Internal Auditing Exam Review
Course Introduction
Internal Auditing is a comprehensive course that explores the principles, practices, and processes involved in assessing and enhancing the effectiveness of an organizations risk management, control, and governance. Students will learn about the role and responsibilities of internal auditors, audit planning, risk assessment, evidence gathering, and reporting. Emphasis is placed on the International Standards for the Professional Practice of Internal Auditing, ethical considerations, and the use of technology in conducting audits. Through case studies and practical exercises, students develop the skills necessary to identify areas of improvement, provide recommendations, and support organizational objectives.
Recommended Textbook
Auditing A Risk Based Approach to Conducting a Quality Audit 10th Edition by Karla Johnstone
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17 Chapters
1898 Verified Questions
1898 Flashcards
Source URL: https://quizplus.com/study-set/1113 Page 2
Chapter 1: Auditing: Integral to the Economy
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100 Verified Questions
100 Flashcards
Source URL: https://quizplus.com/quiz/21875
Sample Questions
Q1) Management may have incentive to bias financial information, but the various users of the statements are not likely to have conflicting interests in the financial information.
A)True
B)False
Answer: False
Q2) The Center for Audit Quality has the primary authority to set auditing standards.
A)True
B)False
Answer: False
Q3) Which of the following items should an auditor communicate to an audit committee?
A) Any meaningful threats to auditor objectivity.
B) The scope of the audit.
C) The qualitative aspects of the entity's accounting and reporting and potential ways of improving financial reporting.
D) All of the above.
Answer: D
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Chapter 2: The Auditors Responsibilities Regarding Fraud
and Mechanisms to Address Fraud: Regulation and Corporate Governance
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) The objective of financial reporting is to provide useful information to interested users.
A)True
B)False
Answer: True
Q2) BruceCo. has accounted for the revenue of Jiffy Mac, Inc., one of its suppliers as though it were its subsidiary. BruceCo. has probably committed fraud because of its misapplication of consolidation principles.
A)True
B)False
Answer: True
Q3) Which of the following actions was a key element of the Enron audit fraud?
A) Capitalizing line costs rather than expensing them.
B) Misrepresenting bribes from suppliers as a reduction of operating costs.
C) Shifting debt to off-balance sheet special entities.
D) Concealing large losses related to securities investments.
Answer: C
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Chapter 3: Internal Control Over Financial Reporting:
Responsibilities of Management and the External Auditors
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104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/21877
Sample Questions
Q1) A material control weakness is a deficiency in internal control such that a reasonable probability exists that a material misstatement of the company's financial statements may not be prevented or detected on a timely basis.
A)True
B)False
Answer: False
Q2) Managers must use professional judgment to determine whether identified control deficiencies rise to the level of a significant deficiency or material weakness.
A)True
B)False
Answer: True
Q3) Internal control is a process designed to achieve objectives in which one of the following categories?
A) Reliability of financial reporting.
B) Compliance with applicable laws.
C) Operational Effectiveness.
D) All of the above.
Answer: D
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Chapter 4: Professional Liability, Auditor Judgment
Frameworks, and Professional Responsibilities
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88 Verified Questions
88 Flashcards
Source URL: https://quizplus.com/quiz/21878
Sample Questions
Q1) Which of the following is a cause of action against the auditor for breach of contract?
A) Violating client confidentiality.
B) Providing the audit report on time.
C) Failing to discover an immaterial error or employee fraud.
D) Withdrawing from an audit engagement with justification.
Q2) A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained.
A)True
B)False
Q3) According to the framework for ethical decision making, which of the following should the decision maker consider?
A) All possible alternative courses of action.
B) The consequences associated with possible actions.
C) Whether the rights framework would cause any course of action to be added.
D) All of the above.
Q4) Confidentiality is the cornerstone of the auditing profession.
A)True
B)False
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Chapter 5: Professional Auditing Standards and the Audit
Opinion Formulation Process
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104 Verified Questions
104 Flashcards
Source URL: https://quizplus.com/quiz/21879
Sample Questions
Q1) There are nine specific actions an auditor can undertake to collect evidence. Identify each action and provide an example.
Q2) The auditing standards.
Under the clarified auditing standards, what is the structure of each auditing standard issued by the ASB? What is the purpose of each section?
Q3) What does the effectiveness of internal controls influence?
A) Inherent risk.
B) Control risk.
C) Risk of material misstatement.
D) Both B and C.
Q4) Assertions about existence address whether assets and liabilities exist and assertions about occurrence address whether recorded transactions, such as sales transactions, have occurred
A)True
B)False
Q5) Explain the meaning of due professional care.
Q6) Comparability is one of the five management assertions. A)True B)False
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Chapter 6: A Framework for Audit Evidence
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108 Verified Questions
108 Flashcards
Source URL: https://quizplus.com/quiz/21880
Sample Questions
Q1) Which of the following types of audit evidence is the most reliable?
A) Evidence from the client's organization.
