inancial o!!icer$
pictorial !as"ion t"e !lo& o! data docuents and;or operations in a syste$ =lo&c"arts ay suari)e a syste or present #reat detail e$#$ as !ound in pro#ra !lo&c"arts$ Accordin# to t"e Aerican ational Standards Institute t"e diaond-s"aped sybol represents a decision point or test o! a condition in a pro#ra !lo&c"art t"at is t"e point at &"ic" a deterination ust be ade as to &"ic" lo#ic pat" branc"B to !ollo&$ 3"e diaond is also soeties used in systes !lo&c"arts$
Ans&er *B is incorrect because copliance &it" t"e =C+A is not t"e speci!ic responsibility o! t"e board o! directors$ Ans&er CB is incorrect because copliance &it" t"e =C+A is not t"e speci!ic responsibility o! t"e director o! internal auditin#$ Ans&er .B is correct$ 3"e accountin# re5uireents apply to all public copanies t"at ust re#ister under t"e Securities ?,c"an#e Act o! 1>4$ 3"e
Ans&er .B is incorrect because a prede!ined processin# step is represented by a rectan#le &it" double lines on eit"er side$
responsibility is t"us placed on copanies not individuals$ [04] Source: +ublis"er [01] Source: +ublis"er Ans&er AB is incorrect because industry conditions relate to !raudulent reportin#$
Ans&er AB is incorrect because t"e audit s"ould provide reasonable assurance about &"et"er t"e !inancial stateents are !ree o! aterial isstateents$
Ans&er *B is incorrect because operatin# c"aracteristics relate to !raudulent reportin#$
Ans&er *B is incorrect because t"e ris o! aterial isstateent due to !raud ust be assessed$
Ans&er CB is incorrect because ana#eents c"aracteristics relate to !raudulent reportin#$
Ans&er CB is incorrect because t"e ris o! aterial isstateent due to !raud ust be assessed$
Ans&er .B is correct$ 3"e auditor ust speci!ically assess t"e ris o! aterial isstateent due to !raud a ris t"at is part o! audit ris$ 3"e assessent is considered in desi#nin# audit procedures$ Accordin#ly A< 10 states t"at t"e auditor s"ould consider t"ree cate#ories o! ris !actors related to !raudulent reportin#: ana#eents c"aracteristics and in!luence over t"e control environent industry conditions and operatin# c"aracteristics and !inancial stability$ 3"e t&o cate#ories o! ris !actors related to isappropriation o! assets are controls and susceptibility o! assets to isappropriation$
Ans&er .B is correct$ A< 10 Consideration o! =raud in a =inancial Stateent Audit re5uires t"at t"e auditor speci!ically assess t"e ris o! aterial isstateent due to !raud$ 3"is assessent is considered in t"e desi#n o! audit procedures$ 3"e !raud ris !actors to be considered in t"is assessent relate to isstateents arisin# !ro 1B !raudulent reportin# and 2B isappropriation o! assets$ [06] Source: +ublis"er Ans&er AB is correct$ 3"e auditor &ould be concerned i! t"e decision process &ere doinated by one individual or a sall #roup$ In t"at case copensatin# controls e$#$ e!!ective oversi#"t by t"e audit coittee reduce ris$
[02] Source: +ublis"er Ans&er AB is incorrect because t"e t&o conditions are ordinarily present in !raud$
Ans&er *B is incorrect because one ris !actor is ana#eents coitent to t"ird parties to ac"ieve unduly a##ressive or clearly unrealistic !orecasts$
Ans&er *B is incorrect because isstateents arisin# !ro !raudulent reportin# are intentional isstateents or oissions to deceive !inancial stateent users and isstateents arisin# !ro isappropriation o! assets involve t"e!t t"e e!!ect o! &"ic" is noncon!ority o! t"e !inancial stateents &it" JAA+$
Ans&er CB is incorrect because anot"er ris !actor is display o! an e,cessive interest in iprovin# t"e entitys stoc price or earnin#s trend t"rou#" use o! unusually a##ressive accountin# practices$
Ans&er CB is correct$ /isappropriation o! assets ay be accopanied by !alse or isleadin# records and ay involve one or ore individuals aon# ana#eent eployees or t"ird parties$
Ans&er .B is incorrect because still anot"er ris !actor pertainin# to ana#eents c"aracteristics and in!luence over t"e control environent is an interest in inappropriate et"ods o! inii)in# earnin#s !or ta, purposes$
Ans&er .B is incorrect because auditors are not trained or e,pected to be e,perts in aut"entication and t"ere is soe ris t"at !raud ay #o undetected$
[00] Source: +ublis"er Ans&er AB is incorrect because t"e concept o! ateriality applies to all auditees$
[0] Source: CIA 68> III-18 Ans&er AB is incorrect because t"e rectan#le is t"e appropriate sybol !or a process or a sin#le step in a procedure or pro#ra$
Ans&er *B is incorrect because ateriality applies to all JAAS$
Ans&er *B is incorrect because a terinal display is si#ni!ied by a sybol siilar to t"e s"ape o! a cat"ode ray tube$
Ans&er CB is incorrect because t"e de#ree o! in"erent ris is t"e reason t"at ore e!!ort ust be directed to assertions e$#$ cas"B t"at are ore susceptible to isstateent$
Ans&er CB is correct$ =lo&c"arts illustrate in
Ans&er .B is correct$ 3"e concept o! ateriality
44
reco#ni)es t"at soe but not all atters are iportant to t"e !airness o! t"e !inancial stateents$ GAudit ris is t"e ris t"at t"e auditor ay unno&in#ly !ail to appropriately odi!y t"e opinion on !inancial stateents t"at are aterially isstatedG A< 12B$ A decrease eit"er in t"e aount o! isstateents deeed to be aterial or in t"e acceptable level o! audit ris re5uires t"e auditor to select ore e!!ective procedures per!or procedures closer to t"e balance s"eet date or increase t"e e,tent o! procedures$
Ans&er *B is correct$ Internal control is a process desi#ned to provide reasonable assurance re#ardin# t"e ac"ieveent o! or#ani)ational objectives$ *ecause o! in"erent liitations "o&ever no syste can be desi#ned to eliinate all !raud$ Ans&er CB is incorrect because internal control can provide reasonable assurance re#ardin# copliance &it" applicable la&s and re#ulations$ Ans&er .B is incorrect because internal control can provide reasonable assurance re#ardin# e!!ectiveness and e!!iciency o! operations$
[07] Source: +ublis"er Ans&er AB is incorrect because JAAS ust be applied in all !inancial stateent audits$
[7] Source: CIA 682 I-4
Ans&er *B is incorrect because in"erent ris and control ris &"ic" depend on t"e entitys uni5ue circustances and not t"e auditors procedures ust bot" be assessed to calculate t"e acceptable detection ris$
Ans&er AB is correct$ 3"e need !or ana#eent to spend tie on a day-to-day basis revie&in# e,ception reports is reduced &"en internal control is &orin# e!!ectively$ An e!!ective internal control s"ould prevent as &ell as detect e,ceptions$
Ans&er CB is incorrect because t"e acceptable detection ris is a !unction o! t"e assessents o! in"erent ris and control ris$
Ans&er *B is incorrect because soe riss are unavoidable and ot"ers can be eliinated only at e,cessive costs$
Ans&er .B is correct$ 3"e ris o! aterial isstateent audit risB in a !inancial stateent assertion e5uals t"e product o! in"erent ris control ris and detection ris e,pressed as probabilitiesB$ In"erent ris is t"e ris t"at an assertion could be aterially isstated in t"e absence o! related controls$ Control ris is t"e ris t"at a aterial isstateent t"at could occur in an assertion &ill not be prevented or detected on a tiely basis by t"e related control policies and procedures$ .etection ris is t"e ris t"at t"e auditor &ill not d etect a aterial isstateent$ 3"e acceptable level o! detection ris is a !unction o! t"e assessed levels o! in"erent ris and control ris$ (ence as t"e latter increase t"e acceptable level o! detection ris decreases$
Ans&er CB is incorrect because t"e potential !or ana#eent override is a basic liitation o! internal control$ Ans&er .B is incorrect because controls s"ould be odi!ied as appropriate !or c"an#es in conditions$ [71] Source: +ublis"er Ans&er AB is incorrect because sa!e#uardin# resources is subsued under t"e overall purpose o! providin# reasonable assurance t"at t"e objectives o! t"e or#ani)ation are ac"ieved$ Ans&er *B is correct$ Accordin# to A< 1> GInternal control is a process e!!ected by an entitys board o! directors ana#eent and ot"er personnel desi#ned to provide reasonable assurance re#ardin# t"e ac"ieveent o! objectives in t"e !ollo&in# cate#ories: reliability o! !inancial reportin# e!!ectiveness and e!!iciency o! operations and copliance &it" applicable la&s and re#ulations$G
[08] Source: +ublis"er Ans&er AB is correct$ (uan resource policies and practices are a !actor in t"e control environent coponent o! internal control$ 3"ey a!!ect t"e entitys ability to eploy su!!icient copetent personnel to accoplis" its objectives$ +olicies and practices include t"ose !or "irin# orientation trainin# evaluatin# prootin# copensatin# and reedial actions$ Alt"ou#" control activities based on t"e se#re#ation o! duties are iportant to internal control t"ey do not in t"eselves proote eployee copetence$
Ans&er CB is incorrect because encoura#in# copliance &it" ana#eents intentions is subsued under t"e overall purpose o! providin# reasonable assurance t"at t"e objectives o! t"e or#ani)ation are ac"ieved$ Ans&er .B is incorrect because ensurin# t"e accuracy reliability and tieliness o! in!oration is subsued under t"e overall purpose o! providin# reasonable assurance t"at t"e objectives o! t"e or#ani)ation are ac"ieved$
Ans&er *B is incorrect because e!!ective "irin# practices result in selection o! copetent eployees$ Ans&er CB is incorrect because e!!ective trainin# pro#ras increase t"e copetence o! eployees$
[72] Source: +ublis"er Ans&er .B is incorrect because per!orance evaluations iprove copetence by identi!yin# substandard &or and by servin# as a basis !or re&ardin# e,ceptional e!!orts$
Ans&er AB is correct$ +reventive controls are desi#ned to prevent an error or an irre#ularity$ .etective and corrective controls attept to identi!y and correct errors or irre#ularities t"at "ave already occurred$ +reventive controls are usually ore cost bene!icial t"an detective or corrective controls$ Assi#nin# t&o individuals to open ail is an attept to prevent isstateent o! cas" receipts$
[0>] Source: +ublis"er Ans&er AB is incorrect because internal control can provide reasonable assurance re#ardin# reliability o! !inancial reportin#$
Ans&er *B is incorrect because reconcilin# t"e
45
subsidiary !ile &it" t"e aster !ile ay detect and lead to t"e correction o! errors but t"e control does not prevent errors$
#rap"ically presents t"e !lo& o! !ors docuentsB t"rou#" a syste t"at relate to a #iven transaction e$#$ t"e processin# o! a custoers order$ It s"o&s t"e source !lo& processin# and !inal disposition o! t"e various copies o! all related docuents$
Ans&er CB is incorrect because t"e use o! batc" totals ay detect a issin# or lost docuent but &ill not necessarily prevent a docuent !ro becoin# lost$
[70] Source: CIA 11>1 II-1
Ans&er .B is incorrect because ban reconciliations disclose errors in t"e accounts but "ave no preventive e!!ect$
Ans&er AB is incorrect because !actors 2 4 and 7 are not 5uanti!iable in dollars$ Ans&er *B is incorrect because !actors 2 4 and 7 are not 5uanti!iable in dollars$
[7] Source: CIA 1187 I-1 Ans&er CB is correct$ Audit ris is t"e ris t"at t"e audit &ill not detect aterial isstateents$ /ateriality is a !unction o! 5uantitative and 5ualitative !actors o! &"ic" t"e !orer are obviously ore readily de!ined$ =actors 1 6 and 0 can all be 5uanti!ied$
Ans&er AB is incorrect because !ailure to se#re#ate t"e !unctions o! recordin# and asset custody is an avoidable condition$ Ans&er *B is correct$ In"erent liitations o! internal control arise !ro !aulty jud#ent in decision ain# siple error or istae and t"e possibility o! collusion and ana#eent override A< 1>B$ 3"us a control use o! security #uardsB based on se#re#ation o! !unctions ay be overcoe by collusion aon# t&o or ore eployees$
Ans&er .B is incorrect because !actors and 4 are not 5uanti!iable in dollars$ [77] Source: CIA 6>2 II-17
Ans&er CB is incorrect because transactions can and s"ould be aut"ori)ed be!ore e,ecution$
Ans&er AB is incorrect because a #roup "as a better c"ance o! success!ully perpetratin# a !raud t"an does an individual eployee$
Ans&er .B is incorrect because assi#nent o! an un5uali!ied eployee is an avoidable not an in"erent control &eaness$
Ans&er *B is correct$ Se#re#ation o! duties and ot"er control procedures serve to prevent or detect a !raud coitted by an eployee actin# alone$ One eployee ay not "ave t"e ability to en#a#e in &ron#doin# or ay be subject to detection by ot"er eployees in t"e course o! per!orin# t"eir assi#ned duties$ (o&ever collusion ay circuvent controls$ =or e,aple coparison o! recorded accountability &it" assets ay !ail to detect !raud i! persons "avin# custody o! assets collude &it" record eepers$
[74] Source: C/A 128 -14 Ans&er AB is incorrect because aut"ori)ation and record eepin# s"ould be separate$ Ans&er *B is incorrect because aut"ori)ation and asset custody s"ould be separate$
Ans&er CB is incorrect because ana#eent can override controls$
Ans&er CB is incorrect because record eepin# and asset custody s"ould be separate$
Ans&er .B is incorrect because even a sin#le ana#er ay be able to override controls$
Ans&er .B is correct$ One person s"ould not be responsible !or all p"ases o! a transaction i$e$ !or aut"ori)ation e,ecution recordin# and custodians"ip o! t"e related assets$ 3"ese duties s"ould be per!ored by separate individuals to reduce t"e opportunities !or any person to be in a position o! bot" perpetratin# and concealin# errors or !raud in t"e noral course o! "is;"er duties$ =or instance an eployee &"o receives and lists cas" receipts s"ould not be responsible !or coparin# t"e recorded accountability !or cas" &it" e,istin# aounts$
[78] Source: CIA 1188 I-10 Ans&er AB is correct$ Accordin# to SIAS 1 GA control is any action taen by ana#eent to en"ance t"e lieli"ood t"at establis"ed objectives and #oals &ill be ac"ieved$G 3"e objective o! directive controls is to cause or encoura#e desirable events to occur e$#$ providin# ana#eent &it" assurance o! t"e reali)ation o! speci!ied iniu #ross ar#ins on sales$
[76] Source: C/A 078 6-1 Ans&er *B is incorrect because preventive controls deter undesirable events !ro occurrin#$
Ans&er AB is incorrect because a pro#ra !lo&c"art represents t"e se5uence o! lo#ical operations per!ored durin# t"e e,ecution o! a coputer pro#ra$
Ans&er CB is incorrect because detective controls detect and correct undesirable events$
Ans&er *B is incorrect because a decision table consists o! t"e possible cobinations o! alternative lo#ic conditions and correspondin# courses o! action !or eac" condition in a coputer pro#ra$
Ans&er .B is incorrect because output controls relate to t"e accuracy and reasonableness o! in!oration processed by a syste not to operatin# controls$
Ans&er CB is incorrect because a syste !lo&c"art is used to represent t"e !lo& o! d ata t"rou#" an autoated data processin# syste$
[7>] Source: CIA 11>2 II-16 Ans&er AB is correct$ Accordin# to SIAS 1 GA control is any action taen by ana#eent to
Ans&er .B is correct$ A docuent !lo&c"art
46
en"ance t"e lieli"ood t"at establis"ed objectives and #oals &ill be ac"ieved$ /ana#eent plans or#ani)es and directs t"e per!orance o! su!!icient actions to provide reasonable assurance t"at objectives and #oals &ill be ac"ieved$ 3"us control is t"e result o! proper plannin# or#ani)in# and directin# by ana#eent$G
Ans&er CB is incorrect because "irin# ared #uards to escort t"e scrap trailers is unliely to be necessary unless t"e scrap is e,treely valuable$ o##in# departures and arrivals &ill be su!!icient in ost cases$
Ans&er *B is incorrect because objectives are t"e broadest stateents o! &"at t"e or#ani)ation c"ooses to accoplis"$
Ans&er .B is incorrect because usin# an independent "auler &ould provide no additional assurance o! prevention or detection o! &ron#doin#$
Ans&er CB is incorrect because reasonable assurance is provided &"en cost-e!!ective actions are taen to restrict deviations to a tolerable level$
[8] Source: CIA 11>1 I-12 Ans&er AB is incorrect because soeone &"o does not "ave custody o! assets s"ould reconcile t"e ban stateents to accountin# records$
Ans&er .B is incorrect because e!!icient per!orance accoplis"es objectives and #oals in an accurate and tiely !as"ion &it" inial use o! resources$
Ans&er *B is correct$ Independent reconciliation o! ban accounts is necessary !or e!!ective internal control$ +ersons involved in ain# disburseents or receivin# payents s"ould not reconcile t"e ban stateent &it" t"e accountin# records$ Se#re#atin# t"ese !unctions reduces t"e opportunity !or perpetratin# and concealin# !raud$
[8] Source: CIA 6>6 I-6 Ans&er AB is incorrect because a pro#ra !lo&c"art &ill identi!y t"e speci!ic edit tests ipleented$ Ans&er *B is correct$ Systes !lo&c"arts are overall #rap"ic analyses o! t"e !lo& o! data and t"e processin# steps in an in!oration syste$ Accordin#ly t"ey can be used to s"o& se#re#ation o! duties and t"e trans!er o! data bet&een di!!erent se#ents in t"e or#ani)ation$
Ans&er CB is incorrect because t"e 5uestion does not indicate t"at t"e treasurer "as access to t"e accountin# records and t"us "as t"e ability to ae unaut"ori)ed adjustents to t"e cas" account$ Ans&er .B is incorrect because e!!ective control easures &ould provide t"e t&o opportunities to t&o di!!erent persons in positions o! responsibility t"e treasurer and t"e controller$
Ans&er CB is incorrect because t"e !lo&c"arts are usually not ept up to date !or c"an#es$ 3"us t"e auditor &ill "ave to intervie& ey personnel to deterine c"an#es in processin# since t"e !lo&c"art &as developed$
[84] Source: CIA 6>2 II-16
Ans&er .B is incorrect because a systes !lo&c"art s"ould s"o& bot" anual and coputer processin#$
Ans&er AB is incorrect because insurance provides !or indeni!ication i! loss or t"e!t occurs$ It reduces !inancial e,posure but does not prevent t"e actual loss or t"e!t$
[81] Source: CIA 6> I-> Ans&er AB is incorrect because t"e treasurer s"ould per!or t"e asset custody !unction re#ardin# payroll$
Ans&er *B is incorrect because an internal control desi#ned to ensure control over repair &or per!ored "as no bearin# on t"e ris o! loss$
Ans&er *B is incorrect because aut"ori)in# overtie is a responsibility o! operatin# ana#eent$
Ans&er CB is incorrect because tain# an inventory is a detective not a preventive control$
Ans&er CB is correct$ 3"e payroll departent is responsible !or asseblin# payroll in!oration record eepin#B$ 3"e personnel departent is responsible !or aut"ori)in# eployee transactions suc" as "irin# !irin# and c"an#es in pay rates and deductions$ Se#re#atin# t"e recordin# and aut"ori)ation !unctions "elps prevent !raud$
Ans&er .B is correct$ +"ysical control o! assets is a preventive control t"at reduces t"e lieli"ood o! t"e!t or ot"er loss$ @eepin# t"e ve"icles at a secure location and restrictin# access establis"es accountability by t"e custodian and allo&s !or proper aut"ori)ation o! t"eir use$
Ans&er .B is incorrect because unclaied c"ecs s"ould be in t"e custody o! t"e treasurer until t"ey can be deposited in a special ban account$
[86] Source: CIA 6>2 II-22 Ans&er AB is correct$ SIAS 1 states G?!!ective control is present &"en ana#eent directs systes in suc" a anner as to provide reasonable assurance t"at t"e or#ani)ations objectives and #oals &ill be ac"ieved$G .irectin# includes Gaut"ori)in# and onitorin# per!orance periodically coparin# actual &it" planned per!orance and docuentin# t"ese activities to provide additional assurance t"at systes operate as planned$G /onitorin# Gencopasses supervisin# observin# and testin# activities and appropriately reportin# to responsible individuals$ /onitorin# provides an on#oin# veri!ication o! pro#ress to&ard ac"ieveent o! objectives and #oals$G
[82] Source: CIA 6>1 I-26 Ans&er AB is incorrect because per!orin# a coplete p"ysical inventory o! t"e scrap at bot" locations &ould not be econoically !easible$ Ans&er *B is correct$ (avin# t"e security #uards record t"e ties o! departure and arrival is a cost e!!ective control because it entails no additional e,penditures$ Coparin# t"e tie elapsed &it" t"e standard tie allo&ed and investi#atin# aterial variances ay detect a diversion o! part o! t"e scrap$
47
Ans&er *B is incorrect because t"e anual advises but does not control$
Ans&er .B is incorrect because con!irin# &it" t"e custodian t"e aount o! inventory on "and does not veri!y t"at t"e inventory is actually at t"e &are"ouse$
