Auditing

1)

Cooper, CPA, is auditing the financial statements of a small rural municipality. the receivable balances represent residences delinquent real estate taxes. Internal control at the municipality is weak. To determine the existence of the accounts receivable at the balance sheet date, Cooper would most likely:

send postive confirmation requests
send negative confirmtion request
examine evidence of subsequent cash receipts
inspect the internal records, such as copies of the tax invoices that were mailed to the residents

2)

What requirements are USUALLY necessary to become liscensed as a certified public accountant?

successful completion of the Uniform CPA Examination
experience in the accounting field
education
all of the above

3)

Which of the following would most likely be detected by an auditors review of the clients sales cutoff?

excessive goods returned for credit
unrecorded sales discount
lapping of year-end accounts receivable
inflated sales for the year

4)

The standards requires that the CAE seek the approval of management and acceptance by the board of a formal written charter for the internal auditing department. The purpose of this charter is to:

Protect the internal auditing department from undue outside influence
Establish the purpose, authority, and responsibility of the internal auditing department
Clearly define the relationship between internal and external auditing
Establish the CAE's status as a staff executive

5)

As used by the internal auditing profession, the standards refers to all of the following except:

Criteria by which the operations of an internal audit department are evaluated and measured
Criteria which dictate the minimum level of ethical actions to be taken by internal auditors
Statements intended to represent the practice of internal auditing as it should be
Criteria that are applicable to all types of internal audit departments

6)

Reconciliation of the bank account should not be performed by an individual who also:

Process cash disbursements
Has custody of securities
Prepares the cash budget
Reviews invventory reports

7)

Which of the following business charachteristics is NOT indicative of high inherent risk?

Operating results that are highly sensitive to economic factors
Large likely misstatements detected in prior audits
Substantial turnover of management
A large amount of assets

8)

The primary objective of a CPA's observation of a client's physical inventory count is to:

Discover whether a client has counted a particular inventory item or group of items
Obtain direct knowledgte that the inventory exists and has been properly counted
Provide an appraisal of the quality of the merchandise on hand on the day of the physical count
Allow the auditor to supervise the conduct of the count in order to obtain assurance that inventroy quanitites are reawsonably accurate

9)

The primary objective of compliance auditing is to

Give an opinion on financial statements
Develop a basis for a report on internal control
Perform a study on effective and efficient use of resources
Ddetermine whether auditee personnel are following laws, rules, regulations, and policies

10)

In a broad sense, society benefits from internal auditing because the internal auditor:

Enforces corporate compliance with the standards of public policy
Promotes the efficient and effective use of resources
Evaluates financial data against professional standards
Reviews systems established to ensure compliance with corporate policy

11)

Under what circumstances would an internal auditor be required to forfeit the CIA designation?

Upon leaving the internal auditing profession
After action by The IIA's International Ethics Committee
When found by The IIA's Board of Directors to be in violation of the Code of Ethics
Upon comission of a felony or other action resulting in serious criminal charges

12)

Upon obtaining factual documentation of unethical business conduct by the vice president in charge of internal auditing, the chief audit executive should:

Conduct an investigation to determine the extent of the vice president's involvement in the unethical acts
Confront the vice president with the facts before proceeding
Schedule an audit of the business function involved
Report the facts to the chief executive officer and the audit committee

13)

The document issued by a common carrier acknowledging the receipt of goods and setting forth the provisions of the transportation agreement is the

Bill of lading
Job time shipping
Production Order
Production schedule

14)

To provide assurance that each voucher is submitted and paid only once, the auditors most likely would examine a sample of paid vouchers and determine whether each voucher is:

Supported by a cendor's invoice
Stamped "paid" by the check signer
Prenumbered and accounted for
Approved for authorized purchases

15)

The purpose of governmental effectiveness or program results auditing is to determine if desired results of a program are being achieved. The first step in conducting such an audit should be to:

Evaluate the system used to measure results
Determine the time frame to be audited
Collect quantifiable data on the program's success or failure
Identify the legislative intent of the program being audited

16)

Independent auditors of financial statements perform audits that reduce

business risk faced by investors
information risk faced by investors
complexity of financial statements
timeliness of financial statements

17)

To test the existence assertion for recorded receivables, the auditors would select a sample from the:

sales order file
customer purchase orders
accounts receivable subsidiary ledger
shipping documents (bills of lading) file

18)

When an online real-time (OLRT) IT processing system is in use, internal control can be strengthened by:

Providing for the separation of duties between data input and error handling operations
Attatching plastic fild protection rings to reels of magnetic tape before new data can be entered on the file
Making a validity check of an indentification number before a user can obtain access to the computer files
Preparing batch totals to provide assurance that file updates are made for the entire input

19)

Which of the following is least likely to be considered an inherent risk relating to receivables and revenues?

