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Which of the following is the best source for an audit team to use to identify common risks faced by a company?

A.

Checklists or reminder lists

B.

Flowcharts

C.

Questionnaires

D.

Research reported in professional journals and text books

Which of the following tests can help the auditor to evaluate the adequacy of the company's allowance for doubtful accounts?

A.

Reconciling the accounts receivable subsidiary ledgers with the control account.

B.

Preparing an aging analysis.

C.

Reviewingauthorizationof credit terms.

D.

Tracing a sample of credit memos to the accounts receivable subsidiary ledger.

Which of the following control procedures would provide the greatest assurance that all donations to a non-profit organization are immediately deposited to the organization’s account?

A.

Use a lockbox to receive all donations.

B.

Perform periodic internal audits of theorganization’scash receipts by tracing deposits to the original posting in the cash receipts records.

C.

Require that all donations be made by cheque.

D.

Require issuance of a confirmation receipt to all donors, with the receipt issued by the person who opens and deposits the cash receipts.

The internal auditors of a financial institution are auditing the institution's investing and lending activities. During the last year, the institution has adopted new policies and procedures for monitoring investments and the loan portfolio. The auditors know that the organisation has invested in new types of financial instruments during the year and is heavily involved in the use of financial derivatives to appropriately hedge risks

The audit committee has expressed concern that the financial institution has been taking on higher-risk loans in pursuit of short term profit goals.

Which of the following audit procedures would provide the least amount of information to address this audit concern?

A.

Perform an analytical review of interest income as a percentage of the investment portfolio in comparison with a group of peer financial institutions.

B.

Take a random sample of loans made during the period and compare the riskiness of the loans with that of a random sample of loans made two years ago.

C.

Perform an analytical review that involves developing a chart to compare interest income plotted over the past ten years.

D.

Develop a multiple regression time series analysis of income over the past five years, including such factors as interest rate in the economy, size of loan portfolio, and dollar amount of new loans each year.

Management is legally required to prepare a shipping document for all movement of hazardous materials. The document must be filed with bills of lading. Management expects 100% compliance with the procedure.

Which of the following sampling approaches would be most appropriate?

A.

Attributes sampling.

B.

Discovery sampling.

C.

Targeted sampling.

D.

Variables sampling.

Auditors realize that at times corrective action is not taken even when agreed to by the appropriate parties. This should lead an internal auditor to

A.

Decide the extent of necessary follow-up 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.

An audit team developed a preliminary questionnaire with the following response choices:

I. Probably not a problem.

II. Possibly a problem.

III. Probably a problem.

The questionnaire illustrates the use of

A.

Trend analysis.

B.

Ratio analysis.

C.

Unobtrusive measures or observations.

D.

Rating scales.

A Qualified Internal Auditor directs the audit function for a large city and is planning the audit schedule for the next year. The city has a number of different funds, some that are restricted in use by government grants and some that require compliance reports to the government. One of the programs for which the city has received a grant is job retraining and placement. The grant specifies certain conditions a participant in the program must meet in order to be eligible for the funding.

The auditor must determine the applicable laws and regulations.

Which of the following procedures would be the least effective in learning about the applicable laws and regulations?

A.

Make inquiries of the city's chief financial officer, legal counsel, or grant administrators.

B.

Review prior year working papers and enquire of officials as to changes.

C.

Review applicable grant agreements.

D.

Discuss the matter with the audit committee and make inquiries as to the nature of the requirements and the audit committee's objectives for the audit.

Which of the following is not a component of audit risk?

A.

Inherent risk

B.

Control risk

C.

Defective risk

D.

Detection risk

Internal auditors must exercise due care if they are to meet their responsibilities for fraud detection. Thus, the existence of certain conditions should raise red flags and arouse auditors' professional scepticism concerning possible fraud.

Which of the following is most likely to be considered an indication of possible fraud?

A.

A new management team installed as the result of a takeover.

B.

Rapid turnover of financial executives.

C.

Rapid expansion into new markets.

D.

An Internal Revenue Service audit of tax returns.