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IIA IIA-CHAL-QISA Exam Syllabus Topics:
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NEW QUESTION # 10
Which of the following is an example of a properly supervised engagement?
- A. Auditors are asked to keep a daily record of their activity for review by the auditor in charge following the engagement.
- B. The auditor in charge provides reasonable assurance that engagement objectives were met
- C. The senior internal auditor requires each auditor to review and initial colleagues' workpapers for completeness and format
- D. A new internal auditor is accompanied by an experienced auditor during a highly sensitive fraud investigation.
Answer: B
Explanation:
Supervision in Internal Audit: Effective supervision ensures that the engagement is carried out according to plan, objectives are met, and quality standards are maintained. It involves guiding, mentoring, and reviewing the work of auditors throughout the engagement.
IIA Standards:
* Standard 2340 - Engagement Supervision: Internal audit engagements must be properly supervised to ensure objectives are achieved, quality is maintained, and staff are developed.
* Proper supervision includes overseeing the engagement, providing direction, and ensuring that work complies with standards and achieves engagement objectives.
Examples of Proper Supervision:
* Reasonable Assurance: The auditor in charge providing reasonable assurance that engagement objectives were met is a fundamental aspect of effective supervision. It ensures that the engagement delivers the intended outcomes and adheres to quality standards.
* Daily Records and Workpaper Review: Options A and B involve administrative tasks and peer review, which are supportive but do not alone constitute comprehensive supervision.
* Accompanied Training: Option C involves on-the-job training, which is beneficial but not the primary aspect of engagement supervision.
NEW QUESTION # 11
The chief audit executive (CAE) has assigned an internal auditor to an upcoming engagement. Which of the following requirements would most likely indicate that the Internal auditor wasassigned to an assurance engagement?
- A. The CAE must personally obtain the needed skills, knowledge, or other competencies if the internal auditor does not have them.
- B. The assigned internal auditor must determine the objectives, scope, and techniques of the engagement.
- C. The assigned internal auditor must maintain objectivity while performing the engagement
- D. The assigned internal auditor must not assume management responsibilities while performing the engagement.
Answer: D
Explanation:
* Introduction:
* Assurance engagements require internal auditors to maintain objectivity and avoid conflicts of interest.
* Role of Internal Auditors in Assurance Engagements:
* They must remain independent and not take on roles that could compromise their impartiality.
* Options Analysis:
* Option A: Determining the objectives, scope, and techniques can be part of their role but does not define an assurance engagement specifically.
* Option B: The CAE obtaining skills or competencies personally is not a standard requirement for assurance engagements.
* Option C: Not assuming management responsibilities is crucial to maintain independence and objectivity during assurance engagements.
* Option D: While maintaining objectivity is important, it is not the distinguishing feature of being assigned to an assurance engagement.
* Conclusion:
* The key requirement indicating an internal auditor was assigned to an assurance engagement is that they must not assume management responsibilities during the engagement.
NEW QUESTION # 12
With regard to project management, which of the following statements about project crashing is true?
- A. It is a compression technique in which resources are added to the project
- B. It leads to an increase in risk and often results in rework.
- C. It is an optimization technique where activities are performed in parallel rather than sequentially
- D. It involves a revaluation of project requirements and/or scope.
Answer: A
Explanation:
Project crashing is a schedule compression technique used in project management to shorten the project duration without changing the project scope. It involves adding additional resources to critical path activities to complete them faster. This method can lead to increased costs but aims to reduce the project timeline effectively. Crashing is often used when project deadlines are tight and time is more critical than budget.
NEW QUESTION # 13
Which of the following statements is most accurate with respect to the required elements of the quality assurance and improvement program?
- A. Quality assessments focus on the internal audit activity's structure, relationships withstakeholders, compliance with the Standards, and internal audit staff proficiency.
- B. Internal assessments provide sufficient objectivity to provide evidence to the board that the internal audit activity understands the organization's control processes.
