Which of the following procedures would provide the best evidence of the effectiveness of a
credit-granting function?

A.

Observe the process.

B.

Review the trend in receivables write-offs.

C.

Ask the credit manager about the effectiveness of the function.

D.

Check for evidence of credit approval on a sample of customer orders.

The chief audit executive's responsibility regarding control processes includes:

A.

Assisting senior management and the audit committee in the development of an annual
assessment about internal control.

B.

Overseeing the establishment of internal control processes.

C.

Maintaining the organization's governance processes.

D.

Ensuring that the internal audit activity assesses all control processes annually.

In order to provide the most useful information for an organization's risk management
decisions,which of the following should be assessed?

A.

Risk levels for future events based on the degree of uncertainty of those events and
their cost of mitigation.

B.

Inherent and control risks and their impact on the extent of financial misstatements.

C.

Risk levels of current and future events,their effect on the achievement of the
organization's objectives,and their underlying causes.

D.

Risk levels of current and future events,their impact on the organization's mission,and
the potential for the elimination of existing risk factors.

A manufacturing firm uses hazardous materials in the production of its products. An audit of
the firm's processes related to hazardous materials shouldinclude.

I.Recommending an environmental management system as part of policies and procedures.
II.Verifying the existence of tracking records for these materials from creation to destruction.
III.Using consultants to avoid self-incrimination of the firm in the event illegalities were detected in an environmental audit.
IV.Evaluating the cost provided for in an environmental liability accrual account.

A.

IIonly

B.

III and IVonly

C.

I,II,and IVonly

D.

I,III,and IVonly

In developing an appropriate work program for an audit engagement,the most important
factor for an audit supervisor to consider isthe:

A.

Availability of records and data.

B.

Potential impact of risks.

C.

Capabilities of audit personnel.

D.

Time required to complete the engagement.

Which of the following is not an appropriate type of coordination between the internal audit
activity and regulatory auditors?

A.

Regulatory auditors share their perspective on risk management,control,and governance
with the internal auditors.

B.

Internal auditors perform fieldwork at the direction of the regulatory auditors.

C.

Internal auditors review copies of regulatory reports in planning related internal
engagements.

D.

Regulatory and internal auditors exchange information about planned activities.

An organization that outsources much of its internal audit work to an external service
provider is planning for an external quality assessment. Which of the following options
would accomplish this task and be in conformance with the Standards?

A.

External industry associate that performed a similar review for a supplier of the organization.

B.

A team from an independent entity that previously employed the chief audit executive of
the organization.

C.

A team under the direction of the organization's chief audit executive with validation by a
former manager of the internal audit activity.

D.

The same external service provider because of its competency and experience with the organization.

Internal auditors exercise judgment about the type and amount of information to be
collected. The primary purpose of this judgment is to:

A.

Eliminate the risk of drawing incorrect conclusions.

B.

Minimize the cost of the audit engagement.

C.

Comply with the Standards.

D.

Provide a sound basis for audit observations and recommendations.

Which of the following describes a control weakness?

A.

Purchasing procedures are well designed and are followed unless otherwise directed by
the purchasing supervisor.

B.

Pre-numbered blank purchase orders are secured within the purchasing department.

C.

Normal operational purchases fall in the range from $500 to $1,000 with two signatures
required for purchases over $1,000.

D.

The purchasing agent invests in a publicly traded mutual fund that lists the stock of one
of the company's suppliers in its portfolio.

Which source of audit evidence would provide the least value in flowcharting an
organization's purchasing process?

A.

An interview with the purchasing supervisor.

B.

A review of a sample of purchase orders which were completed during the last month.

C.

A review of the purchasing policies and procedures manual.

D.

A walk-through of the process with a member of the purchasing staff.

Two individuals are being considered for an audit team that is to perform a highly technical review.
Which of the following situations would preclude selection of the individual for the audit due
to an objectivity concern?
I. Person A is a member of the internal audit staff and has the required technical skills.
Person A participated in a controls review of the system to be audited when it was being
developed.
II.Person B is a technical specialist who understands the audit area but is not a member of
the internal audit staff. Although person B has personal credibility in the information
systems department to be audited,person B works for another department in the
organization.

A.

Ionly

B.

IIonly

C.

Both I and II.

D.

Neither I nor II.

It would be appropriate for an internal audit activity to use consultants with expertise in
health-care benefits when the internal audit activity is:
I. Conducting an audit of the organization's estimate of its liability for post retirement
benefits,which include health care benefits.
II.Comparing the cost of the organization's health care program with that of other programs
offered in the industry.
III.Training its staff to conduct an audit of health care costs in a major division of the organization.

A.

Ionly

B.

I and IIIonly

C.

II and IIIonly

D.

I,II,and III.