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CIA Part 1 Multiple Choice Assessing individual objectivity of internal auditors is the responsibility of A. The chief executive officer. B. The board. C. The audit committee. D. The chief audit executive. correct answer D An internal auditor working for a chemical manufacturer believed that toxic waste was being dumped in violation of the law. Out of loyalty to the organization, no information regarding the dumping was collected. The internal auditor A. Did not violate the Code of Ethics. Loyalty to the employer in all matters in required. B. Did not violate the Code of Ethics. Conclusive information about wrongdoing was not gathered. C. Violated the Code of Ethics by knowingly becoming a party to an illegal act. D. Violated the Code of Ethics by failing to protect thee well-being of the general public. correct answer C. A person with a duty to act who doess not act violated an ethical, if not a legal, obligation. An internal auditing team has made observations and recommendations that should significantly improve a division's operating efficiency. Out of appreciation of this work, and because it is the holiday season, the division manager present to in-charge internal auditor with a gift of moderate value. Which of the following best describes the action prescribed by The IIA's Code of Ethics? A. Accept it, regardless of other circumstances, because its value is insignificant. B. Not accept it prior to submission of the final engagement communication. C. Not accept it if he is presumed to impair the internal auditor's judgment. D. Not accept it, regardless of other circumstances, because its value is significant. correct answer C. According to Rule of Conduct 2.2, the decision whether to accept a gift should be based on the potentional impairment of the auditor's judgement.
Which of the following most likely constitutes a violation of The IIA's Code of Ethics by an internal auditor? A. Discussing at a trade convention the organization's controls over its computer networks. B. Deleting sensitive information from a final engagement communication at the request of senior management. C. Investigating executive expense reports based completely on rumors of padding. D. Purchasing stock in a target organization after overhearing an executive discussion of possible acquisition. correct answer D. Violation of Rules of Conduct 3. A charter is one of the more important factors positively affecting the internal audit activity's independence. Which of the following is least likely to be part of the charter? A. Access to records within the organization. B. The scope of internal audit activities. C. The length of tenure of the chief audit executive. D. Access to personnel within the organization. correct answer C. This is a meter of ongoing judgment for the board and should not be codified in the charter. The purposes of the Standards include all of the following except A. Establishing the basis for the measurement of internal audit performance. B. Guiding the ethical conduct of internal auditors. C. Stating basic principles that represent the practice of internal auditing. D. Fostering improved organizational processes and operations. correct answer B. Guiding the ethical conduct of internal auditors. This is not standard. Which Standards expand upon the other categories of Standards? A. Performance Standards B. Attribute Standards C. Implementation Standards. D. All of the choices are correct. correct answer C.
C. To provide a framework within which accounting policies could be effectively developed and executed. D. The outline criteria that can be used in conducting interviews of potential new accountants correct answer A In analyzing the differences between two recently merged businesses, the chief audit executive of Organization A notes that it has a formal code of ethic and Organization B does not. The code of ethics covers such things as purchase agreements, relationships with vendors, and other issues. Its purpose is to guide individual behavior within the firm. Which of the following statements regarding the existence of the code of ethics in A can be logically inferred? I. A exhibits a higher standard of ethical behavior than does B. II. A has established objective criteria by which an individual's actions can be evaluated. III. The absence of a formal code of ethics in B would prevent a successful review of ethical behavior in that organization. A. I and II. B. II only. C. III only. D. II and III. correct answer B. A review of an organization's code of conduct revealed that it contained comprehensive guidelines designed to aspire high levels of ethical behavior. The review also revealed that employees were knowledgeable of it provisions. However, some employees still did not comply with the code. What element should a code of conduct contain to enhance its effectiveness? A. Periodic review and acknowledgment by all employees. B. Employee involvement in its development. C. Public knowledge of its contents and purpose. D. Provisions for disciplinary action in the event of violations. correct answer D. The IIA Rules of Conduct set forth in The IIA's Code of Ethics A. Describe behavior norms expected of internal auditor.