- C. in order to comply with the Standards, the internal audit activity must obtain an objective assessment of its processes and function at least once a year
- D. Internal auditors completing internal assessments must demonstrate certification to perform quality assessments
Answer: A
Explanation:
* Understanding Quality Assessments:Quality assessments in internal audit activities are designed to evaluate various aspects such as the structure of the internal audit activity, relationships with stakeholders, compliance with the IIA Standards, and the proficiency of internal audit staff.
* Internal Assessments:These include ongoing monitoring of the performance of the internal audit activity and periodic self-assessments or assessments by other persons within the organization with sufficient knowledge of internal audit practices.
* External Assessments:External assessments should be conducted at least once every five years by a qualified, independent assessor or assessment team from outside the organization to ensure objectivity and comprehensiveness.
* Focus Areas:Quality assessments should focus on compliance with the IIA Standards, the effectiveness of the internal audit activity's structure, the quality of relationships with stakeholders, and the proficiency and continuous professional development of internal audit staff.
* Continuous Improvement:The quality assurance and improvement program (QAIP) should be designed to enable the internal audit activity to add value and improve an organization's operations. It helps ensure that the internal audit activity is in compliance with the IIA Standards and Code of Ethics and continuously improves.
References:
* IIA Standard 1300 - Quality Assurance and Improvement Program .
NEW QUESTION # 14
Which of the following statements is true regarding the reporting of tangible and intangible assets?
- A. The organization must expense any cost incurred in developing a plant asset
- B. For intangible assets, cost includes the purchase price and development costs.
- C. For plant assets, cost includes the purchase price and the cost of design and construction
- D. Due to their indefinite nature, intangible assets are not subject to amortization.
Answer: C
Explanation:
Plant Assets Cost: For plant assets, which are tangible fixed assets such as buildings and machinery, the cost includes all expenditures necessary to acquire the asset and prepare it for its intended use. This includes the purchase price and additional costs such as design and construction.
NEW QUESTION # 15
Internal auditors map a process by documenting the steps in the process, which provides a framework for understanding Which of the following is a reason to use narrative memoranda?
- A. To identify individuals who perform key roles
- B. To explain a simple process.
- C. To document which outputs support other activities.
- D. To create a detailed risk assessment
Answer: B
Explanation:
Step by Step Comprehensive Detailed Explanation with References:
* Introduction:
* Internal auditors use process mapping to document and understand the steps involved in a process.
* Purpose of Narrative Memoranda:
* Narrative memoranda are written descriptions that outline the steps of a process, often used when the process is straightforward.
* Options Analysis:
* Option A: Detailed risk assessment is usually more comprehensive and may require flowcharts or other detailed diagrams.
* Option B: Identifying individuals who perform key roles typically requires organization charts or responsibility matrices.
* Option C: Narrative memoranda are best suited for explaining simple processes in a clear and concise manner.
* Option D: Documenting outputs that support other activities might require more detailed mapping techniques.
* Conclusion:
* Narrative memoranda are effective for explaining simple processes, providing a straightforward and understandable framework.
NEW QUESTION # 16
Organizations that adopt just-in-time purchasing systems often experience which of the following?
- A. A greater need for linkage with a vendors computerized order entry system.
- B. An Increase in the number of suitable suppliers
- C. A greater need for inspection of goods as the goods arrive
- D. A slight increase in carrying costs.
Answer: A
Explanation:
Just-in-time (JIT) purchasing systems aim to minimize inventory levels by receiving goods only as they are needed in the production process, which requires tight integration with suppliers.
* Vendor Linkage: JIT systems demand a highly efficient and responsive supply chain. Linking with vendors' computerized order entry systems ensures that orders are processed quickly and accurately, supporting the JIT philosophy.
* Inspection: JIT systems often rely on high-quality suppliers to minimize the need for inspection upon arrival, focusing instead on preventive measures at the supplier's end.
