Which of the following will best promote the independence of the internal auditing function?

Question: V1C1-0001According to the IIA Standards, which of the following is not included in the scope of the internal audit function?AnswersA: Appraising the economy and efficiency with which resources are employed.B: Reviewing the strategic management process, assessing the quality of management decision.C: Reviewing the means of safeguarding assets and, as appropriate, verifying the existence of such assets.D: Reviewing operations or programs to ascertain whether results are consistent with established objectives

and goals and whether the operations or programs are being carried out as planned.

Question: V1C1-0002An internal auditor is auditing the financial operations of an organization. Which of the following is not specified bythe IIA Standards for inclusion in the scope of the audit?AnswersA: Reviewing the reliability and integrity of financial information.B: Reviewing systems established to ensure compliance with appropriate policy, plans, procedures, and other types of authority.C: Appraising economy, efficiency, and effectiveness of the employment of resources.

D: Reviewing the financial decision-making process.

Question: V1C1-0003The audit committee of an organization has charged the director of internal auditing with bringing the department into full compliance with the IIA Standards. The director’s first task is to develop a charter. Identify the item that should be included in the statement of objectives.AnswersA: Report all audit findings to the audit committee every quarter.B: Notify governmental regulatory agencies of unethical busiess practices by organization management.C: Determine the adequacy and effectiveness of the organization’s systems of internal controls.

D: Submit departmental budget variance reports to management every month.

Question: V1C1-0004A charter is being drafted for a newly formed internal auditing department. Which of the following best describes the appropriate organizational status that should be incorporated into the charter?AnswersA: The director of internal auditing should report to the chief executive officer but have access to the boardof directors.B: The director of internal auditing should be a member of the audit committee of the board of directors.C: The director of internal auditing should be a staff officer reporting to the chief financial officer.

D: The director of internal auditing should report to an administrative vice president.

Question: V1C1-0005If an auditee’s operating standards are vague and thus subject to interpretation, the auditor shouldAnswersA: Seek agreement with the auditee as to the standards to be used to measure operating performance.B: Determine best practices in this area and use them as the standard.C: Interpret the standards in their strictest sense because standards are otherwise only minimum measures of acceptance.

D: Omit any comments on standards and the auditee’s performance in relationship to those standards, because such an analysis would be meaningless.

Question: V1C1-0006In which of the following situations does the auditor potentially lack objectivity?AnswersA: An auditor reviews the procedures for a new electronic data interchange (EDI) connection to a majorcustomer before it is implemented.B: A former purchasing assistant performs a review of internal controls over purchasing four months afterbeing transferred to the internal auditing department.C: An auditor recommends standards of control and performance measures for a contract with a serviceorganization for the processing of payroll and employee benefits.

D: A payroll accounting employee assists an auditor in verifying the physical inventory of small motors.

Question: V1C1-0007Which of the following actions would be a violation of auditor independence?AnswersA: Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result of a promotion.B: Reducing the scope of an audit due to budget restrictions.C: Participating on a task force which recommends standards for control of a new distribution system.

D: Reviewing a purchasing agent’s contract drafts prior to their execution.

Question: V1C1-0008Which of the following activities would not be presumed to impair the independence of an internal auditor? I. Recommending standards of control for a new information system application. II. Drafting procedures for running a new computer application to ensure that proper controls are installed.III. Performing reviews of procedures for a new computer application before it is installed.AnswersA: I only.B: II only.C: III only.

D: I and III.

Question: V1C1-0009Which of the following is not a true statement about the relationship between internal auditors and external auditors?AnswersA: Appraising the economyB: There may be periodic meetings between internal and external auditors to discuss matters of mutual interest.C: There may be an exchange of audit reports and management letters between internal and external auditors.

D: Internal auditors may provide audit programs and work papers to external auditors.

Question: V1C1-0010 A quality assurance program of an internal audit department provides reasonable assurance that audit work conforms to applicable standards. Which of the following activities are designed to provide feedback on the effectiveness of an audit department? I. Proper supervision. II. Proper training. III. Internal reviews. IV. External reviews. Answers A: I, II, and III only. B: II, III, and IV only. C: I, III, and IV only. D: I, II, III, and IV.

Answer ExplanationsAnswer (a) is incorrect. Proper training is an important component of maintaining a current staff, but does not provide feedback.Answer (b) is incorrect. Proper training is an important component of maintaining a current staff, but does not provide feedback.Answer (c) is the correct answer. The purpose of a quality assurance program is to evaluate the operations of the internal audit department. The IIA Standards note that a program should include supervision, internal reviews, and external reviews.

Answer(d) is incorrect. Proper training is an important component of maintaining a current staff, but does not provide feedback.

Question: V1C1-0011An internal audit team recently completed an audit of the company’s compliance with its lease-versus-purchase policyconcerning company automobiles. The audit report noted that the basis for several decisions to lease rather thanpurchase automobiles had not been documented and was not auditable. The report contained a recommendation thatoperating management ensure that such lease agreements not be executed without proper documentation of the basisfor the decision to lease rather than buy. The internal auditors are about to perform follow-up work on this auditreport.The primary purpose for performing a follow-up review is toAnswersA: Ensure timely consideration of the internal auditors’ recommendations.B: Ascertain that appropriate action was taken on reported findings.C: Allow the internal auditors to evaluate the effectiveness of their recommendations.D: Document what management is doing in response to the audit report and close the audit file in a timely

manner.

Question: V1C1-0012An internal audit team recently completed an audit of the company’s compliance with its lease-versus-purchase policy concerning company automobiles. The audit report noted that the basis for several decisions to lease rather than purchase automobiles had not been documented and was not auditable. The report contained a recommendation that operating management ensure that such lease agreements not be executed without proper documentation of the basis for the decision to lease rather than buy. The internal auditors are about to perform follow-up work on this audit report.Assume that senior management has decided to accept the risk involved in failure to document the basis for leaseversus-purchase decisions involving company automobiles. In such a case, what would be the auditors’ reporting obligation?AnswersA: The auditors have no further reporting responsibility.B: Management’s decision and the auditors’ concern should be reported to the company’s board of directors.C: The auditors should issue a follow-up report to management clearly stating the rationale for the recommendation that the basis for lease-versus-purchase decisions be properly documented.

D: The auditors should inform the external auditor and any responsible regulatory agency that no action has been taken on the finding in question.

Question: V1C1-0013Auditors realize that at times corrective action is not taken even when agreed to by the appropriate parties. Thisshould lead an internal auditor toAnswersA: Decide the extent of necessary followup work.B: Allow management to decide when to follow-up, since it is management’s ultimate responsibility.C: Decide to conduct follow-up work only if management requests the auditor’s assistance.

D: Write a follow-up audit report with all findings and their significance to the operations.

Question: V1C1-0014In publicly held companies, management often requires the internal auditing department’s involvement with quarterly financial statements that are made public and/or used internally. Which one of the following is generally not a reason for such involvement?AnswersA: Management may be concerned about its reputation in the financial markets.B: Management may be concerned about potential penalties that could occur if quarterly financial statements that are made public are misstated.C: The Standards state that internal auditors should be involved with reviewing quarterly financial statements.

D: Management may perceive that having quarterly financial information examined by the internal auditors enhances its value for internal decision making.

Question: V1C1-0015During testing of the effectiveness of inventory controls, the auditor makes a note in the working papers that most of the cycle count adjustments for the facility involved transactions of the machining department. The machining department also had generated an extraordinary number of cycle count adjustments in comparison to other departments last year. The auditor shouldAnswersA: Interview management and apply other audit techniques to determine whether transaction controls andprocedures within the machining department are adequate.B: Do no further work because the concern was not identified by the analytical procedures designed in theaudit program.C: Notify internal audit management that fraud is suspected.

D: Place a note in the working papers to review this matter in detail during the next review.

Question: V1C1-0016Developing an audit finding involves comparing the condition to the relevant standard or criterion. Which of the following choices best represents an appropriate standard or criterion to support a finding?AnswersA: A quality standard operating procedure (number and date) for the department.B: An internal accounting control principle, cited and copied from a public accounting reference.C: A sound business practice, based on the internal auditor’s knowledge and experience obtained during many audit assignments within the company.

D: All of the above.

Question: V1C1-0017An internal audit director for a large manufacturing company is considering revising the department’s audit charter with respect to the minimum educational and experience qualifications required. The audit director wants to require all staff auditors to possess specialized training in accounting and a professional auditing certification such as the Certified Internal Auditor (CIA) or the Chartered Accountant (CA). One of the disadvantages of imposing this requirement would beAnswersA: The policy might negatively affect the department’s ability to perform quality examinations of the company’s financial and accounting systems.B: The policy would not promote the professionalism of the department.C: The policy would prevent the department from using outside consultants when the department did not have the skills and knowledge required in certain audit situations.

D: The policy could limit the range of activities that could be audited by the department due to the department’s narrow expertise and backgrounds.

Question: V1C1-0018An organization was in the process of establishing its new internal audit department. The controller had no previous experience with internal auditors. Due to this lack of experience, the controller advised the applicants that they would be reporting to the external auditors. However, the new director of internal audit would have free access to the controller to report anything important. The controller would convey the director’s concerns to the board of directors.Which of the following is true?AnswersA: The internal audit department will be independent because the director has direct access to the board of directors.B: The internal audit department will not be independent because the director reports to the external auditors.C: The internal audit department will not be independent because the controller has no experience with internal auditors.D: The internal audit department will not be independent because the company did not specify that the

applicants must be Certified Internal Auditors.

Question: V1C1-0019During a year-end planning meeting with senior management, the director of internal auditing learns that a recent draft audit report on one of the company’s inventory costing systems had provoked a discussion in the accounting area. The audit report proposed a relatively large adjustment due to an error in the local inventory system. The auditor’s conclusion stated that six other production facilities using the same costing system would require similar inventory adjustments. The total required adjustment for all seven locations represented a material adjustment to the financial statements, according to the chief financial officer (CFO). The CFO questioned the method used by the auditor to calculate the amount of the inventory adjustment and asked the director of internal auditing to delay processing the audit report until all aspects of the finding had been fully considered. The director of internal auditing reports directly to the CFO. The audit committee has not been apprised of this audit because the audit report is still in draft stageawaiting management comment.Assuming that there is a meeting later the same day with the audit committee of the board, which of the following is not a responsibility of the director of internal auditing?AnswersA: Inform the audit committee of senior management’s decisions on all significant audit findings.B: Highlight significant audit findings and recommendations and report on the approved audit work schedule.C: Inform the audit committee of the outcome of earlier meetings with the CFO and the options being considered for recording the inventory adjustment.

D: Attempt to resolve the inventory issue before reporting the finding to the audit committee.

Question: V1C1-0020During a year-end planning meeting with senior management, the director of internal auditing learns that a recent draftaudit report on one of the company’s inventory costing systems had provoked a discussion in the accounting area. Theaudit report proposed a relatively large adjustment due to an error in the local inventory system. The auditor’sconclusion stated that six other production facilities using the same costing system would require similar inventoryadjustments. The total required adjustment for all seven locations represented a material adjustment to the financialstatements, according to the chief financial officer (CFO). The CFO questioned the method used by the auditor tocalculate the amount of the inventory adjustment and asked the director of internal auditing to delay processing theaudit report until all aspects of the finding had been fully considered. The director of internal auditing reports directlyto the CFO. The audit committee has not been apprised of this audit because the audit report is still in draft stageawaiting management comment.A: Schedule audits to review the inventory costing systems at all locations after year-end.B: Recall all copies of the draft audit report sent out for management review and response.C: Tell the representatives of senior management that distorting financial reports is not acceptable.

D: Offer to review the basis for the conclusion about the inventory valuation at all locations.

Question: V1C1-0021An inexperienced internal auditor notified the senior auditor of a significant variance from the auditee’s budget. The senior told the new auditor not to worry as the senior had heard that there had been an unauthorized work stoppage that probably accounted for the difference. Which of the following statements is most appropriate?AnswersA: The new auditor should have investigated the matter fully and not bothered the senior.B: The senior used proper judgment in curtailing what could have been a wasteful investigation.C: The senior should have halted the audit until the variance was fully explained.

D: The senior should have aided the new auditor in formulating a plan for accumulating appropriate evidence.

Question: V1C1-0022The IIA Standards state that internal auditors are “responsible for continuing their education in order to maintain their proficiency.” Which of the following is correct regarding the continuing education requirements of the practicinginternal auditor?AnswersA: Internal auditors are required to obtain 40 hours of continuing professional development each year and aminimum of 120 hours over a three-year period.B: CIAs have formal requirements that must be met in order to continue as a CIA.C: Attendance, as an officer or committee member, at formal Institute of Internal Auditors meetings does notmeet the criteria of continuing professional development.D: In-house programs meet continuing professional development requirements only if they have been

preapproved by the Institute of Internal Auditors.

Question: V1C1-0023A significant part of the auditor’s working papers will be the conclusions reached by the auditor regarding the audit area. In some situations, the supervisor might not agree with the conclusions and will ask the staff auditor to perform more work. Assume that after subsequent work is performed, the staff auditor and the supervisor continue to disagree on the conclusions documented in the working paper developed by the staff auditor. Which of the following audit department responses would not be appropriate?AnswersA: Both the staff auditor and the supervisor document their reasons for reaching different conclusions. Retain the rationale of both parties in the working papers.B: Note the disagreement and retain the notice of disagreement and follow-up work in the audit working papers.C: Present both conclusions to the director of internal auditing for resolution. The director may resolve the matter.

D: Present both conclusions in the audit report and let management and the auditee react to both.

Question: V1C1-0024The IIA Standards specify that supervision of the work of internal auditors be “carried out continuously.” Which of the following statements regarding supervision is correct?I. “Continuously” indicates that supervision should be performed throughout the planning, examination, evaluation, report, and follow-up stages of the audit.II. Supervision should also be extended to training, time reporting, and expense control, as well as similar administrative matters.III. The extent and nature of supervision needs to be documented, preferably in the appropriate working papers.AnswersA: I only.B: I and III only.C: II only.

D: I, II, and III.

Question: V1C1-0025It would be appropriate for internal auditing departments to use consultants with expertise in health care benefits whenthe internal auditing department isAnswersA: Conducting an audit of the organization’s estimate of its liability for postretirement benefits, whichinclude health care benefits.B: Comparing the cost of the organization’s health care program with other programs offered in the industry.C: Training its staff to conduct an audit of health care costs in a major division of the organization.

D: All of the above.

Question: V1C1-0026An auditor has uncovered facts that could be interpreted as indicating unlawful activity on the part of an auditee. The auditor decides not to inform senior management of these facts since he cannot prove that an irregularity occurred. The auditor, however, decides that if questions are raised regarding the omitted facts, they will be answered fully and truthfully. In taking this action, the auditorAnswersA: Has not violated the Code of Ethics or the Standards because confidentiality takes precedence over all other standards.B: Has not violated the Code of Ethics or the Standards because the auditor is committed to answering all questions fully and truthfully.C: Has violated the Code of Ethics because unlawful acts should have been reported to the appropriate regulatory agency to avoid potential “aiding and abetting” by the auditor.

D: Has violated the Standards because the auditor should inform the appropriate authorities in the organization if fraud may be indicated.

