Section a _ Mandatory Guidance

Part 1 (3-Part) : 12/13/14 22:25:28 Question 1 - CIA 594 I.37 - Charter, Independence & Objectivity When evaluating the independence of an internal audit activity, a quality assurance review team performing an external assessment considers several factors. Which of the following factors has the least amount of influence when judging an internal audit activity's independence? A. Criteria used in making internal auditors' assignments. B. Impartial and unbiased judgments. C. The extent of internal auditor training in communications skills. D. Relationship between engagement records and engagement communications.

Question 2 - CIA 593 II.7 - Quality Assurance & Improvement Program Ordinarily, those conducting internal quality program assessments should report to A. The chief audit executive. B. The internal auditing staff. C. The board. D. Senior management.

Question 3 - CIA 595 1.36 - Introduction to Internal Auditing The chief audit executive (CAE) of internal auditing of a mid-sized internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the CAE adopted a very aggressive program to promote the internal auditing department within the organization. The CAE planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the CAE took to promote a positive image within the organization: 1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy. 2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report. 3. The EDP auditor participated as part of a development team to review the control pro-cedures to be incorporated into a major computer application under development. 4. Given limited resources, the CAE performed a risk analysis to determine which locations to audit. This was a marked departure from the previous approach of ensuring that all operations are reviewed on at least a three-year interval. 5. In order to save time, the CAE no longer required that a standard internal control questionnaire be completed for each audit. 6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and if acceptable, use it to evaluate the auditee's operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed upon. The audit report commented on the auditee's operations in conjunction with the agreed-upon criteria. Which of the following elements of Action 1 taken by the CAE would be considered a violation of the Standards? (c) HOCK international, page 1

Part 1 (3-Part) : 12/13/14 22:25:28 I. The type of audits was changed before modifying the charter and going to the audit committee. II. Negative findings were omitted from the audit reports. III. Cost savings and recommendations were highlighted in the report. A. I only. B. I and III. C. II and III. D. I and II.

Question 4 - CIA 1193 I.5 - Proficiency & Due Professional Care A professional engineer applied for a position in the internal audit activity of a high technology firm. The engineer became interested in the position after observing several internal auditors while they were performing an engagement in the engineering department. The chief audit executive A. May hire the engineer despite the lack of knowledge of internal auditing standards. B. Should not hire the engineer because of the lack of knowledge of internal auditing standards. C. May hire the engineer because of the knowledge of internal auditing gained in the previous position. D. Should not hire the engineer because of the lack of knowledge of accounting and taxes.

Question 5 - CIA 1196 I.48 - Proficiency & Due Professional Care An internal auditor is assigned to perform an engagement to evaluate the organization's insurance program, including the appropriateness of the approach to minimizing risks. The organization self-insures against large casualty losses and health benefits provided for all its employees. It is a large national entity with over 15,000 employees located in various parts of the country. It uses an outside claims processor to administer its health care program. The organization's medical costs have been rising by approximately 8% per year for the past five years, and management is concerned with controlling these costs. When the engagement was assigned, management asked the internal auditor to evaluate the appropriateness of using self-insurance to minimize risk to the organization. Given the scope of the engagement requested by management, should the internal auditor engage an actuarial consultant to assist in the engagement if these skills do not exist on staff? A. No. The internal audit activity is skilled in assessing controls, and the insurance control concepts are not distinctly different from other control concepts. B. Yes. An actuary is essential to determine whether the health care costs are reasonable. C. No. It is a normal internal auditor function to assess risk; this engagement is therefore not unique. D. Yes. The actuary has skills, not usually found among internal auditors, to identify and quantify self-insurance risks.

Question 6 - CIA 580 I.9 - Introduction to Internal Auditing One of the purposes of the International Standards for the Professional Practice of Internal Auditing as stated in the Introduction to the current version of the Standards is to A. Encourage external auditors to make more extensive use of the work of internal auditors. (c) HOCK international, page 2

Part 1 (3-Part) : 12/13/14 22:25:28 B. Establish the basis for evaluating internal auditing performance. C. Encourage the professionalization of internal auditing. D. Establish the independence of the internal audit activity and emphasize the objectivity of internal auditing.

Question 7 - CIA 591 II.3 - Purpose, Authority & Responsibility Which of the following actions is an appropriate response by organizations wishing to improve the public's perception of their financial reporting? A. Keeping external and internal auditing work separated to maintain independence. B. Increased adoption of audit committees composed of independent non-executive directors. C. Viewing internal auditing as a transient profession -- a stepping stone to managerial positions. D. Requiring internal auditors to report all significant observations of illegal activity to the chief executive officer.

Question 8 - CIA 1190 I.49 - Introduction to Internal Auditing An internal auditor fails to discover an employee fraud during an assurance engagement. The nondiscovery is most likely to suggest a violation of the Standards if it was the result of a A. Determination that the cost of extending procedures in the area would exceed the potential benefits. B. Failure to perform a detailed review of all transactions in the area. C. Determination that any possible fraud in the area would not involve a material amount. D. Presumption that the internal controls in the area were adequate and effective.

Question 9 - CIA 1195 I.14 - Proficiency & Due Professional Care Internal auditing is unique in that its scope often encompasses all areas of an organization. Thus, it is not possible for each internal auditor to possess detailed competence in all areas that might be the subject of engagements. Which of the following competencies is required of every internal auditor? A. Proficiency in information technology. B. Proficiency in accounting principles. C. Understanding of taxation and law as it applies to operation of the organization. D. Understanding of management principles.

Question 10 - CIA 1196 I.16 - Ethics In analyzing the differences between two recently merged businesses, the chief audit executive (CAE) of Organization A notes that it has a formal code of ethics 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.

(c) HOCK international, page 3

Part 1 (3-Part) : 12/13/14 22:25:28 III. The absence of a formal code of ethics in B would prevent a successful review of ethical behavior in that organization. A. II and III. B. III only. C. II only. D. I and II.

Question 11 - CIA 1191 I.4 - Charter, Independence & Objectivity An audit committee of the board of directors of an organization is being established. Which of the following is normally a responsibility of the committee with regard to the internal audit activity? A. Development of the annual engagement work schedule. B. Determination of engagement observations appropriate for specific engagement communications. C. Approval of the selection and dismissal of the chief audit executive. D. Approval of engagement work programs.

Question 12 - CIA 591 II.8 - Proficiency & Due Professional Care Your organization has selected you to develop an internal audit activity. Your approach will most likely be to hire A. Internal auditors each of whom possesses all the skills required to handle all engagements. B. Inexperienced personnel and train them the way the organization wants them trained. C. Internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activity. D. Degreed accountants because most internal audit work is accounting related.

Question 13 - CIA 1191 I.3 - Charter, Independence & Objectivity An external quality assessment team was evaluating the independence of an internal audit activity. The internal audit activity performs engagements concerning all of the elements included in its scope. Which of the following reporting responsibilities is most likely to threaten the internal audit activity's independence? Reporting to the A. Treasurer. B. Executive vice president. C. Audit committee. D. President.

Question 14 - CIA 593 II.4 - Charter, Independence & Objectivity Audit committees are most likely to participate in approving A. Staff promotions and salary increases. B. Engagement work programs. C. Appointment of the chief audit executive. (c) HOCK international, page 4

Part 1 (3-Part) : 12/13/14 22:25:28 D. Engagement communication observations, conclusions, and recommendations.

Question 15 - CIA 1196 III.10 - Charter, Independence & Objectivity An audit committee should be designed to enhance the independence of both the internal and external auditing functions and to insulate them from undue management pressures. Using this criterion, audit committees should be composed of A. Only members from the relevant outside regulatory agencies. B. Only external members of the board of directors or its equivalent. C. A rotating subcommittee of the board of directors or its equivalent. D. Members from all important constituencies, specifically including representatives from banking, labor, regulatory agencies, shareholders, and officers.

Question 16 - CIA QZP1B.10 - Purpose, Authority & Responsibility Which of the following actions will help an organization improve the public’s perception of their financial reporting? I. Keeping external and internal auditing work separated to maintain independence. II. Increased adoption of audit committees composed of outside directors. III. Requiring internal auditors to report all significant observations of illegal activity to the audit committee. A. II and III only. B. I and II only. C. I and III only. D. I, II and III.

Question 17 - CIA 1190 I.46 - Ethics The code of ethics of a professional organization sets forth A. A basis for the measurement of internal audit performance. B. The organizational details of the profession’s governing body. C. Broad standards of conduct for the members of the organization D. A list of illegal activities that are proscribed to the members of the profession.

Question 18 - CIA QZP1A.2 - Charter, Independence & Objectivity 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. The length of tenure of the chief audit executive. B. The scope of internal audit activities. C. Access to records within the organization. (c) HOCK international, page 5

Part 1 (3-Part) : 12/13/14 22:25:28 D. Access to personnel within the organization.

Question 19 - CIA 1196 1.16 - Ethics In analyzing the differences between the two companies, the chief audit executive (CAE) of company A notes that company A has a formal corporate code of ethics while company B does not. The code of ethics covers such things as purchase agreements and relationships with vendors as well as a host of other issues to guide individual behavior within the firm. Which of the following statements regarding the existence of the code of ethics in company A can be logically inferred? I. Company A exhibits a higher standard of ethical behavior than does company B. II. Company A has established objective criteria by which an individual's actions can be evaluated. III. The absence of a formal corporate code of ethics in company B would prevent a successful audit of ethical behavior in that company. A. III only. B. II only. C. II and III. D. I and II.

Question 20 - CIA QZP1A.6 - Introduction to Internal Auditing The benefits from internal auditing include all of the following except A. Employees benefit because the internal audit activity can help them effectively perform their jobs. B. Management benefits because the internal audit activity is able to help them identify and minimize risks. C. The external auditor benefits because the internal audit activity is able to provide an opinion about the accuracy and completeness of the annual financial statements. D. Society benefits from internal auditing because the internal auditor promotes the efficient and effective use of resources.

Question 21 - CIA 1184 II.21 - Ethics In complying with The IIA Code of Ethics, an internal auditor should A. Primarily apply the competency principle in establishing trust. B. Use individual judgment in the application of the principles set forth in the Code. C. Respect and contribute to the objectives of the organization even if it is engaged in illegal activities. D. Go beyond the limitation of personal technical skills to advance the interest of the organization.

Question 22 - CIA 598 1.62 - Charter, Independence & Objectivity Which of the following activities would not be presumed to impair the independence of an internal auditor?

(c) HOCK international, page 6

Part 1 (3-Part) : 12/13/14 22:25:28 I. Recommending standards of control for a new computer application. II. Drafting procedures for running a new computer application to ensure that proper controls are installed. III. Performing reviews of procedures for a new computer application before it is installed. A. I only. B. III only. C. II only. D. I and III.

Question 23 - CIA 598 1.59 - Charter, Independence & Objectivity According to the Standards, the independence of the internal auditing activity is achieved through A. Staffing and supervision. B. Organizational status and objectivity. C. Continuing professional development and due professional care. D. Human relations and communications.

Question 24 - CIA R98 I.3 - Introduction to Internal Auditing The function of internal auditing, as related to communicating results, is to A. Review the expenditure items and match each item with the expenses incurred. B. Identify inadequate controls that increase the likelihood of unauthorized expenditures. C. Ensure compliance with reporting procedures. D. Determine whether any employees are expending funds without authorization.

Question 25 - CIA 589 I.44 - Ethics Internal auditors who fail to maintain their proficiency through continuing education could be found to be in violation of A. The IIA’s Code of Ethics. B. Both the International Standards for the Professional Practice of Internal Auditing and The IIA’s Code of Ethics. C. The International Standards for the Professional Practice of Internal Auditing. D. None of the above.

Question 26 - CIA 1187 II.48 - Ethics Which of the following actions by an internal auditor is most likely a violation of The IIA Code of Ethics? A. Allowing use of the Certified Internal Auditor designation in a context not involving his/her employment. B. Accepting payment for teaching auditing at a local university. C. Having a material ownership interest in a competitor. D. Accepting a moderate gift from a customer of his/her organization. (c) HOCK international, page 7

Part 1 (3-Part) : 12/13/14 22:25:28

Question 27 - CIA 595 III.16 - Purpose, Authority & Responsibility In some cultures and organizations, managers insist that an internal audit activity (IAA) is not needed to provide a critical assessment of the organization's operations. This kind of management attitude will most probably have an adverse effect on the internal audit activity's A. Policies and procedures. B. Operating budget variance. C. Effectiveness. D. Performance appraisals.

Question 28 - CIA 595 1.24 - Purpose, Authority & Responsibility The internal auditor of a bank is examining the bank's loan portfolio to determine whether or not it is in accordance with applicable governmental regulations which: Limit the amount of loans that can be made to the 10 largest customers (as a percentage of total bank loans), Restrict the amount of loans that can be made in certain industries, and Require additional documentation for all loans over $100,000. The internal auditor wants to determine whether (a) there are any violations of the applicable regulations; and (b) the system and its control procedures are adequate to prevent violations of the applicable regulations. During the audit, the internal auditor's preliminary evidence indicates that the first concern (loans to the 10 largest customers) is not violated. However, upon further investigation of related parties and interlocking organizations, the auditor concludes that although there is not a technical violation, there is some likelihood that the bank may be in violation of the regulation because of loans to a number of related entities that in total exceeds the legal limits. The auditor should A. Immediately issue an informal report to the audit committee because the findings reflect adversely on management. B. Report the findings immediately to management and suggest that legal counsel review the regulations and the audit evidence gathered to date to determine if a violation has taken place. C. Informally notify management of the finding, but omit any mention of the problem in the formal audit report because the evidence is not persuasive. D. Report the findings to the regulatory agency and obtain their opinion on whether or not there is a violation. Include their opinion in the final audit report.