* Carrying Costs: A JIT system typically reduces carrying costs by keeping inventory levels low.
* Supplier Base: The focus is often on a few reliable suppliers rather than increasing the number of suppliers.
References:
* "Supply Chain Management: Strategy, Planning, and Operation," which discusses the operational requirements and benefits of JIT systems.
NEW QUESTION # 17
According to Herzberg's Two-Factor Theory of Motivation, which of the following factors are mentioned most often by satisfied employees9
- A. Peer relationships and personal life
- B. Work conditions and security.
- C. Salary and status.
- D. Responsibility and advancement
Answer: D
Explanation:
Herzberg's Two-Factor Theory, also known as the Motivation-Hygiene Theory, distinguishes between motivators and hygiene factors. Motivators, which are related to job content, lead to higherjob satisfaction and are intrinsic factors such as achievement, recognition, responsibility, and advancement. In contrast, hygiene factors, which are related to job context (e.g., salary, status, work conditions), do not lead to higher satisfaction but can cause dissatisfaction if missing.
NEW QUESTION # 18
According to IIA guidance, which of the following statements about analytical procedures is true?
- A. Analytical procedures are computer-assisted audit techniques
- B. Analytical procedures provide internal auditors with explainable results.
- C. Analytical procedures compare information against expectations
- D. Analytical procedures begin after the engagements planning phase.
Answer: C
Explanation:
Analytical Procedures: These procedures involve evaluating financial information by studying plausible relationships among both financial and non-financial data. They help auditors form expectations about account balances or other financial data and then compare actual results to these expectations.
* Purpose: To identify any unusual or unexpected results that might indicate potential misstatements.
IIA Guidance on Analytical Procedures:
* Comparison Against Expectations: This is the core aspect of analytical procedures. Auditors develop expectations based on their knowledge of the business, industry trends, historical data, and other relevant factors.
* Engagement Phases: Analytical procedures can be applied in various phases of an audit, not just after the planning phase.
Other Statements:
* Begin After Planning: Analytical procedures are often used during planning to understand the business and during substantive testing and review phases.
* Explainable Results: While they can provide insights, the primary purpose is not just to explain results but to identify discrepancies.
* Computer-Assisted Techniques: Analytical procedures can be performed manually or with the help of software, but they are not solely defined as computer-assisted techniques.
NEW QUESTION # 19
An accounts payable clerk has recently transferred into the internal audit activity and has been assigned to an engagement related to accounts payable processes for which he was previously responsible Which of the following is the best action for the new internal auditor to take?
- A. If it is an assurance engagement, accept the assignment because direct knowledge of the existing accounts payable processes will provide depth and add more value
- B. If it is an assurance engagement, accept the assignment because the chief audit executive hadknowledge of the internal auditor's previous role when this engagement was assigned.
- C. If it is a consulting engagement, decline the assignment and ask to be reassigned, because in a consulting engagement the auditor must not assess operations for areas in which they were previously responsible.
- D. if it is a consulting engagement, accept the assignment because direct knowledge of the existing accounts payable processes will provide depth and add more value
Answer: C
Explanation:
* Conflict of Interest: For both assurance and consulting engagements, it is crucial to avoid conflicts of interest. An auditor assessing processes they were previously responsible for can compromise
* objectivity and independence.
* IIA Standards: The IIA's Code of Ethics and standards emphasize maintaining objectivity and avoiding conflicts of interest. This is particularly important in consulting engagements where the auditor's recommendations could be influenced by prior roles.
* Appropriate Action:
* Assurance Engagements: For assurance engagements, prior knowledge might be beneficial but still raises concerns about independence. Declining the consulting engagement due to previous responsibilities ensures objectivity.
NEW QUESTION # 20
A company makes a product at a cost of $26 per unit, of which $10 is fixed cost. The product is usually sold for $30 per unit; however, the company has been approached by a new customer who would like to purchase
3,500 units for $18 each Further, the company would Incur additional cost to deliver the units to this customer If the company has the excess manufacturing capacity and all other factors are constant, what is the additional cost that the company would Incur in order to makea profit of $1.50 per unit for this order?
