IIA SAMPLE QUESTIONS WITH ANSWERS

CIA Exam Questions -- Introduction to Internal Auditing

1. Which of the following best describes the objective of internal auditing? a. To assist members of the organization in the effective discharge of their responsibilities  b. To To assist assist management with the design design and implementation of accounting accounting and control systems c. To examine and evaluate an organization's accounting system as a service to management d. To monitor monitor the organization's internal control system for the external auditors . !ccording the the "tatement of #esponsibilities of $nternal !uditing% !uditing% which of the following is not included in the scope of the internal audit function? a. !ppraising !ppraising the economy and efficiency with which resources are employed  b. #eviewing the strategic management management process% assessing the the &uality of management decision maing both &uantatively and &ualitatively% &ualitatively% and reporting the results to the audit committee c. #eviewing the means of safeguarding assets and% as appropriate% verifying the existence of such assets d. #eviewing 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. (. )f the following% which is the major objective of The $nstitue of $nternal !uditors? a. *ultivate% promote and disseminate information concerning internal auditing and related subjects  b. )versee the activities of of internal auditors c. +romulgate standards that must be followed by all corporations d. $nvestigate accusations that *ertified $nternal !uditors !uditors have violated The $nstitute of $nternal !uditors *ode of ,thics -. )ne of the purposes of the "tandards for the +rofessional +ractice of $nternal !uditing as stated in the $ntroduction to the "tandards is to a. ,ncourage the professionalization of internal auditing  b. ,stablish the independence independence of the internal audit audit department and emphasize the objectivity of internal auditing c. ,ncourage external auditors to mae more extensive use of the wor of internal auditors

d. ,stablish the basis for guidance and measurement of internal auditing performance . Which of the following statements does not describe one of the purposes of The $$! *ode of ,thics? The $$! *ode of ,thics a. "ets forth basic principles in the practice of internal auditing  b. *harges $$! members to maintain high standards standards of conduct c. ,xplains the internal audit profession's responsibility to society at large d. "tates that a distinguishing mar of a profession is acceptance by its members of responsibility to those it serves /. $ndependence permits internal auditors to render impartial and unbiased judgments. The best way to achieve independence is through a. $ndividual nowledge and sills  b. )rganizational status status and objectivity objectivity c. "upervision within the organization d. )rganizational nowledge and sills 0. Which of the following is considered a major reason for establishing an internal audit function? a. To relieve overburdened management of the responsibility re sponsibility for establishing an effective control structure  b. To To safeguard resources resources entrusted to the organization organization c. To ensure the accuracy% reliability reliability and timeliness of financial and operating data used in managment's decision maing d. To assist members of the organization in the measurement and evaluation of the effectivenss of the established internal control structure . The internal auditor's responsibility for the prevention of fraud includes all of the following except a. 2etermining if the organizational environment fosters control consciousness  b. ,nsuring that fraud will will not occur  c. 3eing aware of activities in which fraud is liely to occur  d. ,valuating the effectiveness of actions taen by management to deter d eter fraud 4. The internal auditing profession is believed to have advanced primarily as a conse&uence of  a. $ncreased interest by graduating students and experienced auditors  b. The limitation limitation of external audit scope

d. ,stablish the basis for guidance and measurement of internal auditing performance . Which of the following statements does not describe one of the purposes of The $$! *ode of ,thics? The $$! *ode of ,thics a. "ets forth basic principles in the practice of internal auditing  b. *harges $$! members to maintain high standards standards of conduct c. ,xplains the internal audit profession's responsibility to society at large d. "tates that a distinguishing mar of a profession is acceptance by its members of responsibility to those it serves /. $ndependence permits internal auditors to render impartial and unbiased judgments. The best way to achieve independence is through a. $ndividual nowledge and sills  b. )rganizational status status and objectivity objectivity c. "upervision within the organization d. )rganizational nowledge and sills 0. Which of the following is considered a major reason for establishing an internal audit function? a. To relieve overburdened management of the responsibility re sponsibility for establishing an effective control structure  b. To To safeguard resources resources entrusted to the organization organization c. To ensure the accuracy% reliability reliability and timeliness of financial and operating data used in managment's decision maing d. To assist members of the organization in the measurement and evaluation of the effectivenss of the established internal control structure . The internal auditor's responsibility for the prevention of fraud includes all of the following except a. 2etermining if the organizational environment fosters control consciousness  b. ,nsuring that fraud will will not occur  c. 3eing aware of activities in which fraud is liely to occur  d. ,valuating the effectiveness of actions taen by management to deter d eter fraud 4. The internal auditing profession is believed to have advanced primarily as a conse&uence of  a. $ncreased interest by graduating students and experienced auditors  b. The limitation limitation of external audit scope