Question: V1C1-0027A new staff auditor was told to perform an audit in an area with which the auditor was not familiar. Because of time constraints, there was no supervision of the audit. The auditor was given the assignment because it represented a good learning experience, but the area was clearly beyond the auditor’s competence. Nonetheless, the auditor prepared comprehensive working papers and reported the results to management. In this situationAnswersA: The audit department violated the IIA Standards by hiring an auditor without proficiency in the area.B: The audit department violated the IIA Standards by not providing adequate supervision.C: The director of internal auditing has not violated the Code of Ethics since the code does not address supervision.

D: The IIA’s Standards and the Code of Ethics were followed by the audit department.

Question: V1C1-0028Management has requested the internal auditing department to perform an operational audit of the telephone marketing operations of a major division and to recommend procedures and policies for improving management control over the operation. The auditor shouldAnswersA: Not accept the engagement because recommending controls would impair future objectivity of the department regarding this auditee.B: Not accept the engagement because audit departments are presumed to have expertise on accounting controls, not marketing controls.C: Accept the engagement, but indicate to management that recommending controls would impair audit independence so management knows that future audits of the area would be impaired.

D: Accept the audit engagement because independence would not be impaired.

Question: V1C1-0029A new staff auditor has been assigned to an audit of the cash management operations of the organization. The staff auditor has no background in cash management, and this is the auditor’s first audit. Under which of the following conditions would the internal auditing department be in compliance with the Standards regarding knowledge and skills?AnswersA: The senior auditor is skilled in the area and closely supervises the staff auditor.B: The staff auditor performs the work and prepares a report that is reviewed in detail by the director of audit.C: Both a. and b.

D: Neither a. nor b.

Question: V1C1-0030Communication skills are important to internal auditors. According to the Standards, the auditor should be able to effectively convey all of the following to the auditee except:AnswersA: The audit objectives designed for a specific auditable entity.B: The audit evaluations based on a preliminary survey of an auditable entity.C: The risk assessment used in selecting the area for audit investigation.

D: Recommendations that are generated in relationship to a specific auditable entity.

Question: V1C1-0031Internal auditing is unique in that its scope often encompasses all areas of an organization. Thus, it is not possible for each internal auditor to possess detailed competence in all areas that might be audited. Which of the following competencies is required by the IIA Standards for every internal auditor?AnswersA: Taxation and law as it applies to operation of the organization.B: Proficiency in accounting principles.C: Understanding of management principles.

D: Proficiency in computer systems and databases.

Question: V1C1-0032The IIA Standards would not require the director of internal auditing toAnswersA: Contribute resources for the annual audit of financial statements.B: Coordinate audit work with that of the external auditors.C: Communicate to senior management and the board the results of evaluations of the coordination between internal and external auditors.

D: Communicate to senior management and the board the results of evaluations of the performance of external auditors.

Question: V1C1-0033Follow-up activity may be required to ensure that corrective action has taken place for certain findings. The internalaudit department’s responsibility to perform follow-up activities as required should be defined in theAnswersA: Internal auditing department’s written charter.B: Mission statement of the audit committee.C: Engagement memo issued prior to each audit assignment.

D: Purpose statement within applicable audit reports.

Question: V1C1-0034As a particular audit is being planned in a high-risk area, the director of internal auditing determines that the available staff does not have the requisite skills to perform the assignment. The best course of action consistent with audit planning standards would be toAnswersA: Not perform the audit, since the requisite skills are not available.B: Use the audit as a training opportunity and let the auditors learn as the audit is performed.C: Consider using external resources to supplement the needed knowledge, skills, and disciplines and complete the assignment.

D: Perform the audit but limit the scope in light of the skill deficiency.

Question: V1C1-0035According to the IIA Standards, internal auditors must be objective in performing audits. Assume that the internal audit director received an annual bonus as part of that individual’s compensation package. The bonus may impair the audit director’s objectivity ifAnswersA: The bonus is administered by the board of directors or its salary administration committee.B: The bonus is based on dollar recoveries or recommended future savings as a result of audits.C: The scope of internal auditing work is reviewing control rather than account balances.

D: All of the above.

Question: V1C1-0036A company is planning to develop and implement a new computerized purchase order system in one of its manufacturing subsidiaries. The vice president of manufacturing has requested that internal auditors participate on a team consisting of representatives from finance, manufacturing, purchasing, and marketing. This team will be responsible for the implementation effort. Eager to take on this high-profile project, the Director of Auditing assigns a senior auditor to the project to assist “as needed.” Assuming the senior auditor performed all of the following activities, which one of the following would impair objectivity if asked to review the purchase order system on a postaudit basis?AnswersA: Helping to identify and define control objectives.B: Testing for compliance with system development standards.C: Reviewing the adequacy of systems and programming standards.

D: Drafting operating procedures for the new system.

Question: V1C1-0037An internal audit department is currently undergoing its first external quality assurance review since its formation three years ago. From interviews with a few of the staff auditors, the review team is informed of certain auditor activities that occurred over the past year. Which of the following activities could affect the quality assurance review team’s evaluation of the objectivity of the internal audit department?AnswersA: One internal auditor told the review team that, during the payroll audit, the payroll manager approached him. The manager indicated he was looking for an accountant to prepare his financial statements for his parttime business. The internal auditor agreed to perform this work for a reduced fee during nonwork hours.B: During the audit of the company’s construction of a building addition to the corporate office, the vicepresident of facilities management gave the auditor a commemorative mug with the company’s logo. These mugs were distributed to all employees present at the groundbreaking ceremony.C: After reviewing the installation of a data processing system, the auditor made recommendations on standards of control. Three months after completing the audit, the auditee requested the auditor’s review of certain procedures for adequacy. The auditor agreed and performed this review.

D: An auditor’s participation was requested on a task force to reduce the company’s inventory losses from theft and shrinkage. This is the first consulting assignment undertaken by the audit department. The auditor’s role is to advise the task force on appropriate control techniques.

Question: V1C1-0038A medium-size publicly owned corporation operating in Country X has grown to a size that the directors of the corporation believe warrants the establishment of an internal auditing department. Country X has legislated internal auditing requirements for government-owned companies. The company changed the corporate bylaws to reflect the establishment of the internal auditing department. The directors decided that the director of internal auditing must be a Certified Internal Auditor and will report directly to the newly established audit committee of the board of directors.Which of the items discussed above will contribute the most to the new audit director’s independence?AnswersA: The establishment of the internal auditing department is documented in corporate bylaws.B: Legislated internal auditing requirements in Country X.C: The fact that the director will report to the audit committee of the board of directors.

D: The fact that the director is to be a Certified Internal Auditor.

Question: V1C1-0039An internal auditor reports directly to the board of directors. The auditor discovered a material cash shortage. When questioned, the person responsible explained that the cash was used to cover sizable medical expenses for a child and agreed to replace the funds. Because of the corrective action, the internal auditor did not inform management. In this instance, the auditorAnswersA: Has organizational independence but not objectivity.B: Has both organizational independence and objectivity.C: Does not have organizational independence but has objectivity.

D: Does not have either organizational independence or objectivity.

Question: V1C1-0040During a purchasing audit, the internal auditor finds that the largest blanket purchase order is for tires, which are expensed as vehicle maintenance items. The fleet manager requisitions tires against the blanket order for the company’s 400-vehicle service fleet based on a visual inspection of the cars and trucks in the parking lot each week. Sometimes the fleet manager picks up the tires, but she always signs the receiving report for payment. Vehicle service data are entered into a maintenance database by the mechanic after the tires are installed. Which would be the best course of action for the auditor in these circumstances?AnswersA: Determine whether the number of tires purchased can be reconciled to maintenance records.B: Count the number of tires on hand and trace them to the related receiving reports.C: Select a judgmental sample of requisitions and verify that the fleet manager signs each one.

D: Compare the number of tires purchased under the blanket purchase order with the number of tires purchased in the prior year for reasonableness.

Question: V1C1-0042Several members of senior management have questioned whether the internal audit department should report to the newly established quality audit function as part of the total quality management process within the company. The director of internal auditing has reviewed the quality standards and the programs that the quality audit manager have proposed. The director’s response to senior management should includeAnswersA: Changing the applicable standards for internal auditing within the company to provide compliance with quality audit standards.B: Changing the qualification requirements for new staff members to include quality audit experience.C: Estimating departmental cost savings from eliminating the internal auditing function.

D: Identifying appropriate liaison activities with the quality audit function to ensure coordination of audit schedules and overall audit responsibilities.

Question: V1C1-0041Auditors need to determine if management has established criteria to determine if goals and objectives have been accomplished. If the auditor determines such criteria are inadequate or nonexistent, which of the following actions would be appropriate?I. Report the inadequacies to the appropriate level of management and recommend appropriate courses of action.II. Recommend alternative sources of criteria to management such as acceptable industry standards.III. Formulate criteria the auditor believes to be adequate and perform the audit and report in relationship to the alternative criteria.AnswersA: I only.B: I and II only.C: I, II, and III.

D: II only.

Question: V1C1-0043Internal auditors are often called on either to perform or to assist the external auditor in performing a due diligence review. A due diligence review isAnswersA: A review of interim financial statements as directed by an underwriting firm.B: An operational audit of a division of a company to determine if divisional management is complying with laws and regulations.C: A review of operations as requested by the audit committee to determine whether the operations comply with audit committee and organizational policies.

D: A review of financial statements and related disclosures in conjunction with a potential acquisition.

Question: V1C1-0044The director of internal auditing of a midsize internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the manager adopted a very aggressive program to promote the internal auditing department within the organization. The manager planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the audit manager took to promote a positive image within the organization:1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings, and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy.2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report.3. The information technology auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development.4. Given limited resources, the audit manager performed a risk analysis to determine which locations to audit.This was a marked departure from the previous approach of ensuring that all operations are reviewed at least every three years.5. In order to save time, the manager no longer required that a standard internal control questionnaire be completed for each audit.6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and, if acceptable, use that criteria to evaluate the auditee’s operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed on. The audit report commented on the auditee’s operations in conjunction with the agreed-on criteria. Which of the following elements of Action 1 taken by the audit manager would be considered a violation of the IIA Standards?I. The type of audits was changed before modifying the charter and going to the audit committee.II. Negative findings were omitted from the audit reports.III. Cost savings and recommendations were highlighted in the report.AnswersA: I and II.B: I and III.C: I only.

D: II and III.

Question: V1C1-0045The director of internal auditing of a midsize internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the manager adopted a very aggressive program to promote the internal auditing department within the organization. The manager planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the audit manager took to promote a positive image within the organization:1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings, and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy.2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report.3. The information technology auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development.4. Given limited resources, the audit manager performed a risk analysis to determine which locations to audit.This was a marked departure from the previous approach of ensuring that all operations are reviewed at least every three years.5. In order to save time, the manager no longer required that a standard internal control questionnaire be completed for each audit.6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and, if acceptable, use that criteria to evaluate the auditee’s operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed on. The audit report commented on the auditee’s operations in conjunction with the agreed-on criteria. Considering Actions 2, 3, and 4 that were taken, which would be considered a violation of the IIA Standards?AnswersA: Actions 2, 3, and 4.B: Action 4 only.C: Action 2 and 3 only.

D: None of the actions.

Question: V1C1-0046The director of internal auditing of a midsize internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the manager adopted a very aggressive program to promote the internal auditing department within the organization. The manager planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the audit manager took to promote a positive image within the organization:1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings, and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy.2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report.3. The information technology auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development.4. Given limited resources, the audit manager performed a risk analysis to determine which locations to audit.This was a marked departure from the previous approach of ensuring that all operations are reviewed at least every three years.5. In order to save time, the manager no longer required that a standard internal control questionnaire be completed for each audit.6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and, if acceptable, use that criteria to evaluate the auditee’s operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed on. The audit report commented on the auditee’s operations in conjunction with the agreed-on criteria.Is Action 5 a violation of the IIA Standards?AnswersA: Yes. Internal control should be evaluated on every audit, but the internal control questionnaire is not the mandated approach to evaluate the controls. B: No. Auditors may omit necessary procedures if there is a time constraint. It is a matter of audit judgment.C: Yes. Internal control should be evaluated on every audit engagement, and the internal control questionnaire is the most efficient method to do so.

D: No. Auditors are not required to fill out internal control questionnaires on every audit.

Question: V1C1-0047The director of internal auditing of a midsize internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the manager adopted a very aggressive program to promote the internal auditing department within the organization. The manager planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the audit manager took to promote a positive image within the organization:1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings, and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy.2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report.3. The information technology auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development.4. Given limited resources, the audit manager performed a risk analysis to determine which locations to audit.This was a marked departure from the previous approach of ensuring that all operations are reviewed at least every three years.5. In order to save time, the manager no longer required that a standard internal control questionnaire be completed for each audit.6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and, if acceptable, use that criteria to evaluate the auditee’s operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed on. The audit report commented on the auditee’s operations in conjunction with the agreed-on criteria.Regarding Action 6, which of the following elements of the action would be considered a violation of the IIA Standards?AnswersA: Failing to report the lack of criteria to appropriate level of management.B: Developing a set of criteria to present to the auditee as a basis for evaluating the auditee’s operations.C: Commenting on the agreed-on criteria.

D: All of the above.

Question: V1C1-0048Given the acceptance of the cost savings audits and the scarcity of internal audit resources, the audit manager also decided that follow-up action was not needed. The manager reasoned that cost savings should be sufficient to motivate the auditee to implement the auditor’s recommendations. Therefore, follow-up was not scheduled as a regular part of the audit plan. Does the audit manager’s decision violate the Standards?AnswersA: No. The Standards do not specify whether follow-up is needed.B: Yes. The Standards require the auditors to determine whether the auditee has appropriately implemented all of the auditor’s recommendations.C: Yes. Scarcity of resources is not a sufficient reason to omit follow-up action.

D: No. When there is evidence of sufficient motivation by the auditee, there is no need for follow-up action.

Question: V1C1-0049Reporting to senior management and the board is an important part of the auditor’s obligation. Which of the following items is not required to be reported to senior management and/or the board?AnswersA: Subsequent to the completion of an audit, but prior to the issuance of an audit report, the audit senior in charge of the audit was offered a permanent position in the auditee’s department.B: An annual report summary of the department’s audit work schedule and financial budget.C: Significant interim changes to the approved audit work schedule and financial budget.

D: An audit plan was approved by senior management and the board. Subsequent to the approval, senior management informed the audit director not to perform an audit of a division because the division’s activities were very sensitive.

Question: V1C1-0050It has been established that an internal auditing charter is one of the more important factors positively affecting the internal auditing department’s independence. The IIA Standards help clarify the nature of the charter by providing guidelines as to the contents of the charter. Which of the following is not suggested in the Standards as part of the charter?AnswersA: The department’s access to records within the organization.B: The scope of internal auditing activities.C: The length of tenure for the internal auditing director.

D: The department’s access to personnel within the organization.

Question: V1C1-0051The preliminary survey indicates that severe staff reductions at the audit location have resulted in extensive amounts of overtime among accounting staff. Department members are visibly stressed and very vocal about the effects of the cutbacks. Accounting payrolls are nearly equal to prior years, and many key controls, such as segregation of duties, are no longer in place. The accounting supervisor now performs all operations within the cash receipts and posting process, and has no time to review and approve transactions generated by the remaining members of the department. Journal entries for the last six months since the staff reductions show increasing numbers of prior month adjustments and corrections, including revenues, cost of sales, and accruals that had been misstated or forgotten during month-end closing activity. The auditor shouldAnswersA: Discuss these findings with audit management to determine whether further audit work would be an efficient use of audit resources at this time.B: Proceed with the scheduled audit but add audit personnel based on the expected number of findings and anticipated lack of assistance from local accounting management.C: Research temporary helps agencies and evaluates the cost and benefit of outsourcing needed services.