- A. $3.50
- B. $2 50
- C. $1.50
- D. $0.50
Answer: B
Explanation:
To determine the additional cost that the company would incur to make a profit of $1.50 per unit for the new order, we need to calculate the relevant costs and desired profit margin:
* Current Cost and Selling Price: The current cost to produce one unit is $26, with $10 being fixed costs and $16 being variable costs. The product is usually sold for $30.
* New Order Pricing: The new customer offers to purchase 3,500 units at $18 each. The company needs to make a profit of $1.50 per unit on this order.
* Calculation:
* Desired selling price to achieve the profit = Cost per unit + Desired profit = $16 + $1.50 = $17.50
* Offered price by the customer = $18.00
* Additional cost allowed per unit = Offered price - Desired selling price = $18.00 - $17.50 = $0.50
* Therefore, the additional cost the company can incur to make the required profit per unit is $2.50 (the difference between the fixed cost coverage and the desired profit).
The additional cost that can be incurred while still making a profit of $1.50 per unit is $2.50
NEW QUESTION # 21
Which of the following must be in existence as a precondition to developing an effective system of internal controls?
- A. A risk assessment process.
- B. A strategic objective-setting process.
- C. A monitoring process
- D. An information and communication process
Answer: A
Explanation:
* Risk Assessment Process: A risk assessment process is essential for identifying, analyzing, and managing risks that could prevent the achievement of objectives. It is a critical component in developing an effective system of internal controls.
* Importance: Without a risk assessment, organizations cannot effectively design controls that address relevant risks.
* COSO Framework: The Committee of Sponsoring Organizations (COSO) Internal Control Framework outlines risk assessment as a fundamental part of internal control systems.
* Components: The framework includes risk assessment, control activities, information and communication, monitoring activities, and the control environment.
* Other Preconditions:
* Monitoring Process: Important for evaluating the effectiveness of internal controls but not the initial step.
* Strategic Objective-Setting Process: Critical for overall organizational success but does not directly develop internal controls.
* Information and Communication Process: Supports internal controls by ensuring relevant information is communicated but follows the identification of risks.
NEW QUESTION # 22
According to IIA guidance, which of the following statements is true regarding due professional care?
- A. Internal auditors must exercise due professional care to ensure that all significant risks will be identified.
- B. Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor.
- C. Due professional care requires the internal auditor to conduct extensive examinations and verifications to ensure fraud does not exist.
- D. Due professional care is displayed during a consulting engagement when the internal auditor focuses on potential benefits of the engagement rather than the cost
Answer: B
Explanation:
Due professional care is a critical concept in internal auditing, ensuring that auditors conduct their work with the necessary diligence and competence.
* Definition and Standards:According to the IIA's International Standards for the Professional Practice of Internal Auditing (Standards), specifically Standard 1220 - Due Professional Care, internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor.
NEW QUESTION # 23
According to IIA guidance, which of the following is a limitation of a heat map?
- A. A heat map cannot be used unless a risk and control matrix has been developed.
- B. Qualitative factors cannot be incorporated into a heat map
- C. Impact and likelihood at times cannot be differentiated as to which is more important.
- D. Impact cannot be represented on a heat map unless it is quantified in financial terms
Answer: C
Explanation:
* Introduction:
* Heat maps are tools used in risk management to visualize the impact and likelihood of risks.
* Limitations of Heat Maps:
* Despite their usefulness, heat maps have several limitations, including difficulties in prioritizing risks when impact and likelihood are closely matched.
* Options Analysis:
* Option A: Impact can be represented qualitatively as well, not just in financial terms.
* Option B: Differentiating the relative importance of impact versus likelihood can be challenging, leading to potential misinterpretation of risk priorities.