Ans&er CB is incorrect because a 5uality control departent is a !or o! internal revie&$ 3"e ana#er o! 5uality control s"ould be independent o! t"e operations revie&ed$
[8>] Source: CIA 11>6 I-10
Ans&er .B is incorrect because internal revie&s suc" as internal auditin#B s"ould be independent o! t"e operations revie&ed and are not a ana#erial !unction$
Ans&er AB is incorrect because t"e ana#ers activity is an e,aple o! a reconciliation control applied at t"e store level$ /onitorin# is an overall control t"at deterines &"et"er ot"er controls are operatin# e!!ectively$
[80] Source: CIA 11>2 II-10
Ans&er *B is incorrect because t"e division o! duties is an operational control$
Ans&er AB is correct$ 3"e ris o! !avoritis is increased &"en buyers "ave lon#-ter relations"ips &it" speci!ic vendors$ +eriodic rotation o! buyer assi#nents &ill liit t"e opportunity to s"o& !avoritis$ 3"is ris is also reduced i! buyers are re5uired to tae vacations$
Ans&er CB is correct$ /onitorin# is a process t"at assesses t"e 5uality o! t"e internal control structures per!orance over tie$ It involves assessent by appropriate personnel o! t"e desi#n and operation o! controls and t"e tain# o! corrective action$ /onitorin# can be done t"rou#" on#oin# activities or separate evaluations$ On#oin# onitorin# procedures are built into t"e noral recurrin# activities o! an entity and include re#ular ana#eent and supervisory activities$ 3"us analysis o! #ross ar#in data and investi#ation o! si#ni!icant deviations is a onitorin# process$
Ans&er *B is incorrect because con!iration does not enable internal auditors to detect inappropriate bene!its received by purc"asin# a#ents or deter lon#-ter relations"ips$ Ans&er CB is incorrect because value per unit o! cost revie&s could be "elp!ul in assurin# value received !or price paid but do not directly !ocus on receipt o! inappropriate bene!its by purc"asin# a#ents$
Ans&er .B is incorrect because daily transission o! cas" is an operational control$
Ans&er .B is incorrect because revie& o! records every 0 ont"s does not enable t"e or#ani)ation to detect receipt o! inappropriate aounts by an a#ent or deter relations"ips t"at could lead to suc" activity$
[>] Source: CIA 118> II-7 Ans&er AB is correct$ A prelistin# o! cas" receipts in t"e !or o! c"ecs is a preventive control$ It is intended to deter undesirable events !ro occurrin#$ *ecause !raud involvin# cas" is ost liely to occur be!ore receipts are recorded eit"er reittance advices or a prelistin# o! c"ecs s"ould be prepared in t"e ail roo so as to establis" recorded accountability !or cas" as soon as possible$ A cas" re#ister tape is a !or o! prelistin# !or cas" received over t"e counter$ One copy o! a prelistin# &ill #o to accountin# !or postin# to t"e cas" receipts journal and anot"er is sent to t"e cas"ier !or reconciliation &it" c"ecs and currency received$
[87] Source: CIA 11> II-8 Ans&er AB is correct$ Accordin# to SIAS 1 G/ana#eent plans or#ani)es and directs in suc" a !as"ion as to provide reasonable assurance t"at establis"ed #oals and objectives &ill be ac"ieved$G Also G/ana#eent establis"es and aintains an environent t"at !osters control$G Ans&er *B is incorrect because internal auditin# is responsible !or revie&in# t"e reliability and inte#rity o! !inancial in!oration and t"e eans used to collect and report suc" in!oration$
Ans&er *B is incorrect because a corrective control recti!ies an error or !raud$ Ans&er CB is incorrect because a detective control uncovers an error or !raud t"at "as already occurred$
Ans&er CB is incorrect because ana#eent cannot dele#ate its responsibilities !or control to auditors$
Ans&er .B is incorrect because a directive control causes or encoura#es a desirable event$
Ans&er .B is incorrect because t"e board "as oversi#"t responsibilities but ordinarily does not becoe involved in t"e details o! operations$
[>1] Source: CIA 11> I-18 [88] Source: CIA 11>4 I-20
Ans&er AB is correct$ Independent reconciliation o! ban accounts is necessary !or e!!ective internal control$ +ersons involved in ain# disburseents or receivin# payents s"ould not reconcile t"e ban stateent &it" t"e accountin# records$ Se#re#atin# t"ese !unctions reduces t"e opportunity !or perpetratin# and concealin# !raud$
Ans&er AB is incorrect because e,aination o! docuents is a less e!!ective procedure t"an actual observation o! t"e inventory$ Ans&er *B is incorrect because increasin# insurance covera#e "elps protect t"e business a#ainst losses but does not stren#t"en internal control o ver t"e custody o! inventory$
Ans&er *B is incorrect because it is not an iportant internal control consideration$
Ans&er CB is correct$ 3"e ost e!!ective control over o!!-site inventory is t"e periodic coparison o! t"e recorded accountability &it" t"e actual p"ysical inventory$
Ans&er CB is incorrect because !orei#n currency translation rates are veri!ied not coputed$ (avin# t&o eployees in t"e sae departent per!or t"e sae tas &ill not si#ni!icantly en"ance internal
48
control$
ain# payent$
Ans&er .B is incorrect because it is not an iportant internal control consideration$
Ans&er .B is incorrect because t"e receivin# departent s"ould trans!er #oods directly to t"e storeroo to aintain security$ A copy o! t"e receivin# report s"ould be sent to t"e storeroo so t"at t"e aount stored can be copared &it" t"e aount in t"e report$
[>2] Source: CIA 118> I-1 Ans&er AB is incorrect because t"e ban reconciliation is a detective not a preventive control$
[>6] Source: CIA 11> II-8 Ans&er *B is correct$ Se5uentially nubered receipts s"ould be issued to deterine accountability !or cas" collected$ Suc" accountability s"ould be establis"ed as soon as possible because cas" "as a "i#" in"erent ris$ .aily cas" receipts s"ould be deposited intact so t"at receipts and ban deposits can be reconciled$ 3"e reconciliation s"ould be per!ored by soeone independent o! t"e cas" custody !unction$
Ans&er AB is incorrect because !ailin# to approve t"e tie cards &ould not result in duplicate payc"ecs$ Ans&er *B is incorrect because t"is error ay result i! t"e "ourly rates used to calculate pay are not atc"ed &it" personnel records$
Ans&er CB is incorrect because it states a control over t"e copleteness o! postin# routines not cas" receipts$
Ans&er CB is correct$ =irst-line supervisors are in a position to deterine &"et"er eployees "ave actually &ored t"e "ours indicated on t"eir tie cards$ Accordin#ly t"e supervisors approval is a necessary control to prevent unearned payents$
Ans&er .B is incorrect because a cas" reittance list s"ould be prepared be!ore a separate eployee prepares t"e ban deposit$ 3"e list and deposit represent separate records based on independent counts ade by di!!erent eployees$
Ans&er .B is incorrect because t"is istae could be prevented by positively identi!yin# payc"ec recipients$ [>0] Source: CIA 11> II->
[>] Source: CIA 11> I-1 Ans&er AB is incorrect because t"is control does not ensure t"at ra& aterials are o! su!!icient 5uality$
Ans&er AB is incorrect because ailin# c"ecs to eployees residences does not test t"e validity o! t"e payroll$
Ans&er *B is correct$ Speci!ications !or aterials purc"ased provide an objective eans o! deterinin# t"at t"e aterials eet t"e iniu 5uality level re5uired !or production$ .eviations s"ould be aut"ori)ed at "i#"er levels o! ana#eent$
Ans&er *B is incorrect because establis"in# direct-deposit procedures &it" eployees bans does not test t"e validity o! t"e payroll$ Ans&er CB is correct$ A coon !or o! payroll !raud involves !ailure to reove terinated eployees !ro t"e payroll and t"e diversion o! t"e payents intended to be ade to t"e$ 9econcilin# tie cards job tie ticets and t"e payroll ay detect t"is !raud$ (o&ever t"e perpetrator &"o ay be a supervisor ay be able to !alsi!y t"e tie-eepin# records$ In t"at case a surprise observation o! t"e distribution o! payroll ay be necessary to detect t"e !raud$
Ans&er CB is incorrect because t"is control only "elps ensure t"at ra& aterials are used in t"e proper 5uantities$ Ans&er .B is incorrect because deterination o! spoila#e occurs a!ter ra& aterials "ave been used in production$ [>7] Source: CIA 11>1 I-1
Ans&er .B is incorrect because !raudulent payents ay be ade &it"in t"e liits on payroll rates$
Ans&er AB is correct$
[>4] Source: CIA 68> II-1 Ans&er AB is incorrect because t"e ana#ers s"ould subit purc"ase re5uisitions to t"e purc"asin# departent$ 3"e purc"asin# !unction s"ould be separate !ro operations$ Ans&er *B is incorrect because to encoura#e a !air count t"e receivin# departent s"ould receive a copy o! t"e purc"ase order !ro &"ic" t"e 5uantity "as been oitted$
Ans&er *B is incorrect because incoe ta, provisions related to depreciation c"ar#es are not a risD only t"ose c"ar#es incurred under t"e ters o! t"e contract constitute a ris$
Ans&er CB is correct$ Accountin# !or payables is a recordin# !unction$ 3"e atc"in# o! t"e suppliers invoice t"e purc"ase order and t"e receivin# report and usually t"e purc"ase re5uisitionB s"ould be t"e responsibility o! t"e accountin# departent$ 3"ese are t"e priary supportin# docuents !or t"e payent vouc"er prepared by t"e accounts payable section t"at &ill be relied upon by t"e treasurer in
Ans&er CB is incorrect because bud#ets inappropriately prepared do not a!!ect contract costs and t"ere!ore do not constitute a ris$
49
Ans&er .B is incorrect because t"e oission o! ta,es does not involve a ris o! contract overc"ar#es or inade5uacies in construction$ +ossible delays in payent or underpayents !ro t"e oission are o! less concern$
unaut"ori)ed prices to outside accoplices or at least aes errors ore liely$ [11] Source: CIA 6>6 I-12 Ans&er AB is incorrect because #oods are seasonal and store space is liited$ 9e5uirin# t"at suc" #oods be cleared is consistent &it" a,ii)in# revenue and pro!itability !or t"e or#ani)ation as a &"ole$
[>8] Source: CIA 6>2 II-10 Ans&er AB is correct$ Accordin# to SIAS 1 G9easonable assurance is provided &"en cost-e!!ective actions are taen to restrict deviations to a tolerable level$ 3"is iplies !or e,aple t"at aterial errors and iproper or ille#al acts &ill be prevented or detected and corrected &it"in a tiely period by eployees in t"e noral course o! per!orin# t"eir assi#ned duties$ 3"e cost-bene!it relations"ip is considered by ana#eent durin# t"e desi#n o! systes$ 3"e potential loss associated &it" any e,posure or ris is &ei#"ed a#ainst t"e cost to control it$G
Ans&er *B is incorrect because t"e product ana#er is evaluated based on sales and #ross ar#in$ (ence t"ere is no con!lict ne#otiatin# purc"ases and settin# sellin# prices$ Ans&er CB is incorrect because evaluatin# t"e product ana#ers on #ross ar#in and bud#eted sales attac"es responsibility to t"e ana#ers$ Ans&er .B is correct$ ?ac" store s"ould "ave a receivin# !unction$ 3"e possibility e,ists t"at #oods could be diverted !ro t"e distribution center and not delivered to t"e appropriate retail store$
Ans&er *B is incorrect because collusion is an in"erent liitation o! internal control$ Ans&er CB is incorrect because t"e board o! directors or a siilar body is responsible !or t"e #uidance and oversi#"t o! ana#eent$
[12] Source: CIA 6>6 I-14 Ans&er AB is incorrect because approval o! additional purc"ases by t"e aretin# ana#er is a preventive control not a detective control$ /oreover t"e #ross ar#in evaluation is e!!ective in evaluatin# t"e ana#er but does not address t"e t&o ajor constraints$
Ans&er .B is incorrect because t"e e,aination and evaluation o! ana#eent processes is a !unction o! t"e internal auditin# departent$ [>>] Source: CIA 11>2 I-18
Ans&er *B is incorrect because approval o! additional purc"ases by t"e aretin# ana#er is a preventive control not a detective control$ /oreover t"e #ross ar#in evaluation is e!!ective in evaluatin# t"e ana#er but does not address t"e t&o ajor constraints$
Ans&er AB is incorrect because ont"ly ban stateent reconciliation is a detective control$ 3"e events under scrutiny "ave already occurred$ Ans&er *B is incorrect because dual si#natures on all disburseents over a speci!ic dollar aount is a preventive control$ 3"e control is desi#ned to deter an undesirable event$
Ans&er CB is correct$ 3"e or#ani)ation "as t&o scarce resources to allocate: 1B its purc"asin# bud#et constrained by !inancin# abilityB and 2B t"e space available in retail stores$ 3"us t"ere is a need !or a ec"anis to allocate t"ese t&o scarce resources to a,ii)e t"e overall return to t"e or#ani)ation$ Approval o! additional purc"ases by t"e aretin# ana#er is t"e proper ec"anis$
Ans&er CB is incorrect because recordin# every transaction on t"e day it occurs is a preventive control$ 3"e control is desi#ned to deter an undesirable event$ Ans&er .B is correct$ 9e5uirin# all ebers o! t"e internal auditin# departent to be CIAs is a directive control$ 3"e control is desi#ned to encoura#e a desirable event to occur i$e$ to en"ance t"e pro!essionalis and level o! e,pertise o! t"e internal auditin# departent$
Ans&er .B is incorrect because approval o! additional purc"ases by t"e aretin# ana#er is a preventive control not a detective control$ /oreover t"e #ross ar#in evaluation is e!!ective in evaluatin# t"e ana#er but does not address t"e t&o ajor constraints$
[1] Source: CIA 11>4 I-46 [1] Source: +ublis"er Ans&er AB is incorrect because t"e custoers &ould be c"ar#ed a "i#"er price unless t"e operator entered t"e prootional price$
Ans&er AB is correct$ ?!!ective ana#eent involveent ay obviate t"e need !or ore !oral eans o! ensurin# t"at internal control objectives are et$ 3"us a saller entity ay not "ave !oral policies re#ardin# credit approval in!oration security or copetitive biddin#$ It also ay not "ave a &ritten code o! conduct$ Instead a saller entity ay develop a culture ep"asi)in# inte#rity and et"ical be"avior t"rou#" ana#eent e,aple$ /oreover an e!!ective control environent ay not re5uire outside ebers on t"e board$ In a sall copany less detailed control activities are possible &"en ana#eent retains aut"ority !or speci!ic aut"ori)ation o! transactions and oversees eployees per!orin# incopatible tass$ Counication in a sall copany is also easier because o!
Ans&er *B is incorrect because !re5uent price c"an#es &ould not overload an order entry syste$ ?ac" ite needs a price &"et"er it is t"e "i#"er price or t"e prootional price$ Ans&er CB is incorrect because operators could #ive copetitors notice o! t"e prootional price &"et"er or not t"ey enter t"e prices into t"e coputer$ Ans&er .B is correct$ ?nterin# price c"an#es into t"e coputer syste s"ould be a centrali)ed duty$ +erittin# operators to enter t"e prootional prices creates an opportunity !or collusion to sell #oods at
50
ana#eents #reater visibility and availability$
certain ana#eent decision processes t"at ordinarily are not relevant to a !inancial stateent audit$
Ans&er *B is incorrect because cople, transactions re5uireents ay necessitate t"e ore !oral arran#eents !ound in lar#er entities$
Ans&er *B is correct$ 3"e controls ost liely to be relevant to a !inancial stateent audit pertain to t"e entitys objective o! preparin# e,ternal !inancial stateents t"at are !airly presented in con!ority &it" JAA+ or anot"er copre"ensive basis o! accountin#$ /aintenance o! control over unused c"ecs is relevant because t"e objective is to sa!e#uard cas"$ 3"e auditor ust understand t"e controls relevant to t"e assertions about cas" in t"e !inancial stateents$ SB"e ust t"en assess control ris !or t"ose assertionsD t"at is sB"e ust evaluate t"e e!!ectiveness o! t"e controls in preventin# or detectin# aterial isstateents$
Ans&er CB is incorrect because le#al or re#ulatory re5uireents ay necessitate t"e ore !oral arran#eents !ound in lar#er entities$ Ans&er .B is incorrect because all entities s"ould establis" !inancial reportin# o bjectives$ (o&ever t"ey ay be reco#ni)ed iplicitly rat"er t"an e,plicitly in saller entities$ /ana#eent can assess t"e r iss related to t"ese objectives t"rou#" direct personal involveent rat"er t"an a !oral assessent process$
Ans&er CB is incorrect because aretin# analysis concerns t"e e!!ectiveness and e!!iciency o! certain ana#eent decision processes t"at ordinarily are not relevant to a !inancial stateent audit$
[14] Source: +ublis"er Ans&er AB is incorrect because it is appropriate !or t&o o!!icers to be re5uired to open t"e sa!e-deposit bo,$ One supervises t"e ot"er$
Ans&er .B is incorrect because production analysis concerns t"e e!!ectiveness and e!!iciency o! certain ana#eent decision processes t"at ordinarily are not relevant to a !inancial stateent audit$
Ans&er *B is correct$ Storeroo personnel "ave custody o! assets &"ile supervisors are in c"ar#e o! e,ecution !unctions$ 3o #ive supervisors access to t"e ra& aterials storeroo is a violation o! t"e essential internal control principle o! se#re#ation o! !unctions$
[17] Source: C/A 1288 -22
Ans&er CB is incorrect because ail roo clers typically copile a prelistin# o! cas"$ 3"e list is sent to t"e accountant as a control !or actual cas" sent to t"e cas"ier$
Ans&er AB is correct$ Internal control "as !ive coponents: t"e control environent ris assessent control activities in!oration and counication and onitorin#$ Control activities include se#re#ation o! duties to reduce t"e ris t"at any person ay be able to perpetrate and conceal errors or !raud in t"e noral course o! "is;"er duties$ .i!!erent persons s"ould aut"ori)e transactions record transactions and aintain custody o! assets$ 3"e treasurers departent s"ould "ave custody o! assets but s"ould not aut"ori)e or record transactions$ *ecause t"e assistant treasurer reports to t"e treasurer t"e treasurer is erely dele#atin# an assi#ned duty related to asset custody$ 3"e use o! t"e c"ec-si#nin# ac"ine does not con!lict &it" any ot"er duty o! t"e assistant treasurer and does not involve aut"ori)ation or recordin# o! transactions$
Ans&er .B is incorrect because use o! sales departent ve"icles s"ould be liited to sales personnel unless proper aut"ori)ation is obtained$ [16] Source: +ublis"er Ans&er AB is incorrect because t"e overall allo&able audit ris is t"e ost iportant eleent in plannin# appropriate audit tests$ Ans&er *B is correct$ 3"e auditor !irst establis"es t"e overall allo&able audit ris A9B &it" respect to a particular balance or class o! transactions$ A!ter considerin# internal control sB"e can assess control ris C9B as &ell as in"erent ris I9B$ A!ter applyin# analytical procedures and considerin# t"e results o! ot"er substantive tests sB"e can t"en assess t"e ris A+B t"at t"ose procedures and tests did not detect isstateents in an assertion e5ual to tolerable isstateent$ 3"e auditor can t"en calculate t"e allo&able ris o! incorrect acceptance 3.B !or a particular substantive test$ .eterination o! t"is level o! ris is necessary !or plannin# t"e nature tiin# and e,tent o! t"e substantive test$
Ans&er *B is incorrect because aut"ori)ation to dispose o! daa#ed #oods could be used to cover t"e!ts o! inventory !or &"ic" t"e &are"ouse cler "as custodial responsibility$ 3ransaction aut"ori)ation is inconsistent &it" asset custody$ Ans&er CB is incorrect because t"e sales ana#er could approve credit to a controlled copany and t"en &rite o!! t"e account as a bad d ebt$ 3"e sales ana#ers aut"ori)ation o! credit is inconsistent &it" "is;"er indirect access to assets$ Ans&er .B is incorrect because t"e tie cler could conceal t"e terination o! an eployee and retain t"at eployees payc"ec$ 9ecord eepin# is inconsistent &it" asset custody$
Ans&er CB is incorrect because t"e auditors pro!essional jud#ent and e,perience is used to deterine overall allo&able audit ris$ Ans&er .B is incorrect because overall audit ris s"ould be establis"ed and soe analytical procedures s"ould be per!ored at an early sta#e$ Also t"e assessent o! control ris s"ould ordinarily be ade be!ore t"e plannin# o! ost tests o! details$
[18] Source: C/A 0>6 4-26 Ans&er AB is incorrect because t"e audit coittee s"ould consist only o! outside directors$ Ans&er *B is incorrect because t"e e,tent to &"ic" t"e e,ternal auditor aes use o! t"e &or o! t"e internal auditor is entirely at t"e discretion o! t"e e,ternal auditorD "o&ever internal and e,ternal audit e!!orts s"ould be coordinated$
[10] Source: C/A 1288 -21 Ans&er AB is incorrect because 5uality control analysis concerns t"e e!!ectiveness and e!!iciency o!
