Question 1

An organization's accounts payable function improved its internal controls significantly after it received an unsatisfactory audit report. When planning a follow-up audit of the function, what level of detection risk should be expected if the audit and sampling procedures used are unchanged from the prior audit?

Options :

A : Detection risk is lower because control risk is lower.

B : Detection risk is lower because control risk is higher.

C : Detection risk is unchanged although control risk is lower.

D : Detection risk is higher because control risk is lower.

Answer: C

Question 2

Which of the following most likely constitutes a violation of The IIA’s Code of Ethics?

Options :

A : Auditor B has been assigned to perform an engagement at the warehousing function 6 months from now. Auditor B has no expertise in that area but accepted the assignment anyway. Auditor B has signed up for continuing professional education courses in warehousing that will be completed before the assignment begins.

B : Auditor D discovered an internal financial fraud during the year. The books were adjusted to properly reflect the loss associated with the fraud. Auditor D discussed the fraud with the external auditor when the external auditor reviewed working papers detailing the incident.

C : Auditor A has accepted an assignment to perform an engagement at the electronics manufacturing division. Auditor A has recently joined the internal audit activity. But Auditor A was senior auditor for the external audit of that division and has audited many electronics organizations during the past 2 years.

D : Auditor C is content as an internal auditor and has come to look at it as a regular 9-to-5 job. Auditor C has not engaged in continuing professional education or other activities to improve effectiveness during the last 3 years. However, Auditor C feels performance of quality work is the same as before.

Answer: D

Question 3

Control by management is the result of

Options :

A : Determining efficiency and economy of operations, including whether objectives and goals have been met.

B : Planning, organizing, and directing of organizational activities.

C : Ascertaining needs, identifying alternative courses of action, setting standards for measuring performance, and comparing outcomes with predetermined standards.

D : Authorizing and monitoring performance, and comparing actual performance with planned performance.

Answer: B

Question 4

Internal controls are designed to provide reasonable assurance that

Options :

A : Management’s planning, organizing, and directing processes are properly evaluated.

B : The internal auditing department’s guidance and oversight of management’s performance is accomplished economically and efficiently.

C : Material errors or fraud will be prevented, or detected and corrected, within a timely period by employees in the course of performing their assigned duties.

D : Management’s plans have not been circumvented by worker collusion.

Answer: C

Question 5

During a preliminary survey, an auditor notes that several accounts payable vouchers for major suppliers show adjustments for duplicate payment of prior invoices. This would indicate:

Options :

A : c) A lack of control in the receiving area that prevents timely notice to the accounts payable area that goods have been received and inspected.

B : a) A need for additional testing to determine related controls and the current exposure to duplicate payments made to suppliers.

C : d) The existence of a sophisticated accounts payable system that correlates overpayments to open invoices and therefore requires no further audit concern.

D : b) An unrecorded liability for the amount of purchases that are not processed while awaiting supplier master file address maintenance.

Answer: B

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