Question 1: Evidence is more reliable if it is obtained directly from the engagement client.

A True

B False

This answer is correct.

Evidence is more reliable if it is obtained from sources independent of the
engagement client, such as confirmations of receivables or expert appraisals that
are timely and made by a source with no connection to the auditee.

Question 2: Appraisal of each internal auditor's performance is required at least annually.

A True

This answer is correct.

Supervision extends to performance appraisals of engagement staff. Appraisal of
each internal auditor's performance is required at least annually. A full explanation
of the appraisal process and results are given to each internal auditor.
B False

Question 3: Sufficient information is competent and the best attainable through the use of
appropriate engagement techniques.

A True

B False

This answer is correct.

According to Standard 2310, “Internal auditors must identify sufficient, reliable,
relevant, and useful information to achieve the engagement's objectives. Sufficient
information is factual, adequate, and convincing so that a prudent, informed person
would reach the same conclusions as the auditor. Reliable information is the best
attainable information through the use of appropriate engagement techniques.”

Question 4: Useful information helps an organization create value for its owners, customers, and
clients.

A True

This answer is correct.

Information is useful when it “helps the organization meet its goals.” The
organization’s ultimate goal is to create value for its owners, other stakeholders,
customers, and clients. Hence, this characteristic of information is consistent with
the definition of internal auditing as an activity that adds value, improves operations,
and helps an organization achieve its objectives.

Question 5: Analytical auditing procedures are useful in identifying potential errors or illegal acts.
 A True

This answer is correct.

Analytical procedures provide internal auditors with an efficient and effective means
of assessing and evaluating information collected in an engagement. The
assessment results from comparing information with expectations identified or
developed by the internal auditor. Analytical procedures identify, among other
things, (1) differences that are not expected, (2) the absence of differences when
they are expected, (3) potential errors, (4) potential irregularities or illegal acts, and
(5) other unusual or nonrecurring transactions or events.
B False

Question 6: Comparing current period information with budgets or forecasts is not an analytical
auditing procedure.

A True

B False

This answer is correct.

According to PA 2320-1, analytical procedures include (1) comparing similar current
and prior period information, (2) comparing current information with budgets or
forecasts, (3) studying relationships of financial information with the appropriate
nonfinancial information, (4) studying relationships of elements of information (e.g.,
interest expense with debt), (5) comparing information over organizational units,
and (6) comparing information with that for the industry.

Question 7: When performing analytical auditing procedures, comparisons may be made from
quarter to quarter.

A True

This answer is correct.

Comparison of current-period information with similar information for prior periods is
a very common analytical auditing procedure. The comparison may be from year to
year, quarter to quarter, the current quarter to the same quarter last year, etc.
B False

Question 8: Calculating budget variances is an ineffective analytical procedure.

 A True

B False

This answer is correct.

If a budget has been carefully prepared and therefore reflects reasonable
expectations about the organization’s performance, calculation of budget variances
is an effective analytical procedure. Such comparison of current-period results with
budgeted amounts is a common cost accounting procedure. Internal auditors
determine that budgets are reasonable and that variances have been identified and
followed up.

Question 9: Due professional care does not imply infallibility.

A True

This answer is correct.

According to Standard 1220, “Internal auditors must apply the care and skills
expected of a reasonably prudent and competent internal auditor. Due professional
care does not imply infallibility.”
B False

Question 10: Turnover analysis is useful for determining slow-moving inventory.

A True

This answer is correct.

Analysis of the relationships among the elements of accounting information is
facilitated by the double-entry system. Turnover analysis is useful for determining
lagging collections of receivables (ratio = net sales ÷ average receivables) or slow-
moving inventory (ration = cost of sales ÷ average inventory).
B False

Question 11: External information is ordinarily regarded as the most reliable.

A True

This answer is correct.

External information is created by an independent party and transmitted directly to
the internal auditor. External information is ordinarily regarded as the most reliable
because it has not been exposed to possible contamination by the client.
B False

Question 12: Recomputing quantitative data does not provide information about the reliability of the
input.
 A True

This answer is correct.

Recomputing quantitative data is a means of gathering information that is reliable
but limited in value. A computation done directly by the internal auditors provides
strong and unbiased information regarding accuracy. One limitation of
recomputation is that it does not provide information about the reliability of the input.
B False

Question 13: Internal auditors should gather information from clients about the quality of audit
performance.

A True

This answer is correct.

As part of a quality assurance process, internal auditors gather information from
clients (customers of internal auditing services) about the quality of their
performance. Advantages are future improvement in that performance and better
client-auditor relations through conflict reduction, greater client participation, and a
better understanding of the internal auditing function.
B False

Question 14: Internal-external information is created by an external party but subsequently processed
by the engagement client.

A True

B False

This answer is correct.

Internal-external information originates with the engagement client but is also
processed by an external party. Examples are canceled checks. These documents
are created by the engagement client but then circulate through the banking
system. A bank’s acceptance of a check is some confirmation of its validity. Internal-
external information is deemed to be more reliable than purely internal information.

Question 15: Physical information consists of the internal auditor’s direct observation and inspection of
activities or physical items.

A True

This answer is correct.

Physical information consists of the internal auditor’s direct observation and
inspection of people, property, or activities, e.g., of the counting of inventory.
Photographs, maps, graphs, and charts may provide compelling physical
information. When physical observation is the only information about a significant
condition, at least two internal auditors should view it.
 B False

Question 16: Testimonial information consists only of spoken statements of engagement client
personnel and others in response to inquiries or interview questions.

