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NEW QUESTION # 212
Insurance companies often receive electronic hospitalization claims directly from hospitals. Which of the following control procedures would be most effective in detecting fraud in such an environment?
- A. Use generalized audit software to match the claimant identification number with a master list of valid policyholders.
- B. Develop batch controls over all items received from a particular hospital and process those claims in batches.
- C. Use integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing.
- D. Develop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department.
Answer: D
NEW QUESTION # 213
The internal auditor's opinion in terms of due professional care should be:
- A. Expressed only when consensus with top management has been achieved.
- B. Based on sufficient factual evidence.
- C. Limited to the effectiveness of internal controls.
- D. Based on experience and free of all bias.
Answer: B
NEW QUESTION # 214
Which of The following best justifies an internal auditor's decision to issue a preliminary audit report?
- A. The internal audit team would like to issue a clean final audit report without any material observations or risks
- B. The internal audit team expects management to address certain issues immediately due to their severe impact
- C. The internal audit team and audit client have a serious dispute over the scope and objective of the engagement
- D. The internal audit team anticipates that the formal final audit report would be undesirable for management due to the significance of outlined risks
Answer: B
NEW QUESTION # 215
Which of the following statements is true regarding engagement planning?
- A. The engagement objectives are the boundaries for the engagement, which outline what will be included in the review
- B. For an assurance engagement, once the scope is established and testing has begun, the scope cannot be modified.
- C. For a consulting engagement, planning typically occurs after the engagement objectives and scope have already been determined
- D. The risk-based objectives of the engagement can be determined once the scope of the engagement has been formed
Answer: C
NEW QUESTION # 216
According to IIA guidance which of the following statements is true regarding the annual audit plan?
- A. The chief audit executive (CAE) may incorporate risk information, including risk appetite levels from management for the audit plan at her discretion.
- B. The annual audit plan should only be adjusted in response to problems with resourcing, scope, and data availability.
- C. The CAE may make adjustments to the annual audit plan as needed without senior management or board approval.
- D. In an immature risk management environment it is preferable for the CAE to rely solely on her judgment regarding risk identification and assessment to develop the audit plan.
Answer: A
NEW QUESTION # 217
According to IIA guidance, which of the following reflects a valid principle for the internal audit activity to rely on the work of internal or external assurance providers?
- A. Elements of evaluation
- B. Elements of practice
- C. Elements of confidentiality
- D. Elements of organization
Answer: A
Explanation:
According to IIA guidance, elements of evaluation reflect a valid principle for the internal audit activity to rely on the work of internal or external assurance providers. This principle involves assessing the competence, objectivity, and performance of the assurance providers to ensure their work can be relied upon. Proper evaluation helps internal auditors determine the extent to which they can use the work of others in forming their conclusions.
Reference:
IIA Standards: 2050 - Coordination and Reliance
IIA Practice Guide: Reliance by Internal Audit on Other Assurance Providers
NEW QUESTION # 218
At a construction company, an internal auditor is planning an audit of the company's process for designing and building grid connections The process involves customers making payments m three parts
* The first payment of 10% after approval of the customer s application
* The second payment of 70% prior to construction
* The third payment of 20% after construction is complete
Which of the following key controls should the auditor test to ensure that the company is not taking any unwanted credit risks?
- A. Controls that ensure all three invoices are calculated correctly according to the total project cost
- B. Controls that ensure that applications are verified for approval prior to initiating design and construction
- C. Controls that ensure construction orders are initiated after the second invoice is paid
- D. Controls that ensure that grid connection design is finalized before construction is approved to begin
Answer: C
Explanation:
To ensure that the company is not taking any unwanted credit risks, the internal auditor should test controls that ensure construction orders are initiated only after the second invoice, which represents 70% of the payment, is paid. This control is critical because it minimizes the financial risk to the company by ensuring that a significant portion of the payment is received before the majority of the work is undertaken. This practice helps protect the company from potential non-payment issues and reduces the financial exposure associated with the project.
Reference:
COSO Framework
The Institute of Internal Auditors (IIA) Standard 2130: Control
NEW QUESTION # 219
After completing a fraud investigation but before publishing a formal written report, the chief audit executive should submit a draft of the final report to the organization's:
- A. Audit committee chairperson.
- B. Chief executive officer.
- C. Legal counsel.
- D. External auditor.
Answer: C
NEW QUESTION # 220
Which of the following statements describes an engagement planning best practice?
