1.In which of the following circumstances is an auditor most likely to rely on work done by internal auditors?a.If financial statement amounts are material and the degree of subjectivity in evaluating the audit evidence is high.b.If the internal auditors have concluded that the risk of material misstatement at the overall financial level is negligible.c.For financial statement amounts judged by the auditor to require little or no subjectivity in evaluating audit evidence.College of Accounting Education3F Facundo Hall, Business and Engineering BuildingMatina Campus, Davao City8d.For financial statement amounts determined largely or entirely on the basis of estimates made by management.2.The independent auditors might consider the procedures performed by the internal auditors becausea.There are employees whose work might be considered.b.Their degree of independence may be inferred by the nature of their work.c.There are employees whose work must be reviewed during substantive testing.d.Their work impacts upon the cost/benefit trade-off in evaluating inherent limitations. 3.When considering the objectivity of internal auditors, an independent auditor shoulda.Evaluate the quality control program in effect for the internal auditor.b.Determine the organizational level to which the internal auditors report.c.Examine documentary evidence of the work performed by the internal auditors.d.Test a sample of the transactions and balances that the internal auditors examined.4.The scope and objectives of internal auditing vary widely and depend on the size and structure of the entity and the requirements of its management.Ordinarily, internal auditing activities include one or more of the following, excepta.Establishment of adequate accounting and internal control system.b.Review of the economy, efficiency and effectiveness of operations including non-financial controls of an entity.c.Review of compliance with laws, regulations and other external requirements and with management policies and directives and other internal requirements.d.Examination of the financial and operating information including review of the means to identify, measure, classify and report such information and specific inquiry into individual items including detailed testing of transactions and recommending improvements thereto.5.Which of the following is not an appropriate function of internal auditing?a.Review of accounting and internal control.b.Review of compliance with laws and regulations.c.Examination of financial and operating information.d.Expressing an opinion about the fair presentation of the financial statements.6.The company being audited has an internal auditor that is both competent and objective. The independent auditor wants to assign tasks for the internal auditor to perform. Under these circumstances, the independent auditor maya.Allow the internal auditor to perform tests of internal controls.b.Allow the internal auditor to audit a major subsidiary of the company.c.Not assign any task to the internal auditor because of the internal auditor's lack of independence.d.Allow the internal auditor to perform analytical procedures, but not be involved with any test of details.7.The externalauditor should obtain a sufficient understanding of the internal audit function becauseCollege of Accounting Education3F Facundo Hall, Business and Engineering BuildingMatina Campus, Davao City9a.The understanding of the internal audit function is an important substantive test to be performed by the external auditorb.The audit programs, working papers, and reports of internal auditors may often be used as substitute for the work of the external auditor's staffc.The procedures performed by the internal audit staff may eliminate the external auditor's need for considering internal controld.The work performed by internal auditors may be a factor in determining the nature, timing and extent of the external auditor's procedures 8.If the external auditordecides that it is efficient to consider how the work performed by the internal auditors may affect the nature, timing, and extent of audit procedures, he/she should assess the internal auditors'a.Efficiency and experienceb.Independence and review skills c.Training and supervisory skillsd.Competence and objectivity9.For the highest degree of independence, the director of the internal auditing department should report directly to:a.The controllerb.The audit committee of the board of directorsc.The executive vice-presidentd.The chief accountant10.In assessing the technical competence of an internal auditor, an external auditor most likely would obtain information about the a.Quality of working paper documentation, reports, and recommendationsb.Organizational level to which the internal auditor reportsc.Influence of management on the internal auditor's dutiesd.Entity's commitment to integrity and ethical values11.Which of the following statements is correct concerning the auditor's use of the work of an auditor's expert?a.The auditor is required to performsubstantive test procedures to verify the expert's assumptions and findingsb.The auditor should obtain an understanding of the methods and assumptions used by the expertc.The entity should not have an understanding of the nature of the work to be performed by the expertd.The expert should not have an understanding of the auditor's corroborative use of the expert's findings 12.Which of the followingprocedures would an auditor most likely include in the initial planning of a financial statement audit?a.Obtaining a representation letter from the client's managementCollege of Accounting Education3F Facundo Hall, Business and Engineering BuildingMatina Campus, Davao City10b.Examining documents to detect illegal acts having a material effect on the financial statements.c.Consider whether the client's accounting estimates reasonable in the circumstances d.Determining the extent of involvement of the client's internal auditors. 13.When assessing an internal auditor's objectivity, an independent auditor shoulda.Evaluate the adequacy of the internal auditor's audit programsb.Inquire about the internal auditor's educational background and professional certification.c.Consider the organizational level to which the internal auditor reports.d.Review the internal auditor's working papers.14.For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who assessed to be both competent and objective?ABCDMateriality of misstatementsyesnonoyesEvaluation of accounting estimatesnoyesnoyes 15.If the independent auditor decides that the work performed by the internal auditors may have a bearing on the independent auditor's own procedures, the independent auditor should consider the objectively ofthe internal auditors. One method of judging objectivity is toa.Review the recommendations made in the reports of internal auditorsb.Examine, on a test basis, documentary evidence of the worked performed by internal auditorsc.Inquire of management about the qualifications of the internal audit staffd.Consider the client's practices for hiring, training, and supervising the internal au