Ac 332 Mid

6/23/23, 8:30 PM Midterm Quiz 1 - ACELEC 332 (Short-term AY 2021-2022)
Statement 1: Risk factors may be helpful in selecting audit objects and identifying how often
this should be audited. Statement 2: Risk is static concept, it does not change.
Both statements are incorrect
Only Statement 2 is correct
Both statements are correct
Approving audit plans, scheduling, staffing and meeting with the internal auditor as
needed
Reviewing copies of the procedures manuals for selected company operations and
meeting with company officials to discuss them
Protecting the independence of the internal auditor from undue management

influence
Reviewing annual audit plans and monitoring audit results
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The auditors’ approach to determining the sufficiency, relevance, and competence of evidence
depends on the source of the information that constitutes the evidence. Which of the
following statements is incorrect regarding information sources of evidence?
Auditors can use data gathered by the auditee as part of their evidence. If those data
are insignificant to the overall body of evidence supporting their findings, auditors
should obtain additional evidence regarding the reliability of those data.
The auditors’ evidence may also include data gathered by third parties. In some
cases, these data may already have been audited, or the auditors may be able to
audit this evidence themselves. Often, however, it is not practical to obtain evidence
of the data’s validity and reliability.
All of the above statements are correct.
Data gathered by the auditors include the auditors’ own observations and
measurements. Among the methods for gathering these types of data are
questionnaires, structured inter views, and direct observations.
Auditors should obtain sufficient evidence that computer-processed data are valid
and reliable when those data are significant to the overall body of evidence
supporting the auditors’ findings and any conclusions or recommendations.
Which of the following statements are correct regarding risk assessment as the term is used in
internal auditing? Choose all the items that apply to this statement.
Statement 4: As a result of an audit or preliminary survey, the audit director may

revise the level of assessed risk of an auditee at any time, making appropriate
adjustments to the work schedule.
Statement 2: The audit director should incorporate information from a variety of

sources into risk assessment process, including discussions with the board,
management, external auditors, and review of regulations, and analysis of financial
or operating data.
Statement 3: Risk assessment is a systematic process of assessing and integrating

professional judgement about probable adverse conditions and/or events, providing
a means of organizing an internal audit schedule.
Statement 1: Risk assessment is a judgmental process of assigning values to the

perceived level of risk found in an auditable activity. These values allow directors to
select the auditees most likely to result in identifiable audit savings.
The internal audit activity should only become involved if the chief audit executive
has sufficient evidence that the follow-up is not occurring.
The internal audit activity should become involved only if specifically requested by
management or the board of directors.
The internal audit activity should establish a monitoring process to review the
adequacy and effectiveness of management’s follow-up actions.
The internal audit activity should have no role in this process in order to ensure
independence.
One or more or neither of the statements below are incorrect statement(s) about “planning.”
Choose all the incorrect statements by clicking the box next to it or choose “none of the above
statements are incorrect” if you believe otherwise.
None of the above statements are incorrect
Audit working papers aid in the planning, performance, and review of audits.
In planning a system of internal controls, the role of the internal auditor is to create
the procedures for the planning process.
In planning an audit, an on-site survey could assist with evaluating the effectiveness
of the system of internal controls.
While audit risk should be considered in planning the audit, the nature and extent of
audit risk should be documented in the audit work papers, specifically in the
planning section.
Reviewing the strategic management process, assessing the quality of management

decision making both quantatively and qualitatively, and reporting the results to the
audit committee
Reviewing the means of safeguarding assets and, as appropriate, verifying the

existence of such assets
Appraising the economy and efficiency with which resources are employed
Reviewing operations or programs to ascertain whether results are consisten with

established objectives and goals and whether the operations or programs are being
carried out as planned.
I and III only.
III and IV only.
II only.
I, II, and IV only.
Organizational status and objectivity.
Human relations and communications.
Staffing and supervision.
Continuing professional development and due professional care.
Employees using personal computers have been reporting occupational injuries and claiming
substantial workers’ compensation benefits. Working papers of an operational audit to
determine the extent of company exposure to such personal injury liability should include.
Confirmations from insurance carriers as to claim paid under workers’ compensation