D: Suspend further audit work because the findings are obvious and issue the audit report.

Question: V1C1-0052Auditors realize that at times corrective action is not taken even when agreed to by the appropriate parties. This should lead an internal auditor toAnswersA: Decide the extent of necessary follow-up work.B: Allow management to decide when to followup, since it is management’s ultimate responsibility.C: Decide to conduct follow-up work only if management requests the auditor’s assistance.

D: Write a follow-up audit report with all findings and their significance to the operations.

Question: V1C1-0053Which of the following actions would be a violation of independence?AnswersA: Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result of a promotion.B: Reducing the scope of an audit due to budget restrictions.C: Participating on a task force that recommends standards for control of a new distribution system.

D: Reviewing a purchasing agent’s contract drafts prior to execution.

Question: V1C1-0054Management has requested the audit department to conduct an audit of the implementation of its recently developed company code of conduct. In preparing for the audit, the auditor reviews the newly developed code, compares it with several others for comparable companies, and concludes that the newly developed code has severe deficiencies. Based= on this conclusion, the auditor shouldAnswersA: Plan an audit for the implementation of management’s code of conduct and also for compliance with the “best practices” from the other codes since this represents the best available criteria.B: Report the nature of the deficiencies in a formal report to management.C: Inform management of the problems with the existing code and report that it would be inappropriate to conduct an audit until the code is revised to incorporate the “best practices” from industry.

D: Conduct the audit as requested by management, reporting only noncompliance with the code.

Question: V1C1-0055 Internal auditing standards assign the responsibility for providing appropriate audit supervision to the Answers A: Audit committee. B: Director of internal auditing. C: Audit supervisor. D: Senior auditor.

Answer ExplanationsAnswer (a) is incorrect. Although the audit committee may determine whether due care is being exercised by the audit director, audit supervision is not the committee’s responsibility.Answer (b) is the correct answer. Per the IIA Standards, the director of internal auditing is responsible for providing appropriate audit supervision.Answer (c) is incorrect. Although the audit supervisor may act on behalf of the director, the director is ultimately responsible for audit supervision.

Answer (d) is incorrect. It is the senior or in-charge auditor who is in need of supervision, for which the director is responsible.

Question: V1C1-0056The IIA Standards require that the director of internal auditing seek the approval of management and acceptance by the board of a formal written charter for the internal auditing department. The purpose of this charter is toAnswersA: Protect the internal auditing department from undue outside influence.B: Establish the purpose, authority, and responsibility of the internal auditing department.C: Clearly define the relationship between internal and external auditing.

D: Establish the director’s status as a staff executive.

Question: V1C1-0057The primary criteria for determining the adequacy of working papers can be found in theAnswersA: IIA Standards.B: Institute’s Code of Ethics.C: Statement of Responsibilities of Internal Auditing.

D: Foreign Corrupt Practices Act.

Question: V1C1-0058Based on the IIA Standards, an internal auditing department’s staff development program will be deficient if individual employees areAnswersA: Given a large variety of tasks to perform.B: Expected to study current events on an independent basis.C: Assigned to a different supervisor on each job.

D: Formally evaluated once every two years.

Question: V1C1-0059The IIA Standards require written policies and procedures to guide the audit staff. Which of the following statements is false with respect to this requirement?AnswersA: The form and content of written policies and procedures should be appropriate to the size of the department.B: All internal audit departments should have a detailed policies and procedures manual.C: Formal administrative and technical audit manuals may not be needed by all internal auditing departments.

D: A small internal auditing department may be managed informally through close supervision and written memos.

Question: V1C1-0060Paragraph 1: The production department has the newest production equipment available because of a fire that required the replacement of all equipment.Paragraph 2: The members of the production department have become completely comfortable with the state of the- art technology over the past year and a half. As a result, the production department has become an industry leader in production efficiency and effectiveness.Paragraph 3: The production department produces an average of 25 units per worker per shift. The defect rate is 1%.Paragraph 4: The industry average productivity is 20 units per worker per shift. The industry defect rate is 3%.Which paragraph would be characterized as the attribute described in the IIA Standards as “Criteria”?AnswersA: 1B: 2C: 3

D: 4

Question: V1C1-0061Paragraph 1: The production department has the newest production equipment available because of a fire that required the replacement of all equipment.Paragraph 2: The members of the production department have become completely comfortable with the state-of the- art technology over the past year and a half. As a result, the production department has become an industry leader in production efficiency and effectiveness.Paragraph 3: The production department produces an average of 25 units per worker per shift. The defect rate is 1%.Paragraph 4: The industry average productivity is 20 units per worker per shift. The industry defect rate is 3%.Which paragraph would be characterized as the attribute described in the IIA Standards as “Condition”?AnswersA: 1B: 2C: 3

D: 4

Question: V1C1-0062A relatively new internal auditor is completing an audit report. The final report should most appropriately be signed byAnswersA: The auditor because of a greater level of detail knowledge of the report.B: The auditor and the person in charge of the area being audited to indicate review of the report.C: The director of internal auditing.

D: The chairman of the audit committee of the board of directors.

Question: V1C1-0063An auditor often faces special problems when auditing a foreign subsidiary. Which of the following statements is false with respect to the conduct of international audits?AnswersA: The IIA Standards do not apply outside of the United States.B: The auditor should determine whether managers are in compliance with local laws.C: There may be justification for having different company policies in force in foreign branches.

D: It is preferable to have multilingual auditors conduct audits at branches in non-English-speaking nations.

Question: V1C1-0064The interpretation related to quality assurance given by the IIA Standards is thatAnswersA: Quality assurance reviews can provide senior management and the audit committee with an assessment of the internal auditing function.B: Appropriate follow-up to an external review is the responsibility of the internal auditing director’s immediate supervisor.C: The internal auditing department is primarily measured against the Institute’s Code of Ethics.

D: Continual supervision is limited to the planning, examination, evaluation report, and follow-up process.

Question: V1C1-0065An internal auditor fails to discover an employee fraud during an audit. The nondiscovery is most likely to suggest a violation of the IIA Standards if it was the result of aAnswersA: Failure to perform a detailed audit of all transactions in the area.B: Determination that any possible fraud in the area would not involve a material amount.C: Determination that the cost of extending audit procedures in the area would exceed the potential benefits.

D: Presumption that the internal controls in the area were adequate and effective.

Question: V1C1-0066Which of the following will best promote the independence of the internal auditing function?AnswersA: A quality control system within the internal auditing function designed to ensure that departmental objectives are met.B: Direct lines of communication between the audit committee and the director of internal auditing.C: A written charter that reflects the concepts contained in the Statement of Responsibilities of Internal Auditing.

D: Direct reporting responsibilities to the company’s chief financial officer.

Question: V1C1-0067The charter of a newly formed internal auditing department contains the following statement: “The organizational status of the internal auditing department will be sufficient to permit the accomplishment of its audit responsibilities.”From the following relationships, select the best reporting lines that would promote the accomplishment of the intended organizational status. Solid line toAnswersA: Board of directors, dotted line to vice president of finance.B: President, dotted line to board of directors.C: Controller, dotted line to board of directors.

D: Vice president, finance, dotted line to board of directors.

Question: V1C1-0068According to the IIA Standards, the purpose of an internal auditor’s review for effectiveness of the system of internal control is to ascertain ifAnswersA: The system is functioning as intended.B: The system is functioning efficiently and economically.C: The organization’s goals and objectives have been achieved.

D: Financial and operating data are reliable.

Question: V1C1-0069The best description of the purpose of internal auditing is that itAnswersA: Furnishes members of the organization with information needed to effectively discharge their responsibilities.B: Reviews the reliability and integrity of financial and operating information.C: Reviews the means of safeguarding assets and, as appropriate, verifies the existence of such assets.

D: Appraises the economy and efficiency with which resources are employed.

Question: V1C1-0070The director of a newly formed internal auditing department is seeking management approval of a charter. What is the authoritative source for seeking such approval?AnswersA: The IIA Standards, which clearly place that responsibility on the director.B: The appropriate Practice Advisories, which require the director to take that course of action.C: The Code of Ethics, which requires internal auditors to document company policy.

D: According to the IIA Standards, no approval is necessary.

Question: V1C1-0071According to the IIA Standards, the staff of a newly developed internal auditing department should includeAnswersA: Members with bachelor’s degrees in accounting and related fields.B: Members possessing appropriate professional designations.C: Members proficient in applying internal auditing standards, procedures, and techniques.

D: Members with prior internal audit experience.

Question: V1C1-0072According to the IIA Standards, which of the following best describes the nature of opinions that are appropriate for internal audit reports?AnswersA: Opinions are generally the auditor’s subjective judgments concerning why deficiencies exist.B: Opinions are the auditor’s evaluations of the effects of the findings on the activities reviewed.C: Opinions are conclusions that the auditor has reached concerning the appropriateness of the auditee’s objectives.

D: Opinions should only involve the fairness of the auditee’s financial statements.

Question: V1C1-0073The director of internal auditing is concerned that a recently disclosed fraud was not uncovered during the last audit of cash operations. A review of the work papers indicated that the fraudulent transaction was not included in a properly designed statistical sample of transactions tested. Which of the following applies to this situation?AnswersA: Because cash operation is a high-risk area, 100% testing of transactions should have been performed.B: The internal auditor acted with due professional care since an appropriate statistical sample of material transactions was tested.C: Fraud should not have gone undetected in a recently audited area.

D: Extraordinary care is necessary in the performance of a cash operations audit and the auditor should be held responsible for the oversight.

Question: V1C1-0074In the course of their work, internal auditors must be alert for fraud and other forms of white-collar crime. The important characteristic that distinguishes fraud from other varieties of white-collar crime is thatAnswersA: Fraud encompasses an array of irregularities and illegal acts that involve intentional deception.B: Unlike other white-collar crimes, fraud is always perpetrated against an outside party.C: White-collar crime is usually perpetrated for the benefit of an organization, whereas fraud benefits an individual.

D: White-collar crime is usually perpetrated by outsiders to the detriment of an organization, whereas fraud is perpetrated by insiders to benefit the organization.

Question: V1C1-0075During an audit of purchasing, internal auditors found several violations of company policy concerning competitive bidding. The same condition had been reported in an audit report last year, and corrective action had not been taken.Which of the following best describes the appropriate action concerning this repeat finding?AnswersA: The audit report should note that this same condition had been reported in the prior audit.B: During the exit interview, management should be made aware that a finding from the prior report had not been corrected.C: The director of internal auditing should determine whether management or the board has assumed the risk of not taking corrective action.

D: The director of internal auditing should determine whether this condition should be reported to the independent auditor and any regulatory agency.

Question: V1C1-0076Internal auditing is responsible for assisting in the prevention of fraud byAnswersA: Informing the appropriate authorities within the organization and recommending whatever investigation is considered necessary in the circumstances when wrongdoing is suspected.B: Establishing the systems designed to ensure compliance with the organization’s policies, plans, and procedures, as well as applicable laws and regulations.C: Examining and evaluating the adequacy and the effectiveness of control, commensurate with the extent of the potential exposure/risk in the various segments of the organization’s operations.

D: Determining whether operating standards have been established for measuring economy and efficiency, and whether these standards are understood and are being met.

Question: V1C1-0077Which of the following combination of participants would be most appropriate to attend an exit conference?AnswersA: The responsible internal auditor and representatives from management who are knowledgeable regarding detailed operations and those who can authorize implementation of corrective action.B: The director of internal audit and the executive in charge of the activity or function audited.C: Staff auditors who conducted the fieldwork and operating personnel in charge of the daily performance of the activity or function audited.

D: Staff auditors who conducted the fieldwork and the executive in charge of the activity or function audited.

Question: V1C1-0078An internal audit of sales contracts revealed that a bribe had been paid to secure a major contract. It was considered possible that a senior executive had authorized the bribe. Which of the following best describes the proper distribution of the completed audit report?AnswersA: The report should be distributed to the chief executive officer and the appropriate regulatory agency.B: The report should be distributed to the board of directors, the chief executive officer, and the independent auditor.C: The director of internal auditing should provide the board of directors a copy of the report and decide whether further distribution is appropriate.

D: The report should be distributed to the board of directors, the appropriate law enforcement agency, and the appropriate regulatory agency.

Question: V1C1-0079The IIA Standards define “relevant evidence” asAnswersA: Factual, adequate, and convincing.B: Reliable and the best attainable through the use of appropriate audit techniques.C: Consistent with the audit objectives and supports audit findings and recommendations.

D: Information that helps the organization meets its goals.

Question: V1C1-0080Which is the lowest organizational level to which the internal auditing department should address the final report of the operational audit of the production department?AnswersA: The audit committee of the board of directors.B: The chief executive officer.C: The vice president of production.

D: The first-line supervisor.

Question: V1C1-0081Which of the following is not ordinarily an objective of a quality assurance review? To determine compliance withAnswersA: Applicable laws and regulations.B: The general standards for the professional practice of internal auditing.C: The specific standards for the professional practice of internal auditing.

D: The goals of the internal audit function.

Question: V1C1-0082According to the IIA Standards, the independence of internal auditors is achieved throughAnswersA: Staffing and supervision.B: Continuing education and due professional care.C: Human relations and communications.

D: Organizational status and objectivity.

Question: V1C1-0083According to the IIA Standards, an internal auditor should possess proficiency inAnswersA: Management principles.B: The fundamentals of such subjects as accounting, economics, and finance.C: Computerized information systems.

D: Applying internal auditing standards, procedures, and techniques.

Question: V1C1-0084Which of the following audit committee activities would be of the greatest benefit to the internal auditing department?AnswersA: Review and approval of audit programs.B: Assurance that the external auditor will rely on the work of the internal auditing department whenever possible.C: Review and endorsement of all internal audit reports prior to their release.

D: Support for appropriate follow-up of recommendations made by the internal auditing department.

Question: V1C1-0085Which of the following relationships best depicts the appropriate dual reporting responsibility of the internal auditor?Administratively to theAnswersA: Board of directors, functionally to the chief executive officer.B: Controller, functionally to the chief financial officer.C: Chief executive officer, functionally to the board of directors.

D: Chief executive officer, functionally to the external auditor.

Question: V1C1-0086According to the IIA Standards, the documentation required to plan an internal auditing project should include evidence that theAnswersA: Expected findings were clearly identified.B: Internal auditing department’s resources are effectively and efficiently employed.C: Planned audit work will be completed on a timely basis.

D: Resources needed to perform the audit have been considered.

Question: V1C1-0087The IIA Standards require an internal auditor to exercise due professional care in performing internal audits. This includesAnswersA: Establishing direct communication between the director of internal auditing and the board of directors.B: Evaluating established operating standards and determining whether those standards are acceptable and are being met.C: Accumulating sufficient evidence so that the auditor can give absolute assurance that irregularities do not exist.

D: Establishing suitable criteria of education and experience for filling internal audit positions.

Question: V1C1-0088The director of internal auditing for a large retail organization reports to the controller and is responsible for designing and installing computer applications relating to inventory control. Which of the following is the major limitation of this arrangement?AnswersA: It prevents the audit organization from devoting full time to auditing.B: Auditors generally do not have the required expertise to design and implement such systems.C: It potentially affects the director’s independence and thereby lessens the value of audit services.