Restrictions placed on sales by laws and regulations
Decline in sales due to economic declines
Decline in sales due to product obsolescence
Over-recorded sales due to a lack of control over the sales entry function

20)

According to the Standards, who is responsible for coordinating internal and external audit efforts?

Chief audit executive
External auditors
Audit committee of the board of directors
Chief financial officer

21)

Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because

financial statements are too complex to analyze themselves
they are too far away from company headquarters to perform accounting and auditing themselves
the consequences of making a bad loan are undesirable
they generally see a potential conflict of interest between company managers who want to get loan and the bank's need for reliable financial statements

22)

PcPherson COrp does not make an annual physical count of year-end inventories, but isntead makes weekly test counts on the basis of a statistical plan. DUring the year, Sara Mullins, CPA, observes such counts as she sems necesary and is able to satisfy herself as to the reliability of the client;s procedures. In reporting on the results of her examination, Mullins:

Can issure an unqualifies opinion without disclosing that she did not observe year-end inventories.
Must comment in the scope paragraph as to her inablity to ovserve year-end invetnories, but can nevertheless issue an unqualified opinion
IS required, if the inventories are material, to disclaim an opinion on the financial statements taken as a whole
Must, if the inventories are material, qualify her opinion

23)

End user computing is most likely to occur on which of the following types of computers?

Mainframe
Decision support systems
Personal computers
Personal reference assistants

24)

An auditor often faces special problems when auditing a foreign subsidiary. Which of the following statements is false with respect to the conduct of international audits?

The IIA standards do not apply outside the U.S
The auditor should determine whether managers are in compliance with local laws
There may be justification for having different organization policies in force in foreign branches
It is preferable to have multilingual auditors conduct audits at branches in non-English-speaking nations

25)

Analytical procedures are most likely to detect:

Weaknesses of material nature in internal control
Unusual transactions
Noncompliance with prescribed control activites
Improper separation of accounting and other financial duties

26)

Which of the following actions would be a violation of auditor independence

Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result of a promotion
Reducing the scope of an audit due to budget restrictions
Participating on a task force which recommends standards for control of a new distribution system
Reviewing a purchasing agent's contract drafts before their execution

27)

Of the following, which is the LEAST reliable type of audit evidence?

Confirmations mailed by outsiders to the auditors
Correspondence between the auditors and suppliers
Copies of sales invoices inspected by the auditors
Canceled checks returned in the year-end bank statement directly to the client

28)

The primary difference between operational auditing and financial audting is that in operational auditing

the operational auditor is not concerned with whether the audited activityis generating information in compliance with financial accounting standards
the operational auditor is seeking to help managment use resources in the most efficient manner possible
the operational auditor starts with the financial statements of an activity being audited and works backward to the basic processes involved in producing them
the operational auditr can use analytical skills and tools that are not necessary in financial auditing

29)

Which of the following is NOT a primary approach to auditing an accounting estimate?

Review and test management;s process for developing the estimate
Review subsequent transactions
Confirm the amounts.
Develop an independent estimate

30)

To guard against the missappropriation of company-owned marketable securities, which of the following is the best course of action for a company with a large portfolio of marketable securities?

Require that one trustworthy and bnded employee be responsible for access to the safekeeping area where securities are kept
Require that employees who enter and leave the safekeeping area sign and record in a log the exact reason for their access
Require that employees involved in the safekeeping function maintain a subsidiary control leger for securities on a current basis
Require that the safekeeping function for securities be assigned to a bank or stockbroker that will act as a custodial agent

31)

The increased presence of user operated computers in the workplace has resulted in an increasing number of persons having access to the system, A control that is often used to prevent unauthorized access to sensitive programs is:

Backup copies of date on disckettes
User identification passwords
Input validation checks
Record counts of the number of input transations in a batch being processed

32)

Which of the following is most likely to be an example of fraudlent financial reporting relating to sales?

inaccurate billing due to a lack of control
lapping of accounts receivable
misbilling a client due to a data input error
recording sales when the customer is likely to return the goods

33)

Which of the following actions by an auditor would violate the code of ethics?