policies in force.
Reviews of documentation supporting purchases of personal computers
Listing of all personal computers in use and the employees who are assigned to use
them.
Analysis of claims by type of equipment and extensiveness of use by individual

employees.
Best evidence is often referred to as primary evidence and is the evidence that is the most
natural and reliable. It is confined to documentary evidence and applies to proof of the
content in writing. Listed below are examples of best evidence, except:
None of the above statements are incorrect.
The best evidence in assessing the acceptability of various benefit programs to

employees is to evaluate program participation ratios and their trends during an
audit of the personnel function, where participation in some of these benefit
programs is compulsory.
Reconciling shipping records to recorded sales is a substantive fieldwork procedure

providing best evidence about the completeness of recorded revenues.
The audit procedure providing the best evidence about the collectibility of notes
receivable would be an examination of cash receipts records to determine
promptness of interest and principal payments.
In testing the write-off of a deteriorated piece of equipment, the best evidence of the
condition of the equipment would be a physical inspection of the actual piece of
equipment.
Statement 1: In an IT environment, it is not possible to follow the path of a transaction

through its processing cycle solely by following the paperwork flow, since the computer
accomplishes many of the functions performed by employees and no hard-copy documents are
produced. Statement 2: The snapshot audit technique offers the ability of listing all the data
that were involved in a specific decision-making process. The technique requires the necessary
logic to be preprogrammed in the system. A mechanism, usually a special code in the
transaction record, is added for triggering, logging, and printing of the data in question for
analysis.
Only statement 1 is incorrect
Only statement 2 is incorrect
Audit work schedules.
The appointment of the chief audit executive.
The internal audit report observations and recommendations.
Audit staff promotions and salary increases.
Evaluating the effectiveness of actions taken by management to deter fraud
Being aware of activities in which fraud is likely to occur
Determining if the organizational environment fosters control consciousness
Ensuring that fraud will not occur
One or more or none of the statements below are correct statements about the “flowcharts.”
Choose all the correct statements by clicking the button or choose “none of the above
statements are correct” if you believe otherwise.
An auditor develops a flowchart primarily to analyze a system and identify internal

controls, to determine whether there is inefficiency and lack of controls.
As a means of internal control evaluation, flowcharts allow users to follow

information flow more easily than do questionnaires and descriptive narratives.
Flowcharts would be most appropriate during the preliminary stage of an area that
has not previously been audited. Flowcharts help auditors in evaluating internal
control systems.
Flowcharts would most likely be used in the evaluation of controls in a complex

system, not in a simple but well-documented system.
None of the above statements are correct.
Evidence is sufficient if there is enough of it to support the auditors’ findings. In determining

the sufficiency of evidence, it may be helpful to ask: Is there enough evidence to persuade a
reasonable person of the validity of the findings? An essential factor in evaluating the
“sufficiency” of evidence is that it must be convincing enough for a prudent person to reach
the same decision. Listed below are examples of sufficient evidence, except:
Using test data, an auditor has processed both normal and atypical transactions
through a computerized payroll system to test calculations of regular and overtime
pay amounts. Sufficient competent evidence of controls exists if test data results are
compared to predetermined results or expectations.
If the audit objective is to gain evidence that payment actually has been made for a
specific invoice from a vendor, the most persuasive evidence would be obtained by a
canceled check, made out to the vendor and referenced to the invoice, included in a
cutoff bank statement that the auditor received directly from the bank.
Verifying the quantity of fixed assets on hand by physical observation would provide
the most persuasive evidence of quantity per record.
The audit procedure that provides the most persuasive evidence about the loan’s
collectibility is to examine the documentation of a recent, independent appraisal of
the real estate that was used a security.
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Evidence is competent to the extent that it is consistent with fact (i.e., evidence is competent
if it is valid). Competent evidence is satisfied by an original signed document, but copies do
not provide competent evidence. Listed below are examples of competent evidence, except:
A positive confirmation of an accounts receivable that proves that it actually exists is

competent evidence.
A contract dispute has arisen between a company and a major supplier. To resolve
the dispute, the most competent evidence would be the original contract.
In deciding whether recorded sales are valid, most “competent” evidence would be
obtained by looking at the shipping document, the independent bill of lading, and the
invoice for the merchandise.
The most “reliable” (competent) evidence of determining a company’s legal title to