51
Ans&er CB is correct$ 3"e 3read&ay Coission issued its report in 1>87 in response to alle#ations o! &idespread !inancial reportin# !raud by public copanies$ It recoended t"at 1B ana#eent per!or an on#oin# !raud-ris assessent aintain e!!ective internal control establis" &ritten codes o! conduct and desi#n appropriate accountin# !unctions t"at eet reportin# obli#ationsD 2B an e!!ective internal audit !unction e,ist in &"ic" auditors "ave unrestricted and direct access to t"e audit coittee and t"e C?O and coordinate t"eir &or &it" t"at o! t"e public accountantsD B every public copany "ave an audit coittee coposed o! outside directorsD and 4B t"e sponsorin# or#ani)ations set up an interdisciplinary body to develop an inte#rated internal control !rae&or$
Ans&er *B is incorrect because a s5uare is an au,iliary operation per!ored by a ac"ine ot"er t"an a coputer$ Ans&er CB is correct$ 3"e printin# o! payc"ecs by t"e coputer is an operation depicted by t"e #eneral processin# sybol &"ic" is a rectan#le$ Ans&er .B is incorrect because t"is sybol indicates anual input e$#$ entry o! a proper code t"rou#" a coputer console$ [112] Source: C/A 1281 6-10 Ans&er AB is incorrect because a parallelo#ra is t"e #eneral sybol !or input or output$
Ans&er .B is incorrect because t"e 3read&ay 9eport concerned public copanies$
Ans&er *B is incorrect because a trape)oid indicates a anual operation$ [1>] Source: C/A 0>6 4-20 Ans&er CB is incorrect because t"is sybol indicates anual input$
Ans&er AB is incorrect because t"e scope o! &or o! internal auditors e,tends to non!inancial as &ell as !inancial audits$
Ans&er .B is correct$ ?ployee c"ecs printed by t"e coputer are depicted by t"e docuent sybol &"ic" resebles t"e top o! a #rand piano$
Ans&er *B is correct$ 3"e 1>87 3read&ay Coission 9eport e,ained t"e roles o! t"e internal as &ell as e,ternal auditors in preventin# and detectin# !raudulent !inancial reportin#$ 3"us it ep"asi)ed t"at t"e internal audit !unction s"ould "ave unrestricted and direct access to t"e C?O and t"e audit coittee and s"ould coordinate its &or &it" t"at o! t"e e,ternal auditors$ 3"e report also indicated t"at non!inancial internal audits per!or an educational role$ Internal auditors are better able to detect !raudulent !inancial reportin# i! t"ey "ave a better no&led#e o! copany operations$
[11] Source: C/A 1281 6-17 Ans&er AB is correct$ Collectin# eployees tie cards is a anual operation represented by a trape)oid &it" e5ual nonparallel sides$ Ans&er *B is incorrect because t"is sybol represents anual input$ Ans&er CB is incorrect because a rectan#le is t"e #eneral sybol !or processin#$
Ans&er CB is incorrect because e,ternal auditors s"ould obtain an understandin# o! t"e internal audit !unction deterine &"et"er t"e internal auditors &or is relevant to t"e audit and &"et"er considerin# t"at &or !urt"er is e!!icient and i! t"e &or is relevant and considerin# it !urt"er is e!!icient assess t"e copetence and objectivity o! t"e internal auditors in t"e li#"t o! t"e e!!ect o! t"eir &or on t"e audit$ 3"us e,ternal auditors do not consider t"e &or o! t"e internal auditors t"at is irrelevant to t"e audit$
Ans&er .B is incorrect because a parallelo#ra is t"e #eneral sybol !or input or output$ [114] Source: C/A 1281 6-18 Ans&er AB is incorrect because a trian#le &it" a id-line parallel to its base depicts o!!line stora#e$ Ans&er *B is incorrect because t"is sybol represents online stora#e$
Ans&er .B is incorrect because t"e e,ternal auditor is en#a#ed to report on a !inancial stateent audit$
Ans&er CB is incorrect because t"is sybol represents punc"ed paper tape$ [11] Source: C/A 1281 6-14 Ans&er .B is correct$ 3"e a#netic tape sybol a circle &it" a tan#ent at its baseB indicates stora#e on a#netic tape$
Ans&er AB is incorrect because a rectan#le is t"e #eneral sybol !or a process or operation$ Ans&er *B is correct$ 3"e 5uestion iplies a decision !or &"ic" a diaond is t"e !lo&c"artin# sybol$
[116] Source: C/A 1281 6-1> Ans&er AB is incorrect because a circle &it" a tan#ent at its base represents a#netic tape input-output or stora#e$
Ans&er CB is incorrect because a trape)oid syboli)es a anual operation$ Ans&er .B is incorrect because a s5uare represents an au,iliary operation per!ored by a ac"ine ot"er t"an a coputer$
Ans&er *B is incorrect because a trian#le &it" a id-line parallel to its base depicts o!!line stora#e$ Ans&er CB is incorrect because a rectan#le is t"e #eneral sybol !or a process$
[111] Source: C/A 1281 6-16 Ans&er .B is correct$ 3"e &eely payroll re#ister on a coputer printout is represented by a docuent sybol &"ic" resebles t"e top o! a #rand piano$
Ans&er AB is incorrect because a trape)oid depicts a anual operation$
52
Ans&er .B is incorrect because batc" processin# describes t"e entire syste$
[110] Source: C/A 1281 6-2 Ans&er AB is incorrect because a circle &it" a tan#ent at its base represents a a#netic tape$
[12] Source: C/A 1287 6->
Ans&er *B is correct$ (ard-copy coputer-#enerated payroll reports are ept in o!!line stora#e &"ic" is syboli)ed by a trian#le &it" a id-line parallel to its base$
Ans&er AB is incorrect because t"e docuents s"ould be ept !or re!erence and audit$ Ans&er *B is correct$ All activity &it" respect to t"e paper docuents ost liely ceases at sybol C$ 3"ere!ore t"e batc"ed docuents ust be !iled$
Ans&er CB is incorrect because t"is sybol represents online stora#e$
Ans&er CB is incorrect because internal auditors cannot !easibly revie& all docuents re#ardin# transactions even in an audit$
Ans&er .B is incorrect because a parallelo#ra is t"e #eneral sybol !or input or output$
Ans&er .B is incorrect because coparison by t"e treasurer &ould be inappropriate$ SB"e "as custody o! cas"$
[117] Source: C/A 128> 6-4 Ans&er AB is incorrect because t"e !irst sybol a trape)oid is !or a anual operation$
[121] Source: C/A 1287 6-1 Ans&er *B is incorrect because t"e t"ird sybol is !or online stora#e$
Ans&er AB is incorrect because no !ilin# sybol is #iven$
Ans&er CB is incorrect because t"e !irst sybol does not represent display$
Ans&er *B is incorrect because t"e !lo&c"art concerns daily receipts not t"e reconciliation o! cas" balances$
Ans&er .B is correct$ 3"e !irst sybol indicates a anual operation &"ic" is an o!!line process$ 3"e second sybol represents a docuent &"ile t"e t"ird sybol indicates online stora#e e$#$ a dis driveB$ 3"e !inal sybol represents an operation$ An operation is de!ined as a process resultin# in a c"an#e in t"e in!oration or t"e !lo& direction$ In ot"er &ords it can be an entry o peration$
Ans&er CB is correct$ 3"is !lo&c"artin# sybol indicates a anual operation or o!!line process$ Since t"e input to t"is operation consists o! an addin# ac"ine tape containin# batc" totals and a docuent containin# suary in!oration about t"e accounts receivable update and an error listin# t"e operation apparently involves coparin# t"ese ites$
[118] Source: C/A 1287 6-7
Ans&er .B is incorrect because sybol . indicates a coparison not output in t"e !or o! a report$
Ans&er AB is incorrect because record eepers per!or !unctions t"at s"ould be separate !ro custody o! assets$
[122] Source: C/A 1287 6-11
Ans&er *B is incorrect because t"e ail cler s"ould prepare a list o! c"ecs received be!ore t"ey are !or&arded to t"e treasurer !or deposit$
Ans&er AB is correct$ 3"e !lo&c"artin# !i#ure at sybol ? indicates a#netic dis stora#e$ Since it is an input and output !or t"e daily coputer processin# o! accounts receivable it ust be t"e accounts receivable aster !ile$
Ans&er CB is correct$ Sybol A is a connector bet&een a point on t"is !lo&c"art and anot"er part o! t"e !lo&c"art not s"o&n$ 3"e c"ecs and t"e addin# ac"ine control tape s"ould !lo& t"rou#" sybol A to t"e treasurers o!!ice$ 3"e treasurer is t"e custodian o! !unds and is responsible !or deposit o! daily receipts$
Ans&er *B is incorrect because bad debts are not a part o! processin# daily receipts$ Ans&er CB is incorrect because t"e reittance advice aster !ile &as not used !or t"e daily accounts receivable run$
Ans&er .B is incorrect because daily receipts s"ould be deposited intact daily and t"en reconciled &it" t"e ban deposit records$ +ropt deposit also sa!e#uards assets and avoids loss o! interest incoe$
Ans&er .B is incorrect because t"e cas" projection !ile &as not used !or t"e daily accounts receivable run$
[11>] Source: C/A 1287 6-8
[12] Source: +ublis"er
Ans&er AB is correct$ Since t"e !i#ure belo& sybol * si#ni!ies a#netic tape t"e operation represented by sybol * ust be eyin# t"e in!oration onto t"e tape$ Feri!yin# t"e eyed data &ould also occur at t"is step$
Ans&er AB is incorrect because a per!ectly copetitive aret &as envisioned by classical econoics$ Ans&er *B is incorrect because t"e concept ebraces t"e public or societal interest$
Ans&er *B is incorrect because error correction &ould occur subse5uently e,cept !or eyin# errors$
Ans&er CB is correct$ 3"e concept o! corporate social responsibility involves ore t"an servin# t"e interests o! t"e or#ani)ation and its s"are"olders$ 9at"er it is an e,tension o! responsibility to ebrace
Ans&er CB is incorrect because collation "as already occurred$
53
service to t"e public interest in suc" atters as environental protection eployee sa!ety civil ri#"ts and counity involveent$
Ans&er AB is incorrect because t"e I/A Code o! ?t"ics states t"at Ge,cept &"ere le#ally prescribed counication o! suc" [et"ical con!lict] probles to aut"orities or individuals not eployed or en#a#ed by t"e or#ani)ation is not considered appropriate$G
Ans&er .B is incorrect because t"e concept ebraces t"e public or societal interest$
Ans&er *B is correct$ Accordin# to t"e I/A Code o! ?t"ics !inancial ana#ers;ana#eent accountants are responsible !or observin# t"e standard o! con!identiality$ 3"us t"e !inancial ana#er;ana#eent accountant s"ould Gre!rain !ro disclosin# con!idential in!oration ac5uired in t"e course o! "is;"er &or e,cept &"en aut"ori)ed unless le#ally obli#ated to do so$G
[124] Source: +ublis"er Ans&er AB is incorrect because suc" be"avior ay prevent #overnental action$ Ans&er *B is incorrect because eac" is an ar#uent !or suc" be"avior$
Ans&er CB is incorrect because t"e !inancial ana#er;ana#eent accountant s"ould Gin!or subordinates as appropriate re#ardin# t"e con!identiality o! in!oration ac5uired in t"e course o! t"eir &or and onitor t"eir activities to assure t"e aintenance o! t"at con!identiality$G
Ans&er CB is incorrect because eac" is an ar#uent !or suc" be"avior$ Ans&er .B is correct$ Socially responsible be"avior clearly "as iediate costs to t"e entity !or e,aple t"e e,penses incurred in a!!irative action pro#ras pollution control and iproveents in &orer sa!ety$ %"en one !ir incurs suc" costs and its copetitor does not t"e ot"er ay be able to sell its products or services ore c"eaply and increase its aret s"are at t"e e,pense o! t"e socially responsible !ir$ 3"e rebuttal ar#uent is t"at in t"e lon# run t"e socially responsible copany ay a,ii)e pro!its by creatin# #ood&ill and avoidin# or anticipatin# #overnental re#ulation$
Ans&er .B is incorrect because t"e !inancial ana#er;ana#eent accountant is re5uired to Gre!rain !ro usin# or appearin# to use con!idential in!oration ac5uired in t"e course o! "is;"er &or !or unet"ical or ille#al advanta#e eit"er personally or t"rou#" t"ird parties$G [128] Source: C/A 1 Ans&er AB is incorrect because t"e copetence standard pertains to t"e !inancial ana#er;ana#eent accountants responsibility to aintain "is;"er pro!essional sills and no&led#e$ It also pertains to t"e per!orance o! activities in a pro!essional anner$
[126] Source: +ublis"er Ans&er AB is incorrect because it states an aspect o! t"e copetence re5uireent$ Ans&er *B is correct$ Accordin# to t"e I/A Code o! ?t"ics !inancial ana#ers;ana#eent accountants ust Gavoid actual or apparent con!licts o! interest and advise all appropriate parties o! any potential con!lict$G
Ans&er *B is incorrect because t"e con!identiality standard concerns t"e !inancial ana#er;ana#eent accountants responsibility not to disclose or use t"e !irs con!idential in!oration$
Ans&er CB is incorrect because it states an aspect o! t"e con!identiality re5uireent$
Ans&er CB is correct$ One o! t"e responsibilities o! t"e !inancial ana#er;ana#eent accountant under t"e inte#rity standard is to Greco#ni)e and counicate pro!essional liitations or ot"er constraints t"at &ould preclude responsible jud#ent or success!ul per!orance o! an activity$G
Ans&er .B is incorrect because it states an aspect o! t"e copetence re5uireent$ [120] Source: +ublis"er
Ans&er .B is incorrect because objectivity is t"e !ourt" part o! t"e I/A Code o! ?t"ics$ It re5uires t"at in!oration be counicated G!airly and objectivelyG and t"at all in!oration t"at could reasonably in!luence users be !ully disclosed$
Ans&er AB is incorrect because t"e code does not address t"ese atters$ Ans&er *B is incorrect because t"e code does not address t"ese atters$
[12>] Source: C/A 2 Ans&er CB is correct$ =inancial ana#ers;ana#eent accountants ay not dis close con!idential in!oration ac5uired in t"e course o! t"eir &or unless aut"ori)ed or le#ally obli#ated to do so$ 3"ey ust in!or subordinates about t"e con!identiality o! in!oration and onitor t"eir activities to aintain t"at con!identiality$ /oreover !inancial ana#ers;ana#eent accountants s"ould avoid even t"e appearance o! usin# con!idential in!oration to t"eir unet"ical or ille#al advanta#e$
Ans&er AB is incorrect because t"e copetence standard pertains to t"e !inancial ana#er;ana#eent accountants responsibility to aintain "is;"er pro!essional sills and no&led#e$ It also pertains to t"e per!orance o! activities in a pro!essional anner$ Ans&er *B is incorrect because t"e con!identiality standard concerns t"e !inancial ana#er;ana#eent accountants responsibility not to disclose or use t"e !irs con!idential in!oration$
Ans&er .B is incorrect because ot"er eployent ay be accepted unless it constitutes a con!lict o! interest$
Ans&er CB is correct$ 3"e inte#rity standard re5uires t"e !inancial ana#er;ana#eent accountant to Gre!use any #i!t !avor or "ospitality t"at &ould in!luence or &ould appear to in!luence "is;"er actions$
[127] Source: +ublis"er
54
Ans&er .B is incorrect because objectivity is t"e !ourt" part o! t"e I/A Code o! ?t"ics$ It re5uires t"at in!oration be counicated G!airly and objectivelyG and t"at all in!oration t"at could reasonably in!luence users be !ully disclosed$
and control ris$ A9 M .9 H ------- or .9 H --------- H .9 H M I9 , C9 26M , 4M Ans&er .B is incorrect because M is t"e result o! dividin# t"e product o! t"e in"erent ris and control ris by t"e acceptable level o! ris o! isstateent$
[1] Source: C/A Ans&er AB is correct$ One o! t"e responsibilities o! t"e !inancial ana#er;ana#eent accountant under t"e copetence standard is to Gaintain an appropriate level o! pro!essional copetence by on#oin# developent o! "is;"er no&led#e and sills$G SB"e ust also Gper!or pro!essional duties in accordance &it" relevant la&s re#ulations and tec"nical standards$G 3"e t"ird re5uireent under t"is standard is to Gprepare coplete and clear reports and recoendations a!ter appropriate analyses o! relevant and reliable in!oration$G
[1] Source: +ublis"er Ans&er AB is incorrect because control ris &ould not be set belo& t"e a,iu because &it"out internal controls !ailure to prevent or detect a aterial isstateent is certain$ Ans&er *B is correct$ Absent any relevant controls t"e ris t"at a aterial isstateent &ill not be prevented or detected is certain$ In t"is case control ris s"ould be set at 1M$ 3"e lo&er acceptable level o! detection ris increases t"e assurance to be provided by substantive tests$ 3"e ris o! aterial isstateent is t"e product o! in"erent ris control ris and t"e acceptable detection ris 1M , >M , 6MB H 4$6M$
Ans&er *B is incorrect because t"e con!identiality standard concerns t"e !inancial ana#er;ana#eent accountants responsibility not to disclose or use t"e !irs con!idential in!oration$ Ans&er CB is incorrect because t"e inte#rity standard pertains to con!licts o! interest re!usal o! #i!ts pro!essional liitations pro!essional counications avoidance o! acts discreditable to t"e pro!ession and re!rainin# !ro activities t"at prejudice t"e ability to carry out duties et"ically$
Ans&er CB is incorrect because 6M is t"e result o! subtractin# t"e detection ris and in"erent r is !ro t"e control ris$ Ans&er .B is incorrect because 6$0M is t"e result o! dividin# t"e detection ris by t"e in"erent ris$
Ans&er .B is incorrect because objectivity is t"e !ourt" part o! t"e I/A Code o! ?t"ics$ It re5uires t"at in!oration be counicated G!airly and objectivelyG and t"at all in!oration t"at could reasonably in!luence users be !ully disclosed$
[14] Source: +ublis"er Ans&er AB is correct$ A< 6 Audit Saplin# divides detection ris !or a #iven substantive test o! details into t"e ris t"at analytical procedures and ot"er substantive tests &ill !ail to detect isstateents e5ual to tolerable isstateent A+B and t"e allo&able ris o! incorrect acceptance !or t"e substantive test o! details 3.B$ 3"e e5uation !or t"e overall allo&able audit ris is A9 H I9 , C9 , A+ , 3. $> , $> , $> , $6 H $06MB$
[11] Source: +ublis"er Ans&er AB is correct$ 3"e audit ris odel is soeties use!ul in considerin# and plannin# appropriate ris levels$ 3"e ris o! aterial isstateent o! an assertion can be e,pressed al#ebraically as t"e product o! in"erent ris control ris and t"e acceptable detection ris$ 3"ere!ore t"e ris o! aterial isstateent is 2$26M 16M , M , 6MB$
Ans&er *B is incorrect because 4$6M is t"e result o! ultiplyin# t"e A+ by t"e 3.$
Ans&er *B is incorrect because 4$6M is t"e result o! not includin# t"e detection ris in t"e calculation !or t"e ris o! a aterial isstateent o! an assertion$
Ans&er CB is incorrect because 7$2>M is t"e result o! ultiplyin# t"e in"erent ris by t"e control ris by t"e A+$
Ans&er CB is incorrect because 7$6M is t"e result o! not includin# t"e in"erent ris in t"e calculation !or t"e ris o! a aterial isstateent o! an assertion$
Ans&er .B is incorrect because 4$6M is t"e result o! ultiplyin# t"e in"erent ris by t"e control ris by t"e 3.$
Ans&er .B is incorrect because 16M is t"e result o! not includin# t"e control ris in t"e calculation !or t"e ris o! a aterial isstateent o! an assertion$
[16] Source: CIA 68> I-46 Ans&er AB is incorrect because detailed audits o! all transactions are not re5uired$
[12] Source: +ublis"er Ans&er *B is correct$ Accordin# to Standard 28 G.ue care iplies reasonable care and copetence not in!allibility or e,traordinary per!orance$ .ue care re5uires t"e auditor to conduct e,ainations and veri!ications to a reasonable e,tent but does not re5uire detailed audits o! all transactions$ Accordin#ly t"e internal auditor cannot #ive absolute assurance t"at noncopliance or irre#ularities do not e,ist$ evert"eless t"e possibility o! aterial irre#ularities or noncopliance s"ould be considered &"enever t"e internal auditor undertaes an internal auditin# assi#nent$G
Ans&er AB is incorrect because $M is t"e product o! ultiplyin# t"e in"erent ris by t"e control ris and by t"e acceptable level o! ris o! isstateent$ Ans&er *B is incorrect because 12M is t"e result o! subtractin# t"e acceptable level o! ris o! isstateent and in"erent ris !ro t"e control ris$ Ans&er CB is correct$ 3"e acceptable level o! detection ris is calculated by dividin# t"e ris o! aterial isstateent by t"e product o! in"erent ris
55
[1>] Source: CIA 11> II-47 Ans&er CB is incorrect because only reasonable not absolute assurance can be #iven$
Ans&er AB is correct$ Standard o! Conduct II re5uires t"e auditor to be loyal to "is eployer$ /oreover Standard o! Conduct IP re5uires auditors to report aterial !acts no&n to t"e t"at i! not revealed could distort reports or conceal ille#alities$
Ans&er .B is incorrect because e,ainations and veri!ications s"ould be conducted to a r easonable e,tent$
Ans&er *B is incorrect because t"is action is at variance &it" t"e auditors duties under t"e Code$
[10] Source: CIA 68> II-44 Ans&er AB is incorrect because saplin# is perissible$ .etailed audits o! all transactions are o!ten not re5uired or !easible$
Ans&er CB is incorrect because t"is action is at variance &it" t"e auditors duties under t"e Code$ Ans&er .B is incorrect because t"is action is at variance &it" t"e auditors duties under t"e Code$
Ans&er *B is incorrect because in e,ercisin# due care internal auditors s"ould be alert to ine!!iciency$ Ans&er CB is correct$ Internal auditors do not #uarantee t"e absence o! !raud$ 3"ey are responsible !or e,ercisin# due pro!essional care &"ic" includes evaluatin# t"e control systes t"at prevent or detect !raud and bein# alert to t"e possibility o! intentional &ron#doin# errors and oissions &aste and con!licts o! interest Standard 28B$ (o&ever internal auditors cannot #ive absolute assurance t"at irre#ularities do not e,ist$
[14] Source: CIA 1184 I-1 Ans&er AB is incorrect because 6 years is a reasonable lapse o! tie to sa!e#uard t"e eployee !ro a c"ar#e o! con!lict o! interest$ Ans&er *B is correct$
Ans&er .B is incorrect because Standard 28 does not re5uire t"e auditor to report suspected &ron#doin# to aut"orities outside t"e or#ani)ation$ [17] Source: CIA 1184 II-21 Ans&er AB is correct$ 3"e preable to 3"e IIA Code o! ?t"ics states: G3"e Standards o! Conduct set !ort" in t"is Code o! ?t"ics provide basic principles in t"e practice o! internal auditin#$ /ebers or CIAs s"ould reali)e t"at t"eir individual jud#ent is re5uired in t"e application o! t"ese principles$G
Ans&er CB is incorrect because alt"ou#" rotation o! assi#nents is pre!erable no con!lict o! interest is involved in auditin# t"e sae activity repeatedly$ Ans&er .B is incorrect because no con!lict is present i! t"e auditors responsibility &as liited to recoendin# standards o! control !or systes or revie&in# procedures be!ore ipleentation$