Question 29 - CIA 598 1.54 - Charter, Independence & Objectivity Which of the following actions would be a violation of auditor independence? A. Participating on a task force which recommends standards for control of a new distribution system. B. Reducing the scope of an audit due to budget restrictions. C. Reviewing a purchasing agent's contract drafts prior to their execution. D. Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result of a promotion.

(c) HOCK international, page 8

Part 1 (3-Part) : 12/13/14 22:25:28

Question 30 - CIA 592 I.2 - Charter, Independence & Objectivity Independence permits internal auditors to render impartial and unbiased judgments. The best way to achieve independence is through A. Individual knowledge and skills. B. Organizational knowledge and skills. C. Organizational status and objectivity. D. Supervision within the organization.

Question 31 - CIA 1192 I.2 - Purpose, Authority & Responsibility 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 external auditor. D. Chief executive officer and functionally to the board of directors.

Question 32 - CIA 591 II.13 - Proficiency & Due Professional Care What is the most appropriate solution to resolve staff communication problems with engagement clients? A. Avoid unnecessary communication with engagement clients. B. Meet with engagement clients to resolve communication problems. C. Provide staff with sufficient training to enhance communication skills. D. Discuss communication problems with staff auditors.

Question 33 - CIA 1191 I.6 - Proficiency & Due Professional Care 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. The prospective employee could reasonably be expected to gain sufficient knowledge of these competencies in the long run. B. Other internal auditors possess sufficient knowledge of economics and information technology. C. A mentor is assigned to ensure completion of an individually designed professional development program. D. A professional development program is agreed to in advance of actual hiring.

Question 34 - CIA 1195 I.49 - Purpose, Authority & Responsibility Communication skills are important to internal auditors. They should be able to convey effectively all of the following to (c) HOCK international, page 9

Part 1 (3-Part) : 12/13/14 22:25:28 engagement clients except A. Recommendations that are generated in relationship to a specific engagement client. B. The risk assessment used in selecting the area for investigation. C. The objectives designed for a specific engagement. D. The engagement evaluations based on a preliminary survey.

Question 35 - CIA QZP1A.12 - Proficiency & Due Professional Care Every assurance engagement should be performed with due professional care. In regards to due professional care, the Standards, require internal auditors to I. Consider the probability of errors, irregularities, and noncompliance. II. Perform detailed tests of all transactions. III. Weigh the cost of the assurance against its benefit. A. I and III only B. I and II only. C. II and III only. D. I, II, and III.

Question 36 - CIA 597 1.60 - Introduction to Internal Auditing The purposes of the Standards include all of the following except A. Fostering improved organizational processes and operations. B. Establishing the basis for the measurement of internal audit performance. C. Guiding the ethical conduct of internal auditors. D. Delineating basic principles that represent the practice of internal auditing as it should be.

Question 37 - CIA 1192 I.48 - Ethics The board of directors of The Institute of Internal Auditors (IIA) has been informed that a CIA was tried and convicted of tax evasion. The probable consequences for this person are A. Review by the board of directors and forfeiture of the CIA designation. B. Censure by the director of professional practices of the institute. C. Immediate revocation of the CIA designation by the Internal Auditing Standards Board. D. Nothing; the act was performed outside of the normal line of work.

Question 38 - CIA 596 1.59 - Proficiency & Due Professional Care The Standards would not require the chief audit executive (CAE) to:

(c) HOCK international, page 10

Part 1 (3-Part) : 12/13/14 22:25:28 A. Contribute resources for the annual audit of financial statements. B. Communicate to senior management and the board the results of evaluations of the performance of external auditors. C. Coordinate audit work with that of the external auditors. D. Communicate to senior management and the board the results of evaluations of the coordination between internal and external auditors.

Question 39 - HOCK CIA P1A.1 - Quality Assurance & Improvement Program Of the following statements, which are true concerning the reporting of the internal audit activity's (IAA) quality assurance and improvement program (QAIP). I. The QAIP report should evaluate compliance with the Definition of Internal Auditing, the Code of Ethics and the Standards. II. The QAIP report should address compliance with the internal audit activity's charter. III. The QAIP report should include contribution to the organization's governance, risk management and control processes. IV. The QAIP report should be addressed to all members of the internal audit activity. A. I and II only. B. I, II and III only. C. I, III and IV only. D. All of the above are true.

Question 40 - CIA 1195 III.4 - Charter, Independence & Objectivity A service organization is currently experiencing a significant downsizing and process reengineering. Its board of directors has redefined the business goals and established initiatives using in-house developed technology to meet these goals. As a result, a more decentralized approach has been adopted to run the business functions by empowering the business branch managers to make decisions and perform functions traditionally done at a higher level. The internal auditing staff is made up of the chief audit executive (CAE), two managers, and five staff auditors, all with financial background. In the past, the primary focus of successful internal audit activities (IAA) has been the service branches and the six regional division headquarters, which support the branches. These division headquarters are the primary targets for possible elimination. The support functions such as human resources, accounting, and purchasing will be brought into the national headquarters, and technology will be enhanced to enable and augment these operations. Up to this point, the IAA has reported to the chief operating officer. Due to the significant changes, there has been some discussion as to changing this reporting relationship. What would be the best reporting relationship? A. Administratively to the president, functionally to the board. B. Administratively to the chief financial officer and functionally to the president. C. Administratively and functionally to the president. D. Administratively and functionally to the chief operating officer.

Question 41 - CIA 598 1.76 - Purpose, Authority & Responsibility (c) HOCK international, page 11

Part 1 (3-Part) : 12/13/14 22:25:28

Which of the following best describes an internal auditor's purpose in reviewing the adequacy of the system of internal control? A. To determine whether the internal control system provides reasonable assurance that the organization's objectives and goals are met efficiently and economically. B. To ensure that material weaknesses in the internal control system are corrected. C. To determine whether the internal control system ensures that the accounting records are correct and that financial statements are fairly stated. D. To help determine the nature, timing, and extent of tests necessary to achieve audit objectives.

Question 42 - CIA 1196 III.30 - Purpose, Authority & Responsibility The proper organizational role of internal auditing is to A. Serve as an appraisal function to examine and evaluate activities as a service to the organization. B. Serve as the investigative arm of the board of directors. C. Perform studies to assist in the attainment of more efficient operations. D. Assist the external auditor in order to reduce external audit fees.

Question 43 - CIA 1195 I.48 - Proficiency & Due Professional Care A new staff internal auditor's first assignment is to review the cash management operations of the organization. The staff internal auditor has no background in cash management. Under which of the following conditions would this arrangement be appropriate? I. The senior internal auditor is skilled in the area and closely supervises the staff internal auditor. II. The staff internal auditor performs the work and prepares an engagement communication that is reviewed in detail by the chief audit executive. A. I only. B. Neither I nor II. C. II only. D. Both I and II.

Question 44 - CIA 1196 III.23 - Quality Assurance & Improvement Program The most important component of quality control is A. Satisfying upper management. B. Determining the appropriate timing of inspections. C. Conforming to ISO-9000 specifications. D. Ensuring goods and services conform to the design specifications.

Question 45 - CIA 594 I.67 - Proficiency & Due Professional Care (c) HOCK international, page 12

Part 1 (3-Part) : 12/13/14 22:25:28 An internal auditor must have the knowledge, skills, and other competencies needed to perform their individual responsibilities. Which of the following properly describes the level of knowledge, skill, or other competency required? Internal auditors must have A. Proficiency in applying knowledge of accounting and information technology to specific or potential problems. B. A broad appreciation of accounting principles and techniques during engagements involving the financial records and reports of the organization. C. Proficiency in applying internal auditing standards and procedures without extensive recourse to technical research and assistance. D. An understanding of broad techniques used in supporting and developing engagement observations and the ability to research the proper procedures to be used in any engagement situation.

Question 46 - CIA 594 3.6 - Purpose, Authority & Responsibility Who should have the least influence on the appointment of the chief audit executive (CAE)? A. The controller. B. The audit committee. C. The chief executive officer. D. The external auditor.

Question 47 - CIA 594 1.69 - Charter, Independence & Objectivity You have been asked to be a member of a peer review team. In assessing the independence of the internal audit department being reviewed, you should consider all of the following factors except: A. The criteria of education and experience considered necessary when filling vacant positions on the audit staff. B. The degree to which auditors assume operating responsibilities. C. Access to and frequency of communications with the board of directors or its audit committee. D. The scope and depth of audit objectives for the audits included in the review.

Question 48 - CIA 1193 I.46 - Proficiency & Due Professional Care A staff internal auditor performed a portion of an engagement to review an organization's marketing function. In particular, the internal auditor evaluated the function's effective and efficient use of resources to identify I. Underused facilities II. Overstaffing or understaffing III. Nonproductive work IV. Procedures that were not cost justified To test for underused facilities, the internal auditor performed a complete walk-through of all spaces assigned to the marketing function and evaluated the use of both space and capital equipment. The internal auditor analyzed reports on space usage for the last year and concluded that facilities were neither underused nor used at maximum capacity. To test for overstaffing or understaffing, the internal auditor compared current staffing levels with a staffing analysis recently completed by an independent contractor. Because the staffing analysis used work standards and service demands to provide factual and reliable information on staffing requirements, the internal auditor was able to conclude (c) HOCK international, page 13

Part 1 (3-Part) : 12/13/14 22:25:28 that staffing levels were optimal. To test for nonproductive work, the internal auditor interviewed an employee from each level, and, based upon their responses, concluded that no significant amount of nonproductive work was being performed. Thus, the internal auditor concluded that additional engagement work to search for procedures that were not cost justified would not be necessary As the in-charge internal auditor on this engagement, you are to evaluate the internal auditor's exercise of due professional care in performing the engagement. In reference to requirements I and II, due professional care A. Was not exercised because the internal auditor failed to apply reasonable care regarding requirement I. B. Was not exercised because the internal auditor failed to apply reasonable care regarding requirements I and II. C. Was exercised because the internal auditor applied reasonable care and competence in both areas. D. Was not exercised because the internal auditor failed to apply reasonable care regarding requirement II.

Question 49 - CIA 594 3.5 - Quality Assurance & Improvement Program A quality assurance program of an internal audit department provides reasonable assurance that audit work conforms with applicable standards. Which of the following activities are designed to provide feedback on the effectiveness of an audit department? I. Proper supervision. II. Proper training. III. Internal assessments. IV. External assessments. A. I, II, III, IV. B. I, III, IV. C. I, II, III. D. II, III, IV.

Question 50 - CIA 593 II.3 - Charter, Independence & Objectivity The organizational status of the internal audit activity A. Should be sufficient to permit the accomplishment of its responsibilities. B. Is best when the reporting relationship is direct to the board of directors. C. Requires the board's annual approval of the engagement work schedule, staffing plan, and financial budget. D. Is guaranteed when the charter specifically defines its independence.

Question 51 - CIA 596 1.66 - Purpose, Authority & Responsibility During a year-end planning meeting with senior management, the chief audit executive (CAE) learns that a recent draft audit report on one of the company's inventory costing systems had provoked a discussion in the accounting (c) HOCK international, page 14

Part 1 (3-Part) : 12/13/14 22:25:28 area. The audit report proposed a relatively large adjustment due to an error in the local inventory system. The auditor's conclusion stated that six other production facilities using the same costing system would require similar inventory adjustments. The total required adjustment for all seven locations represented a material adjustment to the financial statements, according to the chief financial officer (CFO). The CFO questioned the method used by the auditor to calculate the amount of the inventory adjustment and asked the CAE to delay processing the audit report until all aspects of the finding had been fully considered. The CAE reports directly to the CFO. The audit committee has not been apprised of this audit because the audit report is still in draft stage awaiting management comment. Assuming that there is a meeting later the same day with the audit committee of the board, which of the following is not a responsibility of the CAE? A. Highlight significant audit findings and recommendations and report on the approved audit work schedule. B. Inform the audit committee of senior management's decisions on all significant audit findings. C. Attempt to resolve the inventory issue before reporting the finding to the audit committee. D. Inform the audit committee of the outcome of earlier meetings with the CFO and the options being considered for recording the inventory adjustment.

Question 52 - CIA 593 I.3 - Charter, Independence & Objectivity Which of the following most seriously compromises the independence of the internal audit activity? A. The internal audit activity and the organization's external auditors engage in joint planning of total engagement coverage to avoid duplicating each other's work. B. The internal audit activity is included in the review cycle of the organization's contracts with other organizations before the contracts are executed. C. The chief audit executive has dual reporting responsibility to the organization's chief executive officer and the board of directors. D. Internal auditors frequently draft revised procedures for departments whose procedures they have criticized in an engagement communication.

Question 53 - CIA 591 II.4 - Charter, Independence & Objectivity You transferred from the treasury department to the internal audit activity (IAA) of the same organization last month. The chief financial officer of the organization has suggested that, because you have significant knowledge in this area, it would be a good idea for you to immediately begin an engagement to evaluate the treasury department. In this circumstance, you should A. Accept the engagement and begin work immediately. B. Discuss the need for such an engagement with your former superior, the treasurer. C. Offer to prepare an engagement work program but suggest that interviews with your former co-workers be conducted by other members of the internal audit staff. D. Suggest that the engagement be performed by another member of the internal audit staff.

