1.

The primary objective of internal auditing is to:

Select one:
a. Perform the preliminary work of external financial statement audit.
b. Find errors and fraud within the company.
c. Provide an opinion about the accuracy and completeness of the quarterly financial statements.
d. Help the employees of the company to effectively perform their jobs.
If employees can more effectively perform their jobs then there is greater chance that the goals and
objectives of the company will be realized.

2. An appropriate internal auditing role in a feasibility study is to

Select one:
a. Serve on the task force for the preliminary survey.
b. Ascertain if the feasibility study addresses cost-benefit relationships.
Internal auditors must consider standards of control and review procedures before implementation.
But objectivity would be considered to be impaired if they would design, install, draft procedures, or
operate systems (PA 1120-1). Therefore, ascertaining if the feasibility study addresses cost-benefit
relationships would be an appropriate role for the internal auditor.

c. Participate in the drafting of recommendations for the computer acquisition and implementation.

d. Determine the requirements for preparing a manual of specifications.

3. An internal auditor fails to discover an employee fraud during an assurance

engagement. The nondiscovery is most likely to suggest a violation of the
Standards if it was the result of a
Select one:
a. Determination that any possible fraud in the area would not involve a material amount.
b. Presumption that the internal controls in the area were adequate and effective.
The internal auditor must exercise due professional care by considering the adequacy and
effectiveness of risk management, control, and governance processes (Standard 1220.A1).

c. Failure to perform a detailed review of all transactions in the area.

d. Determination that the cost of extending procedures in the area would exceed the potential
benefits.
4. An internal auditor judged an item to be immaterial when planning an
assurance engagement. However, the assurance engagement may still include the
item if it is subsequently determined that
Select one:
a. Miscellaneous income is affected.
b. Adverse effects related to the item are likely to occur.
If adverse effects related to the item come to the attention of the internal auditor then it would be
considered appropriate to include these items in the engagement.

c. Related information is reliable.

d. Sufficient staff is available.

5. Internal auditing is a dynamic profession. Which of the following best describes

the scope of internal auditing as it has developed to date?
Select one:
a. Internal auditing involves evaluating the effectiveness and efficiency with which resources are
employed.
b. Internal auditing has evolved to evaluating all risk management, control, and governance systems.
The Institute of Internal Auditors (IIA), the U.S. professional organization of internal auditors, has
defined internal auditing as: "an independent, objective assurance and consulting activity designed
to add value and improve an organization's operations. It helps an organization accomplish its
objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness
of risk management, control and governance processes."

c. Internal auditing involves evaluating compliance with laws, regulations, and contracts.

d. Internal auditing has evolved to verifying the existence of assets and reviewing the means of
safeguarding assets.

6. An accounting association established a code of ethics for all members. What is

one of the association's primary purposes for establishing the code of ethics?
Select one:
a. To establish standards to follow for effective accounting practice.
b. To outline criteria that can be used in conducting interviews of potential new accountants.
c. To outline criteria for professional behavior to maintain standards of integrity and objectivity.
The primary purpose for establishing the code of ethics is to outline criteria for professional behavior
to maintain standards of integrity, objectivity, confidentiality, and competence.

d. To provide a framework within which accounting policies could be effectively developed and
executed.
7. In some countries, governmental units have established audit standards. For example, in the
United States, the General Accounting Office has developed standards for the conduct of
governmental audits, particularly those that relate to compliance with government grants. In
performing governmental grant compliance audits, the auditor should
Select one:
a. Be guided by the more general standards that have been issued by the public accounting
profession.
b. Follow both The IIA Standards and any additional governmental standards.
Rule of Conduct 4.2 states, "Internal auditors shall perform internal auditing services in accordance
with the International Standards for the Professional Practice of Internal Auditing". In addition, the
internal auditor is obligated to follow the government’s standards when performing grant compliance
audits.

c. Be guided only by the governmental standards.

d. Be guided only by The IIA Standards because they are more encompassing.

8. One of the purposes of the International Standards for the Professional Practice

of Internal Auditing as stated in the Introduction to the current version of the
Standards is to
Select one:
a. Encourage the professionalization of internal auditing.
b. Establish the independence of the internal audit activity and emphasize the objectivity of internal
auditing.
c. Encourage external auditors to make more extensive use of the work of internal auditors.
d. Establish the basis for evaluating internal auditing performance.
According to the IIA, the Standards are intended to: (1) State basic principles for the practice of
internal auditing; (2) Provide a framework for performing and promoting value added internal audit
activities; (3) Establish the basis for evaluating internal auditing performance; and (4) Improve
organizational processes and operations.

9. A major reason for establishing an internal audit activity (IAA) is to

Select one:
a. Ensure the reliability and integrity of financial and operational information.
b. Relieve overburdened management of the responsibility for establishing effective controls.
c. Evaluate and improve the effectiveness of control processes.
This is the major reason for establishing the internal audit activity. The internal auditing activity
"helps an organization accomplish it objectives by bringing systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control, and governance processes."

d. Safeguard resources entrusted to the organization.