A True

B False

This answer is correct.

Testimonial information consists of written or spoken statements of engagement
client personnel and others in response to inquiries or interview questions. Such
information may furnish important indications about the direction of engagement
work. Testimonial information may not be conclusive and should be supported by
other forms of information when possible.

Question 17: Vouching and tracing are subcategories of detailed testing.

A True

This answer is correct.

Detailed testing involves examination of documents created pursuant to the
activities and transactions being reviewed. Two subcategories of detailed tests are
vouching and tracing. Vouching entails verifying recorded amounts by examining
the underlying documents from the final documents to the original documents.
Tracing involves following transactions forward through the records from the original
documents to the final summary amounts.
B False

Question 18: Observation and inspection establish whether the engagement client has title to what is
observed or inspected.

A True

B False

This answer is correct.

Observation and inspection are procedures that involve examination of physical
information by the internal auditor. The resulting information consists of the internal
auditor’s direct experience and, to that extent, is highly reliable. However,
observation and inspection do not establish whether the engagement client has title
to what is observed or inspected or whether other parties may have liens on such
assets.

Question 19: An unreturned negative confirmation request provides some information of existence.
 A True

This answer is correct.

A negative confirmation requests the recipient to respond only if (s)he disagrees
with the information stated. An unreturned negative confirmation request provides
some information of existence because it has not been returned with an indication
that the addressee is unknown. However, it provides no explicit inference that the
intended recipient verified the information.
B False

Question 20: Most information merits only partial reliance and must therefore be corroborated.

A True

This answer is correct.

Most information merits only partial reliance and must therefore be corroborated.
For example, testimonial information obtained by interviewing engagement client
personnel ordinarily should be supplemented by the results of detailed testing and
analytical procedures.
B False

Question 21: Working papers support engagement observations, conclusions, and recommendations.

A True

This answer is correct.

According to Standard 2330, “Internal auditors must document relevant information
to support the conclusions and engagement results.” According to PA 2330-1,
“Internal auditors prepare working papers. Working papers document the
information obtained, the analyses made, and the support for the conclusions and
engagement results. Internal audit management reviews the prepared working
papers.”
B False

Question 22:
Engagement working papers must be prepared in paper form.

A True

B False

This answer is correct.

According to PA 2330-1, “The internal audit activity determines the media used to
document and store working papers.”
Question 23: Internal auditors document the work performed to achieve the objectives of a formal consulting
 engagement and support its results.

A True

This answer is correct.

Internal auditors document the work performed to achieve the objectives of a formal
consulting engagement and support its results. However, documentation requirements for
assurance engagements do not necessarily apply to consulting engagements.
B False

Question 24: Some security issues that arise when developing working papers using an electronic
medium did not exist when documents were prepared only on hard copy.

A True

This answer is correct.

The adoption of electronic media for the creation, transmission, and storage of
working papers raises security concerns that do not arise in an environment in
which these documents exist only in hard copy. However, advances in information
technology also permit fundamental changes in the engagement process. New
methods of data storage, retrieval, and manipulation may facilitate engagement
activities that were not previously feasible, e.g., multiple regression analyses and
simulation.
B False

Question 25: The chief audit executive or designee is responsible for ensuring that appropriate
supervision is provided throughout the engagement.

A True

This answer is correct.

According to PA 2340-1, “The chief audit executive (CAE) or designee provides
appropriate engagement supervision. Supervision is a process that begins with
planning and continues throughout the engagement. The process includes
determining engagement working papers adequately support engagement
observations, conclusions, and recommendations.”
B False
Question 26: Once the engagement is completed, all members of the organization have a right of
access to the internal auditors’ working papers.

A True

B False

This answer is correct.

According to PA 2330.A1-1, “Internal audit engagement records include reports,
supporting documentation, review notes, and correspondence, regardless of
storage media. Engagement records or working papers are the property of the
organization. The internal audit activity controls engagement working papers and
provides access to authorized personnel only. Management and other members of
the organization may request access to all or specific engagement working papers.
Such access may be necessary to substantiate or explain engagement
observations and recommendations or for other business purposes. The CAE
approves these requests.”

Question 27: Senior management or legal counsel should approve the release of the engagement
working papers to outside parties other than the external auditors.

A True

This answer is correct.

According to PA 2330.A1-1, “There are circumstances where parties outside the
organization, other than external auditors, request access to engagement working
papers and reports. Prior to releasing the documentation, the CAE obtains the
approval of senior management or legal counsel, as appropriate.”
B False

Question 28: Internal auditors do not need to consult with management regarding the accessibility of
engagement records.

A True

B False

This answer is correct.

Auditors should educate the board and management about access issues. Policies
governing access should be reviewed by the audit committee.
Question 29: The chief audit executive must develop retention requirements for engagement records
that are consistent with the organization’s guidelines.

A True

This answer is correct.

According to Standard 2330.A2, the chief audit executive must develop retention
requirements for engagement records. These retention requirements must be
consistent with the organization’s guidelines and any pertinent regulatory or other
requirements.
B False

Question 30: Under some jurisdictions, public accounting firms are required to prepare and maintain
audit working papers and other information related to any audit report for a statutory
period.

A True

This answer is correct.

In some jurisdictions, an accounting firm may be required to prepare and maintain
audit working papers and other information related to any audit report for a statutory
period. The working papers and other documentation must be in sufficient detail to
support the conclusions reached in the report.
B False