1. According to The IIA Glossary appended to the Standards, which of the following are most directly designed to ensure that risks are contained?
A. Control processes.
B. Internal audit activities.
C. Governance processes.
D. Risk management processes.
2. An internal auditor is examining inventory control in a merchandising division with annual sales of US $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of purchases do not reach inventory because of breakage and employee theft. Adding certain controls costing US $35,000 annually could reduce these losses to .5% of purchases. Should the controls be recommended?
A.No, because the cost of the added controls exceeds the projected savings.
B.Yes, because the projected saving exceeds the cost of the added controls.
C.Yes, regardless of cost-benefit considerations, because the situation involves employee theft.
D.Yes, because the ideal system of internal control is the most extensive one.
3. The manager of a production line has the authority to order and receive replacement parts for all machinery that requires periodic maintenance. The internal auditor received an anonymous tip that the manager ordered substantially more parts than were necessary from a family member in the parts supply business. The unneeded parts were never delivered. Instead, the manager processed receiving documents and charged the parts to machinery maintenance accounts. The payments for the undelivered parts were sent to the supplier, and the money was divided between the manager and the family member. Which of the following internal controls would have most likely prevented this fraud from occurring?
A. Using the company's inventory system to match quantities requested with quantities received.
B. Establishing predefined spending levels for all vendors during the bidding process.
C. Comparing the bill of lading for replacement parts to the approved purchase order.
D. Segregating the receiving function from the authorization of parts purchases.
4. The requirement that purchases be made from suppliers on an approved vendor list is an example of a
A. Monitoring control.
B. Detective control.
C. Corrective control.
D. Preventive control.
5. The risks created by rapid changes in IT have not affected which concepts of internal control?
1. Cost-benefit analysis
2. Control environment
3. Reasonable assurance
4. Management's responsibility
A. 1 and 2 only.
B. 3 and 4 only.
C. 2, 3, and 4 only.
D. 1, 2, 3, and 4.
6. Which of the following should the auditor recommend as the most economical point at which to correct input errors in an online system?
A. Output data are balanced with computer-produced control totals and delivered to the user.
B. Entry of data into each field of a record is completed.
C. Entry of data into each record is completed.
D. Input data are balanced with computer-produced control totals.
7. Management is concerned with the potential for unauthorized changes in the payroll. Which of the following is the proper organizational structure to prevent such unauthorized changes? A.The personnel department authorizes the hiring and pay levels of all employees. B.The payroll department maintains and authorizes all changes in the personnel records. C.The payroll department is supervised by the management of the human resources division. D.The payroll department's functions are limited to maintaining the payroll records, distributing paychecks, and posting the payroll entries to the general ledger.
8. Internal auditors regularly evaluate controls. Which of the following best describes the concept of control as recognized by internal auditors?
A. Control procedures should be designed from the "bottom up" to ensure attention to detail.
B. Management regularly discharges personnel who do not perform up to expectations.
C. Management takes action to enhance the likelihood that established goals and objectives will be achieved.
D. Control represents specific procedures that accountants and internal auditors design to ensure the correctness of processing.
9. An organization has grown rapidly and has just automated its human resource system. The organization has developed a large database that tracks employees, employee benefits, payroll deductions, job classifications, ethnic code, age, insurance, medical protection, and other similar information. Management has asked the internal audit activity to review the new system.
Human resources and payroll are separate departments. Which of the following combinations provides the best segregation of duties?
A. Human resources adds employees, payroll processes hours, and human resources delivers the paychecks to employees.
B. Human resources adds employees, and payroll processes hours and enters employee bank account numbers. Paychecks are automatically deposited in the employee's bank account.
C. Payroll adds employees and enters employees' bank account numbers but processes hours only as approved by human resources. Paychecks are automatically deposited in the employee's bank account.
D. Human resources adds employees, reviews and submits payroll hours to payroll for processing, and delivers paychecks to employees.
10 An adequate system of internal controls is most likely to detect a fraud perpetrated by a
A. Group of employees in collusion.
B. Single employee.
C. Single manager.
D. Group of managers in collusion.
11. Which of the following situations will cause an internal auditor to question the adequacy of controls over a purchasing function?
A. Receiving reports are forwarded to purchasing where they are matched with purchase orders and sent to accounts payable.
B. Unpaid voucher files and perpetual inventory records are independently maintained.
C. The original and one copy of the purchase order are mailed to the vendor. The copy on which the vendor acknowledges acceptance is returned to the purchasing department.
D. The accounts payable section prepares documentation for payments.
12. The actions taken to manage risk and increase the likelihood that established objectives and goals will be achieved are best described as
A. Supervision.
B. Compliance.
C. Control.
D. Quality assurance.
13. Of the following, which is the most efficient source for an auditor to use to evaluate a company's overall control system?
A. Control flowcharts.
B. Copies of industry operating standards.
C. Copies of standard operating procedures.
D. A narrative describing departmental history, activities, and forms usage.
14. An internal auditor develops a flowchart primarily to
A. Analyze a system and identify internal controls.
B. Detect errors and irregularities.
C. Reduce the need for interviewing auditee personnel.
D. Determine functional responsibilities.
15. Omen Company is a manufacturer of men's shirts. It distributes weekly sales reports to each sales manager. The quantity 2R5 appeared in the quantity sold column for one of the items on the weekly sales report for one of the sales managers. The most likely explanation for what has occurred is that the
A. Computer has malfunctioned during execution.
B. Output quantity has been stated in hexadecimal numbers.
C. Program did not contain a data checking routine for input data.
D. Printer has malfunctioned and the "R" should have been a decimal point.