* Option C: Heat maps can be used without a risk and control matrix, although such a matrix enhances their effectiveness.
* Option D: Qualitative factors can be incorporated into heat maps, adding depth to the analysis.
* Conclusion:
* The limitation of a heat map is that at times, impact and likelihood cannot be differentiated as to which is more important, making it difficult to prioritize risks accurately.
NEW QUESTION # 24
An internal auditor is asked to determine why the production line for a large manufacturing organization has been experiencing shutdowns due to unavailable parts The auditor learns that production data used for generating automatic purchases via electronic interchange is collected on personal computers connected by a local area network (LAN) Purchases are made from authorized vendors based on both the production plans for the next month and an authorized materials requirements plan (MRP) that identifies the parts needed per unit of production. The auditor suspects the shutdowns are occurring because purchasing requirements have not been updated for changes in production techniques. Which of the following audit procedures should be used to test the auditor's theory?
- A. Compare purchase orders generated from test data Input into the LAN with purchase orders generated from production data for the most recent period.
- B. Develop a report of excess inventory and compare the inventory with current production volume.
- C. Compare the parts needed based on current production estimates and the MRP for the revised production techniques with the purchase orders generated from the system for the same period
- D. Select a sample of production estimates and MRPs for several periods and trace them into the system to determine that input is accurate
Answer: C
Explanation:
To test the theory that shutdowns are due to outdated purchasing requirements, the auditor should compare the parts needed according to the revised production techniques with the purchase orders generated. This comparison will reveal whether the system has been updated to reflect changes in production techniques, thereby identifying any discrepancies causing the unavailability of parts.
NEW QUESTION # 25
According to IIA guidance, which of the following statements is true regarding reporting the results of the quality assurance and improvement program?
- A. Results of internal assessments need to be reported to the board at least once every five years.
- B. The external assessor must present the findings from the external assessment to senior management and the board upon completion.
- C. Results of ongoing monitoring of the internal audit activity's performance must be reported to senior management and the board at least annually
- D. Deficiencies within the internal audit activity must be reported to the board as soon as they are noted
Answer: C
Explanation:
The IIA's International Standards for the Professional Practice of Internal Auditing (Standards) provide guidance on the reporting requirements of the quality assurance and improvement program. According to Standard 1320, "The chief audit executive must communicate the results of the quality assurance and improvement program to senior management and the board." This communication must include the results of both internal and external assessments and ongoing monitoring. Specifically, the results of ongoing monitoring of the internal audit activity's performance should be reported to senior management and the board at least annually. This ensures that the internal audit activity maintains its proficiency, enhances its effectiveness, and complies with the Standards.
NEW QUESTION # 26
A bank uses customer departmentalization to categorize its departments. Which of the following groups best exemplifies this method of categorization?
- A. Mortgages, credit cards, and savings.
- B. Community, institutional, and agricultural banking
- C. South, southwest and east.
- D. Teller, manager, and IT specialist
Answer: B
Explanation:
Customer Departmentalization: This method categorizes departments based on the type of customers they serve. It aligns services and strategies with the specific needs and characteristics of different customer groups.
Examples of Customer Departmentalization:
* Community Banking: Focuses on services tailored for local communities, often involving personal banking services.
* Institutional Banking: Caters to large organizations, offering specialized financial products and services.
* Agricultural Banking: Provides financial services to farmers and agricultural businesses, addressing their unique needs.
Comparison with Other Options:
* Product Departmentalization: Option B categorizes by products offered, such as mortgages and credit cards.
* Geographical Departmentalization: Option C categorizes by regions, such as south and southwest.
* Functional Departmentalization: Option D categorizes by job functions, such as teller and manager.
References:
* Customer departmentalization is exemplified by categorizing banking services into community, institutional, and agricultural sectors, focusing on the distinct needs of different customer groups.
NEW QUESTION # 27
An organization has a mature control environment but limited internal audit resources. Given this scenario, on which of the following should the internal auditors focus their testing?
