1. An internal auditor must weigh the cost of an audit procedure against the persuasiveness of the evidence to be gathered. Observation is one audit procedure that involves cost-benefis tradeoffs. Which of the following statements regarding observation as an audit procedure is/are correct?

1. Observation is limited because individuals may react differently when being watched.

2. Observation is more effective for testing completeness than it is for testing existence.

3. Observation provides evidence about whether certain controls are operating as designed

a.Number 1 only.

b.Number 2 only.

c.1 and 3.

d.All of the above.

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2. A company has recently outsourced its payroll process to a thirdparty service provider. An audit team was scheduled to audit payroll controls in the annual audit plan prepared prior to the outsourcing. What action should the audit team take, considering the outsourcing decision?

a.Cancel the engagement, because the processing is being performed outside the organization.

b.Review only the controls over payments to the third-party provider based on the contract.

c.Review only the companys controls over data sent to and received from the third-party service provider.

d.Review the controls over payroll processing in both the company and the third-party service provider.

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3. Which of the following is not typically a barrier to internal auditors using data analytics in achieving the engagement objective?

a.Knowing what data exists and where to find it.

b.Poorly defining the scope of the intended use of data analytics.

c.Data analytic software is limited by the number of records it can process.

d.The effort required to cleanse and prepare data for import to the data analytic tool.