c. 5ob &ualification specifications that include added emphasis on bacground nowledge and sills d. $ncreased complexity and sophistication of business operations 16. The audit committee can serve several important i mportant purposes% some of which directly  benefit internal auditing. auditing. The most significant significant benefit provided by the the audit committee to the internal auditor is a. +rotecting the independence of the internal auditor from f rom undue management influence  b. #eviewing annual audit plans and monitoring audit audit results c. !pproving audit plans% scheduling% staffing and meeting with the internal auditor as needed d. #eviewing copies of the procedures manuals for selected company operations and meeting with company officials to discuss them 11. Which of the following best describes and internal auditor's purpose in reviewing the ade&uacy of the system of internal control? a. To help help determine the nature% timing and extent of tests necessary to achieve audit objectives  b. To To ensure that that material weanesses in the the internal control system are corrected corrected c. To determine whether the internal control system provides reasonable assurance that the organization's objectives and goals are met efficiently and economically d. To determine whether the internal control system ensures that the accounting records are correct and that financial statements are fairly stated

3ac to 7uestion and !nswer +age 3ac to the !uditing *lass 8ome +age 3ac to +rof. !tinson's 8ome +age CIA Exam Questions -- Internal Auditing Standards

1. !ccording to the "tatement of #esponsibilities% the authority of the internal auditing department is limited to that granted by a. The board of directors and the controller   b. "enior management and the "tandards "tandards c. 9anagement and the board of directors d. The audit committee and the chief financial officer 

. ! company's new president meets the director of internal auditing for the first time and ass the director to briefly describe the department's overall responsibility. The The director states that internal auditing's overall responsibility is to a. !ct an an independent appraisal function to review operations as a service to management by measuring and evaluating the effectiveness of controls  b. #eview the means of safeguarding safeguarding assets and% as appropriate% verify verify the existence of  such assets c. ,nsure compliance with policies% plans% procedures% laws and regulations that could have a significant impact on operations and reports d. #eview the reliability and integrity of financial and operating information and the means used top identify% identify% measure% classify and report r eport such informtion (. ! charter is being drafted for a newly formed internal auditing department. depart ment. Which of the following best describes the appropriate opganizational status that should be incorporated into the charter? a. The director of internal auditing should report to the chief executive officer but have access to the board of directors  b. The director of internal internal auditing should be a member of the audit committee of the the  board of directors c. The director of internal auditing should be a staff officer reporting to the chief financial officer  d. The director of internal auditing should report to an administrative vice president -. :nder "tandard 116% the purpose% authority and responsibility of the internal audit department should be defined in a formal written document ;charterinancial statements andor internal records will contain material error 

11. $nternal auditing is a dynamic profession. Which of the following best describes the scope of internal auditing as it has developed to date? a. $nternal auditing involves appraising the economy and efficiency with which resources are employed  b. $nternal auditing involves evaluating compliance with policies% plans% procedures% laws and regulations c. $nternal auditing has evolved to verifying the existence of assets and reviewing the means of safeguarding assets d. $nternal auditing has evolved to more of an operational orientation from a strictly financial orientation

3ac to 7uestion and !nswer +age 3ac to the !uditing *lass 8ome +age 3ac to +rof. !tinson's 8ome +age

CIA Exam Questions -- IIA Code of Ethics 1. A primary purpose for establishing a code of conduct within a professional organization is to a. educe the li!elihood that members of the profession will be sued for substandard wor! b. Ensure that all members of the profession perform at approximately the same le"el of competence c. #emonstrate acceptance of responsibility to the interests of those ser"ed by the profession d. e$uire members of the profession to exhibit loyalty in all matters pertaining to the a%airs of their organization &. An accounting association established a code of ethics for all members. Identify the association's primary purpose for establishing the code of ethics. a. (o outline criteria for professional beha"ior to maintain standards of competence) morality) honesty and dignity within the association b. (o establish standards to follow for e%ecti"e accounting practice c. (o pro"ide a framewor! within which accounting policies can be e%ecti"ely de"eloped and executed d. (o outline criteria that can be used in conducting inter"iews of potential new accountants

*. +#ue care implies reason$ble care and competence) not infallibility or extraordinary performance.+ (his statement ma!es which of the following unnecessary, a. (he conduct of examinations and "erications to a reasonable extent b. (he conduct of extensi"e examinations c. (he reasonable assurance that compliance does exist d. (he consideration of the possibility of material irregularities . An internal auditor obser"es that a recei"ables cler! has physical access to and control of cash receipts. (he auditor wor!ed with the cler! se"eral years before and has a high le"el of trust in the indi"idual. Accordingly) the auditor notes in the wor!ing papers that controls o"er receipts are ade$uate. Is the auditor in compliance with the /tandards, a. 0es) reasonable care has been ta!en b. o) irregularities were not noted c. o) alertness to conditions where irregularities are most li!ely was not shown d. 0es) the wor!ing papers were annotated 2. (he Code of Ethics re$uires IIA members to exercise three particular $ualities in the performance of their duties. (hese $ualities are a. 3onesty) ob4ecti"ity and dilegence b. (imeliness) sobriety and clarity c. 5nowledge) s!ill and discipline d. 6unctuality) loyalty and dignity 7. A Certied Internal Auditor) wor!ing for a chemical manufacturer) belie"ed that toxic waste was being dumped in "iolation of the law. 8ut of loyalty to the company) no e"idence regarding the dumping was collected. (he auditor a. 9iolated the Code of Ethics by !nowingly becoming a party to an illegal act b. 9iolated the Code of Ethics by failing to protect the well-being of the general public

