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NEW QUESTION 26
Which of the following does not represent a difficulty in using red flags as fraud indicators?
- A. Some red flags are difficult to quantify or to evaluate.
- B. Many common red flags are also associated with situations where no fraud exists.
- C. The red flags literature is not well enough established to have a positive impact on auditing.
- D. Red flag information is only gathered in extraordinary circumstances.
Answer: C
NEW QUESTION 27
Which of the following is a red flag associated with fictitious revenues?
- A. Significant transactions with related parties.
- B. Unusual decrease in the number of days' sales in receivables.
- C. Slow growth or unusually low profitability.
- D. Substantial increase in receivables turnover.
Answer: A
Explanation:
Section: Volume B
Explanation/Reference:
NEW QUESTION 28
Which of the following would most likely contribute to discrepancies between receiving reports and the number of units in a shipment?
- A. Failing to compare the quality of goods received with specifications.
- B. Accepting improper authorization for purchases.
- C. Using inadequate vendor selection procedures.
- D. Indicating the quantities ordered on the receiving department's copy of the purchase order.
Answer: D
Explanation:
Section: Volume C
NEW QUESTION 29
When forming an opinion on the adequacy of management's systems of internal control, which of the following findings would provide the most reliable assurance to the chief audit executive?
* During an audit of the hiring process in a law firm, it was discovered that potential employees' credentials were not always confirmed sufficiently. This process remained unchanged at the following audit.
* During an audit of the accounts payable department, auditors calculated that two percent of accounts were paid past due. This condition persisted at a follow up audit.
* During an audit of the vehicle fleet of a rental agency, it was determined that at any given time, eight percent of the vehicles were not operational. During the next audit, this figure had increased.
* During an audit of the cash handling process in a casino, internal audit discovered control deficiencies in the transfer process between the slot machines and the cash counting area. It was corrected immediately.
- A. 2 and 4 only
- B. 1 and 3 only
- C. 2 and 3 only
- D. 1 and 4 only
Answer: D
Explanation:
Section: Volume E
NEW QUESTION 30
While investigating a compromised Web server, an auditor found that the Web server logs had been deleted.
The auditor should recommend that the Web server logs be:
- A. Generated and maintained on a separate secure server.
- B. Encrypted to ensure that the logs cannot be deleted.
- C. Accessible by administrative users only
- D. Restored automatically to the Web server from backup files.
Answer: A
Explanation:
Section: Volume B
Explanation/Reference:
NEW QUESTION 31
During the planning phase of an audit of the treasury function, an internal auditor conducted a risk assessment of the function in order to:
- A. Comply with the internal audit charter and applicable regulatory requirements.
- B. Determine whether appropriate resources are present to carry out the treasury function.
- C. Identify areas of the treasury function that should be considered for potential engagement objectives.
- D. Report any high-risk exposures of the treasury function to management and the board.
Answer: C
Explanation:
Section: Volume D
NEW QUESTION 32
According to the International Professional Practices Framework, which of the following would not be considered when performing an initial risk assessment in engagement planning?
- A. The reliability of management's assessment of risk.
- B. Risks in related activities relevant to the activity under review.
- C. Management's methodology for defining risk criteria.
- D. Management's process for monitoring, reporting, and resolving risk issues.
Answer: C
NEW QUESTION 33
An internal auditor notices that a division has recorded uncharacteristically high sales and gross margins for the past three months and now suspects the division is reporting fictitious sales. Which course of action should the auditor follow to determine whether fraud has occurred?
- A. Compare the division's sales and gross margins to those of the prior three-month period.
- B. Estimate the sales and cost of goods sold for the three-month period by using regression analysis.
- C. Send accounts receivable balance confirmations to customers.
- D. Trace a sample of shipping documents to related sales invoices to verify proper billing.
Answer: C
Explanation:
Section: Volume C
NEW QUESTION 34
Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?
