When is it appropriate for the internal auditor to determine the engagement's scope and objectives?

During the planning of the engagement

During the performance of the engagement

According to the IIA's Code of Ethics, which of the following best describes the conduct of an internal auditor who demonstrates the principle of competency?

The auditor continually improves her proficiency and the effectiveness and quality of her services

The auditor is prudent in the use and protection of information acquired in the course of her work

The auditor does not accept anything that may impair or be presumed to impair her professional judgment

The chief audit executive scheduled an exit meeting to discuss conclusions and recommendations with management before issuing the final engagement communication. Which of the following describes the primary reason that the exit meeting should be documented?

The information may be needed if a disagreement about the content arises

The Standards require that the internal auditor document exit meetings

The information may be needed if a disagreement about the content arises

The results of the discussion form part of the internal auditor's performance review

During which stage of an audit engagement would the engagement supervisor identify the tasks that were already completed and the remaining tasks to be performed?

When documenting the work program.

When developing the test approach.

When documenting the work program.

Which of the following is the best audit procedure to determine whether all of a bank's loans are backed by sufficient collateral, properly aged as to current payments, and properly categorized as current or noncurrent?

Use generalized audit software to read the total loan file, age the file by last payment due, and select a statistical sample stratified by the current and aged population. Examine each loan selected for proper collateralization and aging.

Select a block sample of all loans in excess of a specified dollar limit and determine whether they are current and properly categorized. For each loan approved, verify aging and categorization.

Select a discovery sample of all loan applications to determine whether each application contains a statement of collateral.

An internal auditor is planning a business continuity audit engagement at a remote manufacturing plant. During planning interviews, the plant manager stated that the local Environmental, Health, and Safety (EHS) Department, which reports to the plant manager, had completed a similar review six months ago. The EHS review did not find any significant weaknesses. How should the internal auditor consider the EHS review results in the current audit engagement planning?

Evaluate the objectivity and competency of the EHS reviewers and their work to determine whether their review results may be relied upon.

Ignore the EHS review results, as the department is not a reliable source of information due to its lack of objectivity and independence.

Recommend canceling the audit engagement, as it would be a duplication of effort to revisit the same process already reviewed by EHS.

Evaluate the objectivity and competency of the EHS reviewers and their work to determine whether their review results may be relied upon.

Which of the following situations is most likely to require a compliance engagement from the internal audit activity?

An organization is subject to newly imposed industry health and safety regulations.

An organization must restate its financial statements due to an error in fixed asset valuation.

An organization is preparing to launch an enhanced service for its online customer information system.

An organization is subject to newly imposed industry health and safety regulations.

Which of the following statements best describes quality audit workpapers?

They should be understandable and complete.

They should be relevant and interesting.

They should be electronic and indexed.

They should be understandable and complete.

An internal auditor discovers that a vendor had submitted invoices and was paid for services not rendered. Which of the following controls is most appropriate to address this type of issue?

The accounts payable clerk should compare the acknowledgment of goods and services to the invoice.

The supervisor should observe the input of invoices into the payment system.

The supervisor should verify that the amount paid agrees with the contracted amount.

Which of the following describes an internal auditor's use of external benchmarking?

The auditor compares return on equity for a beverage company against its competitor to analyze profitability.

The auditor calculates the net profit margin for a business segment to analyze the profitability.

The auditor compares return on equity for a beverage company against its competitor to analyze profitability.

The auditor evaluates operating income margin between geographical areas within an organization to analyze its profitability.

Which of the following best ensures that the internal audit activity is free from undue interference from management?

An audit charter that defines the chief audit executive's functional reporting relationship with the board.

Audit policies and procedures that are comprehensive and well-documented, in accordance with the Standards.

A board audit committee that is composed of competent, independent members.

An audit charter that defines the chief audit executive's functional reporting relationship with the board.

Which of the following describes how the internal audit activity can add the greatest value by assisting management with internal controls?

Internal auditors should evaluate the effectiveness and efficiency of internal controls.

Internal auditors should assist in designing strong controls.

Internal auditors should monitor how internal controls are functioning.

Internal auditors should evaluate the effectiveness and efficiency of internal controls.

What is the purpose of establishing engagement objectives during the planning phase of an internal audit?

To ensure that audit procedures are designed to address the risks relevant to the area being audited.

To ensure that all auditors have a common understanding of the area being audited.

To ensure that the work performed by other internal or external assurance providers is considered during audit planning.

Which of the following is an element of a well-formed audit recommendation?

Measures to prevent recurrence of the condition.

Factual evidence identified during the engagement.

Measures to prevent recurrence of the condition.

Factors that allowed the condition to exist.

Which of the following best describes a compliance audit engagement?

The auditor reviews controls of the oil shale mining process to assess adherence to safety regulations established by local authorities.

The auditor analyzes the economic activity of the organization as measured and reported using international accounting standards.

The auditor conducts a review to provide assurance that the external service provider of maintenance for the organization has an effective risk management process.

Which of the following is a purpose of an embedded audit module?

It enables continuous monitoring of transaction processing.

It identifies program code that may have been inserted for unauthorized purposes.

It verifies the correctness of account balances on a master file.

Which of the following best describes the purpose of a detailed engagement risk assessment?

