Internal Auditing Pre-Test
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Course Introduction
Internal Auditing explores the principles, practices, and standards associated with evaluating and improving the effectiveness of risk management, control, and governance processes within organizations. The course covers the internal audit process from planning and conducting audits to reporting findings and recommendations. Students learn about audit methodologies, techniques for gathering and analyzing evidence, internal controls, fraud detection, compliance, and the role of the internal auditor in supporting organizational objectives. Through case studies and practical applications, the course prepares students to understand and apply internal auditing concepts in various organizational settings.
Recommended Textbook Auditing and Assurance Services 5th Edition by
Timothy J. Louwers
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20 Chapters
2451 Verified Questions
2451 Flashcards
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Page 2
Chapter 1: Auditing and Assurance Services
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Sample Questions
Q1) The goal of operational auditing is to
A) Help managers discharge their management responsibilities and improve profitability.
B) Evaluate compliance with specific laws and regulations.
C) Reduce to a socially acceptable level the information risk to users of financial statements.
D) Express an opinion on the fairness of financial statements.
Answer: A
Q2) Which of the following is not a recommendation usually made following the completion of an operational audit?
A) Economic and efficient use of resources.
B) Effective achievement of business objectives.
C) Attesting to the fairness of the financial statements.
D) Compliance with company policies.
Answer: C
Q3) The AICPA licenses CPAs to practice in the United States.
A)True
B)False
Answer: False
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Chapter 2: Professional Standards
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Sample Questions
Q1) The auditors' responsibility to express an opinion on the financial statements is
A) Implicitly represented in the auditors' standard report.
B) Explicitly represented in the introductory paragraph of the auditors' standard report.
C) Explicitly represented in the scope paragraph of the auditors' standard report.
D) Explicitly represented in the opinion paragraph of the auditors' standard report.
Answer: B
Q2) One of an accounting firm's basic objectives is to provide professional services that conform to professional standards.Reasonable assurance of achieving this objective can be obtained by following
A) Generally accepted auditing standards (GAAS).
B) Standards within a system of quality control.
C) Generally accepted accounting practices (GAAP).
D) International auditing standards.
Answer: B
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4
Chapter 3: Engagement Planning
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Sample Questions
Q1) Engagement letters are not necessary for continuing clients.
A)True
B)False
Answer: False
Q2) The auditor looked at a bank statement received and held by the client.What kind of audit procedure would this be considered?
A) Recalculation.
B) Physical observation.
C) Confirmation.
D) Examination of documents.
Answer: D
Q3) The concept of materiality emphasizes the accountants' and managers' point of view,not the users' point of view.
A)True
B)False
Answer: False
Q4) Auditing standards require the auditors to ask that client consent be given to permit the _________________________ auditors to speak.
Answer: predecessor
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Chapter 4: Management Fraud and Audit Risk
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Sample Questions
Q1) The demographics of white-collar criminals are similar to those of typical bank robbers.
A)True
B)False
Q2) Analytical procedures are audit methods of evaluating financial statement accounts by studying and comparing relationships among financial and nonfinancial data.The primary purpose of analytical procedures conducted during the planning stages is to
A) Identify the appropriate schedules to be prepared by the client.
B) Identify the types of errors or frauds that can occur in transactions.
C) Identify unusual conditions that deserve additional audit effort.
D) Determine the existence of unrecorded liabilities or overstated assets.
Q3) For audits of financial statements made in accordance with generally accepted auditing standards,the use of analytical procedures is required to some extent
A) As a substantive test: yes; in the final review stage: yes
B) As a substantive test: yes; in the final review stage: no
C) As a substantive test: no; in the final review stage: yes
D) As a substantive test: no; in the final review stage: no
Q4) Why is it important for auditors to understand their clients' business risks?
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Chapter 5: Risk Assessment: Internal Control Evaluation
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Sample Questions
Q1) The attitudes of managers and directors are probably the most pervasive influences on the control environment.
A)True
B)False
Q2) The auditor's opinion on internal control under AS 5 relates only to controls existing at the end of the year.
A)True
B)False
Q3) Which report would not be appropriate for a public accounting firm to provide on financial reporting controls?
A) Unqualified-no material weaknesses found.
B) Disclaimer of opinion-unable to perform all necessary procedures.