B. Are guidelines to assist internal auditors in dealing with engagement clients. C. Are interpreted by the Principles. D. Apply only to particular conduct specifically mentioned. correct answer A. Today's internal auditor will often encounter a wide range of potential ethical dilemmas, not all of which are explicitly addressed by The IIA's Code of Ethics. If the internal auditor encounters such a dilemma, the internal auditor should always A. Seek counsel from an independent attorney to determine the personal consequences of potential actions. B. Apply and uphold the principles embodied in The IIA's Code of Ethics. C. Seek the counsel of the board before deciding on an action. D. Act consistently with the code of ethics adopted by the organization even if such action is not consistent with The IIA's Code of Ethics. correct answer B In complying with The IIA's Code of Ethics, an internal auditor should A. Use individual judgment in the application of the principles set forth in the Code. B. Respect and contribute to the objectives of the organization even if it is engaged in illegal activities. C. Go beyond the limitation of personal technical skills to advance the interest of the organization. D. Primarily apply the competency principle in establishing trust. correct answer A An internal auditor who encounters an ethical dilemma not explicitly addressed by The IIA's Code of Ethics should always A. Seek counsel from an independent attorney to determine the personal consequences of potential actions. B. Take action consistent with the principles embodied in The IIA's Code of Ethics. C. Seek the counsel of the audit committee before deciding on an action. D. Act consistently with the employing organization's code of ethics even if such action would not be consistent with The IIA's Code of Ethics. correct answer B
The chief audit executive (CAE) has been appointed to a committee to evaluate the appointment of the external auditors. The engagement partner for the external accounting firm wants the CAE to join her for a week of hunting at her private lodge. The CAE should A. Accept, assuming both their schedule allow it. B. Refuse on the grounds of conflict of interest C. Accept as long as it is not charged to employer time. D. Ask the comptroller whether accepting the invitation is a violation of the organization's code of ethics. correct answer B In a review of travel and entertainment expenses, a certified internal auditor questioned the business purposes of an officer's reimbursed travel expenses. The officer promised to compensate for the questioned amounts by not claiming legitimate expenses in the future. If the officer makes good on the promise, the internal auditor A. Can ignore the original charging of the nonbusiness expenses. B. Should inform the tax authorities in any event. C. Should still include the finding in the final engagement communication. D. Should recommend that the officer forfeit any frequent flyer miles received as part of the questionable travel. correct answer C An internal auditor for a large regional bank was asked to serve on the board of directors of a local bank. The bank competes in many of the same markets as the regional bank but focuses more on consumer financing than on business financing. In accepting this position, the internal auditor I. Violated The IIA's Code of Ethics because serving on the board may be in conflict with the best interests of the internal auditor's employer II. Violated The IIA's Code of Ethics because the information gained while serving on the board of directors of the local bank may influence recommendations regarding potential acquisitions A. I only. B. II only. C. I and II. D. Neither I nor II. correct answer C
Which of the following concurrent occupations could appear to subvert the ethical behavior of an internal auditor? A. Internal auditor and a well-known charitable organization's local in-house chairperson. B. Internal auditor and part-time business insurance broker. C. Internal auditor and adjunct faculty member of a local business college that educated potential employees. D. Internal auditor and landlord of multiple housing that publicly advertises for tenants in a local community newspaper listing monthly rental fees. correct answer B Which of the following is permissible under The IIA's Code of Ethics? A. Disclosing confidential, engagement-related information that is potentially damaging to the organization in response to a court order. B. Using engagement-related information in a decision to buy an ownership interest in the employer organization. C. Accepting an unexpected gift from an employee whom the internal auditor has praised in a recent engagement communication. D. Not reporting significant observations and recommendations about illegal activity to the board because management has indicated it will address the issue. correct answer A. Which situation most likely violates The IIA's Code of Ethics and the Standards? A. The CAE disagrees with the engagement client about the observations and recommendations in a sensitive area. The CAE discusses the detail in observations and the proposed recommendations with a fellow CAE from another organization. B. An organization's charter for the internal audit activity requires the chief audit executive to present the yearly engagement work schedule to the board for its approval and suggestions. C. The engagement manager has removed the most significant observations and recommendations from the final engagement communication. The in-charge internal auditor opposed the removal, explaining that she knows the reported conditions exist. The in-charge internal auditor agrees that, technically, information is not sufficient to support the observations are the only reasonable conclusions. D. Because the internal audit correct answer A.
assignment represented a good learning experience, but the area was clearly beyond the internal auditor's competence. Nonetheless, the internal auditor prepared comprehensive working papers and communicated the results to management. In this situation, A. The internal audit activity violated the Standards by hiring an internal auditor without proficiency in the area. B. The internal audit activity violated the Standards by not providing adequate supervision. C. The CAE has not violated The IIA's Code of Ethics because it does not address supervision. D. The Standards and The IIA's Code of Ethics were followed by the internal audit activity. correct answer B During an engagement to evaluate the organization's accounts payable function, an internal auditor plans to confirm balances with suppliers. What is the source of authority for such contacts with units outside the organization? A. Internal audit activity policies and procedures. B. The Standards. C. The Code of Ethics. D. The internal audit activity's charter. correct answer D. The board of an organization has charged the CAE with upgrading the internal audit activity. The CAE's first task is to develop a charter. What item should be included in the statement of objectives? A. Report all engagement results to the board every quarter. B. Notify governmental regulatory agencies of unethical business practices by organization management. C. Evaluate the adequacy and effectiveness of the organization's controls. D. Submit budget variance reports to management every month. correct answer C The authority of the internal audit activity is limited to that granted by A. The board and the controller. B. Senior management and the Standards.