inventories is paid vendor invoices.
A former purchasing assistant performs a review of internal controls over

purchasing four months after being transferred to the internal audit activity.
A payroll accounting employee assists an auditor in verifying the physical inventory

of small motors.
An auditor reviews the procedures for a new electronic data interchange connection
to a major customer before it is implemented.
An auditor recommends standards of control and performance measures for a

contract with a service organization for the processing of payroll and employee
benefits.
Identify inadequate controls that increase the likelihood of unauthorized

expenditures.
Determine if there are any employees expending funds without authorization.
Ensure compliance with reporting procedures.
Review the expenditure items and match each item with the expenses incurred.
Consider the possibility of nonconformance or irregularities at all times during an

engagement.
Ensure that all audit tests are fully documented.
Communicate any noncompliance or irregularity discovered during an engagement

promptly to the audit committee.
Ensure that all financial information related to the audit is included in the audit plan
and examined for nonconformance or irregularities.
Automated work paper software helps auditors to increase efficiency and productivity because
it relieves the boredom of writing out by hand. The software automatically refers to audit work
program sections and related audit objectives. Any corrections or changes can be done with
ease and without losing the continuity. Automated documentation aids include:
Computer data file translation software packages, which read the data file
descriptions in the computer program and convert them into a convenient and
readable format (tabular and graphic).
All of the above statements are correct.
Automated flowchart software packages, which read the source code for a
computer program and convert it into an easy-to-read flowchart.
JCL software packages, which depict the job control flow as a graph or table
showing the sequence of jobs or steps executed and indicating their procedure
names and numbers.
The reliability of questionnaire results tests whether a question always gets the same results
when repeated under similar conditions. Answers can be highly-reliable without being either
verified or valid. A reliable measure is one that, used repeatedly in order to make observations,
produces consistent results. Which of the following statements is incorrect?
Testing reliability is difficult and expensive, because auditors have to either replicate
the data collection or return to those who were questioned before. People do not like
to be retested.
The procedures for testing the reliability of answers are the same from those for
verifying answers.
To test reliability, auditors have to administer the same test to the same source.
When information is verified, auditors usually go to a different source for the same
information or use a different technique on the same source, such as observations
or in-depth interviews.
Engagement Level risk assessment key components are as follows:
Document Risk within a data repository
Outstanding Issues
Gain an understanding business process
Governance, risk management and oversight
Analysis of quantitative risk information
Confirms risk with business owners.
Other:
It provides a basis for evaluating the internal audit activity.
It specifies the minimum resources needed for the internal audit activity.
It defines the authorities and responsibilities for the internal audit activity.
It should be approved by senior management and the board.
Reviewing a purchasing agent's contract drafts prior to their execution.
Participating on a task force which recommends standards of control for a new

distribution system.
Reducing the scope of an engagement due to budget restrictions.
Continuing on an audit assignment at a division for which the auditor will soon be
responsible as the result of a promotion.
Discussions with senior managers should be conducted in an open manner and focus on the
following, except:
Identifying the minimum risk they face in achieving the organization’s objective.
The result of internal and external audit work is carried out during the year
Clarifying the organizations’ main objective
Any concern that managers may have over internal control
I, III, and IV only.
I, II, and IV only.
II, III, and IV only.
I, II, and III only.
The internal auditor is considering performing risk analysis, as a basis for determining which
areas of the organization ought to be examined. Which of the following statements is incorrect
regarding risk analysis? Choose all the items that apply to this statement.
The highest risk assessment should always be assigned to the area with highest
probability of occurrence.
The extent to which management judgements are required in an area could serve as
a risk factor in assisting the auditor in making a comparative risk analysis.
The highest risk assessment should always be assigned to the area with the largest
potential loss.
Risk analysis must be reduced to a quantitative term in order to provide meaningful