- A. Compare research as a percentage of revenue between this company and all major competitors in the same industry.
- B. Develop a cost-per-product analysis for products developed over the past five years.
- C. Develop a report on revenue generated by or cost savings directly attributable to newly developed products.
- D. Compare the number of this year's new product developments to the number of new product developments for the past five years.
Answer: C
NEW QUESTION 35
A retail sales company has discontinued a product that normally sold for $100. During the first month of a sale of the product, a 20 percent discount was given. Later that sale price was reduced by an additional 40 percent.
What was the overall discount from the original selling price?
- A. 48 percent.
- B. 52 percent.
- C. 30 percent.
- D. 60 percent.
Answer: B
NEW QUESTION 36
According to the Standards, which of the following is least important in determining the adequacy of an annual audit plan?
- A. Cost effectiveness.
- B. Effective deployment.
- C. Appropriateness.
- D. Sufficiency.
Answer: A
Explanation:
Section: Volume E
NEW QUESTION 37
According to the International Professional Practices Framework, the responsibility for establishing and maintaining a system to monitor the disposition of results communicated to management falls upon:
- A. Compliance officer.
- B. Chief audit executive.
- C. Risk manager.
- D. Senior management.
Answer: B
NEW QUESTION 38
Which of the following risks assumes an absence of compensating controls in the area being reviewed?
- A. Inherent risk.
- B. Sampling risk.
- C. Detection risk.
- D. Control risk.
Answer: A
NEW QUESTION 39
A manager of one of a retailer's several retail outlets is stealing cash from cash sales, recording the sales as accounts receivable, and subsequently writing off the fictitious accounts receivable as bad debts. Which of the following comparisons would be most effective in signaling the possibility of such a fraud?
- A. Bad debt expense as a percentage of sales, compared to that of the other outlets.
- B. Percentage of past-due accounts receivable, compared to that of previous years.
- C. Bad debt expense as a percentage of sales, compared to that of previous years.
- D. Percentage of past-due accounts receivable, compared to that of the other outlets.
Answer: A
NEW QUESTION 40
An internal auditor notes that employees continue to violate segregation-of-duty controls in several areas of the finance department, despite previous audit recommendations. Which of the following recommendations is the most appropriate to address this concern?
- A. Recommend rotating finance staff in this area.
- B. Recommend that management address these concerns immediately.
- C. Recommend additional segregation-of-duty reviews.
- D. Recommend appropriate awareness training for all finance department staff.
Answer: D
Explanation:
Section: Volume E
NEW QUESTION 41
An internal auditor for a financial institution has just completed an audit of loan processing. Of the 81 loans approved by the loan committee, the auditor found seven loans which exceeded the approved amount.
Which of the following actions would be inappropriate on the part of the auditor?
- A. Determine the amount of the differences and make an assessment as to whether the dollar differences are material. If the amounts are not material, not in violation of government regulations, and can be rationally explained, omit the observation from the engagement final communication.
- B. Follow up with the appropriate vice president and include the vice president's acknowledgment of the situation in the engagement final communication.
- C. Report the amounts to the loan committee and leave it up to them to correct. Take no further follow-up action at this time and do not include the items in the engagement final communication.
- D. Examine the seven loans to determine if there is a pattern. Summarize amounts and include in the engagement final communication.
Answer: C
NEW QUESTION 42
An organization does not have a formal risk management function. According to the Standards, which of the following are conditions where the internal audit activity (IAA) may provide risk management consulting?
1. There is a clear strategy and timeline to migrate risk management responsibility back to management.
2. The IAA has the final approval on any risk management decisions.
3. The IAA does not give objective assurance on any part of the risk management framework for which it is responsible.
4. The nature of services provided to the organization is documented in the internal audit charter.
- A. 1, 3, and 4 only
- B. 1, 2, and 3 only
- C. 2, 3, and 4 only
- D. 1, 2, and 4 only
Answer: A
NEW QUESTION 43
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