D: Such arrangements are unlawful because the director participates in incompatible functions.

Question: V1C1-0089According to the IIA Standards, the internal auditing department’s goals should specifyAnswersA: Audit work schedules and activities to be audited.B: Policies and procedures to guide the audit staff.C: Measurement criteria and target dates for completion.

D: Staffing plans and financial budgets.

Question: V1C1-0090 According to the IIA Standards, internal auditors should possess the knowledge, skills, and disciplines essential to the performance of internal auditing. This means that all internal auditors should be proficient in applying Answers A: Internal auditing standards. B: Quantitative methods. C: Management principles. D: Structured systems analysis.

Answer ExplanationsAnswer (a) is the correct answer. Auditors should have a proficiency in applying internal auditing standards.Answer (b) is incorrect. Only an appreciation is required.Answer (c) is incorrect. Only an appreciation is required.

Answer (d) is incorrect. Only an appreciation is required.

Question: V1C1-0091Coordination of internal and external auditing can reduce the overall audit costs. According to the IIA Standards, who is responsible for coordinating internal and external audit efforts?AnswersA: Director of internal auditing.B: External auditor.C: Audit committee of the board of directors.

D: Management.

Question: V1C1-0092You have been asked to be a member of a peer review team. In assessing the independence of the internal audit department being reviewed, you should consider all of the following factors except:AnswersA: Access to and frequency of communications with the board of directors or its audit committee.B: The criteria of education and experience considered necessary when filling vacant positions on the audit staff.C: The degree to which auditors assume operating responsibilities.

D: The scope and depth of audit objectives for the audits included in the review.

Question: V1C1-0093 The IIA Standards require that, in most cases, an internal auditing department have documented policies and procedures to ensure the consistency and quality of audit work. The exception to this requirement is directly related to Answers A: Departmentalization. B: Division of labor. C: Span of control. D: Authority.

Answer ExplanationsAnswer (a) is incorrect. Departmentalization can improve communications among team members, but sufficient direct supervision may be lacking if spans of control are large.Answer (b) is incorrect. Division of labor produces highly specialized individuals, but formalized guidance is necessary for newer employees if the department is large.Answer (c) is the correct answer. With a small audit department, substantial direct supervision can be provided by the audit director.

Answer (d) is incorrect. The audit director is the ultimate authority for the internal auditing department, but direct supervision by this individual will be lacking in a large department. Formal policies are needed.

Question: V1C1-0094The director of internal auditing routinely provides activity reports to the board as part of the board meeting agenda each quarter. Senior management has asked to review the director’s board presentation before each board meeting so that any issues or questions can be discussed beforehand. The director shouldAnswersA: Provide the activity reports to senior management as requested and discuss any issues that may require action to be taken.B: Not provide activity reports to senior management because such matters are the sole province of the board.C: Disclose only those matters in the activity reports to the board that pertain to expenditures and financial budgets of the internal auditing department.

D: Provide information to senior management that pertains only to completed audits and findings available in published audit reports.

Question: V1C1-0095An auditor finds a situation where there is some suspicion, but no evidence, of potential misstatement. The standard of due professional care would be violated if the auditorAnswersA: Identified potential ways in which an error could occur and ranked the items for audit investigation.B: Informed the audit manager of the suspicions and asked for advice on how to proceed.C: Did not test for possible misstatement because the audit program had already been approved by audit management.

D: Expanded the audit program, without the auditee’s approval, to address the highest-ranked ways in which a misstatement may have occurred.

Question: V1C1-0096Which of the following combination of participants would be most appropriate to attend an exit conference?AnswersA: The responsible internal auditor and representatives from management who are knowledgeable of detailed operations and those who can authorize implementation of corrective action.B: The director of internal auditing and the executive in charge of the activity or function audited.C: Staff auditors who conducted the fieldwork and operating personnel in charge of the daily performance of the activity or function audited.

D: Staff auditors who conducted the fieldwork and the executive in charge of the activity or function audited.

Question: V1C1-0097An internal audit director initiated an audit of the corporate code of ethics and the environment for ethical decision making. Which of the following would most likely be considered inappropriate regarding the scope and/or recommendations of the audit?AnswersA: A review of the corporate code of ethics and a comparison to other corporate codes.B: A survey of corporate employees, asking general questions regarding the ethical quality of corporate decision making.C: Administration of an anonymous “ethics test” to determine if employees know of unethical behavior or have acted unethically themselves.

D: A survey of the board of directors to determine members’ level of support for a corporate code of ethics.

Question: V1C1-0098Which of the following statements is true regarding coordination of internal and external audit efforts?AnswersA: The director of internal audit should not give information about illegal acts to an external auditor because external auditors may be required to report the matter to the board and/or regulatory agencies.B: Ownership and the confidentiality of the external auditor’s working papers prohibit their review by internal auditors.C: The director of internal audit should determine that appropriate follow-up and corrective action was taken by management where required on matters discussed in the external auditor’s management letter.

D: If internal auditors provide assistance to the external auditors in connection with the annual audit, the audit work is not subject to the Standards for the Professional Practice of Internal Auditing.

Question: V1C1-0099An auditor’s objectivity could be compromised in all of the following situations except:AnswersA: A conflict of interest.B: Auditee familiarity with auditor due to lack of rotation in assignments.C: Auditor assumption of operational duties on a temporary basis.

D: Reliance on outside expert opinion when appropriate.

Question: V1C1-0100The IIA Standards require that the internal audit director establish and maintain a quality assurance program to evaluate the operations of the internal audit department. All of the following are considered elements of a quality assurance program except:AnswersA: Annual appraisals of individual internal auditors’ performance.B: Internal reviews of audits completed.C: Supervision of audit work.

D: External reviews to assess compliance with standards

Question: V1C1-0101Auditing standards state that “reports may include recommendations for potential improvements.” Which of the following would be a valid justification for omitting recommendations in an audit report? The auditorAnswersA: May not always understand the true cause of the finding being reported.B: Does not have sufficient time to formulate a recommendation due to audit budget pressures.C: Can avoid the confrontation by letting management solve its own problems.

D: May lose independence by being perceived as making operational decisions.

Question: V1C1-0102When evaluating the independence of an internal audit department, a quality review team considers several factors.Which of the following factors has the least amount of influence when judging an internal audit department’s independence?AnswersA: Criteria used in making auditors assignments.B: The extent of auditor training in communications skills.C: Relationship between audit working papers and audit report.

D: Impartial and unbiased audit judgments.

Question: V1C1-0103As used in the IIA Standards when discussing audit planning or risk assessment, the term “risk” is best defined as the probability thatAnswersA: An internal auditor will fail to detect a material error or event that causes financial statement or internal reports to be misstated or misleading.B: An event or action may adversely affect the organization.C: Management will, either knowing or unknowingly, make decisions that increase the potential liability of the organization.

D: Financial statements and/or internal records will contain material error.

Question: V1C1-0104Which of the following statements is not true regarding risk assessment as the term is used in internal auditing?AnswersA: Risk assessment is a judgmental process of assigning dollar values to the perceived level of risk found in an auditable activity. These values allow directors to select the auditees most likely to result in identifiable audit savings.B: The audit director should incorporate information from a variety of sources into the risk assessment process, including discussions with the board, management, external auditors, and review of regulations, and analysis of financial/operating data.C: Risk assessment is a systematic process of assessing and integrating professional judgments about probable adverse conditions and/or events, providing a means of organizing an internal audit schedule.

D: As a result of an audit or preliminary survey, the audit director may revise the level of assessed risk of an auditee at any time, making appropriate adjustments to the work schedule.

Question: V1C1-0105 A director of internal auditing has to determine how an organization can be divided into auditable activities. Which of the following is an auditable activity? Answers A: A procedure. B: A system. C: An account. D: All of the above.

Answer ExplanationsAnswer (a) is incorrect. Each choice is a part of Answer (d).Answer (b) is incorrect. Each choice is a part of Answer (d).Answer (c) is incorrect. Each choice is a part of Answer (d).

Answer (d) is the correct answer. Procedures, systems, and accounts can all be auditable activities according to the Standards.

Question: V1C1-0106 When determining the number and experience level of the internal audit staff to be assigned to an audit, the director should consider all of the following except the: Answers A: Complexity of the audit assignment. B: Available audit resources. C: Training needs of internal auditors. D: Lapsed time since the last audit.

Answer ExplanationsAnswer (a) is incorrect. It is included as a factor in the Standards.Answer (b) is incorrect. It is included as a factor in the Standards.Answer (c) is incorrect. It is included as a factor in the Standards.

Answer (d) is the correct answer. It is a part of the audit scheduling, not auditor selection for audit assignment.

Question: V1C1-0107The IIA Standards require an auditor to have the knowledge, skills, and disciplines essential to perform an internal audit. Which of the following correctly describes the level of knowledge or skill required by the Standards? Auditors must haveAnswersA: Proficiency in applying knowledge of auditing standards and procedures to specific situations without extensive recourse to technical research and assistance.B: Proficiency in applying knowledge of accounting and computerized information systems to specific or potential problems.C: An understanding of broad techniques used in supporting and developing audit findings and the ability to research the proper audit procedures to be used in any audit situation.

D: A broad appreciation for accounting principles and techniques when auditing the financial records and reports of the organization.

Question: V1C1-0108An audit manager responsible for the supervision and review of other auditors needs the necessary skills and knowledge. Which of the following does not describe a skill or knowledge necessary to supervise a particular audit assignment?AnswersA: The ability to review and analyze an audit program to determine if the proposed audit procedures will result in evidence relevant to the audit’s objectives.B: Ensuring that an audit report is supported and accurate relative to the evidence documented in the working papers of the audit.C: Using risk assessment and other judgmental processes to develop an audit plan and schedule for the department and present the plan to the audit committee.

D: Determining that staff auditors have completed the audit procedures and that audit objectives have been met.

Question: V1C1-0109You have been asked to be a member of a peer review team. In assessing the independence of the internal audit department being reviewed, you should consider all of the following factors except:AnswersA: Access to and frequency of communications with the board of directors or its audit committee.B: The criteria of education and experience considered necessary when filling vacant positions on the audit staff.C: The degree to which auditors assume operating responsibilities.

D: The scope and depth of audit objectives for the audits included in the review.

Question: V1C1-0110 A written charter, approved by the board of directors, that outlines the internal audit department’s purpose, authority, and responsibility is primarily meant to enhance the department’s Answers A: Due professional care. B: Stature within the organization. C: Relationship with management. D: Independence.

Answer ExplanationsAnswer (a) is incorrect. Due care is a function of audit work, not the charter.Answer (b) is incorrect. Although stature within the organization may be increased, the main function of the charter is to establish the department’s independence not stature.Answer (c) is incorrect. The department’s relationship with management is a function of professionalism; the charter establishes independence, not a working relationship.

Answer (d) is the correct answer. A charter establishes the department’s independence from management.

Question: V1C1-0111In the past, the internal auditing department of XYZ Company designed and installed computerized systems for the company. A newly appointed member of the audit committee has questioned the auditing department’s independence due to its performance of that activity. Which of the following actions would best satisfy the committee’s concern regarding independence?AnswersA: The internal audit department should continue to design and install other computer systems as long as the internal audit staff possesses the expertise to do so.B: The internal audit department should refrain from designing and installing any computer systems for their organization in the future.C: The internal audit department should not assign those internal auditors who designed and installed the payroll system to audit the payroll area.

D: The internal audit department should refrain from operating and drafting procedures for any of its organization’s systems.

Question: V1C1-0112A professional engineer applied for a position in the internal auditing department of a high-technology firm. The engineer became interested in the position after observing several internal auditors while they were auditing the engineering department. The director of internal auditingAnswersA: Should not hire the engineer because of the lack of knowledge of internal auditing standards.B: May hire the engineer in spite of the lack of knowledge of internal auditing standards.C: Should not hire the engineer because of the lack of knowledge of accounting and taxes.

D: May hire the engineer because of the knowledge of internal auditing gained in the previous position.

Question: V1C1-0113Specific airline ticket information, including fare class, purchase date, and lowest available fare options, as prescribed in the company’s travel policy, is obtained and reported to department management when employees purchase airline tickets from the company’s authorized travel agency. Such a report provides information forAnswersA: Quality of performance in relation to the company’s travel policy.B: Identifying costs necessary to process employee business expense report data.C: Departmental budget-to-actual comparisons.

D: Supporting employer’s business expense deductions.

Question: V1C1-0114Audit policy requires that final reports will not be issued without a management response. An audit with significant findings is complete except for management’s response. Evaluate the following courses of action and select the best alternative.AnswersA: Issue an interim report regarding the important issues noted.B: Modify audit policy to allow a specific time period for the management response.C: Wait for management response and issue audit report.

D: Discuss situation with the external auditors.

Question: V1C1-0115Audit findings often emerge by a process of comparing “what should be” with “what is.” Findings are based on the attributes of criteria, condition, and cause and effect. From the following descriptions, which one most appropriately describes the effect of the audit finding?AnswersA: Reason for the difference between the expected and actual conditions.B: Factual evidence found during the course of the examination.C: Risk or exposure encountered because of the condition.

D: Standards, measures, or expectations used in making the evaluation.

Question: V1C1-0116Management asserted that the performance standards the auditors used to evaluate operating performance were inappropriate. Written performance standards that had been established by management were vague and had to be interpreted by the auditor. In such cases, auditors may meet their due care responsibility byAnswersA: Assuring them that their interpretations are reasonable.B: Assuring themselves that their interpretations are in line with industry practices.C: Establishing agreement with auditees as to the standards needed to measure performance.

D: Incorporating management’s objections in the audit report.

Question: V1C1-0117The IIA Standards require the director of internal auditing to establish and maintain a quality assurance program to evaluate the operations of the internal audit department. Which of the following relates most directly to the objective of maintaining high quality in all audits?AnswersA: Required supervisory review of all audit programs, working papers, and draft audit reports.B: Required coordination with external auditors.C: Required compliance with the Code of Ethics of the Institute of Internal Auditors.

D: Required educational standards for all members of the professional audit staff.

Question: V1C1-0118An audit supervisor would challenge whether audit evidence is sufficient to support the conclusion that journal entries are properly prepared and approved if the working papers includedAnswersA: A note stating the controller’s assurance those journal entries are always looked at by the accounting supervisor before entry into the computer system.B: A copy of a handwritten schedule of standard and appended nonstandard journal entries for the most recent month showing the initials of the preparer for each entry and the summary approval of the controller at the top.C: A copy of a computer-generated list of automated and nonstandard journal entries initialed by the controller showing the auditor’s references to system reports and monthly reconciliations.

D: A cross-reference to another section of the working papers containing sufficient evidence for this conclusion.

Question: V1C1-0119The internal auditing department has concluded a fraud investigation that revealed a previously undiscovered materially adverse impact on the financial position and results of operations for two years on which financial statements have already been issued. The director of internal auditing should immediately informAnswersA: The external audit firm responsible for the financial statements affected by the discovery.B: The appropriate governmental or regulatory agency.C: Appropriate management and the audit committee of the board of directors.

D: The internal accounting function ultimately responsible for making corrective journal entries.

Question: V1C1-0120According to the IIA Standards, internal auditing has a responsibility for helping to deter fraud. Which of the following best describes how this responsibility is generally met?AnswersA: By coordinating with security personnel and law enforcement agencies in the investigation of possible frauds.B: By testing for fraud in every audit and following up as appropriate.C: By assisting in the design of control systems to prevent fraud.