Ans&er *B is incorrect because a CIA Gs"all not no&in#ly be a party to any ille#al or iproper activity$G Ans&er CB is incorrect because CIAs ust Gundertae only t"ose services t"at t"ey can reasonably e,pect to coplete &it" tec"nical copetence$G
[141] Source: CIA 6>2 I-47 Ans&er AB is incorrect because loyalty &ould be better e,"ibited by consultin# pro!essionals and no&in# t"e liits o! copetence$
Ans&er .B is incorrect because CIAs s"ould use t"e desi#nation G&it" discretion and in a di#ni!ied anner !ully a&are o! &"at t"e desi#nation denotes$ 3"e desi#nation s"all also be used in a anner consistent &it" all statutory re5uireents$G
Ans&er *B is correct$ 3"e Code re5uires ebers and CIAs to re!rain !ro undertain# services t"at cannot be r easonably copleted &it" pro!essional copetence Standard o! Conduct FIB$ Internal auditors ay not "ave and are not e,pected Gto "ave no&led#e e5uivalent to t"at o! a person &"ose priary responsibility is to detect and investi#ate !raudG SIAS 7B$
[18] Source: CIA 1187 I-48 Ans&er AB is incorrect because it is re!lected in 3"e IIA Code o! ?t"ics$
Ans&er CB is incorrect because t"e auditor ay violate t"e suspects civil ri#"ts as a result o! ine,perience$
Ans&er *B is incorrect because it is re!lected in 3"e IIA Code o! ?t"ics$
Ans&er .B is incorrect because t"e !acts do not su##est t"at t"e auditor ade inappropriate use o! in!oration ac5uired &"ile per!orin# pro!essional duties$
Ans&er CB is correct$ 3"e responsibility o! t"e pro!ession to t"e public is not speci!ically e,plained in 3"e IIA Code o! ?t"ics$ Also t"e S9IA does not speci!ically ention internal auditors responsibility to t"e public$
[142] Source: CIA 11>2 I-4>
Ans&er .B is incorrect because it is re!lected in 3"e IIA Code o! ?t"ics$
Ans&er AB is incorrect because suary disc"ar#e ay not be in accordance &it" copany personnel policies$
56
Ans&er *B is incorrect because t"e auditor iproperly used con!idential in!oration and violated t"e Code o! ?t"ics$ Soe action is &arranted$
Ans&er CB is correct$ 3"e !irst step in plannin# t"e audit is to e stablis" t"e audit objectives and t"e scope o! &or$ A!ter o btainin# bac#round in!oration deterinin# &"at resources are necessary counicatin# &it" t"ose &"o need to no& about t"e audit and per!orin# a preliinary survey t"e auditors prepare t"e audit pro#ra &"ic" is a list o! t"e detailed procedures necessary to #at"er evidence to ac"ieve t"e audit ob jectives$ 3"ese procedures are speci!ic audit steps developed in li#"t o! t"e objectives o! t"e audit$
Ans&er CB is correct$ 3"e sta!! auditor "as violated Standard o! Conduct FIII re#ardin# use o! con!idential in!oration$ A violation o! 3"e IIA Code o! ?t"ics is t"e basis !or a coplaint to t"e IAS* &"ic" is responsible !or receivin# interpretin# and investi#atin# all coplaints a#ainst ebers and;or CIAs on be"al! o! t"e *oard o! .irectors o! 3"e IIA and ain# recoendations to t"e *oard on actions to be taen Adinistrative .irective 6B$ In addition copany policy ust be !ollo&ed$
Ans&er .B is incorrect because procedures are t"e eans o! #at"erin# evidence to ac"ieve speci!ied audit objectives$
Ans&er .B is incorrect because t"e !acts do not indicate t"at a crie "as been coitted$
[140] Source: CIA 688 I-28 [14] Source: CIA 6>4 I-8 Ans&er AB is correct$ A pro !ora audit pro#ra is desi#ned to be used !or repeated audits o! siilar operations$ It is ordinarily odi!ied over a period o! years in response to probles encountered in t"e !ield$ 3"e GcannedG pro#ra assures at least iniu covera#e provides coparability and saves audit resources &"en operations at di!!erent locations "ave siilar objectives and controls$
Ans&er AB is correct$ 3"e Code re5uires prudence in t"e use o! in!oration ac5uired durin# an audit and pro"ibits use o! con!idential in!oration !or personal #ain or in a anner contrary to la& or detriental to t"e or#ani)ations &el!are$ 3"e Code also pro"ibits bein# a party to any ille#al or iproper activity and re5uires t"e disclosure o! aterial !acts t"at could conceal unla&!ul practices$ (o&ever t"e Code and t"e Standards do not provide !or strict con!identiality o! in!oration$ =urt"erore t"ere is no le#al protection re#ardin# counications o! t"e type described in t"is 5uestion$ 3"us t"e internal auditor ay be copelled to reveal &"at sB"e no&s$
Ans&er *B is incorrect because use o! tailored audit pro#ras &ould con!lict &it" ana#eents desire !or standardi)ation$ Ans&er CB is incorrect because a c"eclist o! branc" standard operatin# procedures is only one input into t"e developent o! an audit pro#ra$
Ans&er *B is incorrect because t"is option is allo&able and an attorney can provide le#al con!identiality$
Ans&er .B is incorrect because an industry audit #uide i#"t not be tailored to t"e speci!ic needs o! t"e copany$
Ans&er CB is incorrect because t"is option is allo&able but is not a #uarantee o! con!identiality$ Ans&er .B is incorrect because to aintain con!identiality t"e eployee can be in!ored about ot"er options$
[147] Source: CIA 6> I-2 Ans&er AB is incorrect because t"is is a !unction o! a !inancial audit$
[144] Source: CIA 68> II-4
Ans&er *B is incorrect because t"is is a !unction o! a !inancial audit$
Ans&er AB is incorrect because reports s"ould oit unnecessary detail$ 3"us all aterial evidence need not be presented$
Ans&er CB is incorrect because testin# inventory turnover addresses econoy and e!!iciency issues not copliance$
Ans&er *B is incorrect because circustances ay dictate t"e necessity o! e,ceedin# t"e establis"ed liitations$
Ans&er .B is correct$ Inventory turnover e5uals cost o! sales divided by avera#e inventory$ It is an activity ratio easurin# t"e subsidiarys use o! assets to #enerate revenue and incoe$ A "i#" turnover relative to t"e industry standard is desirable because it si#ni!ies t"at t"e !ir does not "old e,cess and t"ere!ore unproductive inventory$ ?!!icient ana#eent s"ould inii)e t"e su o! investent in inventory carryin# costs orderin# costs and stocout costs$ Operational auditin# addresses t"ese e!!iciency and econoy issues as &ell as accoplis"ent o! objectives and #oals and copliance &it" policies plans procedures la&s and re#ulations$
Ans&er CB is correct$ Standard o! Conduct IP states G/ebers and CIAs &"en reportin# on t"e results o! t"eir &or s"all reveal suc" aterial !acts no&n to t"e t"at i! not revealed could eit"er distort reports o! operations under revie& or conceal unla&!ul practices$G Ans&er .B is incorrect because t"e Code and t"e S++IA do not ention t"e e,pression o! an opinion$ [146] Source: CIA 1184 II-26 Ans&er AB is incorrect because objectives are speci!ic #oals and procedures speci!y t"e detailed &or$
[148] Source: CIA 6> II-1 Ans&er AB is incorrect because t"is is si#ni!icant but secondary to ission ac"ieveent$
Ans&er *B is incorrect because bot" objectives and procedures ust be de!ined speci!ically !or eac" assi#nent$
Ans&er *B is incorrect because t"is is si#ni!icant but secondary to ission ac"ieveent$
57
Ans&er CB is correct$ ot-!or-pro!it or#ani)ations are !unded to accoplis" a speci!ic #oal or ission$ Accordin#ly Standard 6 "as particular applicability to t"e internal auditors scope o! &or in audits o! not-!or-pro!it entities: GInternal auditors s"ould revie& operations or pro#ras to ascertain &"et"er results are consistent &it" establis"ed objectives and #oals and &"et"er t"e operations and pro#ras are bein# carried out as planned$G
audit results is considered in t"e plannin# p"ase$ [161] Source: CIA 11>2 I-1 Ans&er AB is incorrect because t"e pro#ra s"ould norally be arran#ed in an order t"at &ould ost e!!iciently coplete t"e audit steps$ Ans&er *B is incorrect because audit objectives s"ould be stated but t"ey do not need to be a#reed to by t"e auditee$
Ans&er .B is incorrect because t"is is si#ni!icant but secondary to ission ac"ieveent$
Ans&er CB is correct$ Audit pro#ras are speci!ically re5uired as part o! audit plannin# by Standard 41$ 3"ey consist o! t"e speci!ic &or steps re5uired !or t"e audit but t"ey ust allo& !or soe latitude !or !le,ibility in carryin# out t"e steps$
[14>] Source: CIA 11>1 II-0 Ans&er AB is incorrect because t"e in!ored jud#ent o! t"e internal auditor is still re5uired to assess t"e a#nitude o! ris indicated by previous audit results$
Ans&er .B is incorrect because in a copre"ensive audit t"e !ocus s"ould be on controls as opposed to riss$
Ans&er *B is incorrect because to assess t"e ris posed by ana#eent concerns in!ored jud#ent o! t"e internal auditor is re5uired$
[162] Source: CIA 6>4 I-67 Ans&er CB is incorrect because Standard 62 does not speci!y t"e basic inputs !or ris analyses$
Ans&er AB is incorrect because procedures are auditable activities$
Ans&er .B is correct$ /atters to be considered in establis"in# audit &or sc"edule priorities s"ould include: t"e date and results o! t"e last auditD !inancial e,posureD potential loss and risD re5uests by ana#eentD ajor c"an#es in operations pro#ras systes and controlsD opportunities to ac"ieve operatin# bene!itsD and c"an#es to and capabilities o! t"e audit sta!! Standard 62B$ 9is is concerned &it" t"e probability rat"er t"an t"e certainty o! loss$ Assessin# t"e ris o! an audited activity entails analysis o! nuerous !actors estiation o! probabilities and aounts o! potential losses and an appraisal o! t"e costs and bene!its o! ris reduction$ Conse5uently in assessin# t"e a#nitude o! ris associated &it" any !actor in a ris odel in!ored jud#ent by t"e auditor is re5uired$
Ans&er *B is incorrect because systes are auditable activities$ Ans&er CB is incorrect because accounts are auditable activities$ Ans&er .B is correct$ SIAS > states GAuditable activities consist o! t"ose subjects units or systes capable o! bein# de!ined and evaluated$G 3"ey include policies procedures and practicesD cost pro!it and investent centersD account balancesD in!oration systesD ajor contracts and pro#rasD or#ani)ational unitsD or#ani)ation !unctionsD transaction systesD !inancial stateentsD and copliance &it" la&s and re#ulations$
[16] Source: CIA 6>2 I-11
[16] Source: CIA 1186 I-4
Ans&er AB is incorrect because establis"in# audit objectives and scope o! &or is a part o! t"e plannin# process$
Ans&er AB is incorrect because ain# sure t"at t"e audit reports are objective clear and tiely is only one o! t"e !ive ites included under Standard 2 as responsibilities o! supervision$
Ans&er *B is incorrect because obtainin# bac#round in!oration and deterinin# t"e resources necessary to per!or t"e audit are re5uired by Standard 41$
Ans&er *B is incorrect because supervision is a continuin# process be#innin# &it" plannin# and endin# &it" t"e conclusion o! t"e audit assi#nent$
Ans&er CB is correct$ Accordin# to Standard 41 GInternal auditors s"ould plan eac" audit$ +lannin# s"ould be docuented and s"ould include establis"in# audit objectives and scope o! &orD obtainin# bac#round in!oration about t"e activities to be auditedD deterinin# t"e resources necessary to per!or t"e auditD counicatin# &it" all &"o need to no& about t"e auditD per!orin# as appropriate an on-site survey to becoe !ailiar &it" t"e activities and controls to be audited to identi!y areas !or audit ep"asis and to invite auditee coents and su##estionsD &ritin# t"e audit pro#raD deterinin# "o& &"en and to &"o audit results &ill be counicatedD and obtainin# approval o! t"e audit &or plan$G (o&ever collection o! evidence is accoplis"ed durin# !ield &or not t"e plannin# p"ase$
Ans&er CB is correct$ Standard 2 states t"at all internal audit assi#nents &"et"er per!ored by or !or t"e internal audit departent reain t"e responsibility o! t"e internal audit director$ Ans&er .B is incorrect because t"e director o! internal auditin# is responsible !or all &or per!ored by and !or t"e internal audit departent$ [164] Source: CIA 6>2 I-10 Ans&er AB is incorrect because t"e director o! internal auditin# not a sta!! internal auditor "as t"e responsibility to deterine t"at audit objectives "ave been et$
Ans&er .B is incorrect because counication o!
Ans&er *B is incorrect because t"e director o!
58
internal auditin# not t"e audit coittee "as t"e responsibility to deterine t"at audit objectives "ave been et$
Ans&er CB is incorrect because t"e audit pro#ra is prepared and per!ored a!ter t"e preliinary survey$
Ans&er CB is incorrect because t"e director o! internal auditin# not an internal auditin# supervisor "as t"e responsibility to deterine t"at audit objectives "ave been et$
Ans&er .B is incorrect because audit reports are issued a!ter t"e copletion o! t"e audit$ [168] Source: CIA 6>2 I-18
Ans&er .B is correct$ Accordin# to Standard 2 G3"e internal audit departent s"ould provide assurance t"at internal audits are properly supervised$ 3"e director o! internal auditin# is responsible !or providin# appropriate audit supervision$ Supervision is a continuin# process be#innin# &it" plannin# and endin# &it" t"e conclusion o! t"e audit assi#nent$G
Ans&er AB is correct$ =lo&c"arts are #rap"ical representations o! t"e step-by-step pro#ression o! transactions includin# docuent in!orationB preparation aut"ori)ation !lo& stora#e etc$ =lo&c"artin# allo&s t"e internal auditor to analy)e a syste and to identi!y t"e stren#t"s and &eanesses o! t"e purported internal controls and t"e appropriate areas o! audit ep"asis$
[166] Source: CIA 6>1 II-16 Ans&er *B is incorrect because a 5uestionnaire approac" provides only an a#enda !or evaluation$
Ans&er AB is incorrect because t"e director o! internal auditin# "as t"e responsibility !or supervision$ Ans&er *B is incorrect because supervision s"ould be a continuin# process$
Ans&er CB is incorrect because a atri, decision tableB approac" does not provide t"e visual #rasp o! t"e syste t"at a !lo&c"art does$
Ans&er CB is incorrect because supervision s"ould be a continuin# process$
Ans&er .B is incorrect because a detailed narrative does not provide t"e eans o! evaluatin# cople,
Ans&er .B is correct$ Accordin# to Standard 2 G3"e internal audit departent s"ould provide assurance t"at internal audits are properly supervised$ 3"e director o! internal auditin# is responsible !or providin# appropriate audit supervision$ Supervision is a continuin# process be#innin# &it" plannin# and endin# &it" t"e conclusion o! t"e audit assi#nent$G
operations t"at a !lo&c"art does$ [16>] Source: CIA 688 II-16 Ans&er AB is correct$ An e,it intervie& post-audit eetin#B is an opportunity !or discussion o! !indin#s conclusions and recoendations$ 3"e e!!ectiveness o! an audit project is en"anced by t"e e,it intervie& because it provides t"e auditee a c"ance to correct errors or ot"er&ise clari!y atters be!ore t"ey are included in t"e !inal report$
[160] Source: CIA 688 II-12 Ans&er AB is incorrect because t"e audit objectives s"ould re#ulate t"e selection o! audit sta!! ebers not vice versa$
Ans&er *B is incorrect because it contributes to e!!iciency not e!!ectiveness$
Ans&er *B is correct$ Internal audit objectives are necessarily liited$ Internal auditors develop t"eir audit pro#ras to evaluate only aterial objectives and riss &it"in bud#et constraints$ Audit objectives are t"e desired audit accoplis"ents and audit procedures provide t"e eans used to ac"ieve t"ese objectives$ In developin# audit objectives t"e auditees operatin# objectives and control structure ust be considered$
Ans&er CB is incorrect because it contributes to e!!iciency not e!!ectiveness$ Ans&er .B is incorrect because it contributes to e!!iciency not e!!ectiveness$ [10] Source: CIA 6> II-2
Ans&er CB is incorrect because auditors ust set t"eir o&n objectives$ Auditee input is ore use!ul !or de!inin# t"e operatin# objectives to &"ic" t"e audit objectives ust relate$
Ans&er AB is incorrect because t"e auditor ust deterine &"et"er c"an#es in t"e audit pro#ra are needed$ Ans&er *B is incorrect because c"an#es in t"e audit bud#ets s"ould be aut"ori)ed by appropriate persons$
Ans&er .B is incorrect because t"e needs o! recipients addressed by t"e audit report suc" as t"e audit coittee are deterined by t"e auditees objectives$
Ans&er CB is incorrect because audit o! t"e un!oreseen area ay be necessary to ac"ieve current audit objectives$
[167] Source: CIA 68> II-14 Ans&er .B is correct$ Audit pro#ras are necessarily tentative because t"e auditors are liely to encounter une,pected situations &"ile carryin# out t"e detailed audit &or$ I! t"ey learn t"at an audit area is not covered t"e auditors ust deterine &"et"er t"ey can ac"ieve t"e audit objectives and satis!y t"eir pro!essional responsibilities &it"out odi!ication o! t"e audit pro#ra$ /odi!ication &ill necessitate consultation &it" superiors to obtain aut"ori)ation to adjust tie and !inancial bud#ets !or t"e audit$
Ans&er AB is correct$ Accordin# to Standard 41 G+lannin# s"ould include per!orin# as appropriate an on-site survey to becoe !ailiar &it" t"e activities and controls to be audited to identi!y areas !or audit ep"asis and to invite auditee coents and su##estions$G Ans&er *B is incorrect because sta!! selection is t"e process o! decidin# &"ic" auditors &ill &or on t"e en#a#eent$
59
to consider t"e error to be aterial$ [101] Source: CIA 11> II-12
Ans&er *B is incorrect because additional transactions su##est t"at audit ris ay be "i#" and t"e auditor &ill be liely to consider t"e error to be aterial$
Ans&er AB is correct$ Standard 41 states t"at plannin# includes Gper!orin# as appropriate an on-site survey to becoe !ailiar &it" t"e activities and controls to be audited to identi!y areas !or audit ep"asis and to invite auditee coents and su##estions$G %ritin# t"e audit pro#ra is t"e ne,t step$
Ans&er CB is correct$ 3"e transaction increases audit ris because a related party is involved even t"ou#" t"e error is sall in dollar aount$ 9elated party transactions "ave a "i#"er in"erent ris t"an ordinary transactions$ Jiven t"e inverse relations"ip bet&een audit ris and ateriality t"e error ay be considered aterial because o! 5ualitative rat"er t"an 5uantitative considerations$
Ans&er *B is incorrect because sta!! assi#nents are ade prior to t"e preliinary survey$ Ans&er CB is incorrect because tie bud#ets !or speci!ic tass are deterined as part o! t"e preparation o! t"e audit pro#ra$
Ans&er .B is incorrect because even a sall error in a related party tr ansaction ay indicate si#ni!icant ris$ 3"e auditor is liely to consider t"e error to be aterial even i! audit ris is lo&$
Ans&er .B is incorrect because deterination o! t"e resources necessary to per!or t"e audit precedes t"e preliinary survey$
[106] Source: CIA 11>1 I-18 [102] Source: CIA 6>4 II-2
Ans&er AB is correct$ Sales coission is based on t"e application o! a ratio to t"e aount o! t"e sale$ 3"e best evidence o! t"e accuracy o! sales coission e,pense !or speci!ic individuals is to recopute t"e aounts derived !ro a saple o! transactions$ 3"ese tests s"ould be done at t"e sae tie as procedures testin# accrued liabilities$
Ans&er AB is incorrect because t"e eployer "as t"e ri#"t to as eac" individual to prepare a &ritten stateent irrespective o! &"et"er sB"e con!esses$ Ans&er *B is incorrect because t"e best approac" is t"at o! t"e objective disinterested trut" seeer$
Ans&er *B is incorrect because calculatin# coission ratios uses #ross sales data and does not provide evidence about speci!ic c"ar#es$
Ans&er CB is incorrect because listenin# e!!ectively is vital !or deterinin# t"e !acts$ Ans&er .B is correct$ ?,plicitly seein# a con!ession ay "inder t"e investi#ation by alertin# t"e individual t"at sB"e is under suspicion$ Instead t"e intervie&er s"ould assue t"e role o! one &"o siply &is"es to ascertain t"e trut"$ An e!!ective intervie&er s"ould prepare 5uestions in advance be ready !or bot" a!!irative and ne#ative replies and be tact!ul in "andlin# inconsistencies$ Intervie&in# also re5uires #ood listenin# sills$
Ans&er CB is incorrect because use o! analytical procedures is a test o! overall reasonableness not speci!ic transactions$ Ans&er .B is incorrect because tests o! overall reasonableness cannot deterine &"et"er a speci!ic salespersons coissions are overstated$ [100] Source: CIA 11>1 II-26
[10] Source: CIA 6>1 I-17
Ans&er AB is incorrect because con!iration establis"es e,istence not collectibility$
Ans&er AB is correct$ 3"e personnel departent is responsible !or aut"ori)ation and e,ecution o! payroll transactions e$#$ "irin# o! ne& eployees and deterinin# t"eir pay rates$ (ence t"is departents veri!ication o! t"e payroll c"an#es listin# used in data processin# is an iportant control over payroll processin#$
Ans&er *B is incorrect because inspection "elps veri!y t"e validity not collectibilityB o! t"e notes$ Ans&er CB is incorrect because reconciliation erely tests booeepin# procedures$ Ans&er .B is correct$ 3"e best evidence o! t"e collectibility valuationB o! notes receivable lies in actual cas" collections$ onpayent or late payent ay bear un!avorably on t"e possibility o! collection$ An auditor also norally sends positive con!irations to t"e aers and "olders and inspects t"e notes to veri!y aturity dates and ot"er ters$
Ans&er *B is incorrect because inaccurate Social Security deductions could be caused by errors in payroll rates$ Ans&er CB is incorrect because labor "ours s"ould coe !ro t"e tie reportin# syste tie card or tie s"eetB not t"e list o! payroll c"an#es$ Ans&er .B is incorrect because inspection o! t"e listin# o! payroll c"an#es &ould indicate &"et"er contributions by eli#ible eployees "ave be#un to be deducted not &"et"er eployees "ave been ased about contributin# to t"e p ension plan$
[107] Source: CIA 6>2 I-2 Ans&er AB is incorrect because t"e tracin# procedure ori#inated &it" a saple o! billed salesD t"us all t"e ites in t"e saple &ere billed$ (o&ever t"is does not deterine &"et"er s"ipped ites &ere billed$
[104] Source: CIA 6>1 I-20 Ans&er *B is correct$ I! t"e invoices in t"e saple can be correctly atc"ed &it" s"ippin# docuents soe assurance is #iven t"at ites b illed are also s"ipped$