An audit of an activity managed by the auditor's spouse
A material financial investment in the organization
Use of an organization car
A significant ownership interest in a non-related business

34)

Which of the following would be considered an assurance engagement?

giving an opinion on the conformity of the financial statements of a university with GAAP
giving an opinion on the fair presentation of a newspaper's circulation data
giving asusrance about the average drive length achieved by glofers with a client's golf balls
all of the above

35)

An organization's new president meets the CAE for the first time, and asks him or her to briefly describe the department's overall responsibility. The CAE states that internal audit's overall responsibility is to:

Act as an independent appraisal function to review operations as a service to management by measuring and evaluating the effectiveness of controls
Review the means of safeguarding assets and, as appropriate, verify the existence of such assets
Ensure compliance with policies, plans, procedures, laws, and regulations that could have a significant impact on operations and reports
Review the reliability and integrity of financial and operating information and the means used to identify, measure, classify, and report such information

36)

In testing controls over cash disbursements, the auditors most likely would determine that the person who signs checks also:

Reviews monthly bank reconcilations
Returns the checks to accounts payable
Is denied access to the supporting documents
Isresponsible for mailing the checks

37)

Instead of taking a physical inventory count on the balance-sheet date, the client may take Physical counts prior to the year end if internal control is adequate and

Well kept records of perpetual inventory are maintained
Inventory is slow moving
Computer error reports are generated for missing prenumbered inventory tickets
Obsolete inventory items are segregated and excluded

38)

Which of the following would constitute a violation of the code of ethics?

Discussing your organization's data processing control system at a trade convention
Purchasing stock in a target after overhearing an organization executive discussing a possible acquisition
Deleting sensitive information from a report at the request of senior management
Investigating executive expense reports based on rumors of padding

39)

Risk management has become an element of ever-increasing importance for modern organizations. As a result, more and more internal auditors are:

Reviewing all organizational insurance policies on regular-cycle basis
Concentrating on the regulatory aspects of risk management, since areas such as environmental risk have become so great that they can decimate a corporation
Advising all audit customers to be more aware of the risks within their operations

40)

Which of the following statements best describes why auditors investigate related party transactions?

Related party transactions generally are illegal acts
The substance of related party transactions may differ from their form
All related party transactions much be eliminated as a step in preparing consolidated financial statements
Related part transactions are a form of management fraud

41)

The auditors would be least likely to use software to:

Access client data files
Prepare spreadsheets
Assess computer control risk
Contstruct parallel simulations

42)

To gather eveidence regarding the balance per bank in a bank reconcilation, the auditors would examine any of the following EXCEPT:

Cutoff Bank statement
Year-end bank statement
Bank confirmation
General Ledger

43)

According to the standards, internal auditors should possess the knowledge, skills, and disciplines essential to the performance of internal auditing. This means that all internal auditors should be proficient in applying:

Internal auditing standards
Quantitative methods
Management principles
Structured systems analysis

44)

Which of the following controls would most likely reduce the risk of diversion of customer receipts by a client's employees?

A bank lockbox system
Prenumbered remittance advices
Monthly bank reconcilliations
Daily deposit of cash receipts

45)

The best way to verify the amounts of divident revenue received during the year is:

Recomputation
Verification by reference to divident record books
Confirmation with divident-paying companies
Examination of cash disbursements records

46)

In an attestation engagement, a CPA practitioner is engaged to

compile a company's financial forecast based on management's assumptions without expressing any form of assurance
prepare a written report containing a conculsion about the reliability of a managment assertion
prepare a tax return using information the CPA has not audited or reviewed
give expert testimony in court on particular facts in a corporate income tax controversy

47)

During the audit of one of its organization's nuclear power plants, an internal auditing team discovered serious instances of violations of safety procedures. The Code of Ethics requires the audit team to:

Present sufficient factual evidence without revealing confidental information that could be detrimental to their organization
Disclose all material evidence obtained by the audit team as of the date of the audit report
Report factual evidence gathered within established time and budget restraints
Reveal material facts known to the audit team that could distort the report if not disclosed

48)

Auditing to determine whether an entity is managing and using its resources economically and efficiently would most appropriately be classified as:

Compliance auditing
Financial auditing
Operational auditing
Program results auditing

49)

In using the work of a specialst, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the:

Client is not familiar with the professional certification, personal reputation, or particular competence of the specialist
Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements
Client undersand the auditors corroborative use of the specialist's findings in relation to the representations in the financial statements
Auditors, as a result of the specialist's findings, decide to indicate a dividion of responsibility with the specialist

50)

The organization establisheed by Congress to narrow the options in cost accounting that are avaiable under generally accepted accounting principles is the

Cost Accounting Standards Board
Financial Accounting Standard Board
Public Compay Accounting Oversight Board
Securities and Exchange Commision

51)

The auditors suspect that a client's cashier is misapproprating cash receipts for personal use by lapping customer checks receved in the mail. In attempting to uncover this embezzlement scheme, the auditors most likely would compare the:

Details of bank depositis slips with details of credits to customer accounts
Daily cash summaries with the sums of the cash receipts journal entires
Individual bank deposit slips with the details of the monthy bank statements
Dates uncollectible accounts are authorized to be written off with the dates the writeoffs are actually recorded

52)

According to the standards, the primary purpose for internal auditing's evaluation of the adequacy of an organization's system of internal controls is to determine:

If controls are designed to insure that the organization's objectives will be met
The nature, extent, and timing of audit tests
The extent of compliance with key controls
If the application of due professional care will be sufficient to detect all material irregularitites

53)

Which of the following activities is outside the scope of internal auditing?

Assessing an operating department's effectiveness in achieving stated organizational goals
Safeguarding assets
Checking for compliance with laws and regulations
Evaluating established objectives and goals

54)

As part of their audit, auditors obtain a representation letter from their client. Which of the following is NOT a valid purpose of such a letter?

To increase the efficiency of the audit by eliminating the need for the other audit procedures
To remind the client's management of its primary responsibility for the financial statements.
To document in the audit working papers the client's responses to certain verbal inquiries made by the auditors during the engagement
To provide evidence in those areas dependent upon management's future intentions

55)

A determination of cost savings obtained by outsourcing caffeteria services is most likely to be an objective of

environmental auditing
financial auditing
compliance auditing
operational auditing

56)

The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's assertions about

completeness
existence
valuation and allocation
specifically the valuation part, the higher the credit rating the more likely the customer is to pay
rights and obligations

57)

An internal auditor engages in the preparation of income tax returns during the tax season. For which of the following activites might the auditor most likely be in violation of the code of ethics?

Writing a tax guide that is intended for publication and sale to the general public
Preparing the personal tax return, for a fee, for one of the organization's division managers without the consent of senior management
Teaching an evening tax seminar, for a fee, at a local univeristy
Preparing tax returns for elderly citizens, regardless of their associations, as a public service

58)

Which of the following is NOT a function of audit working papers?

Assist managment in illustrating that the financial statements are in accordance with GAAP
Assist audit team members responsible for supervision in reviewing the work
Assist auditors in planning future engagements
Assist peer reviewers and inspectors in performing their roles

59)

One of the purposes of the Standards is to:

Establish the certification criteria for a CIA
Specify the content of the internal auditing department's charter
Serve as a guide in determining the reliance that can be placed on the organization's system of internal control
Establish a basis for measuring and guiding internal auditt operations

60)

When perpetual inventory records are maintained in quantities and in dollars, and internal control over inventory is weak the auditior would probably

Want the client to schedule the physical inventory count at the end of the year
Insist that the client perform physical counts of inventory items several times during the years
Increase the etent of tests for unrecorded liabities at the end of the year
Have to disclaim an opnion on the income statement for the year

61)

The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client?

bookkeeping services
internal audit services
valuation services
all of the above

62)

The mission of the 1999 Competency Framework for Internal Auditing (CFIA), a research study commissioned by The IIA Research Foundation, was to:

Design a new internal auditing educational program to be adopted by universities, IIA affiliates, and other training institutions around the world
Find the essence of the global profession of internal auditing and update information on the competencies that internal auditors need
Identify differences in internal auditing practices throughout the world and initiate actions that would require all internal auditors to become certified
Establish guidelines that would help internal auditors to maintain their current practices and high standards so that the profession is not compromised by importune changes in the business environment

63)

The risk to investors that a company's financial statements may be materially misleading is called:

client acceptance risk
information risk
moral hazard
business risk

64)

Which of the following procedures would the auditors most likely perdorm o test controls relatingf to managements assertion about the completeness of cash receipts for cash sales at a retail outlet?