Question 54 - CIA 1195 I.55 - Purpose, Authority & Responsibility During the course of an engagement, an internal auditor makes a preliminary determination that a major division has been inappropriately capitalizing research and development expense. The engagement is not yet completed, and the internal auditor has not documented the problem or determined that it really is a problem.

(c) HOCK international, page 15

Part 1 (3-Part) : 12/13/14 22:25:28 However, the internal auditor is informed that the chief audit executive has received the following communication from the president of the organization: "The controller of Division B informs me that you have discovered a questionable account classification dealing with research and development expense. We are aware of the issue. You are directed to discontinue any further investigation of this matter until informed by me to proceed. Under the confidentiality standard of your profession, I also direct you not to communicate with the outside auditors regarding this issue." Which of the following is an appropriate action for the CAE to take regarding the questionable item? A. Immediately report the communication to The Institute of Internal Auditors and ask for an ethical interpretation and guidance. B. Inform the president that this scope limitation will need to be reported to the board. C. Immediately notify the external auditors of the problem to avoid aiding and abetting a potential crime by the organization. D. Continue to investigate the area until all the facts are determined and document all the relevant facts in the engagement records.

Question 55 - CIA 1188 II.47 - Ethics 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 presents the in-charge internal auditor with a gift of moderate value. Which of the following best describes the action prescribed by The IIA Code of Ethics? A. Not accept it if the gift is presumed to impair the internal auditor's judgment. B. Not accept it prior to submission of the final engagement communication. C. Accept it, regardless of other circumstances, because its value is insignificant. D. Not accept it, regardless of other circumstances, because its value is significant.

Question 56 - CIA 589 I.45 - Proficiency & Due Professional Care Due professional care calls for A. Testing in sufficient detail to give absolute assurance that noncompliance does not exist. B. Infallibility and extraordinary performance when the system of internal control is known to be weak. C. Consideration of the possibility of material irregularities during every engagement. D. Detailed reviews of all transactions related to a particular function.

Question 57 - CIA 594 3. 2 - Charter, Independence & Objectivity An audit committee should be designed to enhance the independence of both the internal and external audit functions and to insulate the audit functions from undue management pressures. Using this criteria, audit committees should be composed of: A. Only independent members of the board of directors or other similar oversight committees. B. A rotating subcommittee of the board of directors. C. Only members from the relevant outside regulatory agencies. D. Members from all important constituencies, specifically including representatives from banking, labor, regulatory (c) HOCK international, page 16

Part 1 (3-Part) : 12/13/14 22:25:28 agencies, shareholders, and officers.

Question 58 - CIA 1191 I.46 - Ethics A purchasing agent received expensive gifts from a vendor in return for directing a significant amount of business to that vendor. Which of the following organizational policies most effectively prevents such an occurrence? A. The purchasing function should be decentralized so each department manager or supervisor does his/her own purchasing. B. Important high-volume materials should regularly be purchased from at least two different sources in order to afford supply protection. C. Competitive bids should be solicited on purchases to the maximum extent that is practicable. D. All purchases exceeding specified monetary amounts should be approved by an official who determines compliance with budgetary requirements.

Question 59 - CIA 598 3.28 - Charter, Independence & Objectivity Audit committees are most likely to participate in the approval of A. Audit staff promotions and salary increases. B. Appointment of the chief audit executive. C. The internal audit report observations and recommendations. D. Engagement work schedules.

Question 60 - CIA 1190 II.4 - Purpose, Authority & Responsibility Internal auditors should possess the knowledge, skills, and other competencies essential to the performance of their individual responsibilities. Consequently, all internal auditors should be proficient in applying A. Internal auditing standards. B. Management principles. C. Structured systems analysis. D. Quantitative methods.

Question 61 - CIA 1189 II.8 - Purpose, Authority & Responsibility The audit committee strengthens the control processes of an organization by A. Following up on recommendations made by the chief audit executive. B. Assigning the internal audit activity responsibility for interaction with governmental agencies. C. Using the chief audit executive as a major resource in selecting the external auditors. D. Approving internal audit activity policies.

(c) HOCK international, page 17

Part 1 (3-Part) : 12/13/14 22:25:28 Question 62 - CIA 1195 I.43 - Proficiency & Due Professional Care Internal auditors are responsible for continuing their education in order to maintain their proficiency. Which of the following is true regarding the continuing education requirements of the practicing internal auditor? A. CIAs have formal requirements that must be met in order to continue as CIAs. B. Internal auditors are required to obtain 40 hours of continuing professional education each year and a minimum of 120 hours over a 3-year period. C. In-house programs meet continuing professional education requirements only if they have been preapproved by The Institute of Internal Auditors. D. Attendance, as an officer or committee member, at formal Institute of Internal Auditors meetings does not meet the criteria of continuing professional development.

Question 63 - CIA 593 I.44 - Proficiency & Due Professional Care An internal auditor observes that a receivables clerk has physical access to and control of cash receipts. The auditor worked with the clerk several years before and has a high level of trust in the individual. Accordingly, the auditor notes in the engagement working papers that controls over receipts are adequate. Based on this information, has the auditor exercised due professional care? A. Yes, reasonable care has been taken. B. Yes, the engagement working papers were annotated. C. No, irregularities were not noted. D. No, alertness to conditions most likely indicative of irregularities was not shown.

Question 64 - CIA 597 I.45 - Charter, Independence & Objectivity In which of the following situations does an internal auditor potentially lack objectivity? A. A former purchasing assistant performs a review of internal controls over purchasing 4 months after being transferred to the internal auditing activity. B. A payroll accounting employee assists an internal auditor in verifying the physical inventory of small motors. 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. An internal auditor reviews the procedures for a new electronic data interchange (EDI) connection to a major customer before it is implemented.

Question 65 - CIA 595 I.56 - Charter, Independence & Objectivity The internal auditors must be able to distinguish carefully between a scope limitation and other limitations. Which of the following is not considered a scope limitation? A. The audit committee reviews the engagement work schedule for the year and deletes an engagement that the chief audit executive thought was important to conduct. B. The divisional management of an engagement client has indicated that the division is in the process of converting a major computer system and has indicated that the information systems portion of the planned engagement will have to be postponed until next year. C. The engagement client has indicated that certain customers cannot be contacted because the organization is in the process of negotiating a long-term contract with the customers and they do not want to upset the customers. (c) HOCK international, page 18

Part 1 (3-Part) : 12/13/14 22:25:28 D. None of the answers are correct.

Question 66 - CIA 1194 I.48 - Proficiency & Due Professional Care An appreciation is required of internal auditors with respect to which discipline? A. Internal auditing procedures and techniques. B. Management principles. C. Accounting principles and techniques. D. Marketing techniques.

Question 67 - CIA 1195 I.45 - Charter, Independence & Objectivity The internal audit activity (IAA) of an organization has been in existence for 10 years, but the board has not yet approved its charter. However, the board is chaired by the chief executive officer (CEO) and includes the controller and one outside board member. The chief audit executive (CAE) reports directly to the controller who approves the IAA's work schedule. Thus, the IAA has never felt the need to push for a formal approval of the charter. The organization is publicly held and has nine major divisions. The previous CAE was recently dismissed following a dispute between the CAE and a major engagement client. A new CAE with significant experience in both public accounting and internal auditing has just been hired. Within the first month, the new CAE encountered substantial resistance from an engagement client regarding the nature of the work and the IAA's access to records. Moreover, the CEO accused the CAE of not operating "in the best interests of the organization." From the perspective of the internal audit activity, which of the following facts, by themselves, could contribute to a lack of independence? I. The CEO accused the new director of not operating "in the best interests of the organization." II. The majority of audit committee members come from within the organization. III. The IAA's charter has not been approved by the board. A. II only. B. I, II, and III. C. II and III only. D. I only.

Question 68 - CIA 1190 I.6 - Quality Assurance & Improvement Program The interpretation related to quality assurance given by the Standards is that A. External assessments can provide senior management and the board with independent assurance about the quality of the internal audit activity. B. Appropriate follow-up to an external assessment is the responsibility of the chief audit executive's immediate supervisor. C. The internal audit activity is primarily measured against the Institute's Code of Ethics. D. Continual supervision is limited to the planning, examination, evaluation, communication, and follow-up process.

(c) HOCK international, page 19

Part 1 (3-Part) : 12/13/14 22:25:28

Question 69 - CIA 1186 II.48 - Ethics Which of the following actions taken by a chief audit executive (CAE) could be considered professionally ethical under the IIA Code of Ethics? A. The CAE refuses to provide information about organizational operations to his father, who is a part owner. B. The CAE decides to delay an engagement at a branch so that his nephew, the branch manager, will have time to "clean things up." C. To save organizational resources, the CAE cancels all staff training for the next 2 years on the basis that all staff are too new to benefit from training. D. To save organizational resources, the CAE limits procedures at foreign branches to confirmations from branch managers that no major personnel changes have occurred.

Question 70 - CIA 598 2.66 - Proficiency & Due Professional Care Internal auditors occasionally express opinions as well as state facts in audit reports. Due professional care requires that the auditor’s opinions be A. Based on experience and free from all bias. B. Limited to the effectiveness of controls. C. Expressed only when requested by top management or management of the audited function. D. Based on sufficient factual evidence that warrants the expression of the opinions.

Question 71 - CIA 1191 II.4 - Charter, Independence & Objectivity Which of the following is not an appropriate member of an audit committee? A. The vice president of the local bank used by the organization. B. An academic specializing in business administration. C. A retired executive of a firm that had been associated with the organization. D. The organization's vice president of operations.

Question 72 - CIA 598 1.60 - Introduction to Internal Auditing As used by the internal auditing profession, the Standards refers to all of the following except A. Criteria which dictate the minimum level of ethical actions to be taken by internal auditors. B. Statements intended to represent the practice of internal auditing as it should be. C. Criteria that are applicable to all types of internal audit activities. D. Criteria by which the performance of an internal audit activity can be evaluated.

Question 73 - CIA 1195 I.18 - Proficiency & Due Professional Care Use of outside service providers with expertise in health care benefits is appropriate when the internal audit activity is (c) HOCK international, page 20

Part 1 (3-Part) : 12/13/14 22:25:28

A. Training its staff to conduct an audit of health care costs in a major division of the organization. B. Comparing the cost of the organization's health care program with other programs offered in the industry. C. Evaluating the organization's estimate of its liability for postretirement benefits, which include health care benefits. D. All of the answers are correct.

Question 74 - CIA 598 2.35 - Proficiency & Due Professional Care If a review of the working papers of the last audit of cash operations revealed that a recently discovered fraudulent transaction was not included in a properly designed statistical sample of transactions tested, which of the following is a valid conclusion? A. Extraordinary care is required in the performance of a cash operations audit and the auditor should be held responsible for the oversight. B. Since cash operations are a high-risk area, a test of all transactions should have been performed. C. The audit was performed with due professional care since an appropriate statistical sample of material transactions was tested. D. Fraud should not have gone undetected in a recently audited area.

Question 75 - CIA QZP1A.11 - Introduction to Internal Auditing The interpretation related to quality assurance given by the Standards is that A. Continual supervision is limited to the planning, examination, evaluation, communication, and follow-up process. B. The internal audit activity is primarily measured against the Institute's Code of Ethics. C. External assessments can provide senior management and the board with independent assurance about the quality of the internal audit activity. D. Appropriate follow-up to an external assessment is the responsibility of the chief audit executive's immediate supervisor.

Question 76 - CIA 1194 I.47 - Proficiency & Due Professional Care An understanding is required of internal auditors with respect to which discipline? A. Internal auditing procedures and techniques. B. Marketing techniques. C. Accounting principles and techniques. D. Management principles.

Question 77 - CIA 592 II.5 - Proficiency & Due Professional Care Internal auditors should possess all of the following except A. An understanding of management principles. B. Proficiency in applying internal auditing standards. C. The ability to maintain good interpersonal relations. (c) HOCK international, page 21

Part 1 (3-Part) : 12/13/14 22:25:28 D. The ability to conduct training sessions in quantitative methods.

Question 78 - CIA 1191 I.49 - Charter, Independence & Objectivity With regard to the exercise of due professional care, an internal auditor must: A. Select procedures that are likely to provide absolute assurance that irregularities do not exist. B. Consider whether established operating standards are being met and not whether those standards are acceptable. C. Emphasize the potential benefits of an engagement without regard to the cost. D. Consider the relative materiality or significance of matters to which assurance procedures are applied.

Question 79 - CIA 589 I.3 - Charter, Independence & Objectivity An internal auditor who had been supervisor of the accounts payable section should not perform an assurance review of that section A. Until a reasonable period of time has elapsed. B. Until it is clear that the new supervisor has assumed the responsibilities. C. Until after the next annual review by the external auditors. D. Because there is no way to measure a reasonable period of time in which to establish independence.