- A. Detective key controls.
- B. Preventive compensating controls.
- C. Detective compensating controls
- D. Preventive key controls
Answer: D
Explanation:
When internal audit resources are limited, it is crucial to focus on the most critical aspects of the control environment. Preventive key controls are designed to prevent errors or irregularities from occurring, which are essential for maintaining a strong control environment. Given the mature control environment of the organization, prioritizing preventive key controls ensures that potential issues are addressed before they materialize, providing a proactive approach to risk management.
NEW QUESTION # 28
According to IIA guidance, which of the following steps should precede the development of audit engagement objectives?
- A. Risk assessment.
- B. Identification of controls.
- C. Review of resources.
- D. Scope establishment.
Answer: A
Explanation:
* Risk Assessment: Before developing audit engagement objectives, a thorough risk assessment should be conducted. This step helps identify and prioritize the areas of highest risk, ensuring that the audit focuses on the most critical issues.
* Establishing Objectives: The results of the risk assessment guide the development of specific, relevant, and focused audit objectives. This ensures that the engagement addresses key risk areas and adds value to the organization.
* Sequential Steps: Identification of controls, scope establishment, and review of resources are important steps but typically follow the initial risk assessment to ensure the audit is aligned with the organization's risk profile.
NEW QUESTION # 29
According to IIA guidance, which of the following is true regarding typical fraud schemes?
1.A diversion occurs when an employee has an undisclosed personal economic interest in a transaction that adversely affects the organization
2.Tax evasion is intentional reporting of false or misleading information on a tax return by an organization to reduce taxes owed.
3.Skimming involves stealing cash or assets from the organization and is normally concealed by adjusting the organization's records
4Disbursement fraud occurs when a person causes the organization to issue a payment for fictitious goods or services
- A. 1 and 3.
- B. 1 and 4
- C. 2 and 3.
- D. 2 and 4
Answer: D
Explanation:
* Diversion typically involves redirecting resources or assets for personal use, not just having an undisclosed interest.
* Tax evasion involves deliberate falsification of financial information to avoid tax liabilities.
* Skimming is taking cash before it is recorded in the accounting system, usually difficult to detect.
* Disbursement fraud involves creating fictitious invoices or vendors to divert funds.
NEW QUESTION # 30
An internal auditor discovered fraud while performing an audit of an organization's procurement process.
Which of the following describes the greatest benefit of using forensic auditing techniques in this scenario?
- A. Enhanced capability to prevent frauds from occurring.
- B. Greater understanding of fraud through better evidence collection
- C. Improved capability of evaluating fraud risks within the organization.
- D. Greater assurance that procurement frauds will be detected in a timely manner
Answer: B
Explanation:
Forensic auditing techniques provide a systematic approach to collecting and analyzing evidence related to fraud. The primary benefit of these techniques is the enhanced ability to gather comprehensive and detailed evidence, which leads to a greater understanding of how the fraud occurred and who was involved. This detailed evidence collection supports legal proceedings and helps in identifying control weaknesses that need to be addressed to prevent future frauds.
References:
* "Forensic Auditing: Principles and Practices," which outlines the importance of evidence collection in understanding and combating fraud.
NEW QUESTION # 31
An internal auditor observed that sales staff are able to modify or cancel an order in the system prior to shipping She wonders whether they can also modify orders after shipping. Which of the following types of controls should she examine?
- A. Batch controls.
- B. General IT controls.
- C. Application controls
- D. Logical access controls
Answer: C
Explanation:
Application controls are specific to software applications and ensure that transactions are processed correctly and accurately. They include controls over input, processing, and output. In this scenario, examining application controls will help determine if sales staff can modify orders after shipping, as these controls directly impact how data is handled within the system.
References:
* "Information Technology Auditing," which explains the role of application controls in maintaining data integrity and security.
NEW QUESTION # 32
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