Observe the consistency of the employees use of cash registers and tapes
Inquire about employees access to recorded but undepositied cash
Trace depositis in the cash receopts journal to the cash balance in the general ledger
Compare the cash baolance in the general ledger with the bank confirmation request

65)

AN accounts payable program posted a payable vendor not included in the online vendor master file. A control which would prevent this error is a:

Validity Check
Range Check
Limit Test
Control total

66)

There is a presumption that auditors will confirm accounts receivable unless the auditors' assessment of the risk of material misstatement is low...

...and accounts receivable are immaterial , or the use of confirmations would be ineffective
...and accounts receivable are composed of large accounts
...and the effectiveness of confirmations is absolutely determined
...or accounts receivable are from extremely reputable customers

67)

Jones, CPA, is planning the audit of Rhonda's Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda's representation in this regard

is sufficient evidence for Jones to conclude that the completeness assertion is supported for expenses
can enable Jones to minimize the work on the gathering of evidence to support Rhonda's completeness assertion
should be disregarded because it is not in writing
is not considered sufficient basis for Jones to conclude that all expenses have been recorded

68)

When erroneous date are detected by computer program controlls. data may be excluded from processing and printed on an exception report. The exception report should probably be reviewed and followed up by the:

Data Control Group
system analyst
Supervisor of IT operations
Computer programmer

69)

The best description of the purpose of internal auditing is that it:

Furnishes members of the organization with information needed to effectively discharge their responsibilities
Reviews the reliability and integrity of financial and operating information
Reviews the means of safeguarding assets and, as appropriate, verifies the existence of such assets
Appraises the economy and efficiency with which resources are employed

70)

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsibile for the engagement. After appropriate consultation, the addistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably:

Remain silent on the matter since it is an internal matter of the auditing firm
Note that the addistant auditor is completely dissociated from the responsibility for the auditor's opinion
Document the additional work required, since all disagreements of this type will require expanded substantive procedures
Document the addistant auditor's position and how the difference of opinion was resolved

71)

Which assertion relating to sales is most directly addressed when the auditors compare a sample of shipping documents to related sales invoices?

exsistence or occurence
completeness
rights and obligations
presentation and disclosure

72)

Which of the items below would be a violation of The IIA's code of eithics?

Certain facts evidenced in the auditor's working papers that helped to support the basic allegations made by the auditor as to a case of fraud were not included in the audit report
Evidence in the auditor's working papers that proved a criminal act was included in the auditor's report draft. The comments were later removed by audit management
To keep the audit effort within the budgeted time, the auditor was directed to and did curtail testing in an area that looked suspicious and later was proved to contain massive irregularities
A control system that had been recommended by the audit staff during the previous audit was found to be defective. The auditor reported the defective function as a client failure

73)

The receiving department is least likely to be responsible for the

Determination of quantities of oods received
Detection of damaged or defective merchandise
Preparation of a shipping document
Transmittal of goods received to the store department

74)

A primary purpose of the audit working papers is to:

Aid the auditors by providing a list of required procedures
Provide a point of reference for future audit engagements
Support the underlying concepts included in the preparation of the basic financial statements
Support the auditors opinion

75)

Which of the following is an example of misappropriation of assests relating to sales?

accidentally recording cash that represents a liabillity as revenue
holding the sales journal open to record next year's sales as having occurred in the current year
Intentionally recording cash received from a new debt agreement as revenue
Theft of cash register sales

76)

In what section of the audit working papers would a long-term lease agreement be filed?