Question 80 - CIA 1194 1.52 - Ethics A company with a whistleblowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of the corporate ethical code. Among the allegations against the auditors were the following: 1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college. 2. Auditor 1 owns stock in the employer company. 3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor's division was going to be closed down in about six months. 4. Auditor 2 received an item of value from a local nonprofit organization of purchasing agents for whom he gave a speech. 5. Auditor 2 received an item of value from a customer of the employer. 6. Auditor 2 has a part-time job as president of a local charitable organization. 7. Auditor 2 shared audit techniques with auditors from another company while attending a professional meeting. 8. A buyer accepted a kickback of $500 to give bid amounts to a supplier to enable that supplier to bid the contract. Auditor 2 omitted this information from the audit report since the contract amount was not material to the financial statements. 9. Auditor 3 received royalties from a publisher for authoring a professional book on internal auditing. 10. Auditor 3 has a part-time job as a real estate broker, and his real estate firm recently received a commission from the employer company. 11. Auditor 3 received an item of value from a fellow employee in the same company whose department has never been audited and whose department is not scheduled to be audited in the foreseeable future. 12. Auditor 3 did not include in an audit report that the bottlenecks in a shipping department were caused by the absence of the supervisor. The supervisor was the auditors friend and neighbor who had a hospitalized child requiring him to miss work off and on for several weeks.

(c) HOCK international, page 22

Part 1 (3-Part) : 12/13/14 22:25:28 How many of the allegations about Auditor 1 represent violations of the IIA Code of Ethics? A. None. B. Two. C. Three. D. One.

Question 81 - CIA 1190 II.3 - Introduction to Internal Auditing 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. Related information is reliable. B. Adverse effects related to the item are likely to occur. C. Sufficient staff is available. D. Miscellaneous income is affected.

Question 82 - CIA 1190 II.45 - Ethics Internal auditors should be prudent in their relationships with persons and organizations external to their employers. Which of the following activities will most likely not adversely affect internal auditors’ ethical behavior? A. Accepting compensation from professional organizations for consulting work. B. Discussing engagement plans or results with external parties. C. Serving as consultants to suppliers. D. Serving as consultants to competitor organizations.

Question 83 - CIA 596 I.64 - Proficiency & Due Professional Care A chief audit executive (CAE) for a large manufacturer is considering revising the internal audit activity's charter with respect to the minimum educational and experience qualifications required. The CAE wants to require all staff auditors to possess specialized training in accounting and a professional auditing certification such as the Certified Internal Auditor (CIA) or the Chartered Accountant (CA). One of the disadvantages of imposing this requirement would be A. The policy would not promote the professionalism of the internal audit activity. B. The policy would prevent the internal audit activity from using outside service providers when it did not have the knowledge, skills, and other competencies required in certain engagements. C. The policy might negatively affect the internal audit activity's ability to perform quality engagements relating to the organization's financial and accounting systems. D. The policy could limit the range of services that could be performed due to the internal audit activity's narrow expertise and backgrounds.

Question 84 - CIA 1196 1.48 - Proficiency & Due Professional Care An internal auditor is assigned to perform an engagement involving the organization's insurance program, including

(c) HOCK international, page 23

Part 1 (3-Part) : 12/13/14 22:25:28 the appropriateness of the approach to risk management. The organization self-insures against large casualty losses and health benefits provided for all its employees. The organization is a large national firm with over 15,000 employees located in various parts of the country. It uses an outside claims processor to administer its health care program. The organization's medical costs have been rising by approximately 8% per year for the past 5 years and management is concerned with controlling these costs. When the audit was assigned, management asked the auditor to evaluate the appropriateness of using self-insurance to minimize risk to the organization. Given the scope of the audit requested by management, should the auditor engage an actuarial consultant to assist in the audit if these skills do not exist on staff? A. Yes. The actuary has skills, not usually found in auditors, to identify and quantify self-insurance risks. B. No. The audit department is skilled in assessing controls, and the insurance control concepts are not distinctly different from other control concepts. C. Yes. An actuary is essential to determine whether the health care costs are reasonable. D. No. It is a normal audit function to assess risk; this audit engagement is therefore not unique.

Question 85 - CIA 588 I.46 - Ethics During an engagement involving the purchasing department, an internal auditor learned that one vendor rewarded buyers in proportion to the size of the orders received from them. What recommendation should the internal auditor make to reduce the likelihood of future acceptance of such rewards by the buyers? A. Establishing an employee counseling program. B. A policy of identifying and reducing buyer situational pressures. C. Periodic review of buyer lifestyles. D. A strong, written statement of management’s commitment to organizational ethics.

Question 86 - CIA 596 I.65 - Charter, Independence & Objectivity An organization is in the process of establishing its new internal audit activity (IAA). The controller has no previous experience with internal auditors. Due to this lack of experience, the controller advised the applicants that the CAE will be reporting to the external auditors. However, the new CAE will have free access to the controller to report anything important. The controller will then convey the CAE's concerns to the board. The IAA will A. Be independent because the CAE has direct access to the board. B. Not be independent because the CAE reports to the external auditors. C. Not be independent because the controller has no experience with internal auditors. D. Not be independent because the organization did not specify that the applicants must be certified internal auditors.

Question 87 - CIA 1186 I.30 - Quality Assurance & Improvement Program As part of a quality assurance and improvement program (QAIP), internal assessment teams most likely will examine which of the following to evaluate the quality of engagement planning and documentation for individual engagements? A. Weekly status reports. B. Project assignment documentation. C. The long-range engagement work schedule does not relate to individual engagements. D. Written engagement work programs.

(c) HOCK international, page 24

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Question 88 - CIA 589 II.44 - Proficiency & Due Professional Care A Certified Internal Auditor (CIA), employed by a large department store, performed an audit of the store's cash function. Which of the following actions would be deemed lacking in due professional care? A. The auditor informed appropriate authorities within the organization about suspected wrongdoing. No report was made to external authorities. B. Because of a highly developed system of internal controls over the cash function, the audit report assured top management that no irregularities existed. C. The report included a well-supported recommendation for the reduction in staff although it was known that such a reduction would adversely impact morale. D. A flowchart of the entire cash function was developed but only a sample of transactions were tested.

Question 89 - CIA 596 I.70 - Ethics The Rules of Conduct set forth in The IIA Code of Ethics: A. Are guidelines to assist internal auditors in dealing with engagement clients. B. Are interpreted by the Principles. C. Apply only to particular conduct specifically mentioned. D. Describe behavior norms expected of internal auditors.

Question 90 - CIA 595 1.37 - Introduction to Internal Auditing The chief audit executive (CAE) of internal auditing of a mid-sized internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the CAE adopted a very aggressive program to promote the internal auditing department within the organization. The CAE planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the CAE took to promote a positive image within the organization: 1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy. 2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report. 3. The EDP auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development. 4. Given limited resources, the CAE performed a risk analysis to determine which locations to audit. This was a marked departure from the previous approach of ensuring that all operations are reviewed on at least a three-year interval. 5. In order to save time, the CAE no longer required that a standard internal control questionnaire be completed for each audit. 6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the (c) HOCK international, page 25

Part 1 (3-Part) : 12/13/14 22:25:28 criteria with the auditee, and if acceptable, use it to evaluate the auditee's operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed upon. The audit report commented on the auditee's operations in conjunction with the agreed-upon criteria.Considering Actions 2, 3 and 4 that were taken, which would be considered a violation of the Standards? A. Action 4 only. B. Action 2 and 3 only. C. Actions 2, 3, and 4. D. None of the Actions.

Question 91 - CIA QZP1A.13 - Charter, Independence & Objectivity A scope limitation is a restriction placed upon the internal audit activity (IAA) that precludes the audit activity from accomplishing its objectives and plans. Which of the following would be considered scope limitations? I. An internal auditor is not given free access to records that are relevant to the performance of an engagement. II. An engagement client has asked the internal auditor not to contact certain customers since the client feels that contacting these customers would upset them. III. The engagement client has requested that the engagement be delayed for two-weeks so it is able to close its books. A. I, II and III. B. I and II only. C. II and III only. D. I only.

Question 92 - CIA 594 1.30 - Introduction to Internal Auditing As a staff auditor, which of the following actions would be considered a violation of the Standards or Code of Ethics? A. Discuss the matter with the audit director without further discussion with the audit manager. B. Resign from the audit department and company if further action is not taken on the matter. C. Disclose the matter to the external auditor without further discussion. D. Inform the audit manager that you will be including the information in your working papers as an audit finding.

Question 93 - CIA 598 1.6 - Charter, Independence & Objectivity When faced with an imposed scope limitation, the chief audit executive (CAE) should A. Communicate the potential effects of the scope limitation to the audit committee of the board of directors. B. Delay the audit until the scope limitation is removed. C. Assign more experienced personnel to the engagement. D. Increase the frequency of auditing the activity in question.

(c) HOCK international, page 26

Part 1 (3-Part) : 12/13/14 22:25:28 Question 94 - CIA 593 I.43 - Charter, Independence & Objectivity Assuming that the internal auditing staff possesses the necessary experience and training, which of the following services is most appropriate for a staff internal auditor to undertake? A. Determine the profitability of alternative investment acquisitions and select the best alternative. B. Participate in an internal audit of the accounting department shortly after transferring from the accounting department. C. As part of an evaluation team, review vendor accounting software internal controls and rank according to exposures. D. Substitute for the accounts payable supervisor while (s)he is on sick leave.

Question 95 - CIA 1191 II.48 - Proficiency & Due Professional Care Which of the following statements is true with respect to due professional care? A. An item should not be mentioned in an engagement communication unless the internal auditor is absolutely certain of the item. B. An internal auditor should perform detailed tests of all transactions before communicating results. 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.

Question 96 - CIA 581 I.5 - Introduction to Internal Auditing A major reason for establishing an internal audit activity (IAA) is to A. Relieve overburdened management of the responsibility for establishing effective controls. B. Ensure the reliability and integrity of financial and operational information. C. Safeguard resources entrusted to the organization. D. Evaluate and improve the effectiveness of control processes.

Question 97 - CIA 1190 I.38 - Introduction to Internal Auditing An appropriate internal auditing role in a feasibility study is to A. Determine the requirements for preparing a manual of specifications. B. Participate in the drafting of recommendations for the computer acquisition and implementation. C. Serve on the task force for the preliminary survey. D. Ascertain if the feasibility study addresses cost-benefit relationships.

Question 98 - CIA 591 II.14 - Proficiency & Due Professional Care Reasonable assurance should be obtained as to each prospective internal auditor's qualifications and proficiency. Which of the following is the least useful application of this principle? A. Checking an applicant's references. (c) HOCK international, page 27

Part 1 (3-Part) : 12/13/14 22:25:28 B. Determining previous job experience. C. Obtaining college transcripts. D. Determining that all applicants have an accounting degree.

Question 99 - CIA 1194 1.54 - Ethics A company with a whistleblowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of the corporate ethical code. Among the allegations against the auditors were the following: 1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college. 2. Auditor 1 owns stock in the employer company. 3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor's division was going to be closed down in about six months. 4. Auditor 2 received an item of value from a local nonprofit organization of purchasing agents for whom he gave a speech. 5. Auditor 2 received an item of value from a customer of the employer. 6. Auditor 2 has a part-time job as president of a local charitable organization. 7. Auditor 2 shared audit techniques with auditors from another company while attending a professional meeting. 8. A buyer accepted a kickback of $500 to give bid amounts to a supplier to enable that supplier to bid the contract. Auditor 2 omitted this information from the audit report since the contract amount was not material to the financial statements. 9. Auditor 3 received royalties from a publisher for authoring a professional book on internal auditing. 10. Auditor 3 has a part-time job as a real estate broker, and his real estate firm recently received a commission from the employer company. 11. Auditor 3 received an item of value from a fellow employee in the same company whose department has never been audited and whose department is not scheduled to be audited in the foreseeable future. 12. Auditor 3 did not include in an audit report that the bottlenecks in a shipping department were caused by the absence of the supervisor. The supervisor was the auditors friend and neighbor who had a hospitalized child requiring him to miss work off and on for several weeks. How many of the allegations about Auditor 3 represent violations of the IIA Code of Ethics? A. Two. B. Three. C. Four. D. One.

Question 100 - CIA 598 3.8 - Charter, Independence & Objectivity An internal auditor’s involvement in reengineering should include all of the following except: A. Developing audit plans for the new system. B. Recommending areas for consideration. C. Directing the implementation of the redesigned process. D. Determining whether the process has senior management’s support.

(c) HOCK international, page 28

Part 1 (3-Part) : 12/13/14 22:25:28 Question 101 - CIA 594 1.18 - Introduction to Internal Auditing Auditing standards state that "reports may include recommendations for potential improvements. . . ." Which of the following would be a valid justification for omitting recommendations in an audit report? The auditor A. May not always understand the true cause of the finding being reported. B. Can avoid the confrontation by letting management solve its own problems. C. Does not have sufficient time to formulate a recommendation due to audit budget pressures. D. May lose independence by being perceived as making operational decisions.

Question 102 - CIA 1186 I.45 - Proficiency & Due Professional Care The internal audit activity can perform an important role in preventing and detecting significant fraud by being assigned all but which one of the following tasks? A. Review every control feature pertaining to petty cash receipts. B. Review sensitive expenses such as legal fees, consultant fees, and foreign sales commissions. C. Review contributions by the organization that appear to be unusual. D. Review large, abnormal, or unexplained expenditures.

Question 103 - CIA 1196 I.4 - Charter, Independence & Objectivity Which of the following statements is an appropriate reason for the internal audit activity not to participate in the systems development process? A. Participation will affect independence, and the internal auditors will not be able to perform an objective evaluation after the system is implemented. B. Participation will cause the internal auditors to be labeled as partial owners of the application, and they will then have to share the blame for any problems that remain in the system. C. Participation will delay implementation of the project. D. None of the answers are correct.