- A. The engagement plan includes the expected distribution of the audit results, which should be kept confidential until the audit report is final.
- B. Engagement planning activities include setting engagement objectives that align with audit client's business objectives.
- C. It is best to determine planning activities on a case-by-case basis because they can vary widely from engagement to engagement.
- D. If the engagement subject matter is not unique, it is not necessary to outline specific testing procedures during the planning phase.
Answer: B
Explanation:
Best practices for engagement planning involve setting objectives that align with the business objectives of the audit client. This ensures that the audit is relevant and provides valuable insights to the organization. Planning should also be systematic and documented, ensuring that specific testing procedures and expected outcomes are outlined and communicated. Reference: = IIA Standard 2200 - Engagement Planning and IIA Practice Guide: "Planning the Engagement".
NEW QUESTION # 221
Which of the following evaluation criteria would be the most useful to help the chief audit executive determine whether an external service provider possesses the knowledge, skills, and other competencies needed to perform a review?
- A. The financial interest the service provider may have in the organization.
- B. Compensation or other incentives that may be applicable to the service provider.
- C. The service provider's experience in the type of work being considered.
- D. The relationship the service provider may have had with the organization or the activities being reviewed.
Answer: C
Explanation:
When selecting an external service provider, the CAE must ensure that the provider possesses the necessary knowledge, skills, and competencies relevant to the specific type of work being reviewed. This is best demonstrated by the provider's experience in the relevant field (Option D). The other options, such as financial interest (Option A), prior relationships (Option B), and compensation (Option C), are considerations for assessing potential conflicts of interest or independence but are not primary criteria for evaluating technical competency.
Reference:
IIA Standard 1210: Proficiency.
IIA Practice Guide on External Service Provider Arrangements.
NEW QUESTION # 222
Which of the following actions should the chief audit executive take when senior management decides to accept risks by choosing to do business with a questionable vendor?
- A. Accept senior management's assumption of the risks.
- B. Persuade senior management to take appropriate action.
- C. Discuss the issue with the board for them to take appropriate action.
- D. Cancel issuing the engagement report due to the assumed risks.
Answer: C
Explanation:
If senior management decides to accept risks, such as doing business with a questionable vendor, and the chief audit executive (CAE) believes this poses a significant risk to the organization, the CAE should escalate the issue to the board. The board has the ultimate responsibility for overseeing risk management and can decide on the appropriate action to take in response to the risk.
IIA Reference:
IIA Standard 2600: Communicating the Acceptance of Risks states that when the CAE believes that senior management has accepted a level of residual risk that may be unacceptable to the organization, the CAE must discuss the matter with senior management. If the decision regarding risk remains unchanged, the CAE must inform the board.
The Practice Guide on Risk Management highlights the importance of the CAE keeping the board informed of significant risks that management has chosen to accept, particularly when these risks could have a material impact on the organization.
NEW QUESTION # 223
After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?
I.Manager of disbursements.
II.
Controller.
III.
Chief operating officer.
IV.
Audit committee members.
- A. I and II only.
- B. II and III only.
- C. I only.
- D. II, III, and IV only.
Answer: A
NEW QUESTION # 224
According to the Standards, which of the following would least likely be considered a red flag when evaluating the risk for fraud?
- A. An employee did not approve an internal report detailing expenses for the month.
- B. Health benefits are detected to be claimed for a deceased employee.
- C. Cash receipts appear to be lower than expected from an employee's cash drawer.
- D. It is alleged that an employee is receiving vendor kickbacks.
Answer: A
Explanation:
Section: Volume D
NEW QUESTION # 225
Which of the following sources of audit evidence is most reliable?
- A. Timely audit evidence obtained directly from a customer.
- B. Evidence obtained directly from an untested third party.
- C. Undocumented audit evidence obtained directly from a manager.
- D. Uncorroborated audit evidence obtained indirectly from an employee.
Answer: A
Explanation:
In internal auditing, the reliability of evidence is critical. According to IIA standards, evidence that is obtained directly from an external source, such as a customer, is generally considered more reliable, especially when it is timely.
Detailed Explanation:
IIA Standard 2310 - Identifying Information:
This standard requires that internal auditors obtain sufficient, reliable, relevant, and useful information to achieve the engagement's objectives. Evidence obtained directly from external sources is often deemed more reliable because it is less likely to be biased or manipulated.