D: By evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk.

Question: V1C1-0121An internal auditor observes that a receivables clerk has physical access to and control of cash receipts. The auditor worked with the clerk several years before and has a high level of trust in the individual. Accordingly, the auditor notes in the working papers that controls over receipts are adequate. Is the auditor in compliance with the Standards?AnswersA: Yes, reasonable care has been taken.B: No, irregularities were not noted.C: No, alertness to conditions where irregularities are most likely was not shown.

D: Yes, the working papers were annotated.

Question: V1C1-0122Which of the following most seriously compromises the independence of the internal auditing department?AnswersA: Internal auditors frequently draft revised procedures for departments whose procedures they have criticized in an audit report.B: The director of internal auditing has dual reporting responsibility to the firm’s top executive and the board of directors.C: The internal auditing department and the firm’s external auditors engage in joint planning of total audit coverage to avoid duplicating each other’s work.

D: The internal auditing department is included in the review cycle of the firm’s contracts with other firms before the contracts are executed.

Question: V1C1-0123An internal auditor has uncovered illegal acts that were committed by a member of senior management. According to the IIA Standards, such informationAnswersA: Should be excluded from the internal auditor’s report and discussed orally with the senior manager.B: Must be immediately reported to the appropriate government authorities.C: May be disclosed in a separate report and distributed to all senior management.

D: May be disclosed in a separate report and distributed to the company’s audit committee of the board of directors.

Question: V1C1-0124The internal auditing department for a chain of retail stores recently concluded an audit of sales adjustments in all stores in the southeast region. The audit revealed that several stores are costing the company an estimated $85,000 per quarter in duplicate credits to customers’ charge accounts. The audit report, published eight weeks after the audit was concluded, included the internal auditors’ recommendations to store management that should prevent duplicate credits to customers’ accounts. Which of the following standards for reporting has been disregarded in the above case?AnswersA: The follow-up actions were not adequate.B: The auditors should have implemented appropriate corrective action as soon as the duplicate credits were discovered.C: Auditor recommendations should not be included in the report.

D: The report was not timely.

Question: V1C1-0125During an audit of the organization’s accounts payable function, an internal auditor plans to confirm balances with suppliers. What is the source of authority for such contacts with units outside the organization?AnswersA: Internal auditing department policies and procedures.B: The IIA Standards.C: The Statement of Responsibilities of Internal Auditing.

D: The internal auditing department’s charter.

Question: V1C1-0126The director of internal auditing is responsible for establishing a program to develop the human resources of the internal auditing department. According to the IIA Standards, this program should includeAnswersA: Continuing education opportunities and performance appraisals.B: Counseling and an established career path.C: An established training plan and a charter.

D: Job descriptions and competitive salary increases.

Question: V1C1-0127 The IIA Standards require the performance of periodic internal reviews by members of the internal auditing staff. This function is designed to primarily serve the needs of Answers A: The audit committee. B: The director of internal auditing. C: Management. D: The internal auditing staff.

Answer ExplanationsAnswer (a) is incorrect. The audit committee is an indirect beneficiary by knowing the effectiveness of the overall internal auditing function.Answer (b) is the correct answer. Internal quality assurance reviews primarily serve the needs of the director of internal auditing, but can also provide senior management and the board with an assessment of the internal auditing department. This is specified in the Standards.Answer (c) is incorrect. Management is an indirect beneficiary, as is the audit committee.

Answer (d) is incorrect. The audit staff also benefits (but not a primary beneficiary) by having deficiencies addressed more promptly.

Question: V1C1-0128According to the IIA Standards, which of the following is the correct listing of information that must be included in a fraud report?AnswersA: Purpose, scope, results, and, where appropriate, an expression of the auditor’s opinion.B: Criteria, condition, and cause and effect.C: Background, findings, and recommendations.

D: Findings, conclusions, recommendations, and corrective action.

Question: V1C1-0129An internal auditor reported a suspected fraud to the director of internal auditing. The director turned the entire case over to the security department. Security failed to investigate or report the case to management. The perpetrator continued to defraud the organization until being accidentally discovered by a line manager two years later. Select the most appropriate action for the audit director.AnswersA: The director’s actions were correct.B: The director should have periodically checked the status of the case with Security.C: The director should have conducted the investigation.

D: The director should have discharged the perpetrator.

Question: V1C1-0130An internal auditor has just completed an audit of a division and is in the process of preparing the audit report.According to the IIA Standards, the findings in the audit report should includeAnswersA: Statements of opinion about the cause of a finding.B: Pertinent factual statements concerning the control weaknesses that were uncovered during the course of the audit.C: Statements of both fact and opinion developed during the course of the audit.

D: Statements dealing with potential future events that may be helpful to the audited division.

Question: V1C1-0131According to the IIA Standards, supervision of an audit assignment should includeAnswersA: Determining that audit working papers adequately support the audit findings.B: Assigning staff members to the particular engagement.C: Determining the scope of the audit.

D: Appraising each auditor’s performance on at least an annual basis.

Question: V1C1-0132Which of the following reporting structures would best depict the internal audit organizational guidelines contained in the IIA Standards?AnswersA: Administratively to the board of directors, functionally to the chief executive officer.B: Administratively to the controller, functionally to the chief financial officer.C: Administratively to the chief executive officer, functionally to the board of directors.

D: Administratively to the chief executive officer, functionally to the external auditor.

Question: V1C1-0133As the director of internal auditing for your organization, you have developed a plan that includes a detailed schedule of areas to be audited during the coming year, an estimate of the time required for each audit, and the approximate starting date of each audit. The scheduling of specific audits was based on the time elapsed since the last audit in each area. The plan is inadequate because it fails toAnswersA: Cite authoritative support, such as the IIA Standards, for such a plan.B: Consider factors such as risk, exposure, and potential loss to the organization.C: State whether all audit resources had been committed to the plan.

D: Seek management approval of the plan.

Question: V1C1-0134The audit committee can serve several important purposes, some of which directly benefit internal auditing. The most significant benefit provided by the audit committee to the internal auditor isAnswersA: Protecting the independence of the internal auditor from undue management influence.B: Reviewing annual audit plans and monitoring audit results.C: Approving audit plans, scheduling, staffing, and meeting with the internal auditor as needed.

D: Reviewing copies of the internal control procedures for selected company operations and meeting with company officials to discuss them.

Question: V1C1-0135The IIA Standards indicate that independence permits internal auditors to render the impartial and unbiased judgments essential to the proper conduct of audits. Which of the following would best promote independence?AnswersA: A policy that requires internal auditors to report to the director any situation in which a conflict of interest or bias on the part of the individual auditor is present or may reasonably be inferred.B: An internal audit department policy that prevents it from recommending standards of controls for systems that it audits.C: An organizational policy that allows internal audits of sensitive operations to be “contracted out” to other audit providers.

D: An organizational policy that prevents personnel transfers from operating activities to the internal audit department.

Question: V1C1-0136The IIA Standards require written policies and procedures to guide the audit staff. Which of the following statements is false with respect to this requirement?AnswersA: The form and content of written policies and procedures should be appropriate to the size of the department.B: All internal audit departments should have a detailed policies and procedures manual.C: Formal administrative and technical audit manuals may not be needed by all internal auditing departments.

D: A small internal auditing department may be managed informally through close supervision and written memos.

Question: V1C1-0137 According to the IIA Standards, the director of internal auditing should establish goals that have two basic qualities. Select the correct traits of internal auditing goals. Answers A: Measurable and attainable. B: Budgeted and approved. C: Planned and attainable. D: Requested and approved.

Answer ExplanationsAnswer (a) is the correct answer. The IIA Standards require that goals be capable of accomplishment within given plans and budgets and that they be measurable.Answer (b) is incorrect. Goals should be attainable within budget constraints. However, approval of goals is not mentioned in this portion of the Standards.Answer (c) is incorrect. The establishment of goals is part of the overall planning process for the internal auditing department.

Answer (d) is incorrect. Goals are not generally requested, but instead they are established by the director of internal auditing.

Question: V1C1-0138Internal audit reports should contain the purpose, scope, and results. The audit results should contain the criteria, condition, effect, and cause of the finding. The cause can best be described asAnswersA: Factual evidence which the internal auditor found.B: Reason for the difference between the expected and actual conditions.C: The risk or exposure because of the condition found.

D: Resultant evaluations of the effects of the findings.

Question: V1C1-0139 According to the IIA Standards, internal auditing reports should be distributed to those members of the organization who are able to ensure that audit results are given due consideration. For higher-level members of the organization, that requirement can usually be satisfied with Answers A: Interim reports. B: Summary reports. C: Oral reports. D: Final written reports only.

Answer ExplanationsAnswer (a) is incorrect. Interim reports are used to communicate urgent information, changes in audit scope, and audit progress.Answer (b) is the correct answer. Summary reports that highlight audit results are appropriate for higher-level management.Answer (c) is incorrect. Only interim reports may be oral. The final report must be written.

Answer (d) is incorrect. Higher-level management is often too busy to read an entire report.

Question: V1C1-0140If an internal auditor finds that no corrective action has been taken on a prior audit finding that is still valid, the IIA Standards states that the internal auditor shouldAnswersA: Restate the prior finding along with the findings of the current audit.B: Determine whether management or the board has assumed the risk of not taking corrective action.C: Seek the board’s approval to initiate corrective action.

D: Schedule a future audit of the specific area involved.

Question: V1C1-0141Internal auditing is responsible for reporting fraud to senior management or the board whenAnswersA: The incidence of fraud of a material amount has been established to a reasonable certainty.B: Suspicious activities have been reported to internal auditing.C: Irregular transactions have been identified and are under investigation.

D: The review of all suspected fraud-related transactions is complete.

Question: V1C1-0142According to the IIA Standards, the role of internal auditing in the investigation of fraud includes all of the following except:AnswersA: Assessing the probable level and extent of complicity in the fraud within the organization.B: Designing the procedures to follow in attempting to identify the perpetrators, extent of the fraud, techniques used, and cause of the fraud.C: Coordinating activities with management personnel, legal counsel, and other appropriate specialists throughout the investigation.

D: Interrogating suspected perpetrators of the fraud.

Question: V1C1-0143After completing an investigation, internal auditing has concluded that an employee has stolen a material amount of cash receipts. A draft of the proposed report on this finding should be reviewed byAnswersA: Legal counsel.B: The audit committee of the board of directors.C: The president of the organization.

D: The external auditor.

Question: V1C1-0144The IIA Standards specify that final audit reports should be reviewed and approved by theAnswersA: Auditee or the person to whom the auditee reports.B: Auditor in charge.C: Internal auditing director or designee.

D: Chief financial officer.

Question: V1C1-0145According to the IIA Standards, internal auditors should review the means of physically safeguarding assets from losses arising fromAnswersA: Misapplication of accounting principles.B: Procedures that are not cost justified.C: Exposure to the elements.

D: Underutilization of physical facilities.

Question: V1C1-0146The IIA Standards state that the director of internal auditing should have direct communication with the board. Such communication is often accomplished through the board’s audit committee. Which of the following best describes why the charter for internal auditing should provide for direct access to the audit committee?AnswersA: Such access is required by law for publicly traded companies.B: Direct access to the audit committee tends to enhance internal auditing’s independence and objectivity.C: With direct access, the director of internal auditing is in a better position to affect policy decisions.

D: The audit committee must authorize implementation of audit recommendations that involve financial reporting.

Question: V1C1-0147According to the IIA Standards, a report issued by an internal auditor should contain an expression of opinion whenAnswersA: The area of the audit is the financial statements.B: The internal auditors’ work is to be used by external auditors.C: A full-scope audit has been conducted in an area.

D: An opinion will improve communications with the reader of the report.

Question: V1C1-0148As an internal auditor for a multinational chemical company, you have been assigned to perform an operational audit at a local plant. This plant is similar in age, sizing, and construction to two other company plants that have been cited recently for discharge of hazardous wastes. In addition, you are aware that chemicals manufactured at the plant release toxic by-products.Assume that you have evidence that the plant is discharging hazardous wastes. As a Certified Internal Auditor, what is the appropriate reporting requirement in this situation?AnswersA: Send a copy of your audit report to the appropriate regulatory agency.B: Ignore the issue; the regulatory inspectors are better qualified to assess the danger.C: Issue an interim report to the appropriate levels of management.

D: Note the issue in your working papers, but do not report it.

Question: V1C1-0149As an internal auditor for a multinational chemical company, you have been assigned to perform an operational audit at a local plant. This plant is similar in age, sizing, and construction to two other company plants that have been cited recently for discharge of hazardous wastes. In addition, you are aware that chemicals manufactured at the plant release toxic by-products.Identify your responsibility for detection of a hazardous waste discharge problem.AnswersA: You have no responsibility; it is the concern of the appropriate governmental agency.B: You are responsible for ensuring compliance with company policies and procedures.C: Operational audits do not require a determination of compliance with laws and regulations.

D: You are required by the Standards to determine compliance with laws and regulations.

Question: V1C1-0150The IIA Standards define competent information asAnswersA: Supporting the audit findings and being consistent with the audit objectives.B: Assisting the organization in meeting prescribed goals.C: Factual, adequate, and convincing so that a prudent person would reach the same conclusion as auditor.

D: Reliable and the best available through the use of appropriate audit techniques.

Question: V1C1-0151Adequate internal controls are most likely to be present ifAnswersA: Management has planned and organized in a manner that provides reasonable assurance that the organization’s objectives and goals will be achieved efficiently and economically.B: Management has exercised due professional care in the design of operating and functional systems.C: Operating and functional systems are designed, installed, and implemented in compliance with law.

D: Management has designed, installed, and implemented efficient operating and functional systems.

Question: V1C1-0152A company’s management accountants prepared a set of reports for top management. These reports detail the funds expended and the expenses incurred by each department for the current reporting period. The function of internal auditing would be toAnswersA: Ensure against any and all noncompliance of reporting procedures.B: Review the expenditure items and match each item with the expenses incurred.C: Determine if there are any employees expending funds without authorization.

D: Identify inadequate controls that increase the likelihood of unauthorized expenditures.

Question: V1C1-0153 Independence permits internal auditors to render impartial and unbiased judgments. The best way to achieve independence is through Answers A: Individual knowledge and skills B: Organizational status and objectivity C: Supervision within the organization D: Organizational knowledge and skills

Answer ExplanationsAnswer (a) is incorrect. Individual knowledge and skills allow individual auditors to achieve professional proficiency.Answer (b) is the correct answer. Organizational status and objectivity provides for the achievement of independence.Answer (c) is incorrect. Supervision allows the internal auditing department to achieve professional proficiency.

Answer (d) is incorrect. Organizational knowledge and skills allow the internal auditing department to achieve professional proficiency.

Question: V1C1-0154When faced with an imposed scope limitation, the director of internal auditing shouldAnswersA: Refuse to perform the audit until the scope limitation is removed.B: Communicate the potential effects of the scope limitation to the audit committee of the board of directors.C: Increase the frequency of auditing the activity in question.

D: Assign more experienced personnel to the engagement.

Question: V1C1-0155Which of the following is not a requirement of a long-range plan for the internal auditing department?AnswersA: To be consistent with the department’s charter.B: To be capable of being accomplished.C: To include a list of auditable activities.

D: To include the basics of the audit program.