comparisons across an organization
An audit manager responsible for the supervision and review of other auditors needs the
necessary skills and knowledge. Which of the following describe a skill or knowledge necessary
to supervise a particular assignment? Choose all the items that apply to this statement.
Determining that staff auditors have completed the audit procedures and that audit
objectives have been met.
Using risk assessment and other judgmental processes to develop an audit plan and
schedule for the department and present the plan to the audit committee
Ensuring that an audit report is supported and accurate relative to the evidence
documented in the working papers of the audit
The ability to review and analyze an audit program to determine if the proposed audit
procedure will result in evidence relevant to the audit’s objectives
One or more or neither of the statements below are incorrect statement(s) about “fieldwork.”
Choose all the incorrect statements by clicking the box next to it or choose “none of the above
statements are incorrect” if you believe otherwise.
Expanding or altering audit procedures, if circumstances warrant, is a work

performed during fieldwork.
Applying the audit program to accomplish audit objectives is a work performed

during fieldwork.
Creating working papers that document the audit is a work performed during
fieldwork.
Developing a written audit program is a work performed during fieldwork.
A question is biased when it causes interviewees to answer in a way that does not reflect their
true positions on an issue. An interviewee may or may not be aware of the bias. Problems
result when the interviewees are:
Refuse to answer because the question is biased.
Unaware of the bias and influenced to respond in the way that is directed by the
wording.
All of the above statements are correct
Aware of the bias and deliberately answer in a way that does not reflect their
opinions.
Statement 1: Risk based audit program should formally documented and supported with
written analysis of risk. Statement 2: Risk based audit program should exclude profiles of
significant business units, departments and products that identify business and control risk
and document the structure of risk management and internal control systems.
Which actions are required to implement risk based-planning under no risk management in
place?
Develop a strategy document that supports the choices made and explains the
methodology used and judgements made to arrive at decisions.
Produce initial risk factors
Discuss and agree approach to categorization with management
Discuss approach with managers and obtain agreement on the way risks are being
scored
Identifying events that may give rise to risk and opportunities across the audit
universe
Score events in terms of probability and impact
Which of the following operational risk falls under Capacity? Choose all the items that apply
to this statement.
Social unrest triggered by changes in government
Inability to secure needed resources
Inability to produce as many units as required
Failure to meet external requirements
Delivering ordered goods or services
Failing to maintain beneficial relationship with customers
Process Generating excessive amounts of waste
Statement 1: Top Down Risk Assessment considers impact and likelihood of occurrence.
Statement 2: Bottom Up Risk Assessment evaluates risk on a common basis.
One or more or neither of the statements below are incorrect statement(s) about the role of
the Chief Audit Executive (CAE) during the planning stage. Choose all the incorrect
statements by clicking the box next to it or choose “none of the above statements are
incorrect” if you believe otherwise.
The chief audit executive must review and adjust the plan, as necessary, in response
to changes in the organization’s business, risks, operations, programs, systems, and
controls
The chief audit executive must identify and consider the expectations of senior
management, the board, and other stakeholders for internal audit opinions and other
conclusions.
The chief audit executive consults with senior management and the board and
obtains an understanding of the organization’s strategies, key business objectives,
associated risks, and risk management processes.
The chief audit executive should consider accepting proposed consulting

engagements based on the engagement’s potential to improve management of risks,
add value, and improve the internal audit’s function.
The decision to use a questionnaire should be made only after carefully considering the
comparative advantages and disadvantages of the various ways of administering a
questionnaire over other data collection techniques. The following statements relate to when
to use questionnaires, except:
Questionnaires are usually more versatile than other methods. They can be used to
collect more types of information from a wider variety of sources than other
methods because they use people, who can report facts, figures, amounts, statistics,
dates, attitudes, opinions, experiences, events, assessments, and judgments during
a single contact.
Questionnaires are frequently used with sample survey strategies to answer

descriptive and normative audit questions. They are often less central in studies
answering cause-and-effect questions since good answers require an in-depth
qualitative and quantitative analysis.
Questionnaires can be useful when the auditor needs a cost-effective way to collect
a large amount of standardized information, when the information to be collected
varies in complexity, when a large number of auditees are needed, when different
populations are involved, and when auditees in those populations are in widely
separated locations.
Questionnaires are difficult to use if the respondent population cannot be readily