Current working paper file
Permanent working paper file
Lead schedule file
Corroborating documents file

77)

The function of internal auditing,as related to internal financial reports, would be to:

Ensure compliance with reporting procedures
Review the expenditure items and match each item with the expenses incurred
Determine if there are any employees expending funds without authorization
Identify inadequate controls that increase the likelihood of unauthorized expenditures

78)

According to the Standards, due professional care calls for:

Detailed audits of all transactions related to a particular function
Infallibility and extraordinary performance when the system of internal controls is known to be weak
Consideration of the possibility of material irregularities during every audit assignment
Testing in sufficient detail to give absolute assurance that noncompliance does not exist

79)

Which of the following is least likely to be considered by the auditors considering engagement of an informaion technology specialist on an audit?

Complexity of the client's systems and IT controls
Number of financial institutions at which the client has accounts
Client's use of emerging technologies
Extent of the client's participation in electronic commerce

80)

When required to select adequate operating standards to evaluate an activity, the internal auditors should:

Seek client agreement on a set of appropriate standards
Conclude that internal control is not effective
Choose the standards used in the last audit of the activity
Develop an appropriate set of standards

81)

LAN is the abreviation for:

Large area network
Local Area Network
Longitudinal Analogue network
Low analytical nets

82)

An auditor will use the computer test date method in order to gain assurance with respect to the:

Security of date in a system
IT system capacity
Controls contained within a program
Degree of data entry accuracy for batchh input data

83)

According to the AICPA, the purpose of an audit iof financial statements is to

enhance the degree of confidence that intended users can place in the financial statements
express an opinion on the fairness with which they present financial position, results of operations, and cash flows in conformity iwth accounting standards promulgated by the FASB
express an opinon on the fairness with which they present financial position, result of operations, and cash flows in conformity with accouting standards promulgated by the US SEC
obtain systematic and objective evidence about financial assertions and report othe results to intended users

84)

According to the Standards, an internal auditor's role with respect to operating objectives and goals includes:

Approving the operating objectives or goals to be met
Determining whether underlying assumptions are appropriate
Developing and implementing control procedures
Accomplishing desired operating program results

85)

Which of the following is least likely to be among the auditors objectives in the audit of inventories and cost of goods sold

Determine the evalutaion of inventories and cost of goods sold is arrived at by appropriate methods
Determine the existence ofr inventiories and the occurrence of transaction affecting cost of goods sold
Establish that the cdlient includes only inventory on hand at year end in inventory totals

86)

The organization primarily resonsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the

Governmental Internal Audit Agency (GIAA)
Central Internal Auditors (CIA)
Securites and Exchange Commission (SEC)
Goverment Accountability Office (GAO)

87)

In recent years, control self-assessment has become a valuable auditing tool, especially in terms of:

Determining the accuracy and understandability of financial events as expressed in financial documents
Identifying workers who may have been involved in fraudulent activities
Uncovering problems in areas such as organizational morale and communcation
Conducting employee performance appraisals

88)

The auditors who physically examine securities insist that a client representative be present in order to:

Detect fradulent securities
Lend authority to the auditor's derectives
Acknowledge the receipt of securities returned
Coordinate the return of securities to the proper locaions

89)

According to the Standards, the independence of internal auditors is achieved through:

Staffing and supervision
Continuing education and due professional care
Human relations and communications
Organizational status and objectivity

90)

It is always a good idea for auditors to begin an audit with the profesional skepticism characterized by the assumption that

potential conflict of interest always exists between the auditor and the managment of the enterprise under audit
in audits of financial statements, the auditor acts exclusively in the capacity of an auditor
the professonal status of the independent auditor imposes commensurate professional obligations
financial statements and financial data are verifiable

91)

Which of the following activities would not be presumed to impair the independence of an internal auditor? I. Recommending standards of control for a new computer application. II. Drafting procedures for running a new computer application to ensure that proper controls are installed. III. Performing reviews of procedures for a new computer application before it is installed.

I only
II only
III only
I and III only

92)

An auditor discovers some material inefficiencies in a purchasing function. The purchasing manager happens to be the auditor's next-door neighbor and best friend. In accordance with the code of eithics, the auditor should:

Objectively include the facts of the case in the audit report
Not report the incident because of loyalty to the friend
Include the facts of the case in a special report submitted only to the friend
Not report the friend unless the activity is illegal

93)

The auditor's analytical procedure will be facilited if the client

Uses a standard cost system that produces variance reports
Segregates obsolete inventory before the physical inventory count
Corrects material weaknesses in internal control before the beginning of the audit
Reduces inventory balances to the lower of cost or martket

94)

Which of the following is an advantage of generalized auit software packages?