B) Evidence from a poorly controlled system.
C) Directly observable evidence.
D) Facsimiles of documents.
Q2) The auditor normally considers both underlying accounting data and corroborating information in the audit process. Underlying accounting data does not include which of the following items?
A) Evidence of controls.
B) Minutes of meetings.
C) Checks, invoices, and contracts.
D) General and subsidiary ledger.
Q3) Reprocessing of transactions involves which of the following?
A) Testing forward.
B) Testing backward.
C) Testing at a point in time.
D) Directional testing either forward or backward.
Q4) Audit program.
Discuss the purpose of the audit program and its importance to the auditor.
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Chapter 7: Planning the Audit: Identifying and Responding to
the Risks of Material Misstatement
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92 Verified Questions
92 Flashcards
Source URL: https://quizplus.com/quiz/21881
Sample Questions
Q1) When the risk of material misstatement is heightened, the auditor increases the extent of audit procedures and requires more evidence.
A)True
B)False
Q2) Brainstorming sessions should be led by the engagement team.
A)True
B)False
Q3) What is the nature of the relationship between risk of material misstatement and audit risk?
A) Direct.
B) None.
C) Correlational.
D) Inverse.
Q4) Which of the following factors will result in control risk being assessed at a higher level?
A) Controls are well designed.
B) There is a lack of supervision of accounting personnel.
C) Accounting staff are well trained and educated.
D) The control environment is operating effectively.
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Chapter 8: Specialized Audit Tools: Sampling and
Generalized Audit Software
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114 Verified Questions
114 Flashcards
Source URL: https://quizplus.com/quiz/21882
Sample Questions
Q1) The expected population deviation rate is the auditor's best estimate of the percentage of transactions processed for which a control is not effectively applied.
A)True
B)False
Q2) Choosing sampling methods.
Identify the factors that an auditor would consider when choosing between non-statistical sampling and statistical sampling.
Q3) Which of the following occurs when, based on sample results, control risk is assessed excessively high?
A) Audit inefficiency.
B) A less expensive audit.
C) Reduction of substantive testing.
D) Errors that are more likely to occur than anticipated.
Q4) Which of the following task is not performed by generalized audit software?
A) Footing a file.
B) Obtaining file statistics.
C) Checking for gaps in processing sequences.
D) Preparing custom reports.
E) All of the above tasks can be performed using GAS.
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Chapter 9: Auditing the Revenue Cycle
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Confirmations that are sent to select customers asking them to review the current balance due the client as shown on the client's statement and return the letters directly to the auditor indicating whether they agree with the indicated balance, are known by which of the following terms?
A) Direct confirmations.
B) Indirect confirmations.
C) Positive confirmations.
D) Negative confirmations.
Q2) It is beneficial in the testing of notes receivable to confirm not only the balance of the notes, but also their terms.
A)True
B)False
Q3) The audit team typically reviews journal entries in the receivables ledger for unusual entries that may be indicators of fraudulent activity.
A)True
B)False
Q4) The basic concept for revenue recognition is the realization of cash.
A)True
B)False
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Chapter 10: Auditing Cash and Marketable Securities
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101 Verified Questions
101 Flashcards
Source URL: https://quizplus.com/quiz/21884
Sample Questions
Q1) Bank reconciliations should be performed by the individual who makes bank deposits.
A)True
B)False
Q2) A compensating balance arrangement usually results in which of the following for a company?
A) Increase its interest income.
B) Increase the effective interest rate on corporate borrowing.
C) Decrease the effective interest rate on corporate borrowing.
D) Exhibit no change in the effective interest rate on corporate borrowing.
Q3) An independent bank reconciliation provides evidence of the correctness of the year-end cash balance.
A)True
B)False
Q4) Which of the following is not an internal control the auditor would expect to find in place for all cash processing systems?
A) Restrictive endorsement of checks.
B) Independent reconciliation.
C) Walkthrough.
D) Prenumbered cash receipt documents.
Page 12
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Chapter 11: Auditing Inventory, Goods and Services, and
Accounts Payable: the Acquisition and Payment Cycle
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102 Verified Questions
102 Flashcards
Source URL: https://quizplus.com/quiz/21885
Sample Questions
Q1) Prenumbered receiving documents establish the completeness of the population and are useful in determining that all goods are recorded in the correct period.
A)True
B)False
Q2) Which of the following is not a management assertion relevant to inventory?
A) Existence or occurrence.
B) Completeness.
C) Rights and obligations.
D) Reporting.
Q3) For proper control, the receiving department should receive a copy of the purchase order that has the quantities blanked out.
A)True
B)False
Q4) Which of the following accounts is NOT a major account in the acquisition and payment cycle?
A) Inventory.
B) Cost of goods sold.
C) Accounts payable.
D) All of the above are major accounts.
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Chapter 12: Auditing Long-Lived Assets: Acquisition, Use, Impairment, and
Disposal
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) Which of the following procedures is a substantive procedure that relates to the rights and obligations assertion?