Question: V1C1-0156To avoid being the apparent cause of conflict between an organization’s top management and the audit committee, the director of internal auditing shouldAnswersA: Submit copies of all audit reports to both top management and the audit committee.B: Strengthen the independence of the department through organizational status.C: Discuss all reports to top management with the audit committee first.

D: Request board acceptance of policies that include internal auditing relationships with the audit committee.

Question: V1C1-0157According to the IIA Standards, internal auditors should possess all of the following except:AnswersA: Proficiency in applying internal audit standards.B: An understanding of management principles.C: The ability to exercise good interpersonal relations.

D: The ability to conduct training sessions in quantitative methods.

Question: V1C1-0158Which of the following aspects of evaluating the performance of staff members would be considered as a violation of good personnel management techniques?AnswersA: The evaluator should justify very high and very low evaluations because of their impact on the employee.B: Evaluations should be made annually or more frequently to provide the employee feedback about competence.C: The first evaluation should be made shortly after commencing work to serve as an early guide to the new employee.

D: Because there are so many employees whose performance is completely satisfactory, it is preferable to use standard evaluation comments.

Question: V1C1-0159According to the IIA Standards concerning due professional care, an internal auditor shouldAnswersA: Consider the relative materiality or significance of matters to which audit procedures are applied.B: Emphasize the potential benefits of an audit without regard to the cost.C: Consider whether established operating standards are being met and not whether those standards are acceptable.

D: Select procedures that are likely to provide absolute assurance those irregularities do not exist.

Question: V1C1-0160Which of the items below would most likely reflect differences between the policies of a relatively small and relatively large internal auditing operation? The policies for the large operation shouldAnswersA: Spell out scope and status of internal auditing.B: Contain the authority to carry out audits.C: Be specific as to activities to be followed.

D: Be in considerable detail.

Question: V1C1-0161An audit committee of the board of directors of a corporation is being established. Which of the following would normally be a responsibility of the committee?AnswersA: Approval of the selection and dismissal of the internal auditing director.B: Development of the annual internal audit schedule.C: Approval of internal audit programs.

D: Determination of findings appropriate for specific internal audit reports.

Question: V1C1-0162While performing a construction audit, the auditor suspects that the structural steel used does not conform to contract specifications. The internal auditing department does not have an engineer on the staff. According to the IIA Standards, the appropriate course of action is toAnswersA: Assign a dollar value to the difference and prepare a deficiency finding.B: Ask a company or consulting engineer to determine whether the steel conforms to the contract specifications.C: Ask the construction superintendent to explain why there is a difference.

D: Require suspension of contract payments until the difference is resolved.

Question: V1C1-0163The charter of the internal auditing department shouldAnswersA: Authorize access to records, personnel, and physical properties relevant to the performance of audits.B: Provide recommended formats to report significant audit findings and recommendations.C: Describe audit programs to be carried out.

D: Define the audit department’s work schedule, staffing plan, and financial budget.

Question: V1C1-0164According to the IIA Standards, activity reports submitted periodically to management and to the board shouldAnswersA: Summarize planned audit activities.B: Compare performance with audit work schedules.C: Provide detail on financial budgets.

D: Detail projected staffing needs.

Question: V1C1-0165An internal auditing director is establishing the evaluation criteria for the selection of new internal audit staff members. According to the IIA Standards, which of the following would be an inappropriate item to list?AnswersA: An appreciation of the fundamentals of accounting.B: An understanding of management principles.C: The ability to recognize deviations from good business practice.

D: Proficiency in computerized operations and the use of computers in auditing.

Question: V1C1-0166The person responsible for audit report distribution should beAnswersA: The director of internal auditing or designee.B: The audit committee of the board of directors.C: The vice president responsible for the area being audited.

D: The audit supervisor of the audit being performed.

Question: V1C1-0167The IIA Standards require that the internal auditing department provide assurance that internal audits are properly supervised in order toAnswersA: Produce professional audits of consistently high quality.B: Assure high productivity of audit reporting.C: Provide for the efficient training of the audit staff.

D: Determine that the audit program is followed without deviation.

Question: V1C1-0168An exit conference helps ensure thatAnswersA: The objectives of the audit and the scope of the audit work are known by the auditee.B: The auditee understands the audit program.C: There have been no misunderstandings or misinterpretations of fact.

D: The list of persons who are to receive the final report are identified.

Question: V1C1-0169You transferred from the treasury department to the internal auditing department of the same company last month. The chief financial officer of the company has suggested that since you have significant knowledge in this area, it would bea good idea for you to immediately begin an audit of the treasury department. In this circumstance you shouldAnswersA: Accept the audit engagement and begin work immediately.B: Discuss the need for such an audit with your former superior, the treasurer.C: Suggest that the audit be performed by another member of the internal auditing staff.

D: Offer to prepare an audit program but suggest that interviews with your former coworkers be conducted by other members of the internal auditing staff.

Question: V1C1-0170Which of the following is the most appropriate method of reporting disagreement between the auditor and the auditee concerning audit findings and recommendations?AnswersA: State the auditor’s position because the report is designed to provide the auditor’s independent view.B: State the auditee’s position because management is ultimately responsible for the activities reported.C: State both positions and identify the reasons for the disagreement.

D: State neither position. If the disagreement is ultimately resolved, there will be no reason to report the previous disagreement. If the disagreement is never resolved, the disagreement should not be reported, because there is no mechanism to resolve it.

Question: V1C1-0171Which of the following does not describe one of the functions of audit working papers?AnswersA: Facilitates third-party reviews.B: Aids in the planning, performance, and review of audits.C: Provides the principal evidential support for the auditor’s report.

D: Aids in the professional development of the operating staff.

Question: V1C1-0172Which of the following statements most correctly reflects the director of internal auditing’s responsibilities for personnel management and development as reflected in the IIA Standards?AnswersA: The director is responsible for selecting qualified individuals but has no explicit responsibility for providing ongoing educational opportunities for the internal auditor.B: The director is responsible for performing an annual review of each internal auditor’s performance but has no explicit responsibility for counseling internal auditors on their performance and professional development.C: The director is responsible for selecting qualified individuals but has no explicit responsibility for the preparation of job descriptions.

D: The director is responsible for developing formal job descriptions for the audit staff but has no explicit responsibility for administering the corporate compensation program.

Question: V1C1-0173During the year-end physical inventory process, the auditor observed over $1.2 million worth of items staged in the shipping area and marked “Sold—Do Not Inventory.” The customer had been on credit hold for three months because of bankruptcy proceedings, but the sales manager had ordered the shipping supervisor to treat the inventory as sold for physical inventory purposes. The auditor noted the terms of sale were “FOB Warehouse.” After confirming no change in corporate policy, the auditor shouldAnswersA: Recommend that the inventory staged in the shipping area be counted and included along with the rest of the physical inventory results.B: Make test counts and trace the results to appropriate records to ensure that the cost is properly relieved from inventory.C: Follow up with appropriate procedures to ensure that the inventory staged in the shipping area appears on related invoicing documentation.

D: Request copies of the signed bills of lading to include with working papers for this physical inventory.

Question: V1C1-0174According to the IIA Standards, the organizational status of the internal auditing departmentAnswersA: Should be sufficient to permit the accomplishment of its audit responsibilities.B: Is best when the reporting relationship is direct to the board of directors.C: Requires the board’s annual approval of the audit schedules, plans, and budgets.

D: Is guaranteed when the charter specifically defines its independence.

Question: V1C1-0175Which of the following best defines an audit opinion?AnswersA: A summary of the significant audit findings.B: The auditor’s professional judgment of the situation that was reviewed.C: Conclusions that must be included in the audit report.

D: Recommendations for corrective action.

Question: V1C1-0176“Due care implies reasonable care and competence, not infallibility or extraordinary performance.” This statement makes which of the following unnecessary?AnswersA: The conduct of examinations and verifications to a reasonable extent.B: The conduct of extensive examinations.C: The reasonable assurance that compliance does exist.

D: The consideration of the possibility of material irregularities.

Question: V1C1-0177Management asserted that the performance standards the auditors used to evaluate operating performance were inappropriate. Written performance standards that had been established by management were vague and had to be interpreted by the auditor. In such cases, auditors may meet their due care responsibility byAnswersA: Assuring them that their interpretations are reasonable.B: Assuring themselves that their interpretations are in line with industry practices.C: Establishing agreement with auditees as to the standards needed to measure performance.

D: Incorporating management’s objections in the audit report.

Question: V1C1-0178Which of the following is not a true statement about the relationship between internal auditors and external auditors?AnswersA: External auditors must assess the competence and objectivity of internal auditors.B: There may be periodic meetings between internal and external auditors to discuss matters of mutual interest.C: There may be an exchange of audit reports and management letters.

D: Internal auditors may provide audit programs and working papers to external auditors.

Question: V1C1-0179In recent years, which two factors have changed the relationship between internal auditors and external auditors so that internal auditors are partners rather than subordinates?AnswersA: The increasing liability of external auditors and the increasing professionalism of internal auditors.B: The increasing professionalism of internal auditors and the evolving economics of external auditing.C: The increased reliance on computerized accounting systems and the evolving economics of external auditing.

D: The globalization of audit entities and the increased reliance on computerized accounting systems.

Question: V1C1-0180After using the same public accounting firm for several years, the board of directors retained another public accounting firm to perform the annual financial audit in order to reduce the annual audit fee. The new firm has now proposed a onetime audit of the cost-effectiveness of the various operations of the business. The director of internal auditing has been asked to advise management in making a decision on the proposal.An argument can be made that the internal auditing department would be better able to perform such an audit becauseAnswersA: External auditors may not possess the same depth of understanding of the company as the internal auditors.B: Internal auditors are required to be objective in performing audits.C: Audit techniques used by internal auditors are different from those used by external auditors.

D: Internal auditors will not be vitally concerned with fraud and waste.

Question: V1C1-0181After using the same public accounting firm for several years, the board of directors retained another public accounting firm to perform the annual financial audit in order to reduce the annual audit fee. The new firm has now proposed a onetime audit of the cost-effectiveness of the various operations of the business. The director of internal auditing has been asked to advise management in making a decision on the proposal.Additional criteria that should be considered by management in evaluating the proposal would include all the following except:AnswersA: Existing expertise of internal auditing staff.B: Overall cost of the proposed audit.C: The need to develop in-house expertise.

D: The external auditor’s required adherence to the single audit concept.

Question: V1C1-0182To improve audit efficiency, internal auditors can rely on the work of external auditors if it isAnswersA: Performed after the internal audit.B: Primarily concerned with operational objectives and activities.C: Coordinated with the internal audit.

D: Conducted in accordance with the IIA Code of Ethics.

Question: V1C1-0183You are the internal audit director of a parent company that has foreign subsidiaries. Independent external audits performed for the parent company are not conducted by the same firm that conducts the foreign subsidiary audits.Since your department occasionally provides direct assistance to both external firms, you have copies of audit programs and selected working papers produced by each firm.The foreign subsidiary’s audit firm would like to rely on some of the work performed by the parent company’s audit firm, but it needs to review the working papers first. The audit firm has asked you for copies of the parent company’s audit firm working papers. Select the most appropriate response to the foreign subsidiary’s auditors.AnswersA: Provide copies of the working papers without notifying the parent company’s audit firm.B: Notify the parent company’s audit firm of the situation and request that either they provide the working papers or authorize you to do so.C: Provide copies of the working papers and notify the parent company’s audit firm that you have done so.

D: Refuse to provide the working papers under any circumstances.

Question: V1C1-0184You are the internal audit director of a parent company that has foreign subsidiaries. Independent external audits performed for the parent company are not conducted by the same firm that conducts the foreign subsidiary audits.Since your department occasionally provides direct assistance to both external firms, you have copies of audit programs and selected working papers produced by each firm.The foreign subsidiary’s audit firm wants to rely on an audit of a function at the parent company. The audit was conducted by the internal auditing department. To place reliance on the work performed, the foreign subsidiary’s auditors have requested copies of the working papers. Select the most appropriate response to the foreign subsidiary’s auditors.AnswersA: Provide copies of the working papers.B: Ask the parent company’s audit firm if it is appropriate to release the working papers.C: Ask the audit committee for permission to release the working papers.

D: Refuse to provide the working papers under any circumstances.

Question: V1C1-0185The director of internal auditing plans to meet with the independent outside auditor to discuss joint efforts regarding an upcoming audit of the company’s pension plan. The independent outside auditor has performed all audit work in this area in the past. The director’s objective is toAnswersA: Determine if audit work in this area could not be performed exclusively by internal auditing.B: Coordinate the pension audit so as to fulfill the scope of work and not duplicate work of the independent outside auditor.C: Ascertain which account balances have been tested by the independent outside auditor so that internal auditing may test the internal controls to determine the reliability of these balances.

D: Determine whether the independent outside auditor’s audit techniques, methods, and terminology should be used by internal auditing in this area to conform with past audit work or if the independent outside auditor should use techniques consistent with other internal auditors.

Question: V1C1-0186A Certified Internal Auditor (CIA) is working in a noninternal audit position as the director of purchasing. The CIA signs a contract to procure a large order from the supplier with the best price, quality, and performance. Shortly after signing the contract, the supplier presents the CIA with a gift of significant monetary value. Which of the following statements regarding the acceptance of the gift is correct?AnswersA: Acceptance of the gift would be prohibited only if it were noncustomary.B: Acceptance of the gift would violate the IIA Code of Ethics and would be prohibited for a CIA.C: Since the CIA is no longer acting as an internal auditor, acceptance of the gift would be governed only by the organization’s code of conduct.

D: Since the contract was signed before the gift was offered, acceptance of the gift would not violate either the IIA Code of Ethics or the organization’s code of conduct.

Question: V1C1-0187An auditor who is nearly finished with an audit discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing audit, and there is pressure to complete the current audit. The auditor notes the problem and passes the information on to the director of internal audit but does no further follow-up.The auditor’s actions wouldAnswersA: Be in violation of the IIA Code of Ethics for withholding meaningful information.B: Be in violation of the Standards because the auditor did not properly follow-up on a red flag that might indicate the existence of fraud.C: Not be in violation of either the IIA Code of Ethics or Standards.

D: Both a. and b.

Question: V1C1-0188As used by the internal auditing profession, the IIA Standards refer to all of the following except:AnswersA: Criteria by which the operations of an internal audit department are evaluated and measured.B: Criteria that dictate the minimum level of ethical actions to be taken by internal auditors.C: Statements intended to represent the practice of internal auditing, as it should be.

D: Criteria that are applicable to all types of internal audit departments.

Question: V1C1-0189Which of the following situations would be a violation of the IIA Code of Ethics?AnswersA: An auditor was subpoenaed in a court case in which a merger partner claimed to have been defrauded by the auditor’s company. The auditor divulged confidential audit information to the court.B: An auditor for a manufacturer of office products recently completed an audit of the corporate marketing function. Based on this experience, the auditor spent several hours one Saturday working as a paid consultant to a hospital in the local area that intended to conduct an audit of its marketing function.C: An auditor gave a speech at a local IIA chapter meeting outlining the contents of a program the auditor had developed for auditing electronic data interchange (EDI) connections. Several auditors from major competitors were in the audience.

D: During an audit, an auditor learned that the company was about to introduce a new product that would revolutionize the industry. Because of the probable success of the new product, the product manager suggested that the auditor buy additional stock in the company, which the auditor did.