Question 104 - CIA 595 1.39 - Introduction to Internal Auditing The chief audit executive (CAE) of internal auditing of a mid-sized internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the CAE adopted a very aggressive program to promote the internal auditing department within the organization. The CAE planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the CAE took to promote a positive image within the organization: 1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy. 2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report. 3. The EDP auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development. (c) HOCK international, page 29

Part 1 (3-Part) : 12/13/14 22:25:28

4. Given limited resources, the CAE performed a risk analysis to determine which locations to audit. This was a marked departure from the previous approach of ensuring that all operations are reviewed on at least a three-year interval. 5. In order to save time, the CAE no longer required that a standard internal control questionnaire be completed for each audit. 6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and if acceptable, use it to evaluate the auditee's operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed upon. The audit report commented on the auditee's operations in conjunction with the agreed-upon criteria.Regarding Action 6, which of the following elements of the action would be considered a violation of the Standards? A. Developing a set of criteria to present to the auditee as a basis for evaluating the auditee's operations. B. Failing to report the lack of criteria to appropriate level of management. C. Commenting on the agreed-upon criteria. D. All of the above.

Question 105 - CIA 1194 I.49 - Charter, Independence & Objectivity Internal auditors must be objective in performing their work. Assume that the chief audit executive (CAE) received an annual bonus as part of that individual's compensation package. The bonus may impair the CAE's objectivity if A. The bonus is based on monetary amounts recovered or recommended future savings as a result of engagements. B. The bonus is administered by the board of directors or its salary administration committee. C. The scope of internal auditing work is evaluating control rather than account balances. D. All of the answers are correct.

Question 106 - CIA 595 I.54 - Charter, Independence & Objectivity The internal auditing activity encounters a scope limitation from senior management that will affect its ability to meet its goals and objectives for a potential engagement client. The nature of the scope limitation should be A. Communicated to the external auditors so they can investigate the area in more detail. B. Communicated to management stating that the limitation will not be accepted because it would impair the internal audit activity's independence. C. Communicated, preferably in writing, to the board. D. Noted in the engagement working papers, but the engagement should be carried out as scheduled and the scope limitation worked around, if possible.

Question 107 - CIA 1193 I.1 - Introduction to Internal Auditing Internal auditing is a dynamic profession. Which of the following best describes the scope of internal auditing as it has developed to date? A. Internal auditing involves evaluating the effectiveness and efficiency with which resources are employed. B. Internal auditing involves evaluating compliance with laws, regulations, and contracts. (c) HOCK international, page 30

Part 1 (3-Part) : 12/13/14 22:25:28 C. Internal auditing has evolved to evaluating all risk management, control, and governance systems. D. Internal auditing has evolved to verifying the existence of assets and reviewing the means of safeguarding assets.

Question 108 - CIA 584 I.1 - Introduction to Internal Auditing The internal auditing profession is believed to have advanced primarily as a consequence of A. Increased interest by graduating students and experienced auditors. B. Increased complexity and sophistication of business operations. C. Job qualification specifications that include added emphasis on background knowledge and skills. D. The limitation of the external audit's scope.

Question 109 - CIA 1192 II.7 - Charter, Independence & Objectivity The audit committee of an organization has charged the chief audit executive (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. Submit budget variance reports to management every month. B. Report all engagement results to the audit committee every quarter. C. Evaluate the adequacy and effectiveness of the organization's controls. D. Notify governmental regulatory agencies of unethical business practices by organization management.

Question 110 - CIA 1195 I.47 - Charter, Independence & Objectivity Management has requested the internal audit activity to perform an engagement to recommend procedures and policies for improving management control over the telephone marketing operations of a major division. The chief audit executive should A. Not accept the engagement because recommending controls would impair future objectivity regarding this operation. B. Not accept the engagement because internal audit activities are presumed to have expertise regarding accounting controls, not marketing controls. C. Accept the engagement, but indicate to management that, because recommending controls impairs independence, future engagements in the area will be impaired. D. Accept the engagement because objectivity will not be impaired.

Question 111 - CIA 1184 I.3 - Charter, Independence & Objectivity An internal auditor most likely will have a conflict of interest if he or she provides an assurance service with regard to a A. Computer system for which the internal auditor had been the internal audit activity's representative on the design team. B. Data processing center for which the internal auditor had performed the service three times previously. C. Financial activity in which the internal auditor had been a key employee 5 years previously. D. Purchasing activity if a major supplier is owned by the internal auditor's brother-in-law.

(c) HOCK international, page 31

Part 1 (3-Part) : 12/13/14 22:25:28

Question 112 - CIA 597 3.33 - Introduction to Internal Auditing Accepting the concept that internal auditing should be an integral part of an organization can involve a major change of attitude on the part of top management. Which of the following would be the best way for internal auditors to convince management regarding the need for and benefits of internal auditing? A. Negotiating with top management to provide them with rewards, such as favorable audits. B. Involving top management in deciding which audit findings will be reported. C. Persuading top managers to accept the idea of internal audits by contacting company shareholders and regulatory agencies. D. Educating top managers about the benefits and communicating with them on a regular basis.

Question 113 - CIA QZP1A.9 - Charter, Independence & Objectivity Individual objectivity is vital for internal auditors to conduct their work. Under what situations would objectivity not be perceived impaired? A. An internal auditor accepted a sizable gift from a client after the successful completion of an audit. B. An internal auditor designs some control procedures for an engagement client. C. An internal auditor audited an area for which they will be responsible for in the near future. D. An internal auditor was given a small token of appreciation from a client after the completion of an audit.

Question 114 - CIA 1193 I.3 - Charter, Independence & Objectivity An element of authority that should be included in the charter of the internal audit activity (IAA) is A. Identification of the types of disclosures that should be made to the audit committee. B. Access to the external auditor's engagement records. C. Access to records, personnel, and physical properties relevant to the performance of engagements. D. Identification of the organizational units where engagements are to be performed.

Question 115 - CIA 594 I.16 - Charter, Independence & Objectivity An internal auditor's objectivity could be compromised in all of the following situations except A. A conflict of interest. B. Reliance on an outside service provider when appropriate. C. An engagement client's familiarity with the internal auditor due to lack of rotation in assignments. D. The internal auditor's assumption of operational duties on a temporary basis.

Question 116 - CIA 590 I.44 - Proficiency & Due Professional Care The chief audit executive (CAE) is concerned that a recently disclosed fraud was not uncovered during the last (c) HOCK international, page 32

Part 1 (3-Part) : 12/13/14 22:25:28 engagement to evaluate cash operations. A review of the working papers indicated that the fraudulent transaction was not included in a properly designed statistical sample of transactions tested. Which of the following applies to this situation? A. The internal auditor acted with due professional care because an appropriate statistical sample of material transactions was tested. B. Fraud should not have gone undetected in a recently reviewed area. C. Extraordinary care is necessary in the performance of a cash operations engagement, and the internal auditor should be held responsible for the oversight. D. Because cash operations is a high-risk area, 100% testing of transactions should have been performed.

Question 117 - CIA 1196 I.6 - Introduction to Internal Auditing In some countries, governmental units have established audit standards. For example, in the United States, the General Accounting Office has developed standards for the conduct of governmental audits, particularly those that relate to compliance with government grants. In performing governmental grant compliance audits, the auditor should A. Be guided only by The IIA Standards because they are more encompassing. B. Be guided only by the governmental standards. C. Follow both The IIA Standards and any additional governmental standards. D. Be guided by the more general standards that have been issued by the public accounting profession.

Question 118 - CIA 1193 I.45 - Ethics A primary purpose for establishing a code of conduct within a professional organization is to A. Promote an ethical culture among professionals who serve others. B. Reduce the likelihood that members of the profession will be sued for substandard work. C. Ensure that all members of the profession perform at approximately the same level of competence. D. Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization.

Question 119 - CMA 682 3.17 - Introduction to Internal Auditing From a modern internal auditing perspective, which one of the following statements represents the most important benefit of an internal auditing activity to management? A. Assurance that the organization is complying with legal requirements. B. Assurance that fraudulent activities will be detected. C. Assurance that published financial statements are correct. D. Assurance that there is reasonable control over day-to-day operations.

Question 120 - CIA 1193 II.5 - Proficiency & Due Professional Care A chief audit executive (CAE) has reviewed credentials, checked references, and interviewed a candidate for a staff position. The CAE concludes that the candidate has a thorough understanding of internal auditing techniques, accounting, and finance. However, the candidate has limited knowledge of economics and information technology. (c) HOCK international, page 33

Part 1 (3-Part) : 12/13/14 22:25:28 Which action is most appropriate? A. Reject the candidate because of the lack of knowledge required by the Standards. B. Offer the candidate a position if other staff members possess sufficient knowledge in economics and information technology. C. Offer the candidate a position despite lack of knowledge in certain essential areas. D. Encourage the candidate to obtain additional training in economics and information technology and then reapply.

Question 121 - CIA 1196 III.27 - Quality Assurance & Improvement Program Quality control circles are now used all over the world. They typically consist of a group of five to fifteen employees who meet regularly. The primary goal of these circles is A. To allow for the emergence of team leaders who can be targeted for further leadership development. B. To improve communications between employees and managers by providing a formal communication channel. C. To tap the creative problem-solving potential of every employee. D. To improve the quality of leadership in the organization.

Question 122 - CIA 1195 I.54 - Ethics A new staff internal auditor was told to perform an engagement in an area with which the internal auditor was not familiar. Because of time constraints, no supervision was provided. The 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 Standards and The IIA Code of Ethics were followed by the internal audit activity. B. The internal audit activity violated the Standards by hiring an internal auditor without proficiency in the area. C. The chief audit executive has not violated The IIA Code of Ethics because it does not address supervision. D. The internal audit activity violated the Standards by not providing adequate supervision.

Question 123 - CIA 1189 I.45 - Ethics Which of the following items is a violation by an internal auditor of The IIA Code of Ethics? A. Certain facts recorded in the internal auditor’s working papers that helped to support the basic allegations made by the internal auditor regarding a case of fraud were not included in the final engagement communication. B. To keep the engagement effort within the budgeted time, the internal auditor was directed to and did curtail testing in an area that looked suspicious and later was proved to contain massive irregularities. C. A control system that had been recommended by the internal audit staff during the previous engagement was found to be defective. The internal auditor reported the defective function as an engagement client failure. D. Information in the internal auditor’s working papers that proved a criminal act was included in the internal auditor’s draft communication. The comments were later removed by internal audit management.

Question 124 - CIA 596 1.60 - Charter, Independence & Objectivity Follow-up activity may be required to ensure that corrective action has taken place for certain findings. The internal (c) HOCK international, page 34

Part 1 (3-Part) : 12/13/14 22:25:28 audit department's responsibility to perform follow-up activities as required should be defined in the A. Purpose statement within applicable audit reports. B. Engagement memo issued prior to each audit assignment. C. Mission statement of the audit committee. D. Internal auditing department's written charter.

Question 125 - CIA 595 III.22 - Quality Assurance & Improvement Program An example of an internal nonfinancial benchmark is A. The percentage of customer orders delivered on time at the company's most efficient plant. B. The average actual cost per pound of a specific product at the company's most efficient plant. C. The labor rate of comparably skilled employees at a major competitor's plant. D. A $50,000 limit on the cost of employee training programs at each of the company's plants.

Question 126 - CIA 1195 I.51 - Ethics 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. Apply and uphold the principles embodied in The IIA Code of Ethics. B. Seek counsel from an independent attorney to determine the personal consequences of potential actions. 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.

Question 127 - CIA 595 1.59 - Charter, Independence & Objectivity During a regularly scheduled EDP audit of a major division, the EDP auditor discovers a complicated programming algorithm that adds costs to a cost-plus program billing the government. The amount added accounted for 95 percent of the net income for the division for the most recent year. Upon further investigation, the EDP auditor finds that only the marketing manager, the divisional manager, and the programmer know of the algorithm. The company has a separate section to investigate fraud. The auditor communicates with management and the special investigation section and the investigation is turned over to that group. However, after a month, it becomes apparent that senior management has instructed the group to "not make waves" and to drop the investigation. The internal audit department should: A. Take no further action. The nature of the fraud has been reported to the proper authorities within the company and the auditor has no power to pursue the investigation further. B. Immediately report the circumstances and the EDP auditor's findings to the appropriate governmental regulatory agency because the auditor cannot knowingly be a party to an illegal act. C. Report the findings to the external auditor because the external auditor should be aware of any material misstatement of account balances. D. Immediately report the circumstances and the EDP auditor's findings to the audit committee.

(c) HOCK international, page 35

Part 1 (3-Part) : 12/13/14 22:25:28

Question 128 - CIA 1193 I.47 - Proficiency & Due Professional Care A staff internal auditor performed a portion of an engagement to review an organization's marketing function. In particular, the internal auditor evaluated the function's effective and efficient use of resources to identify I. Underused facilities. II. Overstaffing or understaffing. III. Nonproductive work. IV. Procedures that were not cost justified. To test for underused facilities, the internal auditor performed a complete walk-through of all spaces assigned to the marketing function and evaluated the use of both space and capital equipment. The internal auditor analyzed reports on space usage for the last year and concluded that facilities were neither underused nor used at maximum capacity. To test for overstaffing or understaffing, the internal auditor compared current staffing levels with a staffing analysis recently completed by an independent contractor. Because the staffing analysis used work standards and service demands to provide factual and reliable information on staffing requirements, the internal auditor was able to conclude that staffing levels were optimal. To test for nonproductive work, the internal auditor interviewed an employee from each level, and, based upon their responses, concluded that no significant amount of nonproductive work was being performed. Thus, the internal auditor concluded that additional engagement work to search for procedures that were not cost justified would not be necessary As the in-charge internal auditor on this engagement, you are to evaluate the internal auditor's exercise of due professional care in performing the engagement. In reference to requirements III and IV, due professional care A. Was not exercised because the internal auditor failed to apply reasonable care and competence regarding requirement III. B. Was not exercised because the internal auditor failed to apply reasonable care and competence regarding requirement IV. C. Was not exercised because the internal auditor failed to apply reasonable care and competence regarding both requirements III and IV. D. Was exercised because the internal auditor applied reasonable care and competence in both areas.