C) Disclaimer of opinion-significant deficiencies exist.
D) Adverse-material weaknesses exist.
Q4) List several elements of a company's control environment.
Q5) _________________________________ in internal control are matters that the auditors believe should be communicated to the clients' audit committee.
Q6) Explain the difference between a significant deficiency and a material weakness.
Q7) Identify and explain briefly the phases of an internal control evaluation.
Page 7
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Chapter 6: Employee Fraud and the Audit of Cash
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Sample Questions
Q1) Which of the following combinations is a good means to conceal employee fraud but an ineffective means of perpetrating management (financial reporting)fraud?
A) Overstating sales revenue and overstating customer accounts receivable balances.
B) Overstating sales revenue and overstating bad debt expense.
C) Understating interest expense and understating accrued interest payable.
D) Omitting the disclosure information about related-party sales to the president's relatives at below-market prices.
Q2) ___________________________ is the use of fraudulent means to take money or other property from an employer.
Q3) The company's bank reconciliation (audited by independent auditors)is the primary means of valuing cash in the financial statements.
A)True
B)False
Q4) The most effective long-run prevention of fraud lies in the practice of tight management controls over people.
A)True
B)False
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8
Chapter 7: Revenue and Collection Cycle
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Sample Questions
Q1) Prenumbering invoices,shipping documents,and sales orders is a practice to achieve which of the following assertions?
A) Completeness.
B) Occurrence.
C) Accuracy.
D) Presentation or disclosure.
Q2) The control activity "credit sales approved by credit department" is directed toward which transaction assertion?
A) Occurrence.
B) Completeness.
C) Accuracy.
D) Cutoff.
Q3) Confirmations of accounts receivable provide the most evidence for which of the following assertions?
A) Existence.
B) Valuation or allocation.
C) Rights and obligations.
D) Completeness.
Q4) What is dual direction testing?
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Chapter 8: Acquisition and Expenditure Cycle
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Sample Questions
Q1) A _____________________________ is a cover sheet containing all supporting documentation for an acquisition.
Q2) Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion of
A) Valuation or allocation.
B) Existence or occurrence.
C) Completeness.
D) Rights and obligations.
Q3) For which of the following accounts would the matching concept be the most appropriate?
A) Cost of Goods Sold.
B) Research and Development.
C) Depreciation Expense.
D) Sales.
Q4) Vendor invoices should be compared to _______________________________ and ________________________________ to determine that the vendor is charging the approved price and for quantity received.
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Chapter 9: Production Cycle
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Sample Questions
Q1) Inventory observation may need to be scheduled on the year-end date,making a large number of test counts if the test of controls
Q2) When inventory quantities are determined solely by means of a physical count,it is necessary for the auditor to be present at the time of the count.
A)True
B)False
Q3) Your client counts inventory three months before the end of the fiscal year.Internal controls over inventory are excellent.Which procedure is not necessary for the inventory roll-forward?
A) Check that shipping documents for the last three months agree with perpetual records.
B) Tracing receiving reports for the last three months to perpetual records.
C) Compare gross margin percentages for the last three months.
D) Request the client to recount inventory at the end of the year.
Q4) A material error or fraud in inventory typically has a _________________________________ on financial statements.
Q5) Prepare an audit plan for the observation of an inventory count.
Q6) Prepare an audit plan for inventory pricing and compilation.
Page 11
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Chapter 10: Finance and Investment Cycle
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Sample Questions
Q1) Interest expense related to interest-bearing liabilities could be audited using analytical procedures.Describe how this might be done and how the results would be used.
Q2) Appropriate audit inquiries regarding estimates include all of the following except
A) Who prepares the estimates?
B) Why are they prepared?
C) What data are used?
D) When are they prepared?
Q3) Reliance on controls normally reduces the extent of substantive audit procedures on finance and investment cycle accounts.
A)True
B)False
Q4) Owners' equity transactions usually are not well documented.
A)True
B)False
Q5) XYZ Company has investment securities held by a broker.An auditor is reviewing the last broker's statement for the year.For each of the tests 1-5,select the ASB balance assertions listed in A-D that the auditor is testing
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Chapter 11: Completing the Audit
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Sample Questions
Q1) Roll-forward procedures are normally conducted prior to the date of the financial statements.