c. #id not "iolate the Code of Ethics. :oyalty to the employer in all matters is re$uired d. #id not "iolate the Code of Ethics. Conclusi"e e"idence of wrongdoing was not gathered ;. . #uring the course of an audit) an auditor disco"ers that a cler! is embezzling company funds. Although this is the rst embezzlement e"er encountered and the organization has a security department) the auditor decides to personally interrogate the suspect. If the auditor is "iolating the Code of Ethics) the rule "iolated is most li!ely a. ?ailing to show due diligence b. :ac! of loyalty to the organization c. :ac! of competence in this area d. ?ailing to comply with the law 1@. An organization has recently placed a former operating manager in the position of director of internal auditing. (he new director is not a member of (he IIA and is not a CIA. 3enceforth) the internal

auditing department will be run strictly by the director's standards) not (he IIA's. All four sta% members are members of (he Institute) but they are not CIAs. According to the Code of Ethics) what is the best course of action for the sta% members, a. (he Code does not apply because the auditors are not CIAs. b. (he auditors should adopt suitable means to comply with the /tandards c. (he auditors must exhibit loyalty to the organization and ignore the /tandards d. (he auditors must resign their 4obs to a"oid improper acti"ities 11. #uring an audit) A CIA learned that certain indi"iduals in the organization were in"ol"ed in industrial espionage for the benet of the organization. According to the Code of Ethics) identify the auditor's course of action. a. eport the facts to the appropriate indi"idual within the organization b. o action is re$uired because this condition is not detrimental to the organization c. ote the condition in the wor!ing papers but refrain from reporting it because it benets the organization d. eport the condition to the appropriate go"ernment regulatory agency 1&. A CIA is found to ha"e committed a "ery serious "iolation of the Code of Ethics of (he IIA. @ chances out of 1@@ that the sample results will not "ary from the true characteristics of the population by more than a specied amount d. A larger sample size is re$uired than if the desired condence le"el were e$ual to >2M ;. In statistical sampling) setting the appropriate condence le"el and desired sample precision are decisions made by the auditor that will a%ect sample size for a substanti"e test. . In applying "ariables sampling) an auditor attempts to a. Estimate a $ualitati"e charactristic of interest b. #etermine "arious rates of occurrence for specied attributes

c. #isco"er at least one instance of a critical de"iation d. 6redict a monetary population "alue within a range of precision *@. An internal auditor is using "ariables estimation as the statistical sampling techni$ue to estimate the monetary "alue of a large in"entory of parts. Li"en a sample standard de"iation of B@@) a sample size of @@) and a >2M two-tail condence inter"al) what precision can the auditor assign to the estimate of the mean dollar "alue of a part, a. NJ- B*> b. NJ- B& c NJ- B2& d. NJ- B&@ *1. In an application of mean per unit sampling) the following information has been obtained reported boo! "alue B7@@)@@@ point estimate Festimated total "alueG B2>1)@@@ allowance for sampling ris! FprecisionG NJ- &&)@@@ tolerable misstatement NJ- 2)@@@  (he appropriate conclusion would be that the reported boo! "alue is a. Acceptable only if the ris! of incorrect re4ection is at least twice the ris! of incorrect acceptance b. Acceptable c. ot acceptable d. Acceptable only if the ris! of incorrect acceptance is at least twice the ris! of incorrect re4ection. *&. A statistical sample from an in"entory containing a total of 1@)@@@ items produced a sample mean e$ual to B&2 and a standard error of the mean e$ual to B1. ) 22@ d. B&2@)@@@ to B&;@)@@@

**. An auditor's nding was stated as follows +(wenty of one hundred randomly selected items tested re"ealed that B&@@ of cash discounts on purchases were lost.+ (his "ariables sampling nding is decient because the a. ecommendation species no action b. /ampling methodology is not dened c. Amount is not material d. 6robable e%ect on the entire population is not pro"ided *. /ample selection using dollar unit sampling for in"entory "aluation will most li!ely result in selectgion of a sample with characteristics roughly e$ui"alent to one pro"ided by a. ean per unit or direct extenstion unstratied sampling plans b. 9ariables sampling plans with substantial stratication by dollar amount c. /election of in"entory records using a random starting point for the record selection d. #i%erence or ratio estimation plans applied on an unstratied basis *2.