They are all written in one identical computer language
They can be used for audits of clients that use differing computer equipment and file formats
They have reduced the need for the auditor to study input controls for computer related procedures
Their use can be substituted for a relatively large part of the rewuired test of controls

95)

Hall Company had large amounts of funds to invest on a temporary basis. The board of directors decided to purchase securities and derivatives and assigned the future purchase and sale decisions to a responsible financial executive. The best person or persons to make periodic reviews of the investment activity would be:

An investment commitee of the board of directors
The chief operating officer
The corporate controller
The treasure

96)

Which of the following could be an organization factor that might adversely affect the ethical behavior of the CAE?

The CAE reports directly to an independent audit committee of the board of directors
The CAE is not assigned any operational responsibilities
A CAE may not be appointed or approved without concurrence of the board of directors
The CAE's annual bonuses are based on dollar recoveries or recommended future savings as a result of audits

97)

Which of the following is NOT a financial statement assertion made by management?

Existence of recorded assets and liabilities
Completeness of recorded assets and liabilities
Valuation of assets and liabilities
Effectiveness of internal control

98)

When a primary risk related to an audit is possible overstated inventory, The assertaion most directly related is

Existence
Completeness
Clarity
Presentation

99)

identifying the control that is most likely to prevent the concealment of a cash shortage resulting from the improper write-off of a trade account receivable:

write offs must be approved by a responsible official after review of credit department recommendations and supporting eveidence
write offsd must be approved by the accounts receivable department
write offs must be authorized by the shipping department
write offs must be supported by an aging schedule showing that only receivable overdue by several months have been written off

100)

When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertion?

cutoff
make sure reported in the proper fiscal period
existence
valuation and allocation
rights and obligations

101)

An audit of a foreign subsidiary disclosed payments to local government officals in return for orders. What action does the code of ethics suggest for internal auditors in such a case?

Refrain from any action that might be detrimental to their employers
Report the incident to appropriate regulatory authorities
Inform appropriate organization officials
Report the practice to the Board of Directors of the IIA

102)

You have been assigned to the year-end audit of a financial institution and are planning that timing of audit procedures relating to cash. You decide that it would be preferable to:

Count the cash in advance of the balance sheet date in order to disclose any kiting operations at year-end
Coordinate the count of cash with the cutoff of accounts payable
Coordinate the count of cash with the count of marketable securities and other negotioable assets
Count the cash immediately upon the return of the confirmation letters from the financial instituation

103)

Which of the following is the best audit procedure for the discovery of damaged merchndise in a client ending inventory

Compare the physical quantities ofr slow moving items with correspondidng quatities in the prior year
Observe the merchandise and raw materials during the clients pysical inventory ytaking
Review the management inventory representations letter for accurancy
Test overall fairness of inventory values by comparing the compaies turnover ration with the industry average

104)

The auditors would be most likely concerned with which of the following controls in a distributed data processing system?

Hardware controls
Systems documentation contorls
Access controls
Disaster recovery controls

105)

Which of the following is not among the criteria that ordinary exist for revenue to be recognized?

collectibility is reasonably assured
delivery has occured or is scheduled to occur in the near future
Persuasive evidence of an arrangment exists
the seller's price to the buyer is fixed or determinable

106)

Auditors often make use of computer programs that perform routine processing functions such as sorting and merging. These programs are made available by IT comnpanies and other are referred to as:

Compiler programs
Utility programs
User programs
Supervisory programs

107)

To determine that all sales have been recorded, the auditors would select a sample of transactions from the:

shipping documents file
sales journal
accounts receivable subsidiary ledger
remittance advices

108)

Performance audits usually include (Choose 2)

financial audits
economy and efficiency audits
compliance audits
program audits

109)

An internal auditor who had been supervisor of the accounts payable section should not audit that section:

Because there is no way to measure a reasonable period of time in which to establish independence
Until enough time has elapsed to allow the new supervisore to influence the system of controls over accounts payable
Until after the next annual review by the external auditors
Until it is clear that the new supervisor has assumed the responsibilities

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