C. Management and the board. D. The board and the chief financial officer. correct answer C Internal auditing has planned an engagement to evaluate the effectiveness of the quality assurance function as it affects the receipt of goods, the transfer of the goods into production, and the scrap costs related to defective items. The engagement client argues that such an engagement is not within the scope of the internal audit activity and should come under the purview of the quality assurance department only. What is the most appropriate response? A. Refer to the internal audit activity's charter and the approved engagement plan that includes the area designated for evaluation in the current time period. B. Because quality assurance is a new function, seek the approval of management as a mediator to set the scope of the engagement. C. Indicate that the engagement will evaluate the function only in accordance with the standards set by, and approved by, the quality assurance function before beginning the engageme correct answer A. The reporting structure that is most likely to allow the internal audit activity to accomplish its responsibilities is to report administratively to the A. Board and functionally to the chief executive officer. B. Controller and functionally to the chief financial officer. C. Chief executive officer and functionally to the board of directors. D. Chief executive officer and functionally to the external auditor. correct answer Which of the following facts, by themselves, could contribute to a lack of independence of the internal audit activity? I. the CEO accused the new auditor of not operating "in the bests interest of the organization." II. the majority of audit committee members come from within the organization. III. the internal audit activity's charter has not been approved by the board. A. I only. B. II only.
Objectivity is most likely impaired by an internal auditor's A. Continuation on an engagement at a division for which (s)he will soon be responsible as the result of a promotion. B. Reduction of the scope of an engagement due to budget restrictions. C. Participation on a task force that recommends standards for control of a new distribution system. D. Review of a purchasing agent's contract drafts prior to their execution. correct answer A Which of the following actions is required of the CAE in regard to objectivity of internal auditors? A. Maximize. B. Prioritize. C. Manage. D. Assess correct answer D The CAE bears the responsibility to do which of the following? A. Encourage the objectivity of the board. B. Encourage the objectivity of the CEO. C. Foster an attitude of professional skepticism among members of the board. D. Maintain individual objectivity. correct answer D Maintaining individual objectivity of internal auditors is the responsibility of A. The chairperson of the board of directors. B. The chairperson of the audit committee. C. The external assessment team. D. The chief audit executive. correct answer D When faced with an imposed scope limitation, the chief audit executive needs to
A. Refuse to perform the engagement until the scope limitation is removed. B. Communicate the potential effects of the cope limitation to the board. C. Increase the frequency of engagements concerning the activity in question. D. Assign more experienced personnel to the engagement. correct answer B In which of the following situations does an internal auditor potentially lack objectivity? A. An internal auditor reviews the procedures for a new electronic data interchange (EDI) connection to a major customer before it is implemented. B. A former purchasing assistant performs a review of internal controls over purchasing 4 months after being transferred to the internal auditing department. C. An internal auditor recommends standards of control and performance measures for a contract with a service organization for the processing of payroll and employee benefits. D. A payroll accounting employee assists an internal auditor in verifying the physical inventory of small motors. correct answer B An internal auditor who had been supervisor of the accounts payable section should not perform an assurance review of that section A. Because a reasonable period of time in which to establish independence cannot be determined. B. Until at least 1 year has elapsed. C. Until after the next annual review by the external auditors. D. Until it is clear that the new supervisor has assumed the responsibilities. correct answer B A chief audit executive (CAE) for a very small internal audit department has just received a request from management to perform an audit of an extremely complex area in with the CAE and the department have no expertise. The nature of the audit engagement is within the scope of internal audit activities. Management has expressed a desire to have the engagement conducted in the very near future because of the high level of risk involved. Which of the following responses by the CAE would be in violation of the Standards? A. Discuss with management the possibility of outsourcing the audit of this complex area.