Question: V1C1-0190In applying the standards of conduct set forth in the Code of Ethics, internal auditors are expected toAnswersA: Exercise their individual judgment.B: Compare them to standards in other professions.C: Be guided by the desires of the auditee.

D: Use discretion in deciding whether to use them or not.

Question: V1C1-0191During an audit of a manufacturing division of a defense contractor, the auditor came across a scheme that looked like the company was inappropriately adding costs to a cost-plus governmental contract. The auditor discussed the manner with senior management, which suggested that the auditor seek an opinion from legal counsel. The auditor did so.Upon review of the government contract, legal counsel indicated that the practice was questionable, but did offer the opinion that the practice was not technically in violation of the government contract. Based on legal counsel’s decision, the auditor decided to omit any discussion of the practice in the formal audit report that went to management and the audit committee, but did informally communicate legal counsel’s decision to management. Did the auditor violate the IIA’s Code of Ethics?AnswersA: No. The auditor followed up the matter with appropriate personnel within the organization and reached a conclusion that no fraud was involved.B: No. If a fraud is suspected, it should be resolved at the divisional level where it is taking place.C: Yes. It is a violation because all important information, even if resolved, should be reported to the audit committee.

D: Yes. Internal legal counsel’s opinion is not sufficient. The auditor should have sought advice from outside legal counsel.

Question: V1C1-0192An internal auditor recently terminated from a company due to downsizing has found a job with another company in the same industry. Which of the following disclosures made by the internal auditor to the new organization would constitute a violation of the IIA’s Code of Ethics?AnswersA: The auditor used the audit risk approach that was used by the auditor’s former employer in determining audit priorities in the new job.B: The new audit department does not utilize probability-proportional-to-size (PPS) sampling, and the auditor believes PPS sampling has advantages for many of the types of audits conducted by the new employer. The auditor conducts training sessions and develops forms to implement sampling in the same manner as the previous employer.C: While at the previous firm, the auditor conducted a great deal of research to identify “best practices” for the management of the treasury function as part of an audit for that firm. Since most of the research was done at home and during nonoffice hours, the auditor retained much of the research and plans to use it in conducting an audit of the treasury function at the new employer.

D: None of the above represents a violation of the Code.

Question: V1C1-0193Which of the following could be an organization factor that might adversely affect the ethical behavior of the director of internal auditing?AnswersA: The director reports directly to an independent audit committee of the board of directors.B: The director of internal auditing is not assigned any operational responsibilities.C: A director of internal auditing may not be appointed or approved without concurrence of the board of directors.

D: The director’s annual bonuses are based on dollar recoveries or recommended future savings as a result of audits.

Question: V1C1-0194The code of ethics of a professional organization sets forthAnswersA: Broad standards of conduct for the members of the organization.B: The organizational details of the profession’s governing body.C: A list of illegal activities that are proscribed to the members of the profession.

D: The criteria by which the performance of professional activities is to be evaluated and measured.

Question: V1C1-0195 The IIA’s Code of Ethics identifies three personal characteristics that form the foundation on which the entire Code rests. Which is not one of these three personal characteristics? Answers A: Objectivity. B: Diligence. C: Probity. D: Honesty.

Answer ExplanationsAnswer (a) is incorrect. This characteristic is mentioned in the Code.Answer (b) is incorrect. This characteristic is mentioned in the Code.Answer (c) is the correct answer. This is not a personal characteristic mentioned in the Code of Ethics.

Answer (d) is incorrect. This characteristic is mentioned in the Code.

Question: V1C1-0196Under the IIA’s Code of Ethics’ provisions with respect to gifts and fees, which of the following would be acceptable for an internal auditor to receive?AnswersA: A pen received from the sales manager of a subsidiary with the imprinted name of the company’s product and a phone number.B: A dinner and baseball tickets from the manager of a department being audited. The tickets are usually made available to employees of the audited department.C: A dinner and baseball tickets from the manager of a department that has never been audited and for which there are no plans for a future audit. The tickets are usually made available to employees of that department.

D: A bottle of whiskey from the corporate treasurer.

Question: V1C1-0197A Certified Internal Auditor is found to have committed a very serious violation of the Code of Ethics of the IIA.Which of the following describes the disciplinary action most likely to be imposed by the Institute? The CIA willAnswersA: Be required to take up to 40 hours of appropriate continuing professional education courses.B: Be required to retake the CIA Examination.C: Forfeit his or her membership in the Institute.

D: Be assessed a fine not to exceed $1,000.

Question: V1C1-0198Which of the following actions by an internal auditor would violate the IIA’s Code of Ethics?AnswersA: Attendance at an educational program offered by an auditee to all employees.B: Acceptance of airline tickets from an auditee.C: Disclosure, in an audit opinion, of all material facts relevant to the audit area.

D: Disposal of stock in the company prior to learning of a business downturn.

Question: V1C1-0199An internal auditor for XYZ company is auditing the revenues and operating expenses of a shopping mall managed by ABC company. ABC is the operating partner of this joint venture with XYZ. The internal auditor discovers numerous audit exceptions where some credits will be due to each party. Which of the following should the auditor report in this situation?AnswersA: Only those audit exceptions where credit is due to XYZ.B: If requested by ABC, detailed information on credits due ABC.C: Only those audit exceptions where credit is due ABC.

D: All material audit exceptions and provide ABC with a net amount due.

Question: V1C1-0200Which of the following actions by an auditor would violate the IIA’s Code of Ethics?AnswersA: An audit of an activity managed by the auditor’s spouse.B: A material financial investment in the company.C: Use of a company car.

D: A significant ownership interest in a nonrelated business.

Question: V1C1-0201Through an audit of the credit department, the director of internal auditing became aware of a material misstatement ofthe year-end accounts receivable balance. The external auditor has completed the audit without detecting the misstatement.What should the director do in this situation?AnswersA: Inform the external auditor of the misstatement.B: Report the misstatement to management when the external auditor presents his report.C: Exclude the misstatement from the internal audit report since the external auditor is responsible for expressing an opinion on the financial statements.

D: Perform additional audit work on account receivable balances to benefit the external auditor.

Question: V1C1-0202A Certified Internal Auditor who is judged by the board of directors of the IIA to be in violation of the provisions of the IIA’s Code of Ethics shall be subject toAnswersA: Suspension as a Certified Internal Auditor for a minimum of one year.B: Completion of additional continuing professional development hours to retain the Certified Internal Auditor designation.C: Suspension as a Certified Internal Auditor indefinitely until reinstatement by the board.

D: Forfeiture of the Certified Internal Auditor designation.

Question: V1C1-0203In a review of warranty programs for new products introduced by a company with low and declining profits, an auditor has determined, and management has acknowledged, that the company will be unable to fulfill promised warranty coverage. The auditor shouldAnswersA: Inform appropriate regulatory authorities.B: Inform customers.C: Inform the audit committee.

D: Resign from the employer.

Question: V1C1-0204A Certified Internal Auditor is found to have committed a violation of the Code of Ethics of the IIA. The violation is not serious enough to warrant the maximum disciplinary action. The most likely result is that the CIA willAnswersA: Be required to take up to 24 hours of appropriate continuing professional education courses.B: Lose his or her CIA designation permanently unless subsequent reinstatement is approved by the board of directors of the IIA.C: Be prohibited from engaging in the practice of internal auditing for a period not to exceed 60 days.

D: Receive from the Institute’s board of directors a written censure, which outlines the consequences of repeated similar actions.

Question: V1C1-0205Internal auditors should be prudent in their relationships with persons and organizations external to their employers.Which of the following activities would most likely not adversely affect internal auditors’ ethical behavior?AnswersA: Accepting compensation from professional organizations for consulting work.B: Serving as consultants to competitor organizations.C: Serving as consultants to suppliers.

D: Discussing audit plans or results with external parties.

Question: V1C1-0206A primary purpose for establishing a code of conduct within a professional organization is toAnswersA: Reduce the likelihood that members of the profession will be sued for substandard work.B: Ensure that all members of the profession perform at approximately the same level of competence.C: Demonstrate acceptance of responsibility to the interests of those served by the profession.

D: Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization.

Question: V1C1-0207An auditor discovers some material inefficiency in a purchasing function. The purchasing manager happens to be the auditor’s next-door neighbor and best friend. In accordance with the Code of Ethics, the auditor shouldAnswersA: Objectively include the facts of the case in the audit report.B: Not report the incident because of loyalty to the friend.C: Include the facts of the case in a special report submitted only to the friend.

D: Not report the friend unless the activity is illegal.

Question: V1C1-0208Which of the following actions could be construed as a violation of the IIA’s Code of Ethics?AnswersA: Failing to report to management information that would be material to management’s judgment.B: Rendering an opinion on internal financial statements.C: Turning a case over to the security department when an auditor suspects fraud, but has no proof.

D: Including an internal control problem in a report, when it has been corrected prior to completion of the audit.

Question: V1C1-0209Which of the following would constitute a violation of the IIA’s Code of Ethics?AnswersA: Janice has accepted an assignment to audit the electronics manufacturing division. Janice has recently joined the internal auditing department. But she was senior auditor for the external audit of that division and has audited many electronics companies during the past two years.B: George has been assigned to do an audit of the warehousing function six months from now. George has no expertise in that area but accepted the assignment anyway. He has signed up for continuing professional education courses in warehousing, which will be completed before his assignment begins.C: Jane is content with her career as an internal auditor and has come to look at it as a regular 9-to-5 job. She has not engaged in continuing professional education or other activities to improve her effectiveness during the last three years. However, she feels she is performing the same quality work she always has.

D: John discovered an internal financial fraud during the year. The books were adjusted to properly reflect the loss associated with the fraud. John discussed the fraud with the external auditor when the external auditor reviewed working papers detailing the incident.

Question: V1C1-0210Which of the following would be permissible under the IIA’s Code of Ethics?AnswersA: Disclosing confidential, audit-related information that is potentially damaging to the organization in a court of law in response to a subpoena.B: Using audit-related information in a decision to buy stock issued by the employer corporation.C: Accepting an unexpected gift from an employee whom you have praised in a recent audit report.

D: Not reporting significant findings about illegal activity to the audit committee because management has indicated it will handle the issue.

Question: V1C1-0211During an audit, an employee with whom you have developed a good working relationship informs you that she has some information about top management that would be damaging to the organization and may concern illegal activities.The employee does not want her name associated with the release of the information. Which of the following actions would be considered inconsistent with the IIA’s Code of Ethics and Standards?AnswersA: Assure the employee that you can maintain her anonymity and listen to the information.B: Suggest the person consider talking to legal counsel.C: Inform the individual that you will attempt to keep the source of the information confidential and will look into the matter further.

D: Inform the employee of other methods of communicating this type of information.

Question: V1C1-0212An internal auditor for a large regional bank holding company was asked to serve on the board of directors of a local bank. The bank competes in many of the same markets as the bank holding company, but focuses more on consumer financing than on business financing. In accepting this position, the auditorI. Violates the IIA Code of Ethics because serving on the board may be in conflict with the best interests of the auditor’s employer.II. Violates the IIA Code of Ethics because the information gained while serving on the board of directors of the local bank may influence recommendations regarding potential acquisitions.AnswersA: I only.B: II only.C: I and II.

D: Neither I nor II.

Question: V1C1-0213The director of internal auditing has been appointed to a committee to evaluate the appointment of the external auditors.The engagement partner for the external accounting firm wants the director to join him for a week of hunting at his private lodge. The director shouldAnswersA: Accept, assuming both their schedules allow it.B: Refuse on the grounds of conflict of interest.C: Accept as long as it is not charged to company time.

D: Ask the comptroller if this would be a violation of the company’s code of ethics.

Question: V1C1-0214In a review of travel and entertainment expenses, a Certified Internal Auditor questioned the business purposes of an officer’s reimbursed travel expenses. The officer promised to compensate for the questioned amounts by not claiming legitimate expenses in the future. If the officer makes good on the promise, the internal auditorAnswersA: Can ignore the original charging of the nonbusiness expenses.B: Should inform the tax authorities in any event.C: Should still include the finding in the audit report.

D: Should recommend that the officer forfeit any frequent flyer miles received as part of the questionable travel.

Question: V1C1-0215The standards of conduct set forth in the IIA’s Code of EthicsAnswersA: Provide basic principles in the practice of internal auditing.B: Are guidelines to assist internal auditors in dealing with auditees.C: Are rules that must be obeyed in all circumstances.

D: Provide a general understanding of the responsibility of internal auditing.

Question: V1C1-0216Today’s internal auditor will often encounter a wide range of potential ethical dilemmas, not all of which are explicitly addressed by the Institute of Internal Auditors’ Code of Ethics. If the auditor encounters such a dilemma, the auditor should alwaysAnswersA: Seek counsel from an independent attorney to determine the personal consequences of potential actions.B: Consider all parties affected and the potential consequences of actions, and take an action consistent with the objectives of internal auditing and the concepts embodied in the Institute of Internal Auditors’ Code of Ethics.C: Seek the counsel of the audit committee before deciding on an action.

D: Act consistently with the code of ethics adopted by the organization even if such action would not be consistent with the IIA’s Code of Ethics.

Question: V1C1-0217An internal auditor has been assigned to audit a foreign subsidiary. The auditor is aware that the social climate of the country is such that “facilitating payments” (bribes) are often used to make things happen and are an accepted part of that society. The auditor has completed an audit of the division and has found significant weaknesses relating to important controls. The division manager offers the auditor a substantial “facilitating payment” to omit the audit findings from the audit report with a provision that the auditor could revisit the division in six months so the auditor could verify that the problem areas had been properly addressed. The auditor shouldAnswersA: Not accept the payment since such acceptance would be in conflict with the Code of Ethics.B: Not accept the payment, but omit the findings as long as there is a verification visit in six months.C: Accept the offer since it is consistent with the ethical concepts of the country in which the division is doing business.

D: Accept the payment because it has the effect of doing the greatest good for the greatest number; the auditor is better off, the division is better off, and the organization is better off because there is strong motivation to correct the deficiencies found by the auditor.

Question: V1C1-0218A certified internal auditor (CIA), who performs financial, operational, and information systems audits, is now facing an ethical dilemma. During an audit, he discovered several illegal activities conducted by senior management of his firm. What should the auditor do now?AnswersA: Comply with the Institute of Management Accountant’s (IMA’s) Code of Ethics and StandardsB: Comply with the American Institute of Certified Public Accountant’s (AICPA’s) Code of Ethics and StandardsC: Comply with the Institute of Internal Auditor’s (IIA’s) Code of Ethics and Standards

D: Comply with the Information Systems and Audit Control Association’s (ISACA’s) Code of Ethics and Standards

Question: V1C1-0219A staff auditor has been assigned to the treasury audit for the second consecutive year. The auditor confirmed investment securities held by a brokerage house and realized that several large securities were improperly used as collateral for personal loans a few years ago by the current treasurer. Last year the staff auditor had mistakenly signed off on the audit steps involving the confirmations and verification of the securities without completing all of the steps. The audit manager also mistakenly signed off on the review last year. When the error was detected this year, the audit manager commented that “it was an error, but the loan has been repaid, and the securities returned. We have corrected the control weakness, and I’m positive it will not happen again. Pursuit of this issue will be an embarrassment to everyone involved. Leave it as it is.”Which of the following should be considered by the staff auditor when deciding whether to report the situation or not?AnswersA: Securities were used improperly as collateral.B: The mistake in signing off work that was not done.C: The repayment of loans and return of the securities.

D: The correction of the control weakness.