Ans&er AB is incorrect because audit ris and ateriality are t&o separate but overlappin# concepts$ I! audit ris is lo& t"e auditor is less liely
60
t"e board "as assued t"e ris o! inaction$ Ans&er CB is incorrect because receivables are not e,ained in t"is procedure$ [171] Source: CIA 11>2 I- Ans&er .B is incorrect because receivables are not e,ained$
Ans&er AB is incorrect because t"e ris t"at an auditor i#"t not select docuents t"at are in error as part o! t"e e,aination is an aspect o! saplin# ris$
[108] Source: CIA 11> II-42 Ans&er *B is incorrect because t"e ris t"at an auditor ay not be able to properly evaluate an activity because o! its poor internal accountin# controls is an aspect o! control ris$
Ans&er AB is incorrect because re#ulatory aut"orities do not need to be noti!ied$ /ana#eent "as a#reed to accept responsibility and no re#ulatory violations &ere entioned$
Ans&er CB is correct$ SAS 47 A< 12B Audit 9is and /ateriality in Conductin# an Audit de!ines audit ris as t"e ris t"at t"e e,ternal auditor ay unno&in#ly !ail to odi!y "is;"er opinion on !inancial stateents t"at are aterially isstated$ Its eleents are control ris in"erent ris and detection ris$ =or internal auditin# t"e overall audit ris e,tends not only to !inancial stateents but also to un&ittin# !ailure to uncover aterial errors or &eanesses in t"e operations audited$ 3"ere ay be several di!!erent reasons !or t"e !ailure and t"ese ay be in ris cate#ories suc" as saplin# ris detection ris or control ris$
Ans&er *B is incorrect because no !urt"er audit action is re5uired$ Ans&er CB is incorrect because no !urt"er audit action is re5uired$ Ans&er .B is correct$ Standard 44 states GInternal auditors s"ould !ollo& up to ascertain t"at appropriate action is taen on reported audit !indin#s$ Internal auditors s"ould deterine t"at corrective action &as taen and is ac"ievin# t"e desired results or t"at ana#eent or t"e board "as assued t"e ris o! not tain# corrective action on reported !indin#s$G
Ans&er .B is incorrect because lac o! copetency relates to control ris$ It is t"e !ailure o! a control internal auditin#B$
[10>] Source: CIA 6>2 I-4 Ans&er AB is incorrect because receivin# reports indicate t"e date and 5uantity received but not &"et"er discounts &ere o!!ered or taen$
[172] Source: CIA 11>1 I-46 Ans&er AB is incorrect because a de!iciency !indin# places t"e !ir at ris until t"e situation c"an#es or t"e de!iciency is corrected$
Ans&er *B is incorrect because purc"ase orders s"o& only t"e 5uantity and e,pected price o! a purc"ase$
Ans&er *B is incorrect because de!iciency !indin#s t"at "ave not been corrected are not uni5ue and do not re5uire ad "oc solutions$
Ans&er CB is incorrect because canceled c"ecs s"o& only t"e total paid not &"et"er a discount &as o!!ered or taen$
Ans&er CB is correct$ Standard 44 states GInternal auditors s"ould !ollo& up to ascertain t"at appropriate action is taen on reported audit !indin#s$ Internal auditors s"ould deterine t"at corrective action &as taen and is ac"ievin# t"e desired results or t"at ana#eent or t"e board "as assued t"e ris o! not tain# corrective action on reported !indin#s$G Also Standard 4 re5uires discussion o! conclusions and recoendations at appropriate levels o! ana#eent be!ore issuin# !inal reports$ Auditee ana#eent is at Gan appropriateG level$ Obtainin# auditee cooperation or at least understandin#B is a vital part o! t"e solution o! any proble$
Ans&er .B is correct$ A vendor invoice s"o&s bot" t"e aount and ters o! payent !or purc"ase$ =ailure to pay &it"in t"e discount period is norally not advanta#eous$ (ence lost discounts ay si#ni!y ine!!iciency in t"e purc"ases-payables-cas" disburseents cycle or a s"orta#e o! cas"$ [17] Source: CIA 11>2 I-47 Ans&er AB is incorrect because reportin# t"e atter is unnecessary i! ana#eent or t"e board "as assued t"e ris o! inaction$
Ans&er .B is incorrect because t"e internal auditor "as no line aut"ority over t"e auditee$ 3o e,ercise suc" aut"ority ipairs t"e internal auditors objectivity$
Ans&er *B is correct$ Standard 4 states t"at reports ay ae recoendations !or potential iproveents$ Also Standard 44 states GInternal auditors s"ould !ollo& up to ascertain t"at appropriate action is taen on reported audit !indin#s$ Internal auditors s"ould deterine t"at corrective action &as taen and is ac"ievin# t"e desired results or t"at ana#eent or t"e board "as assued t"e ris o! not tain# corrective action on reported !indin#s$G
[17] Source: CIA 11>2 II-2 Ans&er AB is incorrect because observation is an audit procedure$ Ans&er *B is incorrect because analysis is an audit procedure$
Ans&er CB is incorrect because t"e internal auditor s"ould not assue t"e operatin# responsibility o! undertain# corrective action$
Ans&er CB is correct$ Objectives are speci!ic audit #oals and procedures are t"e detailed audit steps to ac"ieve t"e$ ?valuatin# &"et"er cas" receipts are ade5uately sa!e#uarded is an audit objective because it states &"at t"e audit is to accoplis"$
Ans&er .B is incorrect because a !uture audit o! t"e speci!ic area ay not be needed i! ana#eent or
61
Ans&er .B is incorrect because recoputation is an audit procedure$
[177] Source: CIA 6> I-1> Ans&er AB is correct$ %"en t"e aount c"ar#ed !or a service increases as an entity reduces its use o! t"e service t"e possibility e,ists t"at t"e entity is bein# c"ar#ed !or service not r eceived$ 3"e internal auditor s"ould reconcile a saple o! essen#er invoices to picup receipts$ *y ultiplyin# t"e nuber o! trips aut"ori)ed by t"e c"ar#e per trip any discrepancy can be identi!ied$
[174] Source: CIA 6> I-11 Ans&er AB is correct$ %"en s"ippin# docuents are neit"er accounted !or nor prenubered unrecorded sales are liely to result$ Selectin# bills o! ladin# and tracin# t"e to sales invoices &ill test t"at #oods s"ipped &ere billed$ Ans&er *B is incorrect because testin# t"e sales re#ister &ill not detect unrecorded sales$
Ans&er *B is incorrect because ultiplyin# t"e trips noted on t"e bills received by t"e rate speci!ied on t"e bill &ill not identi!y t"e iproper billin# related to trips not carried out$
Ans&er CB is incorrect because testin# sales invoices &ill not detect unrecorded sales$
Ans&er CB is incorrect because scannin# o! led#er accounts and bills received is not liely to uncover billin#s !or trips not carried out unless particular bills on led#er entries seriously deviate !ro e,pectations$
Ans&er .B is incorrect because testin# purc"ase orders ay detect unbilled ites$ (o&ever t"e ites ay be unbilled because t"ey "ave not been s"ipped$ 3"us t"e pre!erable procedure is to test bills o! ladin#$
Ans&er .B is incorrect because t"e internal auditor is unliely to be able to observe usa#e o! t"e essen#er service !or a lon# enou#" period$ 3"is procedure is not cost e!!icient$
[176] Source: CIA 6> I-17 Ans&er AB is correct$ A !und is a !iscal and accountin# entity &it" a sel!-balancin# set o! accounts recordin# cas" and ot"er !inancial resources to#et"er &it" all related liabilities and residual e5uities and balances and c"an#es t"erein t"at are se#re#ated !or t"e purpose o! carryin# on speci!ic activities or attainin# certain objectives in accordance &it" special re#ulations restrictions or liitations$ 3"us t"e priary audit objective is to deterine &"et"er t"e entity coplied &it" t"e e,istin# !und re5uireents and per!ored t"e speci!ied activities$
[178] Source: CIA 11> I-1 Ans&er AB is correct$ 3"e auditors consideration o! ateriality is a atter o! jud#ent t"at is in!luenced by t"e needs o! a reasonable person &"o ay rely on t"e in!oration$ 3"e a#nitude o! an oission or isstateent t"at &ould c"an#e or in!luence t"e jud#ent o! a reasonable person is dependent on t"e surroundin# circustances$ 3"e auditor &ill consider bot" 5uantitative and 5ualitative !actors in ain# jud#ents about ateriality$ A isstateent involvin# a lar#e percenta#e o! net incoe is clearly aterial based on 5uantitative !actors alone$
Ans&er *B is incorrect because t"e special purpose o! t"e !und out&ei#"s issues o! econoy e!!iciency and control$
Ans&er *B is incorrect because lac o! veri!ication alone does not indicate ateriality but it does su##est "i#" audit ris$ 3"us t"e auditor ay e,tend auditin# procedures !or t"e transaction even i! it is jud#ed to be iaterial$
Ans&er CB is incorrect because ost nonpro!it entities use an accountin# syste t"at is not in accordance &it" JAA+$ Ans&er .B is incorrect because only t"e activities speci!ied by !und restrictions are eant to be carried out$
Ans&er CB is incorrect because t"is !actor alone does not indicate ateriality$ (o&ever t"e transaction ay involve si#ni!icant audit ris$ I! so auditin# procedures s"ould be e,tended even i! t"e isstateent is jud#ed to be iaterial &"en copared &it" ot"er ites$
[170] Source: CIA 6> I-18 Ans&er AB is incorrect because coparin# current revenue !ro scrap sales &it" t"at o! prior periods presupposes t"at prior periods aounts &ere correct and t"at no c"an#e in 5uantity produced "as occurred$
Ans&er .B is incorrect because a related party transaction ay si#ni!y "i#"er audit ris but need not be aterial$
Ans&er *B is incorrect because t"ose persons responsible !or collectin# and storin# t"e scrap can describe only t"e sa!e#uards in place to "andle scrap be!ore its sale$
[17>] Source: CIA 6>2 II-21 Ans&er AB is incorrect because docuentation and cross-re!erencin# are desirable but "ave no speci!ic relations"ip to any o! t"e c"aracteristics o! evidence su!!iciency copetence relevance and use!ulnessB$
Ans&er CB is correct$ I! t"e sale o! scrap is &ell controlled a lar#e aount &ill not be on "and$ /ost scrap &ill be sold &"en produced$ (ence i! t"e 5uantities sold are appro,iately t"e sae as t"ose e,pected an auditor can assue t"at t"e controls over t"e sale o! scrap are e!!ective$
Ans&er *B is incorrect because copetent evidence is reliable and t"e best available t"rou#" t"e use o! appropriate audit tec"ni5ues$ Ans&er CB is incorrect because relevant evidence supports audit !indin#s$
Ans&er .B is incorrect because t"e or#ani)ations e,perience ay not be typical o! t"e industry$ ?n#ineerin# estiates o! e,pected scrap are ore liely to be use!ul$
Ans&er .B is correct$ Accordin# to Standard 42 GSu!!icient in!oration is !actual ade5uate and
62
convincin# so t"at a prudent in!ored person &ould reac" t"e sae conclusions as t"e auditor$G
Ans&er .B is incorrect because observation is t"e best tec"ni5ue to deterine i! t"e sta!! is !ully used$
[18] Source: CIA 11>2 I-4
[18] Source: CIA 6> I-
Ans&er AB is correct$ 3"e objectives o! t"e audit o! tradin# securities are to deterine &"et"er 1B internal control over t"e securities and revenue t"ere!ro is ade5uate 2B t"e securities e,ist and are o&ned by t"e auditee B t"eir balance s"eet classi!ication is appropriate and 4B t"ey are properly valued$ I! aret 5uotations are based on su!!icient aret activity t"ey usually provide su!!icient copetent evidence re#ardin# valuation$
Ans&er AB is correct$ Accordin# to SIAS 2 Counicatin# 9esults Gaudit reports s"ould p resent t"e purpose scope and results o! t"e auditD and i! appropriate reports s"ould contain an e,pression o! t"e auditors opinion$ +urpose stateents s"ould describe t"e audit objectives and ay i! necessary in!or t"e reader &"y t"e audit &as conducted and &"at it &as e,pected to ac"ieve$G Ans&er *B is incorrect because scope stateents Gs"ould identi!y t"e audited activities and include i! appropriate supportive in!oration suc" as tie period audited$ 9elated activities not audited s"ould be identi!ied i! necessary to delineate t"e boundaries o! t"e audit$ 3"e nature and e,tent o! auditin# per!ored also s"ould be described$G
Ans&er *B is incorrect because alt"ou#" it eets t"e objective o! ascertainin# &"et"er t"e securities e,ist and are o&ned by t"e auditee it does not deterine t"e valuation o! t"e securities$ Ans&er CB is incorrect because s"ort-ter investents o! e,cess cas" do not 5uali!y !or t"e e5uity et"od$
Ans&er CB is incorrect because criteria are t"e Gstandards easures or e,pectations used in ain# an evaluation and;or veri!ication &"at s"ould e,istB$G
Ans&er .B is incorrect because discount or preiu on !i,ed aturity s"ort-ter securities is not aorti)ed$
Ans&er .B is incorrect because a condition is t"e G!actual evidence t"at t"e internal auditor !ound in t"e
[181] Source: CIA 11>2 I-10
course o! t"e e,aination &"at does e,istB$G
Ans&er AB is incorrect because tracin# entries !ro t"e sales journal to t"e accounts receivable led#er tests &"et"er credit sales &ere properly recorded in t"e accounts receivable led#er$ It &ould not ensure t"at debit entries to accounts receivable represent valid sales$
[184] Source: CIA 6> II- Ans&er AB is correct$ SIAS 2 states GScope stateents s"ould identi!y t"e audited activities and include &"en appropriate supportive in!oration suc" as t"e tie period audited$ 9elated activities not audited s"ould be identi!ied i! necessary to delineate t"e boundaries o! t"e audit$ 3"e nature and e,tent o! auditin# per!ored also s"ould be described$G
Ans&er *B is incorrect because t"e auditor traces accounts receivable credit entries to t"e cas" receipts journal to test &"et"er t"ose entries represent actual payents$
Ans&er *B is incorrect because t"ese criteria are used in evaluatin# audit !indin#s$
Ans&er CB is correct$ *y vouc"in# sales transactions !ro t"e accounts receivable led#er bac to t"e sales invoices t"e auditor veri!ies t"at t"ese accounts receivable are properly supported by sales$ 9eceivables s"ould also be vouc"ed to related custoer orders and s"ippin# docuents$ 3"e purpose is to detect !ictitious sales and assure t"at eac" sale is properly docuented and posted to t"e accounts receivable subsidiary led#er$ 3"e latter objective also re5uires sales invoices to be traced to t"e accounts receivable subsidiary led#er$
Ans&er CB is incorrect because t"e e!!ect o! t"e !indin#s on t"e activities revie&ed is properly presented in t"e conclusions section o! t"e audit report$ Ans&er .B is incorrect because t"e condition attribute o! an internal audit !indin# states t"e !actual evidence t"at t"e auditor !ound in t"e course o! t"e e,aination$
Ans&er .B is incorrect because tracin# entries !ro t"e cas" receipts docuentation to t"e accounts receivable led#er tests &"et"er custoer payents &ere credited to accounts receivable$
[186] Source: CIA 11> II-4 Ans&er AB is incorrect because t"e status o! prior !indin#s suc" as corrective action taen since t"e last audit appears in anot"er section o! t"e report$
[182] Source: CIA 6>1 I- Ans&er *B is incorrect because it does not state a !indin#$
Ans&er AB is incorrect because observation is t"e best tec"ni5ue to deterine i! t"e sta!! is !ully used$
Ans&er CB is correct$ A de!iciency is a di!!erence bet&een criteria &"at s"ould e,istB and condition &"at does e,istB$ 3"e si#ni!icance o! de!iciencies is an audit !indin# t"at belon#s in t"e audit !indin#s section o! t"e report$
Ans&er *B is correct$ *y observin# ail roo operations at various ties on various days o! t"e &ee t"e internal auditor can note &"et"er incoin# or out#oin# ail baclo#s e,ist and &"et"er ail roo sta!! are busy on ail roo activities idle or &orin# on ot"er projects$
Ans&er .B is incorrect because t"e en#a#eent plan precedes t"e audit !indin#s report$
Ans&er CB is incorrect because observation is t"e best tec"ni5ue to deterine i! t"e sta!! is !ully used$ [180] Source: CIA 6>2 I-44
63
include &"en appropriate supportive in!oration suc" as t"e tie period audited$ 9elated activities not audited s"ould be identi!ied i! necessary to delineate t"e boundaries o! t"e audit$ 3"e nature and e,tent o! auditin# per!ored also s"ould be described$G 3"e scope section s"ould t"us include any liitations on t"e audit$
Ans&er AB is incorrect because internal auditors are c"ar#ed &it" t"e responsibility o! evaluatin# &"at t"ey e,aine and o! ain# recoendations i! appropriate$ Ans&er *B is incorrect because ana#eent is c"ar#ed &it" t"e responsibility o! ain# any corrections necessary &it"in its departent$
Ans&er CB is incorrect because t"is subject is inappropriate !or t"e scope section$
Ans&er CB is correct$ Standard 4 and SIAS 2 state t"at reports ay include recoendations !or potential iproveents based on t"e auditors !indin#s and conclusions$ 3"ese recoendations ay be #eneral or speci!ic$ Accordin#ly t"e auditors reportin# responsibility in t"ese circustances is to recoend adoption o! a code o! et"ics$ Sa&yer Sa&yers Internal Auditin#B "as observed t"at any discipline or or#ani)ation aspirin# to pro!essionalis or unity o! direction needs an or#ani)ational code o! et"ical conduct$
Ans&er .B is incorrect because t"is subject is inappropriate !or t"e scope section$ [1>] Source: CIA 1188 I-4 Ans&er AB is incorrect because it describes a constructive report$ Ans&er *B is incorrect because a clear report is lo#ical and easily understood$
Ans&er .B is incorrect because internal auditors s"ould ae recoendations &"enever practicable$
Ans&er CB is incorrect because a concise report is to t"e point and !ree o! unnecessary detail$
[187] Source: CIA 6> I-7
Ans&er .B is correct$ Accordin# to SIAS 2 Counicatin# 9esults GObjective reports are !actual unbiased and !ree !ro distortion$ =indin#s conclusions and recoendations s"ould be included &it"out prejudice$G
Ans&er AB is correct$ Operational auditin# concerns copliance &it" policies plans etc$D econoical and e!!icient use o! resourcesD and accoplis"ent o! establis"ed #oals and objectives$ 3"us an operational audit report s"ould in!or ana#eent about t"e e!!iciency and e!!ectiveness o! t"e #iven operations and s"ould discuss !indin#s re5uirin# corrective action$
[1>1] Source: CIA 688 II-4 Ans&er AB is correct$ Accordin# to SIAS 2 Counicatin# 9esults audit reports s"ould present t"e purpose scope and results o! t"e auditD and i! appropriate reports s"ould contain an e,pression o! t"e auditors opinion$ +urpose stateents s"ould describe t"e audit objectives and ay i! necessary in!or t"e reader &"y t"e audit &as conducted and &"at it &as e,pected to ac"ieve$ Scope stateents s"ould identi!y t"e audited activities and include &"ere appropriate supportive in!oration suc" as tie period audited$ 9elated activities not audited s"ould be identi!ied i! necessary to delineate t"e boundaries o! t"e audit$ 3"e nature and e,tent o! auditin# per!ored also s"ould be described$ 9esults ay include !indin#s conclusions opinionsB and recoendations$
Ans&er *B is incorrect because an operational audit report s"ould address t"e e!!iciency and e!!ectiveness o! t"e !unction bein# audited not reportin# in t"e !inancial stateents$ Ans&er CB is incorrect because a#reeent bet&een t"e records and t"e ites bein# audited is a priary concern in a ! inancial audit$ Ans&er .B is incorrect because valuation is an issue in a !inancial audit$ [188] Source: CIA 1187 I-41
Ans&er *B is incorrect because it is an optional ite in t"e audit report$
Ans&er AB is incorrect because any audit report provides an opportunity !or auditee responses$
Ans&er CB is incorrect because it is an optional ite in t"e audit report$
Ans&er *B is incorrect because t"e internal auditor "as no line aut"ority and s"ould not direct corrective action$
Ans&er .B is incorrect because it is an optional ite in t"e audit report$
Ans&er CB is incorrect because providin# a basis !or t"e e,ternal auditors revie& is only a secondary purpose o! !oral reports$
[1>2] Source: CIA 11>2 I-44
Ans&er .B is correct$ Audit reports docuent t"e conclusions and !inal &or product o! t"e internal auditor$ Accordin#ly t"ey record !indin#s and recoend courses o! action$
Ans&er AB is incorrect because !actual evidence represents t"e condition attribute$ Ans&er *B is correct$ SIAS 2 states t"at !indin#s s"ould be based on !our attributes$ Criteria are Gt"e standards easures or e,pectations used in ain# an evaluation and;or veri!ication &"at s"ould e,istB$G Condition is de!ined as Gt"e !actual evidence t"at t"e internal auditor !ound in t"e course o! t"e e,aination &"at does e,istB$G I! actual and e,pected conditions di!!er t"e cause is Gt"e reason !or t"e di!!erence bet&een t"e e,pected and actual conditions &"y t"e di!!erence e,istsB$G 3"e e!!ect is Gt"e ris or e,posure
[18>] Source: CIA 687 II-44 Ans&er AB is incorrect because t"is subject is inappropriate !or t"e scope section$ Ans&er *B is correct$ SIAS 2 states GScope stateents s"ould identi!y t"e audited activities and
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t"at auditee or#ani)ation and;or ot"ers encounter because t"e condition is not t"e sae as t"e criteria t"e ipact o! t"e di!!erenceB$G 3"us cause provides t"e ans&er to t"e 5uestion G%"y'G and s"ould be t"e basis !or corrective action$
based on a coparison o! &"at s"ould e,ist &it" &"at does e,ist$ I! t"ere is a di!!erence !indin#s s"ould state t"e reasons and t"e resultin# e!!ects$ Ans&er CB is incorrect because audit !indin#s ust be stateents o! !act rat"er t"an stateents representin# an auditors opinion$ Opinions represent t"e auditors evaluations o! t"e e!!ects o! audit !indin#s on t"e activities revie&ed$
Ans&er CB is incorrect because ris or e,posure is t"e e!!ect attribute$ Ans&er .B is incorrect because resultant evaluations are t"e auditors conclusions$
Ans&er .B is incorrect because audit !indin#s concern current not !uture !actual conditions or events$
[1>] Source: CIA 68> I-8 Ans&er AB is correct$ Accordin# to SIAS 2 G=indin#s are pertinent stateents o! !act$ 3"ose !indin#s &"ic" are necessary to support or prevent isunderstandin# o! t"e internal auditors conclusions and recoendations s"ould be included in t"e !inal audit report$ ess si#ni!icant in!oration or ! indin#s ay be counicated orally or t"rou#" in!oral correspondence$ Audit !indin#s eer#e by a process o! coparin# &"at s"ould be &it" &"at is$ %"et"er or not t"ere is a di!!erence t"e internal auditor "as a !oundation on &"ic" to build t"e report$ %"en conditions eet t"e criteria acno&led#ent in t"e audit report o! satis!actory per!orance ay be appropriate$ =indin#s s"ould be based on t"e !ollo&in# attributes:
[1>6] Source: CIA 6> II-4 Ans&er AB is correct$ SIAS 2 states t"at !indin#s s"ould be based on !our attributes$ Criteria are Gt"e standards easures or e,pectations used in ain# an evaluation and;or veri!ication &"at s"ould e,istB$G 3"e &ritten procedures represent t"e standard criteriaB a#ainst &"ic" audit !indin#s concernin# se#re#ation o! responsibility &ould be easured$ Ans&er *B is incorrect because condition is de!ined as Gt"e !actual evidence t"at t"e internal auditor !ound in t"e course o! t"e e,aination &"at does e,istB$G Ans&er CB is incorrect because t"e e!!ect is Gt"e ris or e,posure t"at auditee or #ani)ation and;or ot"ers encounter because t"e condition is not t"e sae as t"e criteria t"e ipact o! t"e di!!erenceB$G
Criteria: 3"e standards easures or e,pectations used in ain# an evaluation and;or veri!ication &"at s"ould e,istB$
Ans&er .B is incorrect because an opinion is not an attribute o! a !indin#$
Condition: 3"e !actual evidence &"ic" t"e internal auditor !ound in t"e course o! t"e e,aination &"at does e,istB$
[1>0] Source: CIA 688 II-46 I! t"ere is a di!!erence bet&een t"e e,pected and actual conditions t"en:
Ans&er AB is incorrect because a suary condenses t"e in!oration in t"e !ull report$
Cause: 3"e reason !or t"e di!!erence bet&een t"e e,pected and actual conditions &"y t"e conditions e,istB$
Ans&er *B is correct$ Accordin# to SIAS 2 Counicatin# 9esults suary reports "i#"li#"tin# audit results ay be appropriate !or levels o! ana#eent above t"e "ead o! t"e audited unit$ 3"ey ay be issued separately !ro or in conjunction &it" t"e !inal report$
?!!ect: 3"e ris or e,posure t"e auditee or#ani)ation and;or ot"ers encounter because t"e condition is not t"e sae as t"e criteria t"e ipact o! t"e di!!erenceB$ 3"e report !indin#s ay also include recoendations auditee accoplis"ents and supportin# in!oration i! not included else&"ere$G
Ans&er CB is incorrect because a suary is not liited to a particular audit objective$ Ans&er .B is incorrect because a suary need not concern auditor-auditee con!licts$
Ans&er *B is incorrect because !indin#s counicate t"e e!!ect o! t"e d i!!erence bet&een &"at is and &"at s"ould be$
[1>7] Source: CIA 1187 I-42 Ans&er CB is incorrect because !indin#s result !ro any ot"er activities as &ell$
Ans&er AB is incorrect because t"is situation does not indicate a need !or iediate auditee action$
Ans&er .B is incorrect because t"e results o! t"e audit ay include !indin#s conclusions opinionsB and recoendations$ Conclusions are evaluations o! !indin#s$
Ans&er *B is incorrect because t"is situation does not indicate a need !or iediate auditee action$ Ans&er CB is incorrect because &"en !raud is suspected care s"ould be taen not to &arn possible &ron#doers o! its detection$
[1>4] Source: CIA 6> II-7 Ans&er AB is incorrect because audit !indin#s ust be stateents o! !act rat"er t"an stateents representin# an auditors opinion$ Opinions represent t"e auditors evaluations o! t"e e!!ects o! audit !indin#s on t"e activities revie&ed$
Ans&er .B is correct$ %ritten interi reports provide a propt eans o! docuentin# a condition re5uirin# iediate action$ =ailure o! an auditee to coply &it" t"e la& is a situation t"at s"ould not &ait !or issuance o! t"e !inal report$
Ans&er *B is correct$ SIAS 2 states G=indin#s are pertinent stateents o! !act$G =indin#s s"ould be
[1>8] Source: CIA 6> II-6
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Ans&er .B is correct$ 3"e board o! directors ordinarily receives suary reports only$
Ans&er AB is incorrect because t"e purpose o! t"e audit is !orally de!ined in t"e !inal report and is discussed &it" t"e auditees ana#eent prior to be#innin# t"e audit$
[21] Source: CIA 68> II-41
Ans&er *B is incorrect because t"e issuance o! interi reports does not diinis" or eliinate t"e need !or a !inal report$
Ans&er AB is correct$ Accordin# to SIAS 2 GAudit reports s"ould be distributed to t"ose ebers o! t"e or#ani)ation &"o are able to ensure t"at audit results are #iven due consideration$ 3"is eans t"at t"e report s"ould #o to t"ose &"o are in a position to tae corrective action or to ensure t"at corrective action is taen$G As t"e "ead o! t"e audited unit t"e aretin# director is in a position to tae corrective action$
Ans&er CB is correct$ Accordin# to SIAS 2 GInteri reports ay be used to counicate in!oration t"at re5uires iediate attention to counicate a c"an#e in audit scope !or t"e activity under revie& or to eep ana#eent in!ored o! audit pro#ress &"en audits e,tend over a lon#
Ans&er *B is incorrect because t"is person cannot tae corrective action$
period$G Ans&er .B is incorrect because t"e scope o! t"e audit cannot be !orally de!ined until t"e !inal report$ Interi !indin#s ay alter t"e scope durin# t"e audit$
Ans&er CB is incorrect because t"is person cannot tae corrective action$ Ans&er .B is incorrect because t"is person cannot tae corrective action$
[1>>] Source: CIA 687 I-44 Ans&er AB is incorrect because it #ives an advanta#e$
[22] Source: CIA 11> I-42 Ans&er AB is incorrect because suary &ritten reports contain insu!!icient detail !or t"ese ana#ers$
Ans&er *B is incorrect because it #ives an advanta#e$
Ans&er *B is incorrect because no docuent classi!ied as an audit report is restricted to auditors only$
Ans&er CB is incorrect because it #ives an advanta#e$ Ans&er .B is correct$ +rovidin# dra!t reports to auditees !or revie& and coent is not only a courtesy t"at prootes #ood auditor-auditee relations but also a &ay to detect inaccuracies be!ore t"e !inal report is issued$ (o&ever t"e auditor s"ould be prepared !or con!licts and 5uestions and possibly tie-consuin# disa#reeent over seantic atters$ %"ile s"o&in# !le,ibility on atters not a!!ectin# t"e reports substance t"e auditors response to t"ese con!licts s"ould never be to ne#otiate t"e audit opinion$
Ans&er CB is correct$ Accordin# to SIAS 2 GAudit reports s"ould be distributed to t"ose ebers o! t"e or#ani)ation &"o are able to ensure t"at audit results are #iven due consideration$ 3"is eans t"at t"e report s"ould #o to t"ose &"o are in a position to tae corrective action or to ensure t"at corrective action is taen$ 3"e !inal audit report s"ould be distributed to t"e "ead o! eac" audited unit$ (i#"er-level ebers in t"e or#ani)ation ay receive only a suary report$ 9eports ay also be distributed to ot"er interested or a!!ected parties suc" as e,ternal auditors and audit coittees$G 3"us suary &ritten reports are usually intended !or audit coittees o! boards o! directors and;or "i#"er-level ana#eent$
[2] Source: CIA 1187 I-44 Ans&er AB is incorrect because reports s"ould be distributed to all t"ose directly interested in t"e audit includin# t"e e,ecutive to &"o t"e internal auditin# !unction reports t"e person to &"o replies &ill be addressed t"e person responsible !or t"e activity revie&ed and t"e person re5uired to tae corrective action$ ?,ternal auditors &ould lie&ise "ave an interest in suc" reports$
Ans&er .B is incorrect because no docuent classi!ied as an audit report is restricted to auditors only$ [2] Source: CIA 6> I-8 Ans&er AB is incorrect because alt"ou#" iproper or ille#al acts ay be disclosed in a separate report t"e internal auditor s"ould not discuss suc" in!oration &it" individuals &"o "ave coitted suc" acts$
Ans&er *B is incorrect because reports s"ould be distributed to all t"ose directly interested in t"e audit includin# t"e e,ecutive to &"o t"e internal auditin# !unction reports t"e person to &"o replies &ill be addressed t"e person responsible !or t"e activity revie&ed and t"e person re5uired to tae corrective action$ ?,ternal auditors &ould lie&ise "ave an interest in suc" reports$
Ans&er *B is incorrect because in #eneral internal auditors are responsible to t"eir or#ani)ations ana#eent rat"er t"an outside a#encies$ In t"e case o! !raud statutory !ilin#s &it" re#ulatory a#encies ay be re5uired$
Ans&er CB is incorrect because reports s"ould be distributed to all t"ose directly interested in t"e audit includin# t"e e,ecutive to &"o t"e internal auditin# !unction reports t"e person to &"o replies &ill be addressed t"e person responsible !or t"e activity revie&ed and t"e person re5uired to tae corrective action$ ?,ternal auditors &ould lie&ise "ave an interest in suc" reports$
Ans&er CB is incorrect because suc" in!oration s"ould be counicated to individuals to &"o senior ana#ers report$ Ans&er .B is correct$ SIAS 2 states GCertain in!oration ay not be appropriate !or disclosure to all report recipients because it is privile#ed
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proprietary or related to iproper or ille#al acts$ Suc" in!oration "o&ever ay be disclosed in a separate report$ I! t"e conditions bein# reported involve senior ana#eent report distribution s"ould be to t"e audit coittee o! t"e board o! directors or a siilar "i#"-level entity &it"in t"e or#ani)ation$G
Ans&er *B is incorrect because t"e !indin# is a result o! t"e audit and cannot be oitted$ Ans&er CB is incorrect because ana#eent "as erely a#reed to tae action$ Ans&er .B is incorrect because ana#eents disa#reeent ay cause t"e auditor to reconsider t"e !indin# and recoendation$
[24] Source: CIA 6> II-> Ans&er AB is incorrect because resolvin# con!licts is an objective o! t"e e,it con!erence$
[27] Source: CIA 11>1 I-44 Ans&er AB is incorrect because reovin# ites !ro t"e pendin# list concerns a ec"anical and iaterial aspect o! t"e reportin# process$
Ans&er *B is incorrect because reac"in# an a#reeent on t"e !acts is an objective o! t"e e,it con!erence$
Ans&er *B is correct$ 9eports s"ould be tiely to enable propt corrective action and reports s"ould be distributed to t"ose in a position to tae corrective action or to ensure t"at corrective action is taen SIAS 2B$ /oreover Standard 44 re5uires internal auditors to !ollo& up to ascertain t"at appropriate action is taen on de!iciency !indin#s$ 3"e internal
Ans&er CB is correct$ Accordin# to Standard 4 G3"e internal auditor s"ould discuss conclusions and recoendations at appropriate levels o! ana#eent be!ore issuin# !inal &ritten reports$G =urt"erore SIAS 2 states G.iscussion o! conclusions and recoendations is usually accoplis"ed durin# t"e course o! t"e audit and;or at postaudit eetin#s e,it intervie&sB$ Anot"er tec"ni5ue is t"e revie& o! dra!t audit reports by t"e "ead o! eac" audited unit$ 3"ese discussions and revie&s "elp ensure t"at t"ere "ave been no isunderstandin#s or isinterpretations o! !act by providin# t"e opportunity !or t"e auditee to clari!y speci!ic ites and to e,press vie&s o! t"e !indin#s conclusions and recoendations$G Identi!yin# concerns !or !uture audits is not a priary objective o! t"e e,it con!erence$
auditor s"ould deterine t"at corrective action bein# taen "as t"e desired results or t"at ana#eent or t"e board "as assued t"e ris o! not tain# corrective action$ Conse5uently it !ollo&s t"at t"e objectives o! audits and t"e tiely r eportin# o! !indin#s &ould be de!eated i! auditees do not proptly ipleent and report on corrective action$ Ans&er CB is incorrect because t"e auditee ay not concur &it" t"e !indin#$ 3"is dispute ay or ay not be considered in closin# t"e audit$
Ans&er .B is incorrect because deterinin# ana#eents action plan and responses is an objective o! t"e e,it con!erence$
Ans&er .B is incorrect because ensurin# t"at t"e audit sc"edule is ept up to date is an adinistrative !unction o! t"e audit or#ani)ation$
[26] Source: CIA 11>4 II-17 [28] Source: CIA 11>2 II-46 Ans&er AB is incorrect because eac" level o! ana#eent does not need a detailed report$
Ans&er AB is incorrect because t"e director o! purc"asin# s"ould receive a copy$
Ans&er *B is correct$ A &ritten report s"ould be issued a!ter copletion o! an audit$ 3"e report s"ould be addressed to t"e level o! ana#eent capable o! actin# on de!iciencies noted in t"e report$ 3op ana#eent s"ould be a&are o! internal audits activities and any ajor de!iciencies noted$ 3"is purpose can be accoplis"ed in an oral or suary report$
Ans&er *B is incorrect because t"e e,ternal auditor s"ould receive a copy$ Ans&er CB is incorrect because t"e #eneral auditor s"ould receive a copy$ Ans&er .B is correct$ Accordin# to SIAS 2 GAudit reports s"ould be distributed to t"ose ebers o! t"e or#ani)ation &"o are able to ensure t"at audit results are #iven due consideration$ 3"is eans t"at t"e report s"ould #o to t"ose &"o are in a position to tae corrective action or to ensure t"at corrective action is taen$ 3"e !inal audit report s"ould be distributed to t"e "ead o! eac" audited unit$ (i#"er-level ebers in t"e or#ani)ation ay receive only a suary report$ 9eports ay also be distributed to ot"er interested or a!!ected parties suc" as e,ternal auditors and audit coittees$G As interested or a!!ected parties t"e e,ternal auditors and t"e director o! purc"asin# are proper recipients o! t"e report$ 3"e board c"air &ould not norally receive a copy$ A detailed report especially one &it" routine !indin#s is not usually sent to t"e board c"air$
Ans&er CB is incorrect because a !oral detailed &ritten report s"ould be addressed to aretin# ana#eent i! t"at is t"e level o! ana#eent able to act on t"e de!iciencies$ Ans&er .B is incorrect because conclusions and recoendations s"ould be discussed &it" t"e appropriate levels o! ana#eent but an audit report s"ould still be issued$ [20] Source: CIA 687 I-4 Ans&er AB is correct$ Standard 4 re5uires internal auditors to report t"e results o! t"eir audit &or$ SIAS 2 states t"at Gt"e internal auditor s"ould try to obtain a#reeent on t"e results o! t"e audit and on a plan o! action to iprove operations as needed$G 3"us t"e report s"ould re!lect ana#eents a#reeent to tae corrective action as one o! t"e results o! t"e audit$
[2>] Source: CIA 6>4 III-> Ans&er AB is incorrect because spreads"eet so!t&are and autoated &orpaper paca#es &ould be ore "elp!ul$
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viral in!ection$ %ays to inii)e coputer virus ris in a net&ored syste include restricted access re#ularly updated pass&ords periodic testin# o! systes &it" virus detection so!t&are and t"e use o! anti-virus so!t&are on all s"are&are prior to introducin# it into t"e net&or$
Ans&er *B is incorrect because &ord processin# so!t&are and autoated &orpaper paca#es &ould be ore "elp!ul$ Ans&er CB is correct$
Ans&er .B is incorrect because testin# &it" antivirus so!t&are is pre!erable$ [21] Source: C/A 0>6 4-26 Ans&er AB is incorrect because t"e audit coittee s"ould consist only o! outside directors$ Ans&er *B is incorrect because t"e e,tent to &"ic" t"e e,ternal auditor aes use o! t"e &or o! t"e internal auditor is entirely at t"e discretion o! t"e e,ternal auditorD "o&ever internal and e,ternal audit e!!orts s"ould be coordinated$
Ans&er .B is incorrect because database so!t&are and autoated &orpaper paca#es &ould be ore "elp!ul$
Ans&er CB is correct$ 3"e 3read&ay Coission issued its report in 1>87 in response to alle#ations o! &idespread !inancial reportin# !raud by public copanies$ It recoended t"at 1B ana#eent ust per!or an on #oin# !raud-ris assessent aintain an e!!ective internal control structure establis" &ritten codes o! conduct and desi#n appropriate accountin# !unctions t"at eet reportin# obli#ationsD 2B an e!!ective internal audit !unction e,ist in &"ic" auditors "ave unrestricted and direct access to t"e audit coittee and t"e C?O and coordinate t"eir &or &it" t"at o! t"e public accountantsD B every public copany "ave an audit coittee coposed o! outside directorsD and 4B t"e sponsorin# or#ani)ations set up an interdisciplinary body to develop an inte#rated internal control !rae&or$
[21] Source: CIA 6>4 III-1 Ans&er AB is incorrect because onitorin# t"e e,ecution o! application pro#ras is appin#$ Ans&er *B is incorrect because use o! an inte#rated test !acility entails processin# test data a#ainst aster !iles t"at contain real and !ictitious entities$ Ans&er CB is correct$ Jenerali)ed audit so!t&are involves t"e use o! coputer so!t&are paca#es t"at allo& not only parallel siulation but also a variety o! ot"er processin# !unctions suc" as e,tractin# saple ites veri!yin# totals developin# !ile statistics and retrievin# speci!ied data !ields$ Ans&er .B is incorrect because an ebedded audit routine involves insertin# special audit routines into application pro#ras$
Ans&er .B is incorrect because t"e 3read&ay 9eport concerned public copanies$ [214] Source: C/A 0>6 4-20
[211] Source: CIA 6>4 III-2 Ans&er AB is incorrect because t"e scope o! &or o! internal auditors e,tends to non!inancial as &ell as !inancial audits$
Ans&er AB is incorrect because a cell is t"e area &"ere data or !orulas can be entered$ Ans&er *B is incorrect because a acro is a pro#ra &ritten in t"e lan#ua#e o! t"e spreads"eet$
Ans&er *B is correct$ 3"e 1>87 3read&ay Coission 9eport e,ained t"e roles o! t"e internal as &ell as e,ternal auditors in preventin# and detectin# !raudulent !inancial reportin#$ 3"us it ep"asi)ed t"at t"e internal audit !unction s"ould "ave unrestricted and direct access to t"e C?O and t"e audit coittee and s"ould coordinate its &or &it" t"at o! t"e e,ternal auditors$ 3"e report also indicated t"at non!inancial internal audits per!or an educational role$ Internal auditors are better able to detect !raudulent !inancial reportin# i! t"ey "ave a better no&led#e o! copany operations$
Ans&er CB is correct$ An electronic spreads"eet perits t"e creation o! a teplate &"ic" contains a odel o! t"e relations"ips aon# t"e variables speci!ies t"e procedures !or anipulatin# values and de!ines t"e !orat o! t"e output$ Ans&er .B is incorrect because a screen is t"e display area t"at s"o&s t"e spreads"eet$ [212] Source: CIA 6>4 III-2>
Ans&er CB is incorrect because e,ternal auditors s"ould obtain an understandin# o! t"e internal audit !unction deterine &"et"er t"e internal auditors &or is relevant to t"e audit and &"et"er considerin# t"at &or !urt"er is e!!icient and i! t"e &or is relevant and considerin# it !urt"er is e!!icient assess t"e copetence and objectivity o! t"e internal auditors in t"e li#"t o! t"e e!!ect o! t"eir &or on t"e audit$ 3"us e,ternal auditors do not consider t"e &or o! t"e internal auditors t"at is irrelevant to t"e audit$
Ans&er AB is incorrect because runnin# a di!!erent pro#ra as a test and bacin# up "ard dis !iles ay cause t"e virus to spread and do additional daa#e$ Ans&er *B is incorrect because rebootin# t"e syste and bacin# up "ard dis !iles ay cause t"e virus to spread and do additional daa#e$ Ans&er CB is correct$ 3"e described condition is a sypto o! a virus$ /any viruses &ill spread and cause additional daa#e$
Ans&er .B is incorrect because t"e e,ternal auditor is en#a#ed to report on a !inancial stateent audit$
68
Ans&er CB is correct$ 3"e independent auditor ay ae use o! internal auditors to provide direct assistance in per!orin# bot" substantive tests and tests o! controls provided t"at sB"e considers t"eir copetence and objectivity supervises and tests t"eir &or and aes all jud#ents re#ardin# atters t"at a!!ect t"e report on t"e !inancial stateents$
[216] Source: C/A 082 -17 Ans&er AB is incorrect because publis"ed !inancial stateents are only re5uired to be !airly presented$ An audit cannot assure correctness$ Ans&er *B is incorrect because t"e internal auditors responsibility is liited to deterinin# t"at t"e syste "as ade5uate controls to prevent or deter !ors o! !raud #enerally no&n to be possible$
Ans&er .B is incorrect because t"e internal auditor s"ould not be independent o! t"e e,ternal auditor &"en &orin# under "is;"er supervision$
Ans&er CB is incorrect because t"e internal auditor is not an attorney and accordin#ly cannot assure copliance &it" le#al re5uireents$
[21>] Source: C/A 080 -1> Ans&er AB is incorrect because jud#ents as to control ris su!!iciency o! tests per!ored ateriality o! transactions and ot"er atters a!!ectin# t"e report on t"e !inancial stateents ust be t"ose o! t"e independent auditor A< 22B$
Ans&er .B is correct$ Internal auditin# is an independent appraisal activity &it"in an or#ani)ation !or t"e revie& o! operations as a service to ebers o! t"e or#ani)ation$ It is a ana#eent control &"ic" !unctions by e,ainin# and evaluatin# t"e e!!iciency and e!!ectiveness o! ot"er controls i$e$ to see t"at day-to-day operations are under reasonable control$
Ans&er *B is correct$ *ecause t"e ultiate responsibility !or t"e renderin# o! an opinion rests &it" t"e e,ternal auditor sB"e ust ae all decisions t"at re5uire jud#ent$ 3"us t"e internal auditor i#"t select t"e saple si)e once t"e e,ternal auditor "as c"osen t"e con!idence level$ 3"e selection o! saple si)e is essentially a clerical tas once ris levels "ave been ascertained by t"e e,ternal auditor$
[210] Source: C/A 084 -1 Ans&er AB is incorrect because it is a lesser responsibility o! t"e auditor$
Ans&er CB is incorrect because jud#ents as to control ris su!!iciency o! tests per!ored ateriality o! transactions and ot"er atters a!!ectin# t"e report on t"e !inancial stateents ust be t"ose o! t"e independent auditor A< 22B$
Ans&er *B is incorrect because t"e internal auditor does not attest to t"e !airness o! !inancial stateents$ Ans&er CB is correct$ Internal auditin# acts as a ana#erial control t"at easures and evaluates t"e e!!ectiveness o! internal accountin# and adinistrative controls$ 3"e Stateent o! 9esponsibilities o! Internal Auditin# indicates t"at t"e objective o! internal auditin# is to assist all ebers o! ana#eent in t"e e!!ective disc"ar#e o! t"eir responsibilities by !urnis"in# an analysis o! internal control activities$
Ans&er .B is incorrect because jud#ents as to control ris su!!iciency o! tests per!ored ateriality o! transactions and ot"er atters a!!ectin# t"e report on t"e !inancial stateents ust be t"ose o! t"e independent auditor A< 22B$