The internal audit activity is considering hiring a person who has a thorough understanding of internal auditing techniques, accounting, and principles of management but has nonspecialized knowledge of economics and information technology. Hiring the person is most appropriate if A. A professional development program is agreed to in advance of actual hiring. B. A mentor is assigned to ensure completion of an individually designed professional development program. C. Other internal auditors possess sufficient knowledge of economics and information technology. D. The prospective employee could reasonably be expected to gain sufficient knowledge of these competencies in the long run. correct answer C At a minimum, how often should the skills of the internal audit staff be assessed? A. Annually. B. Every 5 years. C. Quarterly. D. Semi-annually. correct answer A Which of the following statements is true with respect to due professional care? A. An internal auditor should perform detailed tests of all transactions before communicating results. B. An item should not be mentioned in an engagement communication unless the internal auditor is absolutely certain of the item. C. An engagement communication should never be viewed as providing an infallible truth about a subject. D. An internal auditor has no responsibility to recommend improvements. correct answer C Due professional care implies reasonable care and competence, not infallibility or extraordinary performance. Thus, which of the following is unnecessary? A. The conduct of examinations and verifications to a reasonable extent.
B. The conduct of extensive examinations. C. The reasonable assurance that compliance does exist. D. The consideration of the possibility of material irregularities. correct answer B An internal auditor judged an item to be immaterial when planning an assurance engagement. However, the assurance engagement may still include the item if it is subsequently determined that A. Sufficient staff is available. B. Adverse effects related to the item are likely to occur. C. Related information is reliable. D. Miscellaneous income is affected. correct answer B To ensure that due professional care has been taken at all times during an engagement, the internal auditor should always A. Ensure that all financial information related to the audit is included in the audit plan and examined for nonconformance or irregularities. B. Ensure that all audit tests are fully documented. C. Consider the possibility of nonconformance or irregularities at all times during an engagement. D. Communicate any noncompliance or irregularity discovered during an engagement promptly to the audit committee. correct answer C An individual became head of the internal audit activity of an organization 1 week ago. An engagement client has come to the person complaining vigorously that one of the internal auditors is taking up an excessive amount of client time on an engagement that seems to be lacking a clear purpose. In handling this conflict with a client, the person should consider A. Discounting what is said, but documenting the complaint. B. Whether existing procedures within the internal audit activity provide for proper planning and quality assurance. C. Presenting an immediate defense of the internal auditor based upon currently known facts.
B. Audit committee. C. Chief audit executive D. External auditors. correct answer C Which of the following is part of an internal audit activity's quality assurance program, rather than being included as part of other responsibilities of the chief audit executive (CAE)? A. The CAE provides information about and access to internal audit working papers to the external auditors to enable them to understand and determine the degree to which they may rely on the internal auditors' work. B. Management approves a formal charter establishing the purpose, authority, and responsibility of the internal audit activity. C. Each individual internal auditor's performance is appraised at least annually. D. Supervision of an internal auditor's work is performed throughout each audit engagement. correct answer D Ordinarily those conducting internal quality program assessments report to A. The board. B. The chief audit executive. C. Senior management. D. The internal audit staff. correct answer B Quality program assessments may be performed internally or externally. A distinguishing feature of an external assessment is its objective to A. Identify tasks that can be performed better. B. Determine whether internal audit services meet professional standards. C. Set forth the recommendations for improvement. D. Provide independent assurance. correct answer D Which of the following is not implied by the definition of control?
A. Measurement of progress towards goals. B. Uncovering of deviations from plans. C. Assignment of responsibility for deviations. D. Indication of the need for corrective action. correct answer C Controls provide assurance to management that desired actions will be accomplished when objectives are established in writing and A. Standards are adopted, results are compared with the standards, and corrective actions are undertaken. B. Are communicated to employees in writing and are updated by operating personnel as conditions change. C. Policies and procedures for activities are set out in manuals for use by properly trained personnel. D. Internal reviews as to the propriety and effectiveness of the objectives are undertaken on a periodic basis by the internal audit activity. correct answer A An internal auditor is examining inventory control in a merchandising division with annual sales of US $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of purchases do not reach inventory because of breakage and employee theft. Adding certain controls costing US $35,000 annually could reduce these losses to .5% of purchases. Should the controls be recommended? A. Yes, because the projected saving exceeds the cost of the added controls. B. No, because the cost of the added controls exceeds the projected savings. C. Yes, because the ideal system of internal control is the most extensive one. D. Yes, regardless of cost-benefit considerations, because the situation involves employee theft. correct answer B Which of the following statements best describes the relationship between planning and controlling? A. Planning looks to the future; controlling is concerned with the past. B. Planning and controlling are completely independent of each other.
