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Question 1:

An internal auditor is assigned to conduct an audit of security for a local area network (LAN) in the finance department of the organization. Investment decisions, including the use of hedging strategies and financial derivatives, use data and financial models which run on the LAN. The LAN is also used to download data from the mainframe to assist in decisions. Which of the following should be considered outside the scope of this security audit engagement?

A. Investigation of the physical security over access to the components of the LAN.

B. The ability of the LAN application to identify data items at the field or record level and implement user access security at that level.

C. Interviews with users to determine their assessment of the level of security in the system and the vulnerability of the system to compromise.

D. The level of security of other LANs in the company which also utilize sensitive data.

Correct Answer: D

Question 2:

An auditor plans to analyze customer satisfaction, including. (1) customer complaints recorded by the customer service department during the last three months; (2) merchandise returned in the last three months; and (3) responses to a survey of customers who made purchases in the last three months. Which of the following statements regarding this audit approach is correct?

A. Although useful, such an analysis does not address any risk factors.

B. The survey would not consider customers who did not make purchases in the last three months.

C. Steps 1 and 2 of the analysis are not necessary or cost-effective if the customer survey is comprehensive.

D. Analysis of three months\’ activity would not evaluate customer satisfaction.

Correct Answer: B

Question 3:

In order to effectively elicit sensitive information from an employee during an audit engagement, an auditor should:

A. Tell the employee a piece of information obtained from a coworker in a previous interview.

B. Put sensitive questions at the beginning of a questionnaire to ensure that they are answered.

C. Explain that the auditor\’s reputation for integrity, which is vital to the auditor\’s business success, would be seriously damaged if confidentiality were breached.

D. Point out that management has given the auditor full authority to conduct this interview.

Correct Answer: C

Question 4:

Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?

A. Observation.

B. Tracing.

C. Re-computation.

D. Vouching.

Correct Answer: B

Question 5:

Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?

A. Facilitated meeting

II. Survey

III. Management-produced analysis

B. I only

C. I and III only

D. II and III only

E. I, II, and III

Correct Answer: C

Question 6:

If an organization\’s chief audit executive wants to implement continuous auditing, what is the appropriate order in which key steps should be undertaken?

A. Identify business applications that require access.

II. Implement steps to continuously assess risks and controls.

III. Define objectives of continuous auditing.

IV. Manage and report results.

B. III, I, IV, II.

C. II, I, III, IV.

D. III, I, II, IV.

E. II, III, I, IV.

Correct Answer: C

Question 7:

Which of the following is an example of the verification of internal documentary evidence?

A. Reviewing a carrier\’s bill of lading.

B. Reconciling a vendor\’s month-end statement.

C. Vouching a copy of a sales invoice to receivables.

D. Recalculating a customer\’s purchase order.

Correct Answer: C

Question 8:

An internal auditor provided the following statement about division A\’s performance during the month: “Because supplies of raw material X were scarce, division A\’s profits declined by 15 percent.”

Which of the following can be validly concluded from the auditor\’s statement?

A. Division A\’s production level declined by 15 percent.

II. Division A could have sold more products than it produced.

III. Division A usually sells all of the products that it produces.

B. I only

C. II only

D. III only

E. I and II only

Correct Answer: B

Question 9:

An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?

A. Review the controls over payroll in both the company and the service bureau.

B. Review only the company\’s controls over data sent to and received from the service bureau.

C. Review only the controls over payments to the service bureau based on the contract.

D. Cancel the engagement because the processing is being performed outside of the organization.

Correct Answer: A

Question 10:

Which of the following might alert an auditor to the possibility of fraud in a division?

A. The division is not scheduled for an external audit this year.

II. Sales have increased by 10 percent.

III. A significant portion of management\’s compensation is directly tied to reported net income of the division.

B. I only

C. III only

D. I and II only

E. I, II, and III

Correct Answer: B

Question 11:

The most common motivation for management fraud is the existence of:

A. Vices, such as a gambling habit.

B. Job dissatisfaction.

C. Financial pressures on the organization.

D. The challenge of committing the perfect crime.

Correct Answer: C

Question 12:

Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?

A. Integrated test facility.

B. Parallel simul-ation.

C. Test data.

D. Embedded audit routines.

Correct Answer: D

Question 13:

An internal auditor would most likely use attributes sampling when testing which of the following?

A. Accounts receivable balances.

B. Correct coding of accounts payable disbursement vouchers.

C. Year-end inventory value.

D. Fixed asset book value.

Correct Answer: B

Question 14:

A limitation of using ratio analysis in an audit engagement is that it:

A. Often uses financial information provided by management which has not been reviewed for reliability and validity.

B. Is an expensive method of testing.

C. Requires computer software in order to develop meaningful interpretations of data.

D. Is useful only when comparisons can be made across other industries.

Correct Answer: A

Question 15:

Which of the following would be the best audit procedure to use to determine if a division\’s unusually high sales and gross margin for November and December were the result of fraudulently recorded sales?

A. Trace a sample of shipping documents to related sales invoices to verify proper billing.

B. Confirm accounts receivable balances with customers.

C. Compare sales and gross margin totals with those of the previous ten months and the first month of the following year.

D. Use regression analysis techniques to estimate the sales and cost of goods sold for November and December.

Correct Answer: B

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