Ans&er .B is incorrect because it is a lesser responsibility o! t"e auditor$
[22] Source: C/A 1286 -1 Ans&er AB is incorrect because a sc"edule o! interban trans!ers is used to uncover itin# not lappin#$ @itin# is t"e recordin# o! a deposit !ro an interban trans!er in t"e current period &"ile !ailin# to record t"e related disburseent until t"e ne,t period$
[217] Source: CIA 11>2 I-2 Ans&er AB is incorrect because applyin# a particular et"od o! inventory valuation &ill not identi!y speci!ic ite s"orta#es$
Ans&er *B is correct$ appin# is t"e delayed recordin# o! cas" receipts to cover a cas" s"orta#e suc" as &"en receipts !ro accounts &"ic" &ere actually paid yesterday are reported as todays receipts$ 3"e best protection is !or t"e custoers to send payents directly to t"e copanys depository ban$ 3"is procedure precludes client personnel !ro "avin# t"e opportunity to Gborro&G t"e oney$ appin# ay be detected by coparin# details o! ban deposits &it" t"e clients record o! cas" receipts$ Since t"e t"e!t o! a payent !ro one custoer ay be covered lappedB &it" a payent !ro anot"er custoer a coparison o! reittance advices &it" t"e subsidiary accounts receivable led#er ay be "elp!ul$ Also i! t"e auditor suspects t"e duplicate deposit slips "ave been tapered &it" sB"e s"ould copare t"e &it" t"e ori#inals "eld by t"e ban$
Ans&er *B is correct$ A coparison o! p"ysical inventory counts &it" perpetual records is re5uired$ 3"e perpetual records s"ould provide an accurate estiate o! t"e inventory balance &"at s"ould beB and t"e count deterines "o& uc" is on "and &"at isB$ A discrepancy su##ests t"e!t$ Ans&er CB is incorrect because use o! t"e #ross pro!it percenta#e &ill not identi!y speci!ic s"orta#es$ Ans&er .B is incorrect because analysis o! inventory turnover rates &ill not identi!y speci!ic s"orta#es$ [218] Source: C/A 084 - Ans&er AB is incorrect because t"e e,ternal auditor ust establis" liits o! ateriality not t"e internal auditor$
Ans&er CB is incorrect because a proo! o! cas" &ould not uncover lappin# since it does not entail an e,aination o! receivables$
Ans&er *B is incorrect because t"e e,ternal auditor ust establis" liits o! ateriality not t"e internal auditor$
Ans&er .B is incorrect because controllin# cas" receipts &ill only ean t"at t"e one days receipts &ill be properly recordedD a lapper ay not &or every
69
day$
[224] Source: C/A 087 -18 Ans&er AB is incorrect because internal auditors are not only e,pected to be objective but also to collect analy)e interpret and docuent in!oration to support audit results Standard 42B$
[221] Source: C/A 087 -16 Ans&er AB is incorrect because a !inancial audit not an operational audit results in an opinion on !inancial stateents$ (o&ever t"e accountin# syste ay be t"e subject o! an operational audit e,aination and report usually by internal auditors$
Ans&er *B is incorrect because internal auditors s"ould ascertain &"et"er results are consistent &it" establis"ed #oals and objectives Standard 6B$ Observation is a necessary audit procedure !or ac"ievin# t"at objective$
Ans&er *B is incorrect because a !inancial audit not an operational audit results in an opinion on a !irs !inancial accountin# syste$ (o&ever t"e accountin# syste ay be t"e subject o! an operational audit e,aination and report usually by internal auditors$
Ans&er CB is incorrect because internal auditors s"ould ascertain &"et"er results are consistent &it" establis"ed #oals and objectives Standard 6B$ Observation is a necessary audit procedure !or ac"ievin# t"at objective$
Ans&er CB is incorrect because an operational audit is uc" broader t"an an evaluation o! accountin# systes$ It ebraces adinistrative as &ell as accountin# controls$
Ans&er .B is correct$ IIA Standard 12 concerns t"e objectivity o! internal auditors$ It states t"at internal auditors s"ould not assue operatin# responsibilities$
Ans&er .B is correct$ Operational audits are non!inancial audits desi#ned to evaluate ana#eent e!!iciency e!!ectiveness and econoy t"e t"ree ?s o! operational auditin#B$ +er!orance &it"in an or#ani)ation or departent is revie&ed and recoendations are ade !or iproveents$ In any audit "o&ever standards ust e,ist a#ainst &"ic" t"e auditor copares t"e auditees per!orance$ 3"ese standards ay consist o! bud#ets industry avera#es policies procedures anuals or coon business sense$
[226] Source: C/A 087 -1> Ans&er AB is correct$ %"en !raud is not involved t"e initial dra!t o! an operational audit report s"ould be e,posed to t"e ana#er in c"ar#e o! t"e departent bein# audited durin# &"at is no&n as an e,it intervie&$ 3"is #ives t"e auditor an opportunity to c"ec "is;"er !indin#s &it" t"e departent "ead be!ore subittin# t"e report to "i#"er ana#eent$ I! t"e auditor "as ade a istae t"e departent "ead can recti!y t"e error$ I! t"e audit report is accurate early e,posure perits propt corrective action$ 3"us bot" auditor and departent "ead can bene!it !ro t"e e,it intervie&$
[222] Source: C/A 087 -17 Ans&er AB is incorrect because it is as true o! an audit in accordance &it" JAAS as o! an operational audit$
Ans&er *B is incorrect because "i#"er levels o! ana#eent s"ould not see t"e report until it "as been revie&ed by t"e ana#er o! t"e auditee$
Ans&er *B is incorrect because it is as true o! an audit in accordance &it" JAAS as o! an operational audit$
Ans&er CB is incorrect because "i#"er levels o! ana#eent s"ould not see t"e report until it "as been revie&ed by t"e ana#er o! t"e auditee$
Ans&er CB is incorrect because it is as true o! an audit in accordance &it" JAAS as o! an operational audit$
Ans&er .B is incorrect because "i#"er levels o! ana#eent s"ould not see t"e report until it "as been revie&ed by t"e ana#er o! t"e auditee$
Ans&er .B is correct$ An operational audit report includes a stateent o! !indin#s$ I! a !indin# is un!avorable t"e report s"ould include recoendations !or iproveent o! t"e condition$ Suc" is not a re5uireent o! !inancial audits$
[220] Source: C/A 082 -18 Ans&er AB is incorrect because !ollo&in# up on de!iciency !indin#s is an internal auditors responsibility only internal auditors issue de!iciency !indin#sB$
[22] Source: C/A 087 -10 Ans&er AB is incorrect because it is a typical subject o! a !inancial audit$
Ans&er *B is incorrect because accordin# to t"e Standards !or t"e +ro!essional +ractice o! Internal Auditin# t"e internal auditor ust !ollo& up de!iciency !indin#s$
Ans&er *B is correct$ An operational audit is desi#ned to evaluate t"e e !!iciency e!!ectiveness and econoy o! ana#erial or #ani)ation per!orance and tec"ni5ues$ 3"e only ans&er c"oice t"at &ould !all into t"ese cate#ories is per!orance statistics e!!ectivenessB on t"e delivery o! services$
Ans&er CB is incorrect because !ield testin# not ere auditee con!iration is re5uired by 3"e IAA Standards to assure t"at action &as taen and t"e desired results are bein# ac"ieved$
Ans&er CB is incorrect because it is a typical subject o! a !inancial audit$
Ans&er .B is correct$ 3"e internal auditor is obli#ated to deterine t"at corrective action is taen and is ac"ievin# t"e desired results or t"at ana#eent "as e,plicitly assued t"e ris o! not tain# corrective action &it" re#ard to de!iciency !indin#s$ =ield tests ay be needed to obtain ade5uate assurance$
Ans&er .B is incorrect because it concerns prospective !inancial in!oration$ An operational auditor &ould only evaluate suc" !orecasts a!ter t"e 6-year period "ad ended$
70
aounts$ [227] Source: C/A 0>0 4-28 [2] Source: CIA 6> I-4 Ans&er AB is incorrect because direct evidence is proo! &it"out presuption or in!erence$
Ans&er AB is incorrect because t"ere is not enou#" in!oration to evaluate t"e e!!ectiveness o! !ollo&-up$
Ans&er *B is correct$ Circustantial evidence is usually considered to be t"e &eaest !or o! evidence$ It tends to prove a priary !act by provin# ot"er interediate events or circustances t"at provide a basis !or a reasonable in!erence t"at t"e priary !act occurred$ (ence t"e proo! is indirect$
Ans&er *B is incorrect because auditors ay properly ae recoendations !or potential iproveents but s"ould not ipleent corrective action$ Ans&er CB is incorrect because auditor recoendations are an eleent o! an audit !indin#$
Ans&er CB is incorrect because corroborative evidence is additional evidence o! a di!!erent nature !ro t"e evidence it suppleents$
Ans&er .B is correct$ Accordin# to Standard 4 G9eports s"ould be objective clear concise constructive and tiely$G SIAS 2 adds G3iely reports are t"ose t"at are issued &it"out delay and enable propt e!!ective action$G 3"e report &"ic" &as not publis"ed until 8 &ees a!ter t"e audit &as concluded &as not issued in a tiely !as"ion #iven t"e si#ni!icance o! t"e !indin#s and t"e need !or propt e!!ective action$
Ans&er .B is incorrect because conclusive evidence is by d e!inition incontrovertible$ [228] Source: C/A 0>0 4-2> Ans&er AB is incorrect because reliability and inte#rity o! in!oration is a priary objective o! internal control$
[21] Source: CIA 68> II-2 Ans&er *B is incorrect because copliance &it" internal and e,ternal rules and re#ulations is a priary objective o! internal control$
Ans&er AB is incorrect because t"e controller is not t"e only eber o! ana#eent$
Ans&er CB is correct$ Accordin# to aut"oritative pronounceents o! 3"e IIA t"e scope o! &or o! internal auditors e,tends to Gt"e e ,aination and evaluation o! t"e ade5uacy and e!!ectiveness o! t"e or#ani)ations syste o! internal control and t"e 5uality o! per!orance in carryin# out assi#ned responsibilities$G 3"e priary objectives o! internal control are to ensure copliance &it" policies plans procedures la&s and re#ulationsD accoplis"ent o! establis"ed objectives and #oalsD reliability and inte#rity o! in!orationD econoical and e!!icient use o! resourcesD and sa!e#uardin# o! assets$ (o&ever ris associated &it" statistical saplin# saplin# risB is a lesser concern o! an internal auditor because it can be easured and controlled$
Ans&er *B is incorrect because t"e Standards provide no actual aut"ority to internal auditors$ Ans&er CB is correct$ Accordin# to t"e S9IA internal auditin# G!unctions under t"e policies establis"ed by senior ana#eent and t"e board$ 3"e director o! internal auditin# s"ould see approval o! t"e c"arter by senior ana#eent as &ell as acceptance by t"e board$ 3"e c"arter s"ould ae clear t"e purposes o! t"e internal audit departent speci!y t"e unrestricted scope o! its &or and declare t"at auditors are to "ave no aut"ority or responsibility !or t"e activities t"ey audit$G Ans&er .B is incorrect because ana#eent and t"e board not a coittee o! t"e board and a particular ana#er endo& internal auditin# &it" its aut"ority$
Ans&er .B is incorrect because sa!e#uardin# o! assets is a priary objective o! internal control$
[22] Source: CIA 6>4 II-16 [22>] Source: C/A 0>0 4- Ans&er AB is incorrect because intervie&s are not ore objective t"an 5uestionnaires$
Ans&er AB is incorrect because trend or tie series analysis uses past e,perience as a predictor$
Ans&er *B is incorrect because intervie&s are o!ten unstructured$
Ans&er *B is correct$ Analytical auditin# procedures are per!ored by study and coparison o! plausible relations"ips aon# bot" !inancial and non!inancial data$ 3"e preise is t"at absent no&n contrary circustances certain relations"ips aon# in!oration ay reasonably be e,pected to continue$ 3"e result o! analytical procedures is an assessent o! in!oration collected in an audit in relation to e,pectations developed by t"e auditor$ 3"us a p"ysical inventory is not a !or o! analytical procedure because it does not involve predictable relations"ips aon# in!oration$ Instead it is a !or o! direct o bservational evidence$
Ans&er CB is correct$ Oral evidence is presuptively less reliable t"an ot"er !ors o! evidence suc" as t"at obtained !ro independent sources outside t"e entity or !ro t"e auditors direct e,perience$ Conse5uently it s"ould be corroborated$ Ans&er .B is incorrect because t"e need !or corroboration presents treatin# t"e evidence !ro intervie&s as conclusive$ [2] Source: CIA 6>4 II-6
Ans&er CB is incorrect because coparin# actual &it" bud#eted aounts ay indicate t"e need !or !urt"er investi#ation$
Ans&er AB is incorrect because intervie&ers s"ould be cal and avoid accusations and t"reats$ An objective trut"-seein# attitude is appropriate$
Ans&er .B is incorrect because ratio analyses are an analytical eans o! observin# relations"ips aon#
71
Ans&er *B is incorrect because &itnesses s"ould be intervie&ed sin#ly to obtain independent stateents$
Ans&er .B is incorrect because !ield &or can be
Ans&er CB is correct$ 3"e internal auditor ust not copound a !elony$ It is unla&!ul to bar#ain !or restitution by a#reein# not to press c"ar#es$ /oreover droppin# c"ar#es ay result in loss o! con!idence in !uture cases by t"e police prosecutors and courts$
per!ored only a!ter t"e audit pro#ra "as been &ritten$ 3"us !ield &or cannot iediately !ollo& t"e on-site survey$ [27] Source: CIA 1184 I-14
Ans&er .B is incorrect because allo&in# a suspect to return to &or ay r esult in loss o! evidence$
Ans&er AB is incorrect because t"e reliability and inte#rity o! !inancial in!oration are iportant in operational auditin#$ In!oration systes provide data !or decision ain# control and copliance &it" e,ternal re5uireents$
[24] Source: CIA 6>2 I-28 Ans&er AB is incorrect because a standard audit pro#ra is appropriate !or use in a inially c"an#in# operatin# environent$ It ay save e!!ort and provide continuity$
Ans&er *B is correct$ =inancial auditin# is priarily concerned &it" !orin# an opinion on t"e !airness o! t"e !inancial stateents$ Operational auditin# evaluates copliance &it" policies plans procedures la&s and re#ulationsD accoplis"ent o! establis"ed objectives and #oals !or operations or pro#rasD and econoical and e!!icient use o! resources$
Ans&er *B is correct$ A standard pro#ra is not appropriate !or a cople, or c"an#in# operatin# environent$ 3"e audit objectives and related &or steps ay no lon#er be relevant$
Ans&er CB is incorrect because usin# !inancial stateents as a startin# point describes !inancial auditin#$
Ans&er CB is incorrect because a standard audit pro#ra can be used to audit ultiple locations &it" siilar operations i! t"e sae objectives and controls are present$
Ans&er .B is incorrect because analytical sills are necessary in all types o! auditin#$
Ans&er .B is incorrect because a standard audit pro#ra is acceptable !or conductin# subse5uent inventory audits at t"e sae location i! t"e inventory !unctions per!ored "ave not varied substantially$
[28] Source: CIA 11>0 II-14 Ans&er AB is incorrect because in!orin# t"e audit coittee and senior ana#eent is a ajor purpose o! an audit report$
[26] Source: CIA 6>2 II-18 Ans&er AB is correct$ A &ritten audit pro#ra prescribes t"e nature tiin# and e,tent o! &or to be done$ It sets !ort" in reasonable detail t"e speci!ic audit procedures t"e auditor believes are necessary to accoplis" t"e audit objectives$ It is t"us a use!ul tool in sc"edulin# and controllin# t"e audit$ (o&ever an audit pro#ra ust be adapted to t"e speci!ic needs o! t"e audit a!ter t"e auditor establis"es t"e audit objectives and scope deterines t"e resources re5uired and conducts a preliinary survey$
Ans&er *B is incorrect because #ettin# results is a ajor purpose o! an audit report$ Ans&er CB is correct$ Accordin# to Sa&yers Internal Auditin# p$ 011B audit reports are intended to in!or persuade and #et results$ 3"ey e,plain t"e auditors !indin#s attept to convince t"e recipients o! t"e report o! t"e value and validity o! t"ose !indin#s and attept to !oster bene!icial c"an#e$ Ans&er .B is incorrect because persuadin# t"e audit coittee and senior ana#eent t"at certain conditions e,ist is a ajor purpose o! an audit report$
Ans&er *B is incorrect because a #enerali)ed pro#ra cannot tae into account variations resultin# !ro c"an#in# circustances and varied conditions$ Ans&er CB is incorrect because a #enerali)ed pro#ra cannot tae into account variations in circustances and conditions$
[2>] Source: CIA 6>4 II-14 Ans&er AB is correct$ Accordin# to SIAS GInvesti#ation consists o! per!orin# e,tended procedures necessary to deterine &"et"er !raud as su##ested by t"e indicators "as occurred$ It includes #at"erin# su!!icient evidential atter about t"e speci!ic details o! a discovered !raud$ Internal auditors la&yers investi#ators security personnel and ot"er specialists !ro inside or outside t"e or#ani)ation are t"e parties t"at usually conduct or participate in !raud investi#ations$G (ence internal auditors are !act #at"erers$ (o&ever internal auditors are not norally trained as interro#ators o! suspected perpetrators$
Ans&er .B is incorrect because every aspect o! an operation need not be e,ained only t"ose aspects liely to conceal probles and di!!iculties$ [20] Source: CIA 11>2 I-21 Ans&er AB is incorrect because audit personnel are usually assi#ned be!ore t"e on-site survey$ Ans&er *B is incorrect because initial audit objectives are establis"ed at t"e be#innin# o! t"e plannin# process$ 3"ey s"ould be speci!ied be!ore t"e on-site survey$
Ans&er *B is incorrect because con!inin# a suspect is considered !alse iprisonent$
Ans&er CB is correct$ 3"e audit pro#ra is norally prepared a!ter t"e on-site survey$ 3"e on-site survey allo&s t"e auditor to becoe !ailiar &it" t"e auditee and t"ere!ore provides input to t"e audit pro#ra$
Ans&er CB is incorrect because obtainin# con!essions is t"e role o! an investi#ator$ Ans&er .B is incorrect because &aivin# punis"ent
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is considered to be copoundin# copoundin# a !elony$ !elony$ 3"e 3"e ri#"t to punis" or !or#ive a criinal act is reserved to t"e state$
objectivity Standard 12B$ [24] Source: CIA 11>6 I-46
[24] Source: CIA 6>6 I-0
Ans&er AB is incorrect incorrect because lac o! o! support by t"e C?O and lac o! outside directors &eaen t"e internal auditors position$
Ans&er AB is incorrect incorrect because t"e c"arter c"arter establis"es t"e departents position &it"in t"e or#ani)ationD aut"ori)es access to records personnel and p"ysical propertiesD and de!ines t"e scope o! internal audit activities$
Ans&er *B is incorrect incorrect because lac o! o! support by t"e C?O and lac o! a c"arter &eaen t"e internal auditors position$
Ans&er *B is incorrect incorrect because t"e c"arter c"arter establis"es t"e departents position &it"in t"e or#ani)ationD aut"ori)es access to records personnel and p"ysical propertiesD and de!ines t"e scope o! internal audit activities$
Ans&er CB is incorrect incorrect because lac o! support by t"e C?O &eaens t"e internal auditors position$ Ans&er .B is correct$ 3"e C?Os stateent stateent su##ests t"at t"e internal auditors lac t"e support o! ana#eent and t"e board$ =urt"erore t"e lac o! outside directors ay contribute to a loss o! auditor independence$ 3"e !ailure to approve t"e c"arter ay "ave t"e sae e!!ect$ 3"e c"arter en"ances t"e auditors independence because it clearly speci!ies in advance t"e aut"ority scope and responsibility o! t"e internal auditin# !unction$
Ans&er CB is correct$ 3"e Standards state state t"at t"e independence o! internal auditin# is en"anced &"en t"e board concurs in t"e appointent or reoval o! t"e director but ot"er&ise do not discuss t"e len#t" o! t"e directors eployent$ Ans&er .B is incorrect incorrect because t"e c"arter c"arter establis"es t"e departents position &it"in t"e or#ani)ationD aut"ori)es access to records personnel and p"ysical propertiesD and de!ines t"e scope o! internal audit activities$
[244] Source: CIA 11>4 I-01 Ans&er AB is correct$ Since t"e auditor reports reports directly to t"e board o! directors sB"e "as or#ani)ational independence$ (o&ever t"e auditors objectivity "as been ipaired by "is;"er !ailure to report t"e cas" s"orta#e$
[241] Source: CIA 11>6 I-4 Ans&er AB is correct$ 3"e c"arter s"ould s"ould de!ine t"e purpose aut"ority and responsibility o! t"e internal audit departent$ Aon# ot"er atters it s"ould de!ine t"e scope o! internal audit activities$ =urt"erore t"e director s"ould subit annually to ana#eent !or approval and to t"e board !or its in!oration a suary o! t"e departents audit &or sc"edule sta!!in# plan and !inancial bud#et Standard 11B$ 11B$
Ans&er *B is incorrect incorrect because t"e auditors auditors objectivity "as been ipaired by "is;"er !ailure to report t"e cas" s"orta#e$ (o&ever t"e auditor reports to t"e board o! directors and t"ere!ore "as or#ani)ational independence$
Ans&er *B is incorrect incorrect because t"e auditee auditee does not deterine t"e scope o! t"e audit$
Ans&er CB is incorrect incorrect because t"e auditors auditors objectivity "as been ipaired by "is;"er !ailure to report t"e cas" s"orta#e$ (o&ever t"e auditor reports to t"e board o! directors and t"ere!ore "as or#ani)ational independence$
Ans&er CB is incorrect incorrect because ot"er objectives objectives ay be establis"ed by ana#eent and t"e auditor$ 3"e audit s"ould not be liited to t"e speci!ic standards set by t"e 5uality assurance departent but it s"ould consider suc" standards in t"e developent o! t"e audit pro#ra$
Ans&er .B is incorrect incorrect because t"e auditors auditors objectivity "as been ipaired by "is;"er !ailure to report t"e cas" s"orta#e$ (o&ever t"e auditor reports to t"e board o! directors and t"ere!ore "as or#ani)ational independence$
Ans&er .B is incorrect incorrect because t"e auditor auditor s"ould conduct t"e audit and counicate any scope liitations to ana#eent and t"e board$
[246] Source: CIA 11>4 I-60 [242] Source: CIA 11>6 I-47
Ans&er AB is incorrect incorrect because docuentation docuentation in t"e by-la&s does little to proote independence$
Ans&er AB is incorrect incorrect because t"e auditor auditor s"ould accept t"e en#a#eent$ 9ecoendin# controls is not considered a violation o! t"e auditors independence or objectivity$
Ans&er *B is incorrect incorrect because le#islated le#islated internal auditin# re5uireents in Country P do not proote independence$