identified or if the information being sought is not widely distributed among the
population of those who hold the knowledge.
Statement 1: Risk assessment should be well documented and dynamic, reflecting changes to
the system of internal controls, infrastructure, work processes and new/ changed business lines
or laws and regulations. Statement 2: A high-level summary of risk assessment results should
be provided to the audit committee and include the most significant risks facing the
institution, as well as how those risks have been addressed in the audit plan
Each participant in the interview—interviewer (auditor) and interviewee (auditee)—has a role

to perform and a set of behaviors that assist in the performance. Because the role and
behaviors of each one influence the conduct of the interview, they affect the other participant.
One or more of the items below pertain(s) to the task(s) that the audit must perform in
conducting interviews. Choose all the items that does not apply to the above statement. If
none of the statements met this criteria, choose “none of the statements are correct.”
Ask questions in a prescribed order and manner.
Develop rapport with the interviewee and show interest.
Elicit responsiveness from the interviewer.
Ensure non-bias.
Ensure understanding.
Give the interviewee a reason to participate.
Obtain sufficient answers.
Show sensitivity to the interviewer’s burden.
None of the statements are correct.
Internal auditing has evolved to verifying the existence of assets and reviewing the
means of safeguarding assets
Internal auditing has evolved to more of an operational orientation from a strictly

financial orientation
Internal auditing involves evaluating compliance with policies, plans, procedures,

laws and regulations
Internal auditing involves appraising the economy and efficiency with which
resources are employed
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6/23/23, 8:30 PM Midterm Quiz 1 - ACELEC 332 (Short-term AY 2021-2022)

Both statements are incorrect

Only Statement 2 is correct

Only Statement 1 is correct

Both statements are correct

Protecting the independence of the internal auditor from undue management

Reviewing annual audit plans and monitoring audit results

All of the above statements are correct.

Statement 4: As a result of an audit or preliminary survey, the audit director may

Statement 2: The audit director should incorporate information from a variety of

Statement 3: Risk assessment is a systematic process of assessing and integrating

Statement 1: Risk assessment is a judgmental process of assigning values to the

None of the above statements are incorrect

Reviewing the strategic management process, assessing the quality of management

Reviewing the means of safeguarding assets and, as appropriate, verifying the

Reviewing operations or programs to ascertain whether results are consisten with

I and III only.

III and IV only.

I, II, and IV only.

Organizational status and objectivity.

Human relations and communications.

Staffing and supervision.

Continuing professional development and due professional care.

Confirmations from insurance carriers as to claim paid under workers’ compensation

Reviews of documentation supporting purchases of personal computers

Analysis of claims by type of equipment and extensiveness of use by individual

None of the above statements are incorrect.

The best evidence in assessing the acceptability of various benefit programs to

Reconciling shipping records to recorded sales is a substantive fieldwork procedure

Statement 1: In an IT environment, it is not possible to follow the path of a transaction

Both statements are correct

Only statement 1 is incorrect

Only statement 2 is incorrect

Both statements are incorrect

Audit work schedules.

The appointment of the chief audit executive.

The internal audit report observations and recommendations.

Audit staff promotions and salary increases.

Evaluating the effectiveness of actions taken by management to deter fraud

Being aware of activities in which fraud is likely to occur

Determining if the organizational environment fosters control consciousness

Ensuring that fraud will not occur

An auditor develops a flowchart primarily to analyze a system and identify internal

As a means of internal control evaluation, flowcharts allow users to follow

Flowcharts would most likely be used in the evaluation of controls in a complex

None of the above statements are correct.

Evidence is sufficient if there is enough of it to support the auditors’ findings. In determining

None of the above statements are incorrect.

A positive confirmation of an accounts receivable that proves that it actually exists is

The most “reliable” (competent) evidence of determining a company’s legal title to

None of the above statements are incorrect.

A former purchasing assistant performs a review of internal controls over

A payroll accounting employee assists an auditor in verifying the physical inventory

An auditor recommends standards of control and performance measures for a

Identify inadequate controls that increase the likelihood of unauthorized

Determine if there are any employees expending funds without authorization.

Ensure compliance with reporting procedures.

Consider the possibility of nonconformance or irregularities at all times during an

Ensure that all audit tests are fully documented.

Communicate any noncompliance or irregularity discovered during an engagement

All of the above statements are correct.

None of the above statements are correct.

None of the above statements are incorrect.