A)True
B)False
Q2) Which of the following is not a subject that appears in all written representations without regard to materiality?
A) Disclosure of all related-party transactions.
B) Management's responsibility for the fair presentation of the financial statements.
C) Availability of all financial records and related data.
D) Information concerning management fraud.
Q3) Which of the following is not required by generally accepted auditing standards?
A) Written representations.
B) Attorney letter.
C) Management letter.
D) Engagement letter.
Q4) Auditors should communicate matters such as the quality of the client's accounting principles to _________________________________.
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13
Chapter 12: Reports on Audited Financial Statements
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Sample Questions
Q1) Auditors who are reporting on financial statements that contain a material departure from generally accepted accounting principles should include an additional paragraph and
A) Express a qualified or adverse opinion.
B) Not modify the opinion paragraph as long as the departure is adequately disclosed in a footnote.
C) Disclaim an opinion on the financial statements.
D) Express a qualified opinion or disclaimer of opinion.
Q2) The _____________________________ paragraph of the auditors' report on the entity's financial statements indicates that an audit has been conducted and identifies the financial statements the auditors examined.
Q3) If a justified departure from GAAP exists,auditors would issue an unqualified opinion but would modify the scope paragraph to describe the departure and its monetary effects.
A)True
B)False
Q4) Rule 203 provides for the possibility that adherence to a pronouncement of the FASB might create _____________________________ financial statements.
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14
Chapter 13: Other Public Accounting Services
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Sample Questions
Q1) An accountant's review of unaudited financial statements would not include
A) Performing analytical procedures.
B) Confirming accounts receivable.
C) Inquiring about the accounting system and bookkeeping procedures.
D) Reading the financial statements for indications that they conform to GAAP.
Q2) The AICPA Assurance Services Executive Committee identified five megatrends that can affect public accounting firms' business.Which of the following is not one of the megatrends it identified?
A) Information technology.
B) The shift from the industrial age to the knowledge age.
C) Globalization.
D) Merging of corporations creating fewer audit opportunities.
Q3) The phrase trust services refers to
A) WebTrust and SysTrust Services.
B) XBRL and SysTrust Services.
C) WebTrust and XBRL Services.
D) All AICPA designated assurance services.
Q4) CPA SysTrust provides assurance that a Web site meets certain criteria.
A)True
B)False
Page 15
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Chapter 14: Professional Ethics
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Sample Questions
Q1) The AICPA Council has designated the following bodies to pronounce accounting principles under Rule 203 except the
A) Financial Accounting Standards Board.
B) Auditing Procedures Board.
C) Accounting Principles Board.
D) Governmental Accounting Standards Board.
Q2) A member in public practice can receive a contingent fee for
A) An audit or review of a financial statement.
B) A compilation of a financial statement.
C) An examination of prospective financial statements.
D) Representing a client in an IRS tax audit.
Q3) What are (a)the AICPA Principles of Professional Conduct,(b)Rules of Conduct,and (c)Interpretation of Rules of Conduct?
Q4) The Wheelwright definition of ethics has three key elements: (1)question requiring ____________________ choice,(2)guides of ______________________,and (3)concerns with the ____________________ of decisions.
Q5) The detailed explanations of specific rules to help members understand particular applications are referred to as
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Chapter 15: Legal Liability
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Sample Questions
Q1) In general,which of the following parties would have the lowest burden of proof in bringing suit against an auditor?
A) Clients.
B) A lender who meets the definition of a primary beneficiary.
C) A third-party investor under the Securities Act.
D) A lender who meets the definition of a foreseen third party.
Q2) A.Paula performed the audit of the financial statements of Abdul Company (a nonpublic entity currently not subject to filing requirements under the Securities Act of 1933 or Securities Exchange Act of 1934).Abdul is currently considering several alternatives for raising capital,including seeking financing from area banks or an initial public offering of its securities.Which of the following parties would have the lowest likelihood of successfully bringing suit for ordinary negligence against Paula?
A) Abdul Company.
B) Purchasers of Abdul's securities in an initial public offering.
C) First State Bank, a bank with which Abdul has not previously done business.
D) Simon Whitaker, a private investor who is considering acquiring Abdul.