10. The internal auditing profession is believed to have advanced primarily as a

consequence of
Select one:
a. The limitation of the external audit's scope.
b. Increased complexity and sophistication of business operations.
The increase complexity and sophistication of the business operations required management to rely
more on the internal audit activity. The internal audit activity adds value by evaluating and
contributing to the improvement of the risk management, control and governance processes.

c. Job qualification specifications that include added emphasis on background knowledge and skills.

d. Increased interest by graduating students and experienced auditors.

11. Auditing 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 auditor
Select one:
a. Does not have sufficient time to formulate a recommendation due to audit budget pressures.
b. May lose independence by being perceived as making operational decisions.
c. May not always understand the true cause of the finding being reported.
The true cause of a finding may require additional expertise and may only be determi-nable through
additional management study.

d. Can avoid the confrontation by letting management solve its own problems.

12. As a staff auditor, which of the following actions would be considered a

violation of the Standards or Code of Ethics?
Select one:
a. Discuss the matter with the audit director without further discussion with the audit manager.
b. Inform the audit manager that you will be including the information in your working papers as an
audit finding.
c. Disclose the matter to the external auditor without further discussion.
It is the CAE who is responsible to communicate with the external auditor.
d. Resign from the audit department and company if further action is not taken on the matter.

13.The chief audit executive (CAE) of internal auditing of a mid-sized internal

auditing organization was concerned that management might outsource the internal
auditing function. Therefore, the CAE adopted a very aggressive program to promote
the internal auditing department within the organization. The CAE 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 CAE 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 EDP auditor participated as
part of a development team to review the control pro-cedures to be incorporated into
a major computer application under development. 4. Given limited resources, the
CAE 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 on at least a three-year interval. 5. In order to save time, the CAE 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 it to evaluate the auditee's operations. If the auditee
disagreed with the criteria, a negotiation took place until acceptable criteria could be
agreed upon. The audit report commented on the auditee's operations in conjunction
with the agreed-upon criteria. Which of the following elements of Action 1 taken by
the CAE would be considered a violation of the 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.
Select one:
a. II and III.
b. I only.
c. I and III.
d. I and II.
The CAE dramatically changed the nature of the audit function without consulting the audit
committee, management, or the audit department charter. A second violation is the omission of
negative findings.
14. The chief audit executive (CAE) of internal auditing of a mid-sized internal
auditing organization was concerned that management might outsource the internal
auditing function. Therefore, the CAE adopted a very aggressive program to promote
the internal auditing department within the organization. The CAE 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 CAE 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 EDP 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
CAE 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 on at least a three-year interval. 5. In order to save time, the CAE 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 it to evaluate the auditee's operations. If the auditee
disagreed with the criteria, a negotiation took place until acceptable criteria could be
agreed upon. The audit report commented on the auditee's operations in conjunction
with the agreed-upon criteria.Considering Actions 2, 3 and 4 that were taken, which
would be considered a violation of the Standards?
Select one:
a. None of the Actions.
None of the actions constitute a violation of the Standards.

b. Action 2 and 3 only.

c. Action 4 only.

d. Actions 2, 3, and 4.

15. The chief audit executive (CAE) of internal auditing of a mid-sized internal
auditing organization was concerned that management might outsource the internal
auditing function. Therefore, the CAE adopted a very aggressive program to promote
the internal auditing department within the organization. The CAE 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 CAE 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 EDP 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
CAE 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 on at least a three-year interval. 5. In order to save time, the CAE 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 it to evaluate the auditees operations. If the auditee
disagreed with the criteria, a negotiation took place until acceptable criteria could be
agreed upon. The audit report commented on the auditees operations in conjunction
with the agreed-upon criteria.Is Action 5 a violation of the Standards?
Select one:
a. No. Auditors are not required to fill out internal control questionnaires on every audit.
Auditors are not required to perform control evaluations and certainly are not required to fill out
standard internal control questionnaires.

b. Yes. Internal control should be evaluated on every audit engagement and the internal control
questionnaire is the most efficient method to do so.
c. Yes. Internal control should be evaluated on every audit, but the internal control questionnaire is
not the mandated approach to evaluate the controls.

d. No. Auditors may omit necessary procedures if there is a time constraint. It is a matter of audit
judgment.

16. The chief audit executive (CAE) of internal auditing of a mid-sized internal
auditing organization was concerned that management might outsource the internal
auditing function. Therefore, the CAE adopted a very aggressive program to promote
the internal auditing department within the organization. The CAE 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 CAE 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 EDP 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
CAE 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 on at least a three-year interval. 5. In order to save time, the CAE 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 it to evaluate the auditee's operations. If the auditee
disagreed with the criteria, a negotiation took place until acceptable criteria could be
agreed upon. The audit report commented on the auditee's operations in conjunction
with the agreed-upon criteria.Regarding Action 6, which of the following elements of
the action would be considered a violation of the Standards?
Select one:
a. Commenting on the agreed-upon criteria.
b. All of the above.
c. Failing to report the lack of criteria to appropriate level of management.
Failing to report the lack of criteria would be a violation of the Standards. The lack of established
criteria should be reported to the appropriate levels of management. This would normally be one
level above the auditee. The negotiated formulation of the criteria may result in the correct criteria,
but it should be discussed with, and communicated to, the appropriate level of management.

d. Developing a set of criteria to present to the auditee as a basis for evaluating the auditee's
operations.