Question 129 - CIA 1195 I.56 - Proficiency & Due Professional Care An internal auditor has some suspicion of, but no information about, of potential misstatement of financial statements. The internal auditor has failed to exercise due professional care if he or she A. Expanded the engagement work program, without the engagement client's approval, to address the highest ranked ways in which a misstatement may have occurred. B. Did not test for possible misstatement because the engagement work program had already been approved by engagement management. C. Identified potential ways in which a misstatement could occur and ranked the items for investigation. D. Informed the engagement manager of the suspicions and asked for advice on how to proceed.

Question 130 - CIA 598 2.45 - Quality Assurance & Improvement Program

(c) HOCK international, page 36

Part 1 (3-Part) : 12/13/14 22:25:28 Which of the following is the best means of determining if an internal audit activity's goals are being met? A. Developing measurement criteria to accompany departmental goals. B. Having the external auditors review and evaluate the work of the department. C. Scheduling an outside peer review of the department every three years. D. Having the audit committee periodically review the quality of the department’s work.

Question 131 - CIA 1185 I.2 - Quality Assurance & Improvement Program Periodic external asessments of an internal audit activity's quality assurance and improvement program (QAIP) should be undertaken. On completion of such an assessment, a formal report or other communication should be issued expressing an opinion as to the A. Effectiveness of the internal audit coverage. B. Internal audit activity's compliance with the Standards. C. Adequacy of internal control. D. Conformance with the internal audit activity's charter.

Question 132 - CIA 596 1.67 - Charter, Independence & Objectivity During a year-end planning meeting with senior management, the chief audit executive (CAE) learns that a recent draft audit report on one of the company's inventory costing systems had provoked a discussion in the accounting area. The audit report proposed a relatively large adjustment due to an error in the local inventory system. The auditor's conclusion stated that six other production facilities using the same costing system would require similar inventory adjustments. The total required adjustment for all seven locations represented a material adjustment to the financial statements, according to the chief financial officer (CFO). The CFO questioned the method used by the auditor to calculate the amount of the inventory adjustment and asked the CAE to delay processing the audit report until all aspects of the finding had been fully considered. The CAE reports directly to the CFO. The audit committee has not been apprised of this audit because the audit report is still in draft stage awaiting management comment. Which of the following actions should the CAE take? A. Tell the representatives of senior management that distorting financial reports is not acceptable. B. Recall all copies of the draft audit report sent out for management review and response. C. Schedule audits to review the inventory costing systems at all locations after year end. D. Offer to review the basis for the conclusion about the inventory valuation at all locations.

Question 133 - CIA 593 I.6 - Proficiency & Due Professional Care An internal audit activity has scheduled an engagement relating to a construction contract. One portion of this engagement will include comparing materials purchased with those specified in the engineering drawings. The IAA does not have anyone on staff with sufficient expertise to complete this procedure. The chief audit executive (CAE) should A. Accept the contractor's written representations. B. Engage an engineering consultant to perform the comparison. C. Perform the entire engagement using current staff. D. Delete the engagement from the schedule.

(c) HOCK international, page 37

Part 1 (3-Part) : 12/13/14 22:25:28

Question 134 - CIA 1194 I.51 - Quality Assurance & Improvement Program An internal audit activity is currently undergoing its first external quality assurance review since its formation three years ago. From interviews, the review team is informed of certain internal auditor activities over the past year. Which of the following activities could affect the quality assurance review team's evaluation of the objectivity of the internal auditors? A. During an engagement to review the construction of a building addition to the organization's headquarters, the vice president of facilities management gave the internal auditor a commemorative mug with the organization's logo. These mugs were distributed to all employees present at the ground-breaking ceremony. B. An internal auditor's participation was requested on a task force to reduce the organization's inventory losses from theft and shrinkage. This is the first consulting assignment undertaken by the internal audit activity. The internal auditor's role is to advise the task force on appropriate control techniques. C. One internal auditor told the review team that, during an engagement to review the payroll function, he was approached by the payroll manager. The manager indicated he was looking for an accountant to prepare his financial statements for his part-time business. The internal auditor agreed to perform this work for a reduced fee during non-work hours. D. After reviewing the installation of a data processing system, the internal auditor made recommendations on standards of control. Three months after completion of the engagement, the engagement client requested the internal auditor's review of certain procedures for adequacy. The internal auditor agreed and performed this review.

Question 135 - CIA QZP1A.15 - Proficiency & Due Professional Care Which of the following is/are true regarding Continuing Professional Education (CPE)? I. The Standards require internal auditors to obtain 40 hours of professional education each year and a minimum of 80 hours over a 2-year period. II. Internal auditors are responsible for continuing their education in order to maintain their proficiency. III. CPEs may be obtained by attending, as an officer or committee member, formal Institute of Internal Auditors (IIA) meetings. A. II and III only. B. I and III only. C. I, II and III. D. I and II only.

Question 136 - CIA 589 II.2 - Purpose, Authority & Responsibility The authority of the internal audit activity is limited to that granted by A. Senior management and the Standards. B. Management and the board. C. The audit committee and the chief financial officer. D. The board and the controller.

(c) HOCK international, page 38

Part 1 (3-Part) : 12/13/14 22:25:28 Question 137 - CIA QZP1A.1 - Introduction to Internal Auditing The purpose of the Standards includes all of the following except A. To establish the basis for the CIA certification program. B. Outline the basic principles that represent best practice of internal auditing. C. Foster improved organizational processes and operations. D. Provide a framework for performing and promoting a broad range of value-added internal audit activities.

Question 138 - CIA 1194 I.56 - Charter, Independence & Objectivity A medium-sized publicly owned organization operating in Country X has grown to a size that the governing authority believes warrants the establishment of an internal audit activity. Country X has legislated internal auditing requirements for government-owned organizations. The organization changed the bylaws to reflect the establishment of the internal audit activity. The governing authority decided that the chief audit executive (CAE) must be a certified internal auditor and will report directly to the newly established audit committee. Which of the items discussed above will contribute the most to the new CAE's independence? A. The CAE will report to the audit committee. B. The establishment of the internal audit activity is documented in the bylaws. C. Country X has legislated internal auditing requirements. D. The CAE is to be a certified internal auditor.

Question 139 - CIA 594 I.70 - Charter, Independence & Objectivity A written charter approved by the board that formally defines the internal audit activity's purpose, authority, and responsibility enhances its A. Proficiency. B. Exercise of due professional care. C. Independence. D. Relationship with management.

Question 140 - CIA 598 1.5 - Purpose, Authority & Responsibility An activity appropriately performed by the internal auditing activity (IAA) is A. Designing systems of control. B. Installing systems of control. C. Reviewing systems of control before implementation. D. Drafting procedures for systems of control.

Question 141 - CIA 1190 I.48 - Ethics (c) HOCK international, page 39

Part 1 (3-Part) : 12/13/14 22:25:28 An internal auditor may receive which of the following without violating The IIA Code of Ethics? A. A pen received from the sales manager of a subsidiary with the imprinted name of the organization’s product and a phone number. B. A dinner and baseball tickets from the manager of a department that has never been reviewed and for which there are no plans for a future engagement. The tickets are usually made available to employees of that department. C. A bottle of whiskey from the organization’s treasurer. D. A dinner and baseball tickets from the manager of a department being reviewed. The tickets are usually made available to employees of that department.

Question 142 - CIA 1195 III.5 - Charter, Independence & Objectivity A service organization is currently experiencing a significant downsizing and process reengineering. Its board of directors has redefined the business goals and established initiatives using in-house developed technology to meet these goals. As a result, a more decentralized approach has been adopted to run the business functions by empowering the business branch managers to make decisions and perform functions traditionally done at a higher level. The internal auditing staff is made up of the chief audit executive (CAE), two managers, and five staff auditors, all with financial background. In the past, the primary focus of successful internal audit activities (IAA) has been the service branches and the six regional division headquarters, which support the branches. These division headquarters are the primary targets for possible elimination. The support functions such as human resources, accounting, and purchasing will be brought into the national headquarters, and technology will be enhanced to enable and augment these operations. Branch managers view the IAA as a watchdog for senior management. What is the best way for internal auditing to change this view to one that is more cooperative? A. Increase solicitation of engagement client concerns. B. Increase technical skills. C. Increase confidentiality of investigative engagements to minimize fear. D. Increase focus on control responsibilities.

Question 143 - CIA 1194 1.53 - Ethics A company with a whistleblowing hotline has received an anonymous tip that three senior internal auditors are in violation of the IIA Code of Ethics. The company has adopted the IIA Code as a part of the corporate ethical code. Among the allegations against the auditors were the following: 1. Auditor 1 has a part-time job outside of office hours as a visiting professor at a local community college. 2. Auditor 1 owns stock in the employer company. 3. Auditor 1 told his next-door neighbor to start looking for a new job because an audit of the executive office indicated that the neighbor's division was going to be closed down in about six months. 4. Auditor 2 received an item of value from a local nonprofit organization of purchasing agents for whom he gave a speech. 5. Auditor 2 received an item of value from a customer of the employer. 6. Auditor 2 has a part-time job as president of a local charitable organization. 7. Auditor 2 shared audit techniques with auditors from another company while attending a professional meeting. 8. A buyer accepted a kickback of $500 to give bid amounts to a supplier to enable that supplier to bid the contract. Auditor 2 omitted this information from the audit report since the contract amount was not material to the financial statements. 9. Auditor 3 received royalties from a publisher for authoring a professional book on internal auditing.

(c) HOCK international, page 40

Part 1 (3-Part) : 12/13/14 22:25:28 10. Auditor 3 has a part-time job as a real estate broker, and his real estate firm recently received a commission from the employer company. 11. Auditor 3 received an item of value from a fellow employee in the same company whose department has never been audited and whose department is not scheduled to be audited in the foreseeable future. 12. Auditor 3 did not include in an audit report that the bottlenecks in a shipping department were caused by the absence of the supervisor. The supervisor was the auditors friend and neighbor who had a hospitalized child requiring him to miss work off and on for several weeks. How many of the allegations about Auditor 2 represent violations of the IIA Code of Ethics? A. One. B. Three. C. Two. D. Four.

Question 144 - CIA 1194 I.50 - Charter, Independence & Objectivity An organization is planning to develop and implement a new computerized purchase order system in one of its manufacturing subsidiaries. The vice president of manufacturing has requested that internal auditors participate on a team consisting of representatives from finance, manufacturing, purchasing, and marketing. This team will be responsible for the implementation effort. Eager to take on this high profile project, the Chief Audit Executive (CAE) assigns a senior internal auditor to the project to assist "as needed." Assuming the senior internal auditor performed all of the following activities, which one will impair objectivity if the internal auditor is asked to review the purchase order system on a post-engagement basis? A. Drafting operating procedures for the new system. B. Reviewing the adequacy of systems and programming standards. C. Helping to identify and define control objectives. D. Testing for compliance with system development standards.

Question 145 - CIA 592 II.2 - Purpose, Authority & Responsibility To avoid being the apparent cause of conflict between an organization's senior management and the audit committee, the chief audit executive (CAE) should A. Discuss all reports to senior management with the audit committee first. B. Request board approval of policies that include internal audit activity relationships with the audit committee. C. Communicate all engagement results to both senior management and the audit committee. D. Strengthen the independence of the internal audit activity through organizational status.

Question 146 - CIA 595 I.23 - Purpose, Authority & Responsibility The internal auditor of a bank is examining the bank's loan portfolio to determine whether or not it is in accordance with applicable governmental regulations which: Limit the amount of loans that can be made to the 10 largest customers (as a percent of total bank loans), Restrict the amount of loans that can be made in certain industries, and

(c) HOCK international, page 41

Part 1 (3-Part) : 12/13/14 22:25:28 Require additional documentation for all loans over $100,000. The internal auditor wants to determine whether (a) there are any violations of the applicable regulations; and (b) the system and its control procedures are adequate to prevent violations of the applicable regulations. Which of the following audit procedures ought to be included as part of the audit program to address the specific audit concerns identified above? A. Use audit software to prepare an aging of the loans receivable to determine if a proper allowance for uncollectible accounts has been recorded. B. Select a random sample of all loans over $100,000 and examine supporting documentation to determine if the documentation is in compliance with the applicable regulations. C. Send confirmations to the 10 largest customers to determine the collectibility of the account balances. D. All of the above.

Question 147 - CIA QZP1A.4 - Purpose, Authority & Responsibility Would it be appropriate for an individual who worked within a department to conduct an internal audit of that department soon after leaving the department? A. Yes, it would be appropriate, but only if the person had not been the manager of the department. B. No, it would not be appropriate since objectivity is assumed to be impaired. C. No, it would not be appropriate, but only if the person had been the manager of the department. D. Yes, it would be appropriate because the individual would have a better understanding of the department and thus be in a better position to audit the department.