Direct Evidence:
Evidence obtained directly from a customer is considered highly reliable because it comes from an independent and external party. It is less likely to be influenced by internal pressures or conflicts of interest.
Timeliness:
The timeliness of evidence also affects its reliability. Recent and relevant information is more likely to accurately reflect the current state of affairs, making it more reliable for decision-making.
Why Not Other Options?
Option A (Untested third party): Although external, the reliability of evidence from an untested third party is uncertain until their credibility is established.
Option B (Uncorroborated evidence from an employee): This is less reliable as it may be subject to bias or self-interest.
Option C (Undocumented evidence from a manager): Undocumented evidence is generally less reliable as it lacks supporting documentation that can be verified.
NEW QUESTION # 226
Which of the following is true regarding roles and responsibilities in risk management processes?
- A. Setting strategic direction resides with senior management.
- B. Acceptance of residual risk resides with executive management level.
- C. Identifying, assessing, mitigating and monitoring activities on a continuous basis rests with the internal audit activity.
- D. Ownership of risks resides with the board.
Answer: B
NEW QUESTION # 227
Which of the following actions are appropriate for the chief audit executive to perform when identifying audit resource requirements?
1. Consider employees from other operational areas as audit resources, to provide additional audit coverage in the organization.
2. Approach an external service provider to conduct internal audits on certain areas of the organization, due to a lack of skills in the organization.
3. Suggest to the audit committee that an audit of technology be deferred until staff can be trained, due to limited IT audit skills among the audit staff.
4. Communicate to senior management a summary report on the status and adequacy of audit resources.
- A. 2, 3, and 4
- B. 1, 2, and 4
- C. 2 and 4 only
- D. 1 and 3 only
Answer: B
Explanation:
Section: Volume E
NEW QUESTION # 228
When forming an opinion on the adequacy of management's systems of internal control, which of the following findings would provide the most reliable assurance to the chief audit executive?
During an audit of the hiring process in a law firm, it was discovered that potential employees' credentials were not always confirmed sufficiently. This process remained unchanged at the following audit.
During an audit of the accounts payable department, auditors calculated that two percent of accounts were paid past due. This condition persisted at a follow up audit.
During an audit of the vehicle fleet of a rental agency, it was determined that at any given time, eight percent of the vehicles were not operational. During the next audit, this figure had increased.
During an audit of the cash handling process in a casino, internal audit discovered control
deficiencies in the transfer process between the slot machines and the cash counting area. It was corrected immediately.
- A. 2 and 3 only
- B. 1 and 4 only
- C. 2 and 4 only
- D. 1 and 3 only
Answer: B
NEW QUESTION # 229
In evaluating the validity of different types of audit evidence, which of the following conclusions is not correct?
- A. The validity of confirmations varies directly with the independence of the party receiving the confirmation.
- B. Internally created documentary evidence is considered less valid than externally created documentary evidence.
- C. Recomputation, though highly valid, is limited in usefulness due to its limited scope.
- D. The validity of documentary evidence is independent of the effectiveness of the control system in which it was created.
Answer: D
NEW QUESTION # 230
Which of the following is one of the five attributes that internal auditors include when documenting a deficiency?
- A. The methodology used to analyze data
- B. The proposed follow-up engagement work to be performed
- C. The scope of work performed during the engagement
- D. The criteria used to make the evaluation
Answer: D
Explanation:
One of the five attributes that internal auditors include when documenting a deficiency is the criteria used to make the evaluation. The criteria represent the standards, measures, or expectations used in the evaluation process. Documenting the criteria is essential as it provides a benchmark against which the actual conditions can be compared, thereby helping to identify and explain deficiencies in controls or processes.
References:
* The Institute of Internal Auditors (IIA) Standard 2410 - Criteria for Communicating: "Final communication of engagement results must, where appropriate, contain the internal auditors' overall opinion and/or conclusions, as well as the criteria used for evaluation."
* IIA Practice Guide on "Documenting Internal Audit Observations"
NEW QUESTION # 231
Which of the following statements regarding the use of external contracted services by the chief audit executive (CAE) is false?
- A. The CAE's responsibility is not impaired by engaging an external expert.
- B. The external expert could have a prior relationship with the audit client.
- C. The expert should be directed by the objectives and scope of work.
- D. The audit report should not disclose the use of contracted services.
Answer: D
Explanation:
Section: Volume D
NEW QUESTION # 232
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