Q3) A third party who is known by name to auditors is referred to as a(n)__________________________________.
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Chapter 16: Internal Governmental and Fraud Audits
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Sample Questions
Q1) When preparing an audit report,an internal auditor must convince management to take action concerning the report's findings.When reporting on an audit finding,an auditor must include some key elements about that finding in the report.These key elements are
A) Condition, criteria, cause, effect, and recommendation.
B) Condition, criteria, cause, effect, and requirement.
C) Condition, source, cause, effect, and recommendation.
D) Location, criteria, cause, effect, and recommendation.
Q2) Senior management has ordered a compliance audit of the organization's employee benefits package.Which of the following do both the chief audit executive and senior management consider a primary engagement objective?
A) The level of the organizational contributions is adequate to meet the program's demands.
B) Individual programs are operating in accordance with contractual requirements and government regulations.
C) Participation levels support continuation of individual programs.
D) Benefits payments, when appropriate, are accurate and timely.
Q3) Fraud examination requires the individual to have expertise in ____________________ and ______________________________.
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Page 18
Chapter 17: Overview of Sampling
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Sample Questions
Q1) The type of sampling most frequently used by auditors during their study of internal control is referred to as
A) Attributes sampling.
B) Control sampling.
C) Monetary unit sampling.
D) Variables sampling.
Q2) In which of the following circumstances should sampling be used?
A) The individual is not concerned with an extremely precise estimate of the attribute being examined.
B) It is very difficult to define and identify the entire population.
C) The population comprises a small number of items.
D) An individual is interested in examining all occurrences of a single type in the population.
Q3) In which of the following scenarios would the use of sampling be most appropriate?
A) The population consists of a relatively small number of items.
B) The need for precise information about the population is not important.
C) The decision to be made is relatively critical.
D) The costs associated with an incorrect decision are extremely high.
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Chapter 18: Attributes Sampling
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Sample Questions
Q1) Attributes sampling is most closely associated with the auditor's substantive procedures.
A)True
B)False
Q2) As the risk of overreliance decreases,the upper limit rate of deviation increases,holding all other factors constant.
A)True
B)False
Q3) Assume that Dylan Lee found two deviations in a sample of 90 transactions.Using AICPA sample evaluation tables,the upper limit rate of deviation at a 5 percent risk of overreliance is
A) 2.0%.
B) 2.2%.
C) 5.9%.
D) 6.9%.
Q4) If the upper limit rate of deviation is less than or equal to the ________________________________,the auditor may decide to rely on internal control as planned and maintain control risk at planned levels.
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Page 20
Chapter 19: Variables Sampling
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Sample Questions
Q1) E.Ewing,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Management,Inc.Which of the following methods of sample selection are available to use?
A) Random and systematic only.
B) Block and haphazard only.
C) Any of the above methods.
D) Any method with which the results can be probabilistically estimated.
Q2) Which of the following is not considered in establishing the sample size in a monetary unit sampling (MUS)application?
A) Expected error.
B) Population size.
C) Risk of incorrect acceptance.
D) All of the above are considered.
Q3) The total amount of actual monetary misstatement found in a sample is referred to as the
A) Projected misstatement.
B) Tolerable misstatement.
C) Actual misstatement.
D) Incremental allowance for sampling risk.
Q4) Expected misstatement has a(n)_______________ relationship with sample size.
Page 21
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Chapter 20: Auditing in a Computerized Environment
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Sample Questions
Q1) Which of the following controls most likely would ensure that an organization can reconstruct its financial records?
A) Hardware controls are built into the computer by the computer manufacturer.
B) Backup files are stored in a location separate from original copies.
C) Personnel who are independent of data input perform parallel simulations.
D) System flowcharts provide accurate descriptions of computer operations.
Q2) The method of testing computer controls that requires audit teams to prepare a computer program to process a client's actual data is referred to as a(n)_________________________________.
Q3) When auditing a computerized processing system,which of the following is not true of the test data approach?
A) The client's computer programs process test data under the audit team's control.
B) The test data must consist of all possible valid and invalid conditions.
C) The test data need consist only of those valid and invalid conditions in which audit teams are interested.
D) Only one transaction of each type need be tested.
Q4) Auditing ________________________________________ consists of reconciling source documents with computer output.
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