Questions and Answers of Internal Auditing Assurance

The achieved upper deviation limit is 7 percent and the risk of assessing control risk too low is 5 percent. How should the internal auditor interpret this attribute sampling outcome?a. There is a 7
What is the key advantage of statistical sampling over nonstatistical sampling?
An internal auditor wants to test customers’ accounts receivable balances for overstatement on a sample basis. Which of the following would be the least valid reason for deciding to use PPS
Why do internal auditors sometimes choose to use nonstatistical sampling instead of statistical sampling?
How does the purpose of statistical sampling in tests of monetary values differ from the purpose of statistical sampling in tests of controls?
What factors affect probability-proportional-to-size (PPS) sample sizes?
What are the key advantages of PPS sampling over classical variables sampling? What are the key disadvantages?
Recall the definition of inherent risk. Why is it important for internal auditors to focus on inherent risk during the planning phase of an assurance engagement?
What two types of services do internal auditors provide? Provide three examples of each type of engagement.
One definition of risk is that it is the possibility that an event will occur and adversely affect the achievement of an objective. An illustrative objective and event are presented below:a. Identify
While planning an assurance engagement, the internal auditor obtains knowledge about the auditee’s operations to, among other things:a. Develop an attitude of professional skepticism concerning
Using the audit file from the previous exercise, continue with the audit engagement process. Your task is to work with your audit team to prepare the audit program, perform the procedures specified
What are the three phases of the assurance engagement process?
Which of the following statements does not illustrate the concept of inherent business risk?a. Cash is more susceptible to theft than an inventory of sheet metal.b. A broken lock on a security gate
Consider the following two statements: Evaluating the adequacy of control design is necessary but not sufficient if the objective of an assurance engagement is to reach a conclusion regarding the
What steps are included in the planning phase of an assurance engagement?
Comprehensive risk assessment involves analysis of both causes and effects. Which of the following statements concerning the analysis of causes and effects is false?a. Analyzing the causes and
Reflect on the following ways of expressing overall assurance engagement results introduced in this chapter:■ Listing and prioritizing observations without expressing any level of assurance.■
What is the relationship between business objectives and business assertions?
Internal auditors obtain an understanding of controls and perform tests of controls to:a. Detect material misstatements in account balances.b. Reduce control risk to an acceptable level.c. Evaluate
Internal auditors provide two types of services: assurance services and consulting services.a. How do these two types of services differ in terms of purpose?b. In what other ways do consulting
What does “inherent risk” mean?
If an internal auditor’s evaluation of internal control design indicates that the controls are designed adequately, the appropriate next step would be to:a. Test the operating effectiveness of the
Why is it useful for an internal auditor to express risks in terms of causes and effects?
What purposes does a well-written work program serve?
Reportable internal audit observations emerge by a process of comparing “what should be” with “what is.” In determining “what should be” during an audit of a company’s treasury
What are management’s risk response options?
Internal auditors sometimes express opinions in addition to stating observations in their reports. Due professional care requires that internal audit opinions be:a. Based on sufficient appropriate
What does allocating resources to the engagement involve?
Which of the following statements best describes an internal audit function’s responsibility for assurance engagement follow-up activities?a. The internal audit function should determine that
What steps are included in the performance phase of an assurance engagement?
Internal auditors perform both assurance engagements and consulting engagements. Which of the following would be classified as a consulting engagement?a. Directly assessing the organization’s
What elements do well-written observations include?
What are the characteristics of meaningful recommendations?
In deciding whether to schedule the purchasing or the personnel department for an audit engagement, which of the following would be the least important factor?a. There have been major changes in
What are the key quality characteristics of internal audit engagement communications?
A performance audit engagement typically involves:a. Review of financial statement information, including the appropriateness of various accounting treatments.b. Tests of compliance with policies,
What steps are included in the communication phase of an assurance engagement?
What is the difference between “negative assurance” and “positive assurance?”
What information must final assurance engagement communications include?
How do internal audit consulting engagements differ from assurance engagements?
What are the four reasons for conducting an assurance engagement?
Which of the following is not likely to be an assurance engagement objective?a. Evaluate the design adequacy of the payroll input process.b. Guarantee the accuracy of recorded inventory balances.c.
Understanding the detailed tasks in a process is an important step in planning an assurance engagement. However, these tasks describe the way a process is designed to perform, but they provide little
Why is establishing engagement objectives important?
A process objective stating “All contracts must be approved by an officer of the company before being consummated” is an example of what type of objective?a. Strategic.b. Operations.c.
COSO defines business objectives as “those measurable steps the organization takes to achieve its strategy.” With this definition in mind, how can an administrative, task-oriented process have
What are five types of scope statements?
Analytical procedures can be applied during which phase(s) of an assurance engagement?a. Plan phase.b. Perform phase.c. Communicate phase.d. Plan and perform phases.