17. The purposes of the Standards include all of the following except
Select one:
a. Delineating basic principles that represent the practice of internal auditing as it should be.
b. Guiding the ethical conduct of internal auditors.
Guiding the ethical conduct of the internal auditors is not one of the four purposes of the Standards.
The four purposes include: (1) Delineate basic principles that represent the practice of internal
auditing as it should be; (2) Provide a framework for performing and promoting a broad range of
value-added internal audit activities; (3) Establish the basis for the measurement of internal audit
performance; and (4) Foster improved organizational processes and operations.

c. Fostering improved organizational processes and operations.

d. Establishing the basis for the measurement of internal audit performance.

18. Accepting the concept that internal auditing should be an integral part of an
organization can involve a major change of attitude on the part of top
management. Which of the following would be the best way for internal auditors
to convince management regarding the need for and benefits of internal auditing?
Select one:
a. Persuading top managers to accept the idea of internal audits by contacting company
shareholders and regulatory agencies.
b. Involving top management in deciding which audit findings will be reported.
c. Negotiating with top management to provide them with rewards, such as favorable audits.
d. Educating top managers about the benefits and communicating with them on a regular basis.
Education and communication, although lengthy and costly, are the only way to achieve long-term
results.

19. As used by the internal auditing profession, the Standards refers to all of the
following except
Select one:
a. Criteria which dictate the minimum level of ethical actions to be taken by internal auditors.
The Code of Ethics defines the minimum ethical standards for the internal auditor, not the
Standards.

b. Statements intended to represent the practice of internal auditing as it should be.

c. Criteria that are applicable to all types of internal audit activities.

d. Criteria by which the performance of an internal audit activity can be evaluated.

20. The purpose of the Standards includes all of the following except
Select one:
a. Outline the basic principles that represent best practice of internal auditing.
b. Foster improved organizational processes and operations.
c. To establish the basis for the CIA certification program.
The primary purpose of the Standards is to establish a basis for measuring and guiding internal audit
operations, not establishing the CIA certification program.

d. Provide a framework for performing and promoting a broad range of value-added internal audit
activities.

21. The interpretation related to quality assurance given by the Standards is that
Select one:
a. The internal audit activity is primarily measured against the Institute's Code of Ethics.
b. Continual supervision is limited to the planning, examination, evaluation, communication, and
follow-up process.
c. External assessments can provide senior management and the board with independent assurance
about the quality of the internal audit activity.
External assessments of an IAA contain an expressed opinion as to the entire spectrum of
assurance and consulting work performed (or that should have been performed based on the
internal audit charter) by the IAA, including its conformance with the Definition of Internal Auditing,
the Code of Ethics, and the Standards and, as appropriate, includes recommendations for
improvement. These assessments can have considerable value to the CAE and other members of
the IAA, especially when benchmarking and best practices are shared (PA 1312-1.2).

d. Appropriate follow-up to an external assessment is the responsibility of the chief audit executive's
immediate supervisor.

22. The benefits from internal auditing include all of the following except
Select one:
a. Management benefits because the internal audit activity is able to help them identify and minimize
risks.
b. Employees benefit because the internal audit activity can help them effectively perform their jobs.
c. The external auditor benefits because the internal audit activity is able to provide an opinion about
the accuracy and completeness of the annual financial statements.
Internal auditors are not able to provide an opinion about the accuracy and completeness of the
annual financial statement. This is solely the responsibility of the external auditor.

d. Society benefits from internal auditing because the internal auditor promotes the efficient and
effective use of resources.

23. The function of internal auditing, as related to communicating results, is to

Select one:
a. Review the expenditure items and match each item with the expenses incurred.
b. Ensure compliance with reporting procedures.
c. Determine whether any employees are expending funds without authorization.
d. Identify inadequate controls that increase the likelihood of unauthorized expenditures.
The internal audit activity should identify and evaluate the effectiveness of controls and develop
recommendations for improvement.

From a modern internal auditing perspective, which one of the following

statements represents the most important benefit of an internal auditing activity
to management?
Select one:
a. Assurance that fraudulent activities will be detected.
b. Assurance that the organization is complying with legal requirements.
c. Assurance that there is reasonable control over day-to-day operations.
Internal audit activities can assist the management of a company in its responsibility of maintaining
effective controls by evaluating the effectiveness of those controls with the goal of continuous
improvement.

d. Assurance that published financial statements are correct.