A) Assess management's impairment estimates.
B) Examine documents of title.
C) Recalculate amortization expense.
D) Inquire management about assets that are idle.
Q2) Knowledge of industry product trends is crucial to the auditor's identification of the potential for the impairment of assets.
A)True
B)False
Q3) Effective internal controls over long-lived assets include the use of identification tags secured to assets for proper tracking.
A)True
B)False
Q4) For integrated audits, the auditor will test the operating effectiveness of important controls as of the client's year end.
A)True
B)False
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Chapter 13: Auditing Debt Obligations and Stockholders
Equity Transactions
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120 Verified Questions
120 Flashcards
Source URL: https://quizplus.com/quiz/21887
Sample Questions
Q1) Which of the following is not an example of typical analytical procedures related to debt obligations?
A) Perform a trend analysis of the balances in notes payable, interest expense, and accrued interest with prior periods, considering known client activities related to debt.
B) Calculate the total debt-to-equity ratio and perform a trend analysis with prior periods.
C) Calculate the times interest earned ratio and perform a trend analysis with prior periods.
D) Calculate the current ratio and perform a trend analysis with prior periods.
Q2) Relevant accounts when auditing stockholders' equity include leasehold improvements.
A)True
B)False
Q3) Which of the following is a typical control for debt obligations?
A) The board of directors approves all new debt.
B) The stockholders approve all new debt.
C) The CFO approves all new debt.
D) Upper managers approve all new debt.
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Chapter 14: Activities Required in Completing a Quality Audit
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184 Verified Questions
184 Flashcards
Source URL: https://quizplus.com/quiz/21888
Sample Questions
Q1) If the auditor concludes that there may be a going-concern problem with the client, which of the following is the best course of action for the auditor to follow?
A) Issue a qualified opinion.
B) Identify and assess management's plan to overcome the situation.
C) Chart the negative trends as an addendum to the audit report.
D) Increase fees to cover the probable exposure.
Q2) Management representation letters.
Describe the purpose of the management representation letter.
Q3) Management responsibilities.
Explain how management explicitly asserts their confidence and responsibility over the financial statements of the company.
Q4) All major accounting disagreements with management, even if eventually resolved, should be discussed with the audit committee.
A)True
B)False
Q5) Dual-dating opinions.
Describe the concept and the purpose of dual-dating an audit report.
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Chapter 15: Audit Reports on Financial Statements
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109 Verified Questions
109 Flashcards
Source URL: https://quizplus.com/quiz/21889
Sample Questions
Q1) A client that has a departure from generally accepted accounting principles that is immaterial will receive a qualified or adverse opinion.
A)True
B)False
Q2) If a client expensed the acquisition cost of some assets that should have been capitalized and depreciated them over their useful lives, which of the following would be incorrect?
A) A qualified opinion would be appropriate.
B) The opinion paragraph should be modified to include language such as: "except for the effects of not capitalizing the acquisition costs of some assets.."
C) An explanatory paragraph should include the effects of the subject matter of the qualification, where practicable.
D) An explanatory paragraph should be modified to include language such as: "subject to the qualified act.."
Q3) Uncertainties, such as doubt about the going concern of a client, may result in an adverse opinion.
A)True
B)False
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Chapter 16: Advanced Topics Concerning Complex Auditing Judgments
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132 Verified Questions
132 Flashcards
Source URL: https://quizplus.com/quiz/21890
Sample Questions
Q1) Considering Qualitative Factors. What are the considerations that may cause a quantitatively small misstatement to be considered material?
Q2) If restructuring charges are not calculated correctly, the charges can be used to fraudulently manipulate income.
A)True
B)False
Q3) In making judgments about the effect of the internal auditors' work on the external auditor's procedures in specific audit areas, which of the following is not one of the issues related to the specific audit areas that is considered by the external auditor?
A) Materiality of the financial statement amounts.
B) Risk of material misstatement of the assertions related to these financial statement amounts.
C) Degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions.
D) All of the above are considered by the auditor.
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Chapter 17: Other Services Provided by Audit Firms
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107 Verified Questions
107 Flashcards
Source URL: https://quizplus.com/quiz/21891
Sample Questions
Q1) Pro Forma Financial Information.
What is the difference between historical financial information and pro forma financial information? Discuss the guidelines that should be adhered to when presenting pro forma financial information.
Q2) Sustainability Reporting.
Why is there a demand for independent assurance on sustainability reporting? Describe the features of external assurance over sustainability provided in the Global Reporting Initiative Reporting Framework.
Q3) Which of the following is not a critical component of attestation services?
A) Information or process (the subject matter) on which the assurance service is provided.
B) Criteria for evaluation, such as compliance with regulations.
C) Sufficient appropriate evidence.
D) Two parties involved, the practitioner (or the CPA) and the intended users of the report.
Q4) Many corporate websites now include sustainability reports, and the placement on those websites is usually quite prominent.
A)True
B)False
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