Management tends to focus on residual risk instead of inherent risk. Why do you think this is so? Why should internal auditors consider both inherent risk and residual risk when planning an assurance
What are the five typical exceptions that may be identified during testing in an engagement?
Which of the following auditee-prepared documents will likely be of greatest assistance to the internal auditors in their assessment of process design adequacy?a. Policies and procedures manual.b.
If the internal auditor fails to identify all key process-level risks, what impact might that have on the overall assurance engagement? If the internal auditor determines that certain process-level
Which type of process objective is the most common and why?
Which of the following controls is not likely to be an entity-level control?a. All employees must receive ongoing training to ensure they maintain their competence.b. All cash disbursement
Besides financial reporting impact, what other types of risk outcomes should be considered when assessing the impact of risks?
What types of information may process owners have available that will help an internal auditor understand the process?
Which of the following is not typically a key element of flowcharts or narrative memoranda?a. Overall process objectives.b. Key inputs to the process.c. Key outputs from the process.d. Key risks and
In anticipation of an upcoming engagement, an internal audit team recently toured the company’s receiving, warehousing, and production facilities to obtain a better understanding of day-to-day
Why might an internal auditor perform analytical procedures during the engagement planning process?
Which of the following external risks is least likely to impact the accuracy of financial reporting?a. The standard-setting body in the organization’s country issues a new financial accounting
A staff internal auditor found the following possible deviations from prescribed controls and documented them in her working papers.For each of the items listed above, indicate whether there is or is
AVF Inc. manufactures several lines of packaging equipment. The company considers product reliability and outstanding customer service to be critical to its success. The customer service department
Why might an internal auditor perform CAATs during the engagement planning process?
Which of the following groups’ risk tolerance levels are least relevant when conducting an assurance engagement?a. Senior management.b. Process-level management.c. The internal audit function.d.
Assuming certain strategic objectives are critical to the success of an organization, what should an internal audit function consider when deciding whether to conduct internal audits that address
Why must an internal auditor understand how entity-level controls may influence the performance of a process before auditing that process?
Which of the following controls is likely to be least relevant when evaluating the design adequacy of a cash collections process?a. Calculating the amount of cash received.b. Documenting the
What are the three most common ways of documenting a process flow?
An internal auditor determines that the process is not designed adequately to reduce the underlying risks to an acceptable level.Which of the following should the internal auditor do next?a. Write
How does a detailed flowchart differ from a high-level flowchart?
If an internal auditor identifies an exception while testing, which of the following may be appropriate?a. Test additional items to determine whether the exception is an isolated occurrence or
What six categories of information should narrative memoranda generally include?
Which of the following is an appropriate conclusion that can be drawn when the internal auditor identifies an observation from testing controls?a. The process objectives cannot be achieved.b. The
Why is it important for internal auditors to identify and understand key performance indicators for a process?
Once an observation is identified by the internal auditor, it should be:a. Documented in the working papers.b. Discussed with the audit committee.c. Included in the final audit report.d. Scheduled
Why might the inherent likelihood of a risk increase if there is the potential for fraud?
A specific objective of an audit of an organization’s expenditure cycle is to determine if all goods paid for have been received and charged to the correct account. This objective would address
What is the difference between a process-level risk scenario and a process-level risk?
In an assurance engagement of treasury operations, an internal auditor is required to consider all of the following issues except:a. The audit committee has requested assurance on the treasury
What three steps are generally involved in conducting a process-level risk assessment?
What three key steps should an internal auditor follow when gaining an understanding of management’s risk tolerance levels?
Which of the nine examples of common control types typically occur before a transaction is completed?
What are the key questions that must be answered when evaluating the design adequacy of controls?
What factors should an internal auditor consider when determining which controls to test?
When developing a testing approach, what decisions must be made about the tests to be performed?
What are the key tasks covered in the typical work program?
What information should an internal audit engagement budget include?
What questions need to be answered when allocating human resources to an engagement?
What four items should be considered when scheduling an engagement?
What four questions must be answered to evaluate the evidence gathered from audit testing?
What four elements are included in a well-written audit observation?
What are the six columns included in a completed Risk and Control Matrix?
Which of the following are components of the definition of internal auditing?a. Independence and objectivity.b. A systematic and disciplined approach.c. Helping the organization accomplish its
Define “value proposition.” Explain why it is important for internal auditors to have a value proposition. Describe the three components of the internal audit value proposition set forth by The
Visit The IIA’s website (www.theiia.org). Locate, read, and prepare to discuss the following items:A. Frequently asked questions about internal auditing:1. How do internal and external auditors
What are the three components of the internal audit value proposition set forth by The IIA?
Assurance, Insight, and Objectivity comprise:a. The mission of internal auditing.b. The three lines of defense model.c. The objectives of internal auditing.d. The value proposition.
Describe the relationship between objectives and strategies. What is your foremost objective as a student in this course? Explain your strategy for achieving this objective.
How does The IIA define internal auditing?

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