To consider significant risks to the activity's objectives and the means by which the potential impact of risk is kept to an acceptable level.

To ensure that all risks identified during the engagement planning process are addressed during the audit.

To prioritize risks to the activity's objectives, according to the likelihood of occurrence.

To consider significant risks to the activity's objectives and the means by which the potential impact of risk is kept to an acceptable level.

Which of the following activities would compromise the independence of the internal audit activity and therefore should not be performed by an internal auditor?

Setting the organization's risk appetite.

Championing the establishment of organization-wide risk management.

Setting the organization's risk appetite.

Coordinating risk management activities.

What is the primary objective for testing controls?

To determine whether controls are operating effectively.

To understand whether a control is in place.

To identify major patterns of errors or irregularities that might exist in final account balances.

The engagement supervisor is coordinating an audit of investments and needs to select an audit team member to determine the test attributes. Which of the following team members is most appropriate for the engagement supervisor to select?

An auditor who transferred from the investment department six months prior and has expert knowledge of investments.

An auditor with strong leadership skills who has experience leading projects for the IT audit department.

An auditor who has investment audit experience from a previous organization, but who has never performed investment audits at the current organization.

Which of the following is the most important initial action for a chief audit executive to perform when establishing a new internal audit activity?

Establish an internal audit charter.

Establish a code of ethics for the internal audit activity.

Approve the internal audit budget.

As part of the annual training plan, the chief audit executive (CAE) has arranged for a local audit training institute to provide an in-house training session for the internal audit team. Which of the following best explains the primary purpose of this approach?

It helps the internal auditors maintain a required level of proficiency.

It helps the internal audit activity attain an appropriate organizational status to maintain independence.

It assists the CAE with assessing the results of the internal audit team's development efforts.

An internal auditor is reporting on the organization's asset management system. Which of the following would likely add the greatest value to the organization?

Recommendations aimed at reducing risk exposure.

Confirmation that controls are operating efficiently.

Recommendations aimed at reducing risk exposure.

Reports that state identified deficiencies were remedied during the audit.

During engagement planning, which of the following would provide an internal auditor with a sufficient understanding of the process being audited?

The objectives and risk management of the process.

The mission, vision, and strategic objectives of the organization.

Management's opinion on the thoroughness of a previous internal audit of the same process.

The objectives and risk management of the process.

Which of the following is an important consideration when providing quality audit communications?

Provide a fair and balanced assessment.

Include as much detail as possible.

Provide a fair and balanced assessment.

Demonstrate knowledge by using technical language.

An internal auditor is performing an internal control assessment at a manufacturing company. The auditor observed that the accounts payable clerks have the ability to create new vendors without management's review and approval. How should the auditor document this observation?

The observation is an internal control weakness; therefore, additional testing should be performed to determine whether secondary mitigating controls exist or whether the control should be redesigned.

The observation doesn't affect the adequacy of the internal controls because the existing process controls ensure that invoices are promptly and accurately paid.

The observation is an internal control weakness; therefore, additional testing should be performed to determine whether secondary mitigating controls exist or whether the control should be redesigned.

The observation is a sign of adequate internal controls; however, effectiveness testing should be performed to ensure that the controls are operating as designed and intended.

Which of the following is an example of criteria in an engagement communication?

The audit test was designed to evaluate compliance with the organization's policies and procedures related to business conduct and ethics.

Annual business conduct training was not performed over the past two years due to inadequate operating budgets.

The audit test was designed to evaluate compliance with the organization's policies and procedures related to business conduct and ethics.

As a result of inadequate business conduct training, 16% of the executive team was unaware of their obligation to report potential conflicts of interest.

Which of the following best demonstrates that appropriate and sufficient resources were allocated to an audit engagement to achieve its objectives?

Approved engagement work program.

Post-engagement survey of management of the audited area.

Operational management has asked the internal auditor for recommendations regarding an ineffective process. According to IIA guidance, which of the following would be the auditor's most appropriate response?

Agree to offer recommendations based on observations and conclusions.

Refrain from providing recommendations to preserve audit independence.

Agree to offer recommendations based on observations and conclusions.

Explain that only management should recommend and implement the corrective action.

Which of the following best describes the difference between inherent risk and residual risk?

Inherent risk is the level of risk in the absence of any targeted actions or controls to alter its severity, residual risk is the risk remaining after implementing corrective actions.

Inherent risk is the level of risk before the risk assessment process, residual risk is the level of risk remaining after completing the risk assessment process.

Inherent risk is the level of risk the organization is willing to accept, residual risk is the level of risk deemed unacceptable by the organization.

Inherent risk is the level of risk in the absence of any targeted actions or controls to alter its severity, residual risk is the risk remaining after implementing corrective actions.

Which of the following best explains why internal auditors should identify risk scenarios during a risk assessment of the area being audited?

To determine what would prevent the achievement of objectives in the area being audited.

To determine whether established controls are operating effectively to mitigate critical risks.

To evaluate the adequacy of management's risk management process in the area being audited.

IIA IIA-IAP Practice Test 1 - Free Online Exam Prep & Questions

Question 1 / 40

Which of the following is the most appropriate audit objective?

Analyze the turnover rates in mining and production subsidiaries.

Evaluate common practices of hiring via interviews with responsible personnel.

Assess compliance with human resources hiring and compensation policies.

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