Question 148 - CIA 594 III.7 - Proficiency & Due Professional Care If the internal audit activity does not have the skills to perform a particular task, an outside service provider could be brought in from I. The organization's external audit firm. II. An outside consulting firm III. The engagement client IV. A college or university A. I and II. B. II and IV. C. I, II and III. D. I, II and IV.

Question 149 - CIA 1196 I.26 - Purpose, Authority & Responsibility Audit committees have been identified as a major factor in promoting the independence of both internal and external auditors. Which of the following is the most important limitation on the effectiveness of audit committees?

(c) HOCK international, page 42

Part 1 (3-Part) : 12/13/14 22:25:28 A. Audit committees devote most of their efforts to external audit concerns and do not pay much attention to the internal audit activity and the overall control environment. B. Audit committee members do not normally have degrees in the accounting or auditing fields. C. Audit committee members are compensated by the organization and thus favor an owner's view. D. Audit committees may be composed of independent directors. However, those directors may have close personal and professional friendships with management.

Question 150 - 1.A - Introduction to Internal Auditing The primary objective of internal auditing is to: A. Perform the preliminary work of external financial statement audit. B. Provide an opinion about the accuracy and completeness of the quarterly financial statements. C. Find errors and fraud within the company. D. Help the employees of the company to effectively perform their jobs.

Question 151 - CIA 1196 I.43 - Ethics 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. Violates The IIA Code of Ethics because serving on the board may be in conflict with the best interests of the internal auditor's employer. II. Violates The IIA 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. II only. B. I only. C. I and II. D. Neither I nor II

Question 152 - CIA 1192 I.6 - Charter, Independence & Objectivity The audit committee may serve several important purposes, some of which directly benefit the internal audit activity. The most significant benefit provided by the audit committee to the internal audit activity is A. Reviewing annual engagement work schedules and monitoring engagement results. B. Reviewing copies of the procedures manuals for selected organizational operations and meeting with organizational officials to discuss them. C. Approving engagement work schedules, scheduling, staffing, and meeting with the internal auditors as needed. D. Protecting the independence of the internal audit activity from undue management influence.

Question 153 - CIA 1192 I.7 - Charter, Independence & Objectivity

(c) HOCK international, page 43

Part 1 (3-Part) : 12/13/14 22:25:28 Independence permits internal auditors to render the impartial and unbiased judgments essential to the proper conduct of engagements. Which of the following best promotes independence? A. A policy that prevents the internal audit activity from recommending standards of control for systems that it evaluates. B. An organizational policy that prevents personnel transfers from operating activities to the internal audit activity. C. A policy that requires internal auditors to report to the chief audit executive any situations in which a conflict of interest or bias on the part of the individual internal auditor is present or may reasonably be inferred. D. An organizational policy that allows engagements concerning sensitive operations to be outsourced.

Question 154 - CIA 1191 I.27 - Charter, Independence & Objectivity The major reason for the internal auditor's involvement in information system development is for the internal auditor to A. Propose enhancements for subsequent development and implementation. B. Gain familiarity with systems for use in subsequent reviews. C. Help assure that systems have adequate control procedures. D. Help minimize the cost and development time for new systems.

Question 155 - CIA 597 I.62 - Charter, Independence & Objectivity Which of the following activities is not presumed to impair the objectivity of an internal auditor? I. Recommending standards of control for a new information system application II. Drafting procedures for running a new computer application to ensure that proper controls are installed III. Performing reviews of procedures for a new computer application before it is installed A. II only. B. I only. C. III only. D. I and III.

Question 156 - CIA 1193 II.44 - Introduction to Internal Auditing An accounting association established a code of ethics for all members. What is one of the association's primary purposes for establishing the code of ethics? A. To establish standards to follow for effective accounting practice. B. To outline criteria for professional behavior to maintain standards of integrity and objectivity. C. To outline criteria that can be used in conducting interviews of potential new accountants. D. To provide a framework within which accounting policies could be effectively developed and executed.

Question 157 - CIA 596 I.51 - Charter, Independence & Objectivity

(c) HOCK international, page 44

Part 1 (3-Part) : 12/13/14 22:25:28 A multinational organization has an agreement with a value-added network (VAN) that provides the encoding and communications transfer for the organization's electronic data interchange (EDI) and electronic funds transfer (EFT) transactions. Before transfer of data to the VAN, the organization performs online preprocessing of the transactions. The internal auditor is responsible for assessing preprocessing controls. In addition, the agreement between the organization and the VAN states that the internal auditor is allowed to examine and report on the controls in place at the VAN on an annual basis. The contract specifies that access to the VAN can occur on a surprise basis during the second or third quarter of the fiscal year. This period was chosen so it would not interfere with processing during the VAN's peak transaction periods. This provision was not reviewed with internal auditing. The annual engagement work schedule approved by the board of directors specifies that a full review would be done during the current year. When the internal auditor called to arrange the annual control review during the third quarter, the VAN stated that it could not accommodate the internal auditor because the peak processing period started earlier than normal this year and all VAN personnel were occupied. This scope limitation, along with its potential effect, must be communicated to which one of the following? A. The limitation does not need to be communicated at the board of director's level. B. The organization's board of directors. C. The board of directors of both the organization and the VAN. D. The board of directors of the VAN.

Question 158 - CIA 591 I.13 - Quality Assurance & Improvement Program Formal internal quality assessment of the internal audit activity (IAA) primarily serve the needs of A. Senior management. B. The internal audit activity's staff. C. The chief audit executive. D. The board of directors.

Question 159 - CIA 595 1.38 - Introduction to Internal Auditing The chief audit executive (CAE) of internal auditing of a mid-sized internal auditing organization was concerned that management might outsource the internal auditing function. Therefore, the CAE adopted a very aggressive program to promote the internal auditing department within the organization. The CAE planned to present the results to management and the audit committee and recommend modification of the Internal Audit Charter after using the new program. The following lists six actions the CAE took to promote a positive image within the organization: 1. Audit assignments concentrated on economy and efficiency audits. The audits focused solely on cost savings and each audit report highlighted potential costs to be saved. Negative findings were omitted. The focus on economy and efficiency audits was new, but the auditees seemed very happy. 2. Drafts of all audit reports were carefully reviewed with the auditee to get their input. Their comments were carefully considered when developing the final audit report. 3. The EDP auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development. 4. Given limited resources, the CAE performed a risk analysis to determine which locations to audit. This was a marked departure from the previous approach of ensuring that all operations are reviewed on at least a three-year interval. (c) HOCK international, page 45

Part 1 (3-Part) : 12/13/14 22:25:28 5. In order to save time, the CAE no longer required that a standard internal control questionnaire be completed for each audit. 6. When the auditors found that management and the auditee had not developed specific criteria or data to evaluate the operations of the auditee, the audit team was instructed to perform research, develop specific criteria, review the criteria with the auditee, and if acceptable, use it to evaluate the auditees operations. If the auditee disagreed with the criteria, a negotiation took place until acceptable criteria could be agreed upon. The audit report commented on the auditees operations in conjunction with the agreed-upon criteria.Is Action 5 a violation of the Standards? A. Yes. Internal control should be evaluated on every audit engagement and the internal control questionnaire is the most efficient method to do so. B. No. Auditors may omit necessary procedures if there is a time constraint. It is a matter of audit judgment. C. No. Auditors are not required to fill out internal control questionnaires on every audit. D. Yes. Internal control should be evaluated on every audit, but the internal control questionnaire is not the mandated approach to evaluate the controls.

Question 160 - CIA 1196 III.34 - Charter, Independence & Objectivity In some organizations, internal auditing functions are outsourced. Management in a large organization should recognize that the external auditor might have an advantage, compared with the internal auditor, because of the external auditor's A. Size. It is able to offer continuous availability of staff unaffected by other priorities. B. Familiarity with the organization. Its annual audits provide an in-depth knowledge of the organization. C. Structure. It may more easily accommodate engagement requirements in distant locations. D. Size. It can hire experienced, knowledgeable, and certified staff.

Question 161 - CIA 1190 II.49 - Proficiency & Due Professional Care An internal auditor should exercise due professional care in performing engagements. Due professional care includes A. Establishing suitable criteria of education and experience for filling internal auditing positions. B. Evaluating established operating standards and determining whether those standards are acceptable and are being met. C. Accumulating sufficient information so that the internal auditor can give absolute assurance that irregularities do not exist. D. Establishing direct communication between the chief audit executive and the board of directors.

Question 162 - CIA 592 I.1 - Charter, Independence & Objectivity An activity appropriately performed by the internal audit activity is A. Reviewing systems of control before implementation. B. Designing systems of control. C. Installing systems of control. D. Drafting procedures for systems of control.

(c) HOCK international, page 46

Part 1 (3-Part) : 12/13/14 22:25:28

Question 163 - CIA 592 I.50 - Proficiency & Due Professional Care Due professional care implies reasonable care and competence, not infallibility or extraordinary performance. Thus, which of the following is unnecessary? A. The consideration of the possibility of material irregularities. B. The conduct of examinations and verifications to a reasonable extent. C. The conduct of extensive examinations. D. The reasonable assurance that compliance does exist.

Question 164 - CIA 1187 I.4 - Charter, Independence & Objectivity Which of the following is an appropriate responsibility of an audit committee? A. Reviewing the engagement records of the public accounting firm to determine the firm's competence. B. Recommending the assignment of specific internal auditing staff members for specific engagements. C. Performing a review of the procurement function of the organization. D. Reviewing the internal audit activity's engagement work schedule submitted by the chief audit executive.

Question 165 - CIA 595 I.60 - Charter, Independence & Objectivity It has been established that an internal auditing charter is one of the more important factors positively affecting the internal auditing department's independence. Which of the following would not be an important element to include in the Charter? A. The departmennt's access to personnel within the organization. B. The length of tenure for the chief audit executive. C. The scope of internal auditing activities. D. The department's access to records within the organization.

Question 166 - CIA 1194 I.46 - Proficiency & Due Professional Care Proficiency is required of internal auditors with respect to which discipline? A. Internal auditing procedures and techniques. B. Marketing techniques. C. Accounting principles and techniques. D. Management principles.

Question 167 - CIA 1194 3.14 - Charter, Independence & Objectivity In some cultures and organizations, managers insist that the internal auditing activity (IAA) is not needed to provide a critical assessment of the organization's operations. A management attitude such as this will most probably have an adverse affect on the internal auditing department's: (c) HOCK international, page 47

Part 1 (3-Part) : 12/13/14 22:25:28 A. Performance appraisals. B. Operating budget variance. C. Policies and procedures. D. Charter.

(c) HOCK international, page 48

Part 1 (3-Part) : 12/13/14 22:25:28

Question 1 - CIA 594 I.37 - Charter, Independence & Objectivity A. Independence of the IAA is ensured when the IAA is freely able to perform the assignment without undo outside interference. Freely setting criteria is an important aspect of performing impartial and unbiased engagements. B. Impartial, or unbiased judgments are part of independence. C. The internal auditor is independent when he/she can carry out the assignment freely and objectively. However, the internal auditor's training in communication skills relates to knowledge, skills and other competencies required to perform the engagement, not to independence. D. Independence is considered maintained if the internal auditor has access to all engagement records and if this information is included in the engagement communications.

Question 2 - CIA 593 II.7 - Quality Assurance & Improvement Program A. The CAE establishes a structure for reporting results of internal assessments that maintains appropriate creditability and objectivity. Generally, those assigned responsibility for conducting ongoing and periodic reviews, report to the CAE while performing the reviews and communicatez results directly to the CAE (PA 1311-1) B. The CAE should share the results of internal assessment and necessary action plans with appropriate persons outside the activity, such as senior management, the board, and external auditors. C. The CAE should share the results of internal assessment and necessary action plans with appropriate persons outside the activity, such as senior management, the board, and external auditors. D. The CAE should share the results of internal assessment and necessary action plans with appropriate persons outside the activity, such as senior management, the board, and external auditors.

Question 3 - CIA 595 1.36 - Introduction to Internal Auditing A. Item II is also a violation. B. Highlighting potential cost savings is appropriate for an audit report. C. Highlighting cost savings is appropriate. D. The CAE dramatically changed the nature of the audit function without consulting the audit committee, management, or the audit department charter. A second violation is the omission of negative findings.

Question 4 - CIA 1193 I.5 - Proficiency & Due Professional Care A. The CAE may have need for the engineer's skills, so despite the engineer's lack of knowledge of auditing standards it would be acceptable to hire this person. B. Having knowledge of internal auditing standards is not mandatory since the person may have other necessary

(c) HOCK international, page 49

Part 1 (3-Part) : 12/13/14 22:25:28 skills, not currently provided by the IAA staff. C. The engineer would be hired based on his/her engineering skills, not based on knowledge of internal auditing gained in the previous position. D. The engineer will have other skills required by the CAE, not just accounting and taxes.

Question 5 - CIA 1196 I.48 - Proficiency & Due Professional Care A. Assessing risk related to self-insurance is generally outside the scope of the IAA. Therefore, an actuary may need to be engaged. B. The function of the actuary would be to assess risk and cost, not determine if health care costs are reasonable. The internal auditor might be able to determine if health care costs are reasonable. C. Assessing risk related to self-insurance is generally outside the scope of the IAA. Therefore, an actuary may need to be engaged. D. It would be appropriate to engage the services of an actuary, since these skills are generally outside the scope of the IAA. External service providers include actuaries, accountants, appraisers, culture or language experts, environmental specialists, fraud investigators, lawyers, engineers, geologists, security specialists, statisticians, informational technology specialists, the organization's external auditors, and other audit organizations. An external service provider may be engaged by the board, senior management, or the chief audit executive (CAE) (PA 1210.A1-1).