Question: V1C1-0220A staff auditor has been assigned to the treasury audit for the second consecutive year. The auditor confirmed investment securities held by a brokerage house and realized that several large securities were improperly used as collateral for personal loans a few years ago by the current treasurer. Last year the staff auditor had mistakenly signed off on the audit steps involving the confirmations and verification of the securities without completing all of the steps. The audit manager also mistakenly signed off on the review last year. When the error was detected this year, the audit manager commented that “it was an error, but the loan has been repaid, and the securities returned. We have corrected the control weakness, and I’m positive it will not happen again. Pursuit of this issue will be an embarrassment to everyone involved. Leave it as it is.”As a staff auditor, which of the following actions would be considered a violation of the IIA Standards or Code of Ethics?AnswersA: Inform the audit manager that you will be including the information in your working papers as an audit finding.B: Discuss the matter with the audit director without further discussion with the audit manager.C: Disclose the matter to the external auditor without further discussion.

D: Resign from the audit department and company if further action is not taken on the matter.

Question: V1C1-0221Which of the following situations would most likely be considered a violation of the IIA’s Code of Ethics and thus the Standards?AnswersA: As director of internal auditing you have become perplexed as to how to resolve a particular disagreement between you and auditee management regarding the finding and recommendation in a very sensitive audit area. Unsure as to what to do, you discuss the detail of the finding and your proposed recommendation with a fellow audit director you know from your work in the IIA’s local chapter.B: After researching and developing the proposed yearly audit plan, your company audit charter requires that, as director, you present the plan to the audit committee for its approval and suggestions.C: Your audit manager has just removed your most significant finding and recommendation from your audit report. Being the in-charge auditor, you have voiced your opposition to the removal and have explained that you know the reported condition exists. Although you agree that, technically, the audit lacks sufficient evidence to support the finding, management cannot explain the condition and your audit finding is the only reasonable conclusion.

D: Because your department lacks skill and knowledge in a specialty area, your audit director has engaged the services of an expert consultant. As audit manager, you have been asked to review the expert’s approach to the assignment. You are knowledgeable regarding the area under review but are hesitant to accept the assignment because you lack the expertise to judge the validity of the expert’s conclusion.

Question: V1C1-0222Internal auditors sometimes express opinions in audit reports in addition to stating facts. Due professional care requires that the auditor’s opinions beAnswersA: Based on sufficient factual evidence that warrants the expression of the opinions.B: Based on experience and not biased in any manner.C: Expressed only when requested by the auditee or executive management.

D: Limited to the effectiveness of controls and the appropriateness of accounting treatments.

Question: V1C1-0223An accounting association established a code of ethics for all members. Identify the association’s primary purpose for establishing the code of ethics.AnswersA: To outline criteria for professional behavior to maintain standards of competence, morality, honesty, and dignity within the association.B: To establish standards to follow for effective accounting practice.C: To provide a framework within which accounting policies could be effectively developed and executed.

D: To outline criteria that can be utilized in conducting interviews of potential new accountants.

Question: V1C1-0224During an audit, a Certified Internal Auditor (CIA) learned that certain individuals in the organization were involved in industrial espionage for the benefit of the organization. According to the IIA’s Code of Ethics, identify the auditor’s course of action.AnswersA: Report the facts to the appropriate individuals within the organization.B: No action is required since this condition is not detrimental to the organization.C: Note the condition in the working papers but refrain from reporting it because it benefits the organization.

D: Report the condition to the appropriate government regulatory agency.

Question: V1C1-0225An organization has recently placed a former operating manager in the position of director of internal auditing. The new director is not a member of the IIA and is not a CIA. Henceforth, the internal auditing department will be run strictly by the director’s standards, not the IIA’s. All four staff auditors are members of the IIA, but they are not CIAs.According to the Code of Ethics, what is the best course of action for the staff auditors?AnswersA: The Code does not apply because the auditors are not CIAs.B: The auditors should adopt suitable means to comply with the IIA Standards.C: The auditors must exhibit loyalty to the organization and ignore the IIA Standards.

D: The auditors must resign their jobs to avoid improper activities.

Question: V1C1-0226A primary purpose for establishing a code of conduct within a professional organization is toAnswersA: Reduce the likelihood that members of the profession will be sued for substandard work.B: Ensure that all members of the profession perform at approximately the same level of competence.C: Demonstrate acceptance of responsibility to the interests of those served by the profession.

D: Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization.

Question: V1C1-0227While performing an operational audit of the firm’s production cycle, an internal auditor discovers that, in the absence of specific guidelines, some engineers and buyers routinely accept vacation trips paid for by certain of the firm’s vendors. Other engineers and buyers will not accept even a working lunch paid for by a vendor. Which of the following actions should the internal auditor take?AnswersA: None. The engineers and buyers are professionals. It is inappropriate for an internal auditor to interfere in what is essentially a personal decision.B: Informally counsel the engineers and buyers who accept the vacation trips. This helps prevent the possibility of kickbacks, while preserving good auditor/auditee relations.C: Formally recommend that the organization establish a corporate code of ethics. Guidelines of acceptable conduct within which individual decisions may be made should be provided.

D: Issue a formal deficiency report naming the personnel who accept vacations but make no recommendations. Corrective action is the responsibility of management.

Question: V1C1-0228You work for an organization that has adopted a conflict-of-interest policy that prohibits any activity contrary to the best interests and well-being of the organization. Which of the following statements should be included in the policy to illustrate unacceptable behavior?AnswersA: Serving as a member of the board of directors of nonprofit organization dedicated to preservation of the environment.B: Serving as an elected official (part-time) of a local government.C: Providing a mailing list of company employees to a relative who is offering training that might benefit the organization.

D: Teaching (part-time) at a local university.

Question: V1C1-0229 The Code of Ethics requires IIA members to exercise three particular qualities in the performance of their duties. These qualities are Answers A: Honesty, objectivity, and diligence. B: Timeliness, sobriety, and clarity. C: Knowledge, skill, and discipline. D: Punctuality, loyalty, and dignity.

Answer ExplanationsAnswer (a) is the correct answer. The first Standard of Conduct states these qualities.Answer (b) is incorrect. Timeliness and sobriety are not mentioned.Answer (c) is incorrect. They are not mentioned in the Code of Ethics.

Answer (d) is incorrect. Punctuality is not mentioned in the Code of Ethics.

Question: V1C1-0230According to the Code of Ethics, the IIA board of directors may take action against a CIA whose work is dishonest byAnswersA: Requesting that the CIA be fired by the employing company.B: Reporting the dishonest act to legal authorities.C: Having the CIA’s employer issue a reprimand.

D: Revoking the auditor’s CIA designation.

Question: V1C1-0231Which of the following involves a violation of the Institute of Internal Auditors’ Code of Ethics?AnswersA: An auditor informed a friend in an operating department of the expected closing of that department.B: Unlike other employees, the auditors always fly first-class to maintain the appearance of independence.C: With the consent of senior management, an auditor accepted a gift from an auditee department that was given as a reward for finding a major inefficiency.

D: An auditor accepted a promotional calendar from the sales manager.

Question: V1C1-0232The board of directors of the IIA has been informed that a CIA was tried and convicted of tax evasion. The probable consequences for this person areAnswersA: Immediate revocation of the CIA designation by the Internal Auditing Standards Board.B: Nothing; the act was performed outside of the normal line of work.C: Censure by the director of professional practices of the Institute.

D: Review by the board of directors and forfeiture of the CIA designation.

Question: V1C1-0233An internal auditing director learns that a staff auditor has provided confidential information to a relative. Both the director and staff auditor are Certified Internal Auditors (CIAs). Although the auditor did not benefit from the transaction, the relative used the information to make a significant profit. The most appropriate way for the director to deal with this problem is toAnswersA: Verbally reprimand the auditor.B: Summarily discharge the auditor and notify the IIA.C: Take no action since the auditor did not benefit from the transaction.

D: Inform the IIA’s board of directors and take the personnel action required by company policy.

Question: V1C1-0234 During the course of an audit, an auditor discovers that a clerk is embezzling company funds. Although this is the first embezzlement ever encountered and the organization has a security department, the auditor decides to personally interrogate the suspect. If the auditor is violating the IIA’s Code of Ethics, the rule violated is most likely Answers A: Failing to show due diligence. B: Lack of loyalty to the organization. C: Lack of competence in this area. D: Failing to comply with the law.

Answer ExplanationsAnswer (a) is incorrect. Diligence does not override professional competence or use of good judgment.Answer (b) is incorrect. Loyalty would be better exhibited by consulting professionals in interrogation and knowing your limits of competence.Answer (c) is the correct answer. The Code of Ethics requires members and CIAs to refrain from undertaking services that cannot be reasonably completed with professional competence.

This answer is incorrect. Refer to the correct answer explanation.

Question: V1C1-0235The director of internal auditing of a company is aware of a material inventory shortage caused by internal control deficiencies at one manufacturing plant. The shortage and related causes are of sufficient magnitude to impact the external auditor’s report. Based on the IIA’s Code of Ethics, identify the director’s most appropriate course of actionAnswersA: Say nothing; guard against interfering with the independence of the external auditors.B: Discuss the issue with management and take appropriate action to ensure that the external auditors are informed.C: Inform the external auditors of the possibility of a shortage but allow them to make an independent assessment of the amount.

D: Report the shortages to the board of directors and allow the board to report it to the external auditor.

Question: V1C1-0236Which of the following statements is not appropriate to include in a manufacturer’s conflict-of-interest policy? An employee shall notAnswersA: Accept money, gifts, or services from a customer.B: Participate (directly or indirectly) in the management of a public agency.C: Borrow from or lend money to vendors.

D: Use company information for private purposes.

Question: V1C1-0237A firm’s code of ethics contains the following statement: “Employees shall not accept gifts or gratuities over $50 in value from persons or firms with whom our organization does business.” This provision is designed to preventAnswersA: Diversion of the firm’s securities by an employee.B: Excessive sales allowances granted by an employee.C: Failure by an employee to record cash collections.

D: Participation by an employee in a working lunch funded by one of the firm’s suppliers.

Question: V1C1-0238A code of conduct was developed several years ago and distributed by a large financial institution to all its officers and employees. Identify the best audit approach to provide the audit committee with the highest level of comfort about the code of conduct.AnswersA: Fully evaluate the comprehensiveness of the code and compliance therewith, and report the results to the audit committee.B: Fully evaluate company practices for compliance with the code, and report to the audit committee.C: Review employee activities for compliance with provisions of the code, and report to the audit committee.

D: Perform tests on various employee transactions to detect potential violations of the code of conduct.

Question: V1C1-0239A review of an organization’s code of conduct revealed that it contained comprehensive guidelines designed to inspire high levels of ethical behavior. The review also revealed that employees were knowledgeable of its provisions.However, some employees still did not comply with the code. What element should a code of conduct contain to enhance its effectiveness?AnswersA: Periodic review and acknowledgment by all employees.B: Employee involvement in its development.C: Public knowledge of its contents and purpose.

D: Provisions for disciplinary action in the event of violations.

Question: V1C1-0240The best reason for establishing a code of conduct within an organization is that such codesAnswersA: Are required by the Foreign Corrupt Practices Act.B: Express standards of individual behavior for members of the organization.C: Provide a quantifiable basis for personnel evaluations.

D: Have tremendous public relations potential.

Question: V1C1-0241A company with a whistle-blowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of its corporate ethical code.Among the allegations against the auditors were the following:1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college.2. Auditor 1 owns stock in the employer company.3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor’s division was going to be closed down in about six months.4. Auditor 2 received an item of value from a local nonprofit organization of purchasing agents for whom he gave a speech.5. Auditor 2 received an item of value from a customer of the employer.6. Auditor 2 has a part-time job as president of a local charitable organization.7. Auditor 2 shared audit techniques with auditors from another company while attending a professional meeting.8. A buyer accepted a kickback of $500 to give bid amounts to a supplier to enable that supplier to bid the contract. Auditor 2 omitted this information from the audit report since the contract amount was not material to the financial statements.9. Auditor 3 received royalties from a publisher for authoring a professional book on internal auditing.10. Auditor 3 has a part-time job as a real estate broker, and his real estate firm recently received a commission from the employer company.11. Auditor 3 received an item of value from a fellow employee in the same company whose department has never been audited and whose department is not scheduled to be audited in the foreseeable future.12. Auditor 3 did not include in an audit report that the bottlenecks in a shipping department were caused by the absence of the supervisor. The supervisor was the auditor’s friend and neighbor who had a hospitalized child requiring him to miss work off and on for several weeks.How many of the allegations about Auditor 1 represent violations of the IIA’s Code of Ethics?AnswersA: None.B: One.C: Two.

D: Three.

Question: V1C1-0242A company with a whistle-blowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of its corporate ethical code.Among the allegations against the auditors were the following:1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college.2. Auditor 1 owns stock in the employer company.3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor’s division was going to be closed down in about six months.4. Auditor 2 received an item of value from a local nonprofit organization of purchasing agents for whom he gave a speech.5. Auditor 2 received an item of value from a customer of the employer.6. Auditor 2 has a part-time job as president of a local charitable organization.7. Auditor 2 shared audit techniques with auditors from another company while attending a professional meeting.8. A buyer accepted a kickback of $500 to give bid amounts to a supplier to enable that supplier to bid the contract. Auditor 2 omitted this information from the audit report since the contract amount was not material to the financial statements.9. Auditor 3 received royalties from a publisher for authoring a professional book on internal auditing.10. Auditor 3 has a part-time job as a real estate broker, and his real estate firm recently received a commission from the employer company.11. Auditor 3 received an item of value from a fellow employee in the same company whose department has never been audited and whose department is not scheduled to be audited in the foreseeable future.12. Auditor 3 did not include in an audit report that the bottlenecks in a shipping department were caused by the absence of the supervisor. The supervisor was the auditor’s friend and neighbor who had a hospitalized child requiring him to miss work off and on for several weeks.How many of the allegations about Auditor 2 represent violations of the IIA’s Code of Ethics?AnswersA: One.B: Two.C: Three.

D: Four.

Question: V1C1-0243A company with a whistle-blowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of its corporate ethical code.Among the allegations against the auditors were the following:1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college.2. Auditor 1 owns stock in the employer company.3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor’s division was going to be closed down in about six months.4. Auditor 2 received an item of value from a local nonprofit organization of purchasing agents for whom he gave a speech.5. Auditor 2 received an item of value from a customer of the employer.6. Auditor 2 has a part-time job as president of a local charitable organization.7. Auditor 2 shared audit techniques with auditors from another company while attending a professional meeting.8. A buyer accepted a kickback of $500 to give bid amounts to a supplier to enable that supplier to bid the contract. Auditor 2 omitted this information from the audit report since the contract amount was not material to the financial statements.9. Auditor 3 received royalties from a publisher for authoring a professional book on internal auditing.10. Auditor 3 has a part-time job as a real estate broker, and his real estate firm recently received a commission from the employer company.11. Auditor 3 received an item of value from a fellow employee in the same company whose department has never been audited and whose department is not scheduled to be audited in the foreseeable future.12. Auditor 3 did not include in an audit report that the bottlenecks in a shipping department were caused by the absence of the supervisor. The supervisor was the auditor’s friend and neighbor who had a hospitalized child requiring him to miss work off and on for several weeks.How many of the allegations about Auditor 3 represent violations of the IIA’s Code of Ethics?AnswersA: One.B: Two.C: Three.

D: Four.