Ans&er *B is incorrect incorrect because t"e auditor auditor s"ould accept t"e en#a#eent$ Auditors s"ould "ave control no&led#e t"at is not liited to accountin# controls$
Ans&er CB is correct$ Accordin# to Standard 1 independence is ac"ieved t"rou#" or#ani)ational status and objectivity$ 3"e director s"ould be responsible to an individual &it" su!!icient aut"ority to proote independence$ 3"e board o! directors is t"e "i#"est aut"ority in t"e or#ani)ation$
Ans&er CB is incorrect incorrect because audit independence independence is not ipaired by ain# control recoendations$ Ans&er .B is correct$ 3"e auditor s"ould s"ould accept t"e en#a#eent assi#n sta!! &it" su!!icient control no&led#e and ae appropriate recoendations$ 9ecoendin# standards o! control does not ipair
Ans&er .B is incorrect incorrect because independence independence is ac"ieved t"rou#" or#ani)ational status and objectivity$
73
[240] Source: CIA 11>0 I-20
Ans&er AB is correct$ Su!!icient in!oration in!oration is de!ined as !actual ade5uate and convincin# so t"at a prudent in!ored person &ould reac" t"e sae conclusions as t"e auditor$ 3"ese tests are insu!!icient because t"e auditor did not deterine t"at eac" container "ad an inspection seal si#ned &it"in t"e last > days$
Ans&er AB is correct$ 3"e audit coittee coittee is a subcoittee ade up o! outside directors &"o are independent o! corporate ana#eent$ Its purpose is to "elp eep e,ternal and internal auditors independent o! ana#eent and to assure t"at t"e directors are e,ercisin# due care$ (o&ever i! independence is ipaired by personal and pro!essional !riends"ips t"e e!!ectiveness e!!ectiveness o! t"e audit coittee ay be liited$
Ans&er *B is incorrect incorrect because t"e in!oration in!oration is copetent$ It is reliable and t"e best attainable t"rou#" t"e use o! appropriate audit tec"ni5ues$
Ans&er *B is incorrect incorrect because t"e copensation copensation audit coittee ebers receive is usually inial$ 3"ey s"ould be independent and t"ere!ore not liited to a s"are"olders perspective$
Ans&er CB is incorrect incorrect because t"e in!oration in!oration is relevant$ It supports audit !indin#s and recoendations and is consistent &it" t"e objectives !or t"e audit$
Ans&er CB is incorrect incorrect because alt"ou#" audit coittees are concerned &it" e,ternal audits t"ey also devote attention to t"e internal audit !unction$
Ans&er .B is incorrect incorrect because t"e su!!iciency su!!iciency criterion &as violated$
Ans&er .B is incorrect incorrect because audit coittee coittee ebers do not need de#rees in accountin# or auditin# to understand audit reports$
[26] Source: CIA 11>4 I-10 Ans&er AB is incorrect incorrect because t"e su!!iciency su!!iciency criterion "as not been violated$ +"ysical observation observation by t"e auditor is su!!icient to deterine deterioration and need !or repairs$
[247] Source: CIA 11> II-2 Ans&er AB is incorrect incorrect because &"et"er saplin# saplin# is appropriate and t"e results are valid are issues related to t"e deterination o! su!!iciency su!!iciency and copetence rat"er t"an relevance$
Ans&er *B is incorrect incorrect because t"e copetency copetency criterion "as not been violated$ On-site observation is an appropriate tec"ni5ue to deterine d eterioration and needed repairs$
Ans&er *B is incorrect incorrect because objectivity objectivity and lac o! bias do not assure t"at in!oration &ill support audit !indin#s and recoendations and be consistent &it" t"e audit ob jectives$
Ans&er CB is incorrect incorrect because t"e relevance relevance criterion "as not been violated$ 3"e evidence obtained by t"e auditor supports !indin#s about t"e p"ysical condition o! t"e departent$
Ans&er CB is incorrect incorrect because it de!ines de!ines evidence su!!icient so t"at a prudent in!ored person &ould reac" t"e sae conclusion as t"e auditor$
Ans&er .B is correct$ 3"e observations observations ade about t"e ve"icle aintenance departent contain su!!icient in!oration !actual ade5uate and convincin# so t"at a prudent in!ored person &ould reac" t"e sae conclusionsB t"at is copetent reliable and t"e best attainable t"rou#" t"e use o! appropriate audit tec"ni5uesB and relevant supports audit !indin#s and recoendations and is consistent &it" t"e objectives !or t"e auditB$
Ans&er .B is correct$ GIn!oration GIn!oration s"ould be be su!!icient copetent relevant and use!ul to provide a sound basis !or audit !indin#s and recoendations$ 9elevant in!oration supports audit !indin#s and recoendations and is consistent &it" t"e objectives !or t"e auditG Standard 42B$
[261] Source: CIA 11>4 I-1> [248] Source: CIA 11>1 II-18 Ans&er AB is incorrect incorrect because su!!icient su!!icient evidence evidence is !actual ade5uate and convincin#$ convincin#$ 3"e in!oration contained on t"e docuent ay be none o! t"ose t"in#s$
Ans&er AB is incorrect incorrect because t"e su!!iciency su!!iciency criterion "as not been violated$ 3"e analytical coparison direct observation and revie& o! t"e aret survey provide su!!icient evidence o! t"e e!!ectiveness and validity o! e,penditures$
Ans&er *B is correct$ Copetent evidence is reliable and t"e best available t"rou#" t"e application o! appropriate audit procedures$ An ori#inal docuent is t"e prie e,aple o! suc" evidence$
Ans&er *B is incorrect incorrect because t"e copetency copetency criterion "as not been violated$ Analysis observation and revie& by t"e auditor are all et"ods o! obtainin# copetent reliable evidence$
Ans&er CB is incorrect incorrect because relevancy relevancy concerns t"e relations"ip o! t"e evidence to soe objective o! t"e audit$ o audit objective is disclosed in t"e 5uestion$ 3"us &"et"er t"e in!oration on t"e docuent is relevant to t"e investi#ation cannot be deterined$
Ans&er CB is incorrect incorrect because t"e relevance relevance criterion "as not been violated$ 3"e analytical coparisons direct observations and revie& o! t"e aretin# survey are all types o! evidence relevant to t"e evaluation o! t"e aretin# e,penditures$
Ans&er .B is incorrect incorrect because use!ulness use!ulness is ac"ieved i! t"e ite o! evidence "elps t"e or#ani)ation t"e auditor in t"is caseB to accoplis" predeterined #oals$ o suc" #oals are speci!ied$
Ans&er .B is correct$ 3"e audit evidence evidence contains su!!icient in!oration !actual ade5uate and convincin# so t"at a prudent in!ored person &ould reac" t"e sae conclusionsB t"at is copetent reliable and t"e best attainable t"rou#" t"e use o! appropriate audit tec"ni5uesB and relevant supports audit !indin#s and recoendations and is consistent &it" t"e objectives !or t"e auditB$
[24>] Source: CIA 11>4 I-16
74
[266] Source: CIA 68> I-1 [262] Source: CIA 11>2 II-22 Ans&er AB is incorrect incorrect because a pro#ra audit audit &ould entail evaluatin# educational bene!its$ A pro#ra audit evaluates t"e costs and e!!ectiveness e!!ectiveness o! an activity !unded by t"e or#ani)ation t"at is ancillary to its ain operations$
Ans&er AB is correct$ Accordin# to to Standard 41 internal auditors s"ould plan eac" audit$ +lannin# s"ould be docuented and s"ould include as a !irst step establis"in# audit objectives and scope o! &or$ Ans&er *B is incorrect incorrect because t"e sc"edulin# sc"edulin# and tie estiates are based on t"e audit objectives and t"e scope o! t"e audit$
Ans&er *B is incorrect incorrect because an or#ani)ational or#ani)ational audit applies to a sin#le Gor#ani)ationG &it"in t"e entity e$#$ personnel$ An or#ani)ational audit is priarily concerned &it" ana#eent control t"at is &it" "o& &ell ana#ers are applyin# ana#eent principles$
Ans&er CB is incorrect incorrect because t"e preliinary preliinary survey is per!ored a!ter t"e audit objectives are deterined$
Ans&er CB is correct$ In In a !unctional audit audit t"e auditor !ollo&s a !unction !ro be#innin# to end even i! t"at !unction involves ore t"an one or#ani)ational subunit$ 3"e auditor ep"asi)es t"e operation ore t"an its adinistrative or personnel activities$
Ans&er .B is incorrect incorrect because t"e audit pro#ra pro#ra is developed a!ter t"e preliinary survey and is based on t"e audit objectives and t"e scope o! t"e audit$ [26] Source: CIA 6>4 I-27
Ans&er .B is incorrect incorrect because a contract audit involves evaluation o! a project undertaen !or t"e or#ani)ation by an outside entity suc" as construction o! a buildin#$
Ans&er AB is correct$ An evaluation evaluation o! t"e erit o! la&suits re5uires le#al e,pertise$ At ost an internal auditor is re5uired to "ave an appreciation o! t"e !undaentals o! coercial la& t"at is an ability to reco#ni)e t"e e,istence o! probles and to deterine t"e assistance to be obtained$ (ence t"e auditors responsibility is liited to usin# consultants to evaluate t"e erits o! t"e la&suits$
[260] Source: CIA 6> I-6 Ans&er AB is incorrect incorrect because by al&ays al&ays #ivin# t"e ipression t"at additional evidence is in r eserve t"e internal auditor is ore apt to obtain coplete and trut"!ul ans&ers$
Ans&er *B is incorrect incorrect because copliance copliance &it" le#al re5uireents is &it"in t"e scope o! internal auditin#$
Ans&er *B is incorrect incorrect because !raud investi#ations investi#ations usually occur une,pectedly and cannot be sc"eduled in advance$ Also t"e !raud investi#ation ust be conducted by individuals "avin# t"e appropriate e,pertise even i! anot"er assi#nent ust be delayed$
Ans&er CB is incorrect incorrect because copliance copliance &it" loan covenants is &it"in t"e scope o! internal auditin#$ Ans&er .B is incorrect incorrect because appraisin# appraisin# t"e econoy and e!!iciency &it" &"ic" resources are eployed and revie&in# t"e accoplis"ent o! objectives and #oals are &it"in t"e scope o! &or o! internal auditors$
Ans&er CB is incorrect incorrect because internal auditin# s"ould coordinate its activities &it" t"e ot"er investi#ators entioned$ Ans&er .B is correct$
[264] Source: CIA 6>6 I-62 Ans&er AB is incorrect incorrect because alt"ou#" alt"ou#" t"e revie&s ay be used by t"e under&riter t"ey are not directed by t"e under&riter$ Ans&er *B is incorrect incorrect because t"e due dili#ence dili#ence revie& is not an operational audit or a r evie& !or copliance &it" copany policies$
[267] Source: CIA 11>2 II-4> Ans&er CB is incorrect incorrect because t"e due dili#ence dili#ence revie& is not an operational audit or a r evie& !or copliance &it" copany policies$
Ans&er AB is correct$ Accordin# to SIAS t"e internal auditors responsibilities !or detectin# !raud &"en conductin# an audit assi#nent are to "ave su!!icient no&led#e no&led#e o! t"e indicators o! !raudD to be alert to opportunities suc" as control &eanesses t"at could allo& !raudD to conduct additional tests directed to&ard detection o! !raud i! si#ni!icant &eanesses are !oundD to evaluate t"e indicators and decide &"et"er !urt"er action is necessary or an investi#ation s"ould be recoendedD and to Gnoti!y t"e appropriate aut"orities &it"in t"e or#ani)ation i! a deterination is ade t"at t"ere are su!!icient indicators o! t"e coission o! a !raud to recoend an investi#ation$G SIAS adds G%"en t"e incidence o! si#ni!icant !raud "as been establis"ed to a r easonable certainty certainty ana#eent or t"e board s"ould be noti!ied iediately$G iediately$G
Ans&er .B is correct$ .ue .ue dili#ence is a de!ense by accountants to liability under t"e Securities Act o! 1> &"en a aterial !act "as been isstated in or oitted !ro a re#istration stateent$ Accountants Accountants &"o prepare or certi!y !inancial stateents used in re#istration stateents or ot"er disclosures need only prove due dili#ence re#ardin# t"e &or t"ey per!or$ 3"e accountants ust s"o& t"at a!ter conductin# a reasonable investi#ation t"ey "ad reasonable #rounds to believe and did believe t"at t"e re#istration stateent &as true and contained no aterial oissions o! !act &"en it becae e!!ective$ Standards suc" as JAA+ provide evidence &"ic" is not conclusive about t"e nature o! a reasonable investi#ation$
Ans&er *B is incorrect incorrect because no reportin# is
75
re5uired &"en suspicious acts are reported to t"e auditor$
Ans&er .B is incorrect because a report to operatin# ana#eent &ould not include suc" details$
Ans&er CB is incorrect because irre#ular transactions under investi#ation &ould not re5uire reportin# until t"e investi#ation p"ase is copleted$
[201] Source: CIA 11>0 II-10
Ans&er .B is incorrect because reportin# s"ould occur &"en t"e incidence o! !raud o! a aterial aount "as been establis"ed to a reasonable certainty$
Ans&er AB is correct$ 3"e auditor ne#lected to or#ani)e t"e in!oration$ *ecause t"e in!oration bein# counicated is coplicated t"e reports content s"ould be or#ani)ed in a lo#ical se5uence to !acilitate understandin# and acceptance$ =or t"is reason standard !orats are o !ten used in business counications$
[268] Source: CIA 6> II-46 Ans&er AB is incorrect because participatory bud#etin# can reduce anta#onis to bud#ets and reduce t"e lieli"ood o! inappropriate eans o! eetin# t"e bud#et$
Ans&er *B is incorrect because t"e nature o! an audience is a situational !actor t"at is outside t"e control o! t"e auditor$ Ans&er CB is incorrect because noise is a situational !actor t"at inter!eres &it" t"e e!!ective counication o! intended essa#es$
Ans&er *B is correct$
Ans&er .B is incorrect because t"e "istory o! previous encounters is a situational !actor t"at is outside t"e control o! t"e auditor$
Ans&er CB is incorrect because "irin# policies s"ould be based on !actors ot"er t"an ade5uate trainin# suc" as t"e applicants personal inte#rity$ =urt"erore "irin# o! all ade5uately trained applicants is unliely to be necessary$
[202] Source: CIA 11>0 II-17 Ans&er AB is incorrect because an audit report s"ould be appropriately or#ani)ed be concise and use active voice verbs$
Ans&er .B is incorrect because under t"e reasonable assurance concept t"e cost o! controls s"ould not e,ceed t"eir bene!its$ 3"e cost o! applyin# controls to all relevant transactions rat"er t"an a saple ay be #reater t"an t"e resultant savin#s$
Ans&er *B is incorrect because an audit report s"ould be appropriately or#ani)ed be concise and use active voice verbs$ Ans&er CB is incorrect because an audit report s"ould be appropriately or#ani)ed be concise and use active voice verbs$
[26>] Source: CIA 6>4 I-12 Ans&er AB is incorrect because autocratic ana#eent styles "ave been lined to ana#eent !inancial stateentB !raud$
Ans&er .B is correct$ 3"e report s"ould be &ell-or#ani)ed so t"at t"e in!oration is #iven appropriate attention$ Also e!!ective or#ani)ation en"ances understandin# by presentin# in!oration in an lo#ical order t"at clari!ies t"e auditors reasonin#$ @eepin# sentences as s"ort and siple as possible lie&ise !acilitates understandin#$ Also active voice verbs are ore vivid and concise t"an passive voice verbs$
Ans&er *B is correct$ ivin# beyond ones eans "as been lined to eployee !raud ebe))leentB not to !inancial stateent !raud$ =raud perpetrated !or t"e bene!it o! t"e or#ani)ation ordinarily bene!its t"e &ron#doer indirectly &"ereas !raud t"at is detriental to t"e or#ani)ation provides iediate direct bene!its to t"e eployee SIAS B$ Ans&er CB is incorrect because rationali)ation is coon to all !raud$
[20] Source: CIA 11>0 II-18 Ans&er AB is correct$ Alt"ou#" a portion o! t"e scope is discussed t"e reader cannot deterine t"e si#ni!icance o! t"e aount o! ac"ines selected &it"out no&in# t"e total aount o! ac"ines available and t"e value o! t"e ac"inery$ Also t"e conclusion or auditors opinion o! t"e operation is not stated and t"e r eport aes no recoendations$
Ans&er .B is incorrect because "i#" e,pectations are o!ten #iven as a otivatin# !actor by t"ose &"o "ave coitted !inancial stateent !raud$ [20] Source: CIA 6> I-4> Ans&er AB is incorrect because a report on !raud t"at "as been detected s"ould not include t"is lan#ua#e$
Ans&er *B is incorrect because t"e purpose o! t"e audit &as clearly stated and t"e result o! t"e audit &as #iven$
Ans&er *B is correct$ SIAS states GA preliinary or !inal report ay be desirable at t"e conclusion o! t"e detection p"ase$ 3"e report s"ould include t"e internal auditors conclusion as to &"et"er su!!icient in!oration e,ists to conduct an investi#ation$ It s"ould also suari)e !indin#s t"at serve as t"e basis !or suc" a decision$G
Ans&er CB is incorrect because t"e purpose o! t"e audit &as clearly stated and t"e result o! t"e audit &as #iven$ Ans&er .B is incorrect because t"e purpose o! t"e audit &as clearly stated and t"e result o! t"e audit &as #iven$
Ans&er CB is incorrect because t"e investi#ation s"ould !ollo& t"e preliinary report$
[204] Source: +ublis"er
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Ans&er AB is incorrect because t"is course o! action &ould be appropriate only !or t"e c"ie! e,ecutive o!!icer or !or "is;"er iediate subordinate &"en t"e C?O is involved in t"e con!lict$
Ans&er AB is incorrect because t"e board &ould be consulted initially only i! t"e iediate superior is t"e c"ie! e,ecutive o!!icer and t"at person is involved in t"e et"ical con!lict$
Ans&er *B is incorrect because t"e proper action &ould be to present t"e atter to t"e ne,t "i#"er ana#erial level$
Ans&er *B is correct$ 3"e Standards o! ?t"ical Conduct !or +ractitioners o! /ana#eent Accountin# and =inancial /ana#eent state t"at t"e !inancial ana#er;ana#eent accountant s"ould !irst discuss an et"ical proble &it" "is;"er iediate superior$ I! t"e superior is involved t"e proble s"ould be taen initially to t"e ne,t "i#"er ana#erial level$
Ans&er CB is incorrect because suc" action is inappropriate unless le#ally prescribed$ Ans&er .B is correct$ In t"ese circustances t"e proble s"ould be discussed &it" t"e iediate superior unless sB"e is involved$ In t"at case initial presentation s"ould be to t"e ne,t "i#"er ana#erial level$ I! t"e proble is not satis!actorily resolved a!ter initial presentation t"e 5uestion s"ould be subitted to t"e ne,t "i#"er level$
Ans&er CB is incorrect because unless Gle#ally prescribed counication o! suc" probles to aut"orities or individuals not eployed or en#a#ed by t"e or#ani)ation is not considered appropriate$G Ans&er .B is incorrect because resi#nation is a last resort$
[208] Source: +ublis"er [206] Source: +ublis"er
Ans&er AB is incorrect because t"is applies to e,ternal auditors$ 3"e I/A Code o! ?t"ics does not e,pressly use suc" lan#ua#e$
Ans&er AB is incorrect because Gpractitioners o! ana#eent accountin# and !inancial ana#eent "ave an obli#ation to t"e public t"eir pro!ession t"e or#ani)ation t"ey serve and t"eselves to aintain t"e "i#"est standards o! et"ical conduct$G
Ans&er *B is correct$ 3"e preable to t"e I/A Code o! ?t"ics states G+ractitioners o! ana#eent accountin# and !inancial ana#eent "ave an obli#ation to t"e public t"eir pro!ession t"e or#ani)ations t"ey serve and t"eselves to aintain t"e "i#"est standards o! et"ical conduct$ In reco#nition o! t"is obli#ation t"e Institute o! /ana#eent Accountants "as proul#ated t"e !ollo&in# standards o! et"ical conduct !or practitioners o! ana#eent accountin# and !inancial ana#eent$ Ad"erence to t"ese standards bot" doestically and internationally is inte#ral to ac"ievin# t"e Objectives o! /ana#eent Accountin#$ +ractitioners o! ana#eent accountin# and !inancial ana#eent s"all not coit acts contrary to t"ese standards nor s"all t"ey condone t"e coission o! suc" acts by ot"ers &it"in t"eir or#ani)ations$G
Ans&er *B is incorrect because t"e audit coittee &ould be consulted !irst only i! it &ere t"e ne,t "i#"er ana#erial level$ Ans&er CB is correct$ 3o resolve an et"ical proble t"e !inancial ana#er;ana#eent accountants !irst step is usually to consult "is;"er iediate superior$ I! t"at individual is involved t"e atter s"ould be taen to t"e ne,t "i#"er level o! ana#eent$ Ans&er .B is incorrect because i! t"e superior is involved t"e ne,t "i#"er ana#erial level s"ould be consulted !irst$
Ans&er CB is incorrect because t"is applies to e,ternal auditors$ 3"e I/A Code o! ?t"ics does not e,pressly use suc" lan#ua#e$
[200] Source: +ublis"er Ans&er AB is incorrect because t"is standard is violated by a !inancial ana#er;ana#eent accountant &"o !ails to act upon discoverin# unet"ical conduct$
Ans&er .B is incorrect because t"is applies to e,ternal auditors$ 3"e I/A Code o! ?t"ics does not e,pressly use suc" lan#ua#e$
Ans&er *B is incorrect because t"is standard is violated by a !inancial ana#er;ana#eent accountant &"o !ails to act upon discoverin# unet"ical conduct$
[20>] Source: +ublis"er Ans&er AB is incorrect because in t"is situation t"e c"ie! e,ecutive o!!icer is t"e ne,t "i#"er ana#erial level$
Ans&er CB is incorrect because t"is standard is violated by a !inancial ana#er;ana#eent accountant &"o !ails to act upon discoverin# unet"ical conduct$
Ans&er *B is incorrect because t"e iediate superior "as proised or taen action to&ard satis!actory resolution$
Ans&er .B is correct$ A !inancial ana#er;ana#eent accountant displays "is;"er copetence and objectivity and aintains inte#rity by tain# t"e appropriate action &it"in t"e or#ani)ation to resolve an et"ical proble$ =ailure to act &ould condone &ron#!ul acts breac" t"e duty to convey un!avorable as &ell as !avorable in!oration underine t"e or#ani)ations le#itiate ais discredit t"e pro!ession and violate t"e duty o! objectivity o&ed to users o! t"e subordinates &or product$
Ans&er CB is incorrect because t"e iediate superior "as proised or taen action to&ard satis!actory resolution$ Ans&er .B is correct$ Accordin# to t"e I/A Code o! ?t"ics t"e !inancial ana#er;ana#eent accountant s"ould Gdiscuss suc" probles &it" t"e iediate superior e,cept &"en it appears t"at t"e superior is involved in &"ic" case t"e proble s"ould be presented initially to t"e ne,t "i#"er ana#erial level$ I! satis!actory resolution cannot be ac"ieved &"en t"e proble is initially presented subit t"e issues to t"e ne,t "i#"er ana#erial level$
[207] Source: +ublis"er
77