Question 6 - CIA 580 I.9 - Introduction to Internal Auditing A. This is not one of the purposes of the Standards. B. According to the IIA, the Standards are intended to: (1) State basic principles for the practice of internal auditing; (2) Provide a framework for performing and promoting value added internal audit activities; (3) Establish the basis for evaluating internal auditing performance; and (4) Improve organizational processes and operations. C. The professionalization of internal auditing is important, but it is not one of the purposes of the Standards. D. Independence and objectivity are aspects of the internal audit activity, but not one of the purposes of the Standards.

Question 7 - CIA 591 II.3 - Purpose, Authority & Responsibility A. The work of the external and internal auditors should be coordinated in order to help minimize the duplication of efforts. B. The public's perception of an organization's financial reporting will improve if it is perceived that the audit committee is independent of management influence. C. The transience of internal auditors would impair the IAA's objectivity.

(c) HOCK international, page 50

Part 1 (3-Part) : 12/13/14 22:25:28 D. Internal auditors should report illegal activities to the audit committee, not to the CEO. These illegal activities might involve senior management.

Question 8 - CIA 1190 I.49 - Introduction to Internal Auditing A. Determining that the cost of extending procedures would exceed its benefit would not a violation of the Standards. B. A detailed review of all transactions would not be reasonable, so therefore not a violation of the Standards. C. Determining that any fraud would not be material would not be a violation of the Standards. D. The internal auditor must exercise due professional care by considering the adequacy and effectiveness of risk management, control, and governance processes (Standard 1220.A1).

Question 9 - CIA 1195 I.14 - Proficiency & Due Professional Care A. Proficiency in information technology would not be required, only an appreciation is required. B. A proficiency in accounting principles would only be required by those who work extensively with finance and accounting information. An appreciation of accounting principles is necessary. C. It would only be required for the internal auditor to have an appreciation of taxation and law. D. It would be imperative for internal auditors have an understanding of management principles. An understanding of management principles is required to recognize and evaluate the materiality and significance of deviations from good business practices. An understanding means the ability to apply broad knowledge to situations likely to be encountered, to recognize significant deviations, and be able to carry out the research necessary to arrive at reasonable solutions (PA 1210-1).

Question 10 - CIA 1196 I.16 - Ethics A. Successful review of ethical behavior is not dependent on the existence of a formal code of ethics. B. Successful review of ethical behavior is not dependent on the existence of a formal code of ethics. C. The existence of a code of ethics means that a company has established criteria by which an individual's actions can be evaluated. D. The mere existence of a code of ethics does not ensure ethical behavior.

Question 11 - CIA 1191 I.4 - Charter, Independence & Objectivity A. Developing the annual engagement work schedule is the responsibility of the CAE and IAA staff. B. The determination of engagement observations for specific engagement communications will be the responsibility

(c) HOCK international, page 51

Part 1 (3-Part) : 12/13/14 22:25:28 of the IAA staff. C. Independence is enhanced if the audit committee either approves or dismisses the chief audit executive. The audit committee is a subcommittee of the board and is made up of outside directors. D. Approval of the engagement work programs will be the responsibility of the IAA staff.

Question 12 - CIA 591 II.8 - Proficiency & Due Professional Care A. It is very unlikely that one person is going to have expertise in all areas. B. The IIA will need various personnel who are experienced in various fields. C. The IAA should collectively possess the necessary skill levels to perform the responsibilities. D. Many different skill levels will be necessary in internal auditing.

Question 13 - CIA 1191 I.3 - Charter, Independence & Objectivity A. The CAE should report to someone in the organization with sufficient authority to promote independence. Reporting to the Treasurer would limit the independence of the IAA. B. The Executive vice-president has a higher ranking than Treasurer. C. Reporting to the audit committee would add to the IAA's independence. D. Reporting to the president would add to the IAA's independence.

Question 14 - CIA 593 II.4 - Charter, Independence & Objectivity A. Staff promotions and salary increases will be the responsibility of the CAE. B. Engagement work programs will be approved by the CAE. C. The audit committee would be responsible for the appointment of the CAE. D. It will be the CAE's responsibility to approve engagement communication observations, conclusions, and recommendations.

Question 15 - CIA 1196 III.10 - Charter, Independence & Objectivity A. Regulators generally do not serve as board members. B. A strong audit committee is made up of outside members that insulates the auditors from influences that may compromise their independence and objectivity.

(c) HOCK international, page 52

Part 1 (3-Part) : 12/13/14 22:25:28 C. It is not required that audit committee members rotate periodically. D. Officers are part of management and should not be members of the audit committee.

Question 16 - CIA QZP1B.10 - Purpose, Authority & Responsibility A. Items II and III are correct. The public’s perception of an organization's financial reporting will improve if it is perceived that the audit committee is independent of management’s influence and if internal auditors are to report illegal activities to the audit committee, and not the CEO. B. The work of the external and internal auditors should be coordinated in order to help minimize the duplication of efforts. The public's perception will improve if it is perceived that the audit committee is independent of management's influence. C. The work of the external and internal auditors should be coordinated in order to help minimize the duplication of efforts. The public’s perception will improve if internal auditors are to report illegal activities to the audit committee, and not the CEO. D. The work of the external and internal auditors should be coordinated in order to help minimize the duplication of efforts.

Question 17 - CIA 1190 I.46 - Ethics A. There may be certain actions that are legal, but contrary to the organization’s code of ethics. For example, an internal auditor is not supposed to perform any engagement for which he or she does not possess the necessary knowledge, skills, and experience. B. The organization details of an organization’s governing body are stated in the organization’s bylaws C. A code of ethics of a professional organization promotes broad standards of conduct that is supposed to be followed by all members of the organization. D. There may be certain actions that are legal, but contrary to the organization’s code of ethics. For example, an internal auditor is not supposed to perform any engagement for which he or she does not possess the necessary knowledge, skills, and experience.

Question 18 - CIA QZP1A.2 - Charter, Independence & Objectivity A. The charter defines the purpose, authority, and responsibility of the IAA (PA 1000-1). Specifying the length of tenure of the CAE will not be as important as defining the IAA's purpose, authority and responsibility. B. The charter defines the scope of work of the IAA (PA 1000-1). C. The charter will authorize access to records within the organization (PA 1000-1). D. The charter authorizes access to personnel with the organization (PA 1000-1).

(c) HOCK international, page 53

Part 1 (3-Part) : 12/13/14 22:25:28

Question 19 - CIA 1196 1.16 - Ethics A. Standards which would influence individual actions can occur in other places than the corporate code of ethics. For example, there may be defined policies regarding purchasing activities that may serve the same purpose as a code of ethics. These policies also serve as criteria against which activities may be evaluated. B. A formalized corporate code of ethics presents objective criteria by which actions can be evaluated and would thus serve as criteria against which activities could be evaluated. C. See the correct answer for the explanation. D. The existence of a corporate code of ethics, by itself, does not ensure higher standards of ethical behavior. It must be complemented by follow-up policies and monitoring activities to ensure adherence to the code.

Question 20 - CIA QZP1A.6 - Introduction to Internal Auditing A. This is a true statement about the benefit of internal auditing. B. This is a true statement about the benefit of internal auditing. C. Internal auditors are not able to provide an opinion about the accuracy and completeness of the annual financial statement. This is solely the responsibility of the external auditor. D. This is a true statement about the benefit of internal auditing.

Question 21 - CIA 1184 II.21 - Ethics A. The integrity of internal auditors establishes trust and thus provides the basis for reliance on their judgment. B. When complying with The IIA Code of Ethics, ultimately, the internal auditor has to use his or her best judgment in the application of the principles set forth in the Code. The core principles of the Code are integrity, objectivity, confidentiality, and competency. C. Rule of Conduct 1.3 states that internal auditors shall not knowingly be party to any illegal activity, or engage in acts that are discreditable to the profession of internal auditing or to the organization. D. The interest of the organization is best served by the internal auditor applying the knowledge, skills, and experience needed in the performance of internal auditing services.

Question 22 - CIA 598 1.62 - Charter, Independence & Objectivity A. See the correct answer for the explanation. B. See the correct answer for the explanation. C. See the correct answer for the explanation.

(c) HOCK international, page 54

Part 1 (3-Part) : 12/13/14 22:25:28 D. These activities (I and III) are presumed not to impair independence. However, designing, installing, and operating systems are not audit functions and should not be done by internal auditors. In addition, the drafting of procedures for systems is not an audit function. Performing such activities is presumed to impair audit objectivity.

Question 23 - CIA 598 1.59 - Charter, Independence & Objectivity A. Staffing and supervision relate to the professional proficiency of the internal auditing activity. B. Organizational status and objectivity permit members of the IAA to render the impartial and unbiased judgments essential to the proper conduct of audits. C. Continuing professional development and due professional care relate to the professional proficiency of the internal auditor. D. Human relations and communications relate to the professional proficiency of the internal auditor.

Question 24 - CIA R98 I.3 - Introduction to Internal Auditing A. It is unlikely that expenditure items (cash outflow) will match expenses. B. The internal audit activity should identify and evaluate the effectiveness of controls and develop recommendations for improvement. C. Ensuring compliance with reporting procedures is the responsibility of management. D. It is likely that other company functions would have responsibility to determine if an employee expended funds without authorization.

Question 25 - CIA 589 I.44 - Ethics A. Both The IIA's Code of Ethics and the ISPPIA are violated by failing to maintain proficiency through continuing education. B. Rule of Conduct 4.3 states that internal auditors shall continually improve their proficiency and the effectiveness and quality of their services." Rule of Conduct 4.2 states that internal auditors shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing." Moreover, Standard 1230 states that internal auditors must enhance their knowledge, skills, and competencies through continuing professional development." Thus, both the ISPPIA and The IIA’s Code of Ethics are violated by failing to maintain proficiency through continuing education. C. Both The IIA’s Code of Ethics and the ISPPIA are violated by failing to maintain proficiency through continuing education. D. Both the ISPPIA and The IIA's Code of Ethics are violated by failing to maintain proficiency through continuing education.

(c) HOCK international, page 55

Part 1 (3-Part) : 12/13/14 22:25:28

Question 26 - CIA 1187 II.48 - Ethics A. Using the CIA designation in a context not involving his/her employment is not specifically mentioned in The IIA Code of Ethics. B. Teaching auditing at a local university is not likely a violation of the code of ethics. C. Having a material ownership interest in a competitor is not likely a violation of the code of ethics for an internal auditor. It is not likely that the internal auditor is in a position where he or she could enhance the value of the ownership interest. D. Rule of Conduct 2.2 states that internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment.

Question 27 - CIA 595 III.16 - Purpose, Authority & Responsibility A. Policies and procedures provide guidance the IAA. These policies and procedures would not be affected by management's negative attitude. B. A lack of management cooperation is unlikely to affect operating budget variances. C. In order for the IAA to be effective it needs to have proper organizational status. This means that it needs the full support of management and the board. If management has an adverse opinion of the IAA then it is unlikely that recommendations provided by the IAA would be carried out. D. A lack of management cooperation is unlikely to affect performance evaluations.

Question 28 - CIA 595 1.24 - Purpose, Authority & Responsibility A. The auditor should inform management and seek an opinion from legal counsel. The audit report will go to the audit committee during the normal course of processing. The auditor should go to the audit committee immediately only if there is evidence that the audit investigation is being impeded. B. Since it is unclear whether a violation has taken place, the auditor should inform management and seek the opinion of legal counsel. C. The auditor should not issue a formal report until the status of the violation is decided. Thus, it would not be appropriate to omit mention of the finding. D. It is not an audit function to report to the regulatory agency unless it is specifically required by law. The auditor should seek an opinion on the legality of the loans from legal counsel, not from the regulatory agency.

Question 29 - CIA 598 1.54 - Charter, Independence & Objectivity A. The Standards states that an auditor may recommend standards of control for new systems. However, designing, installing, or operating such systems might impair objectivity.

(c) HOCK international, page 56

Part 1 (3-Part) : 12/13/14 22:25:28 B. Budget restrictions do not constitute a violation of an auditor's independence. C. An auditor may review contracts prior to their execution. D. An auditor who has been promoted to an operating department should not continue on an audit of the new department.

Question 30 - CIA 592 I.2 - Charter, Independence & Objectivity A. Individual knowledge and skills promotes professional proficiency, not independence. B. Organizational knowledge and skills promotes professional proficiency within the organization, but not ensure independence of the IAA. C. Independence of the IAA is promoted through organizational status and objectivity. D. Supervision of the IAA will ensure objectives are achieved, quality is assured, and staff is developed, but supervision will not ensure that independence is maintained.

Question 31 - CIA 1192 I.2 - Purpose, Authority & Responsibility A. The CAE should functionally report to the board or its equivalent, and administratively to the chief executive officer. The board is not involved in the organization's administrative matters. B. The CAE should not report to either a controller or CFO. Doing so would compromise the internal auditing organizational status. C. The external auditor is not part of the organization's structure. D. Ideally, the CAE should administratively report to the CEO, and functionally to the audit committee or its equivalent.

Question 32 - CIA 591 II.13 - Proficiency & Due Professional Care A. The issue is with quality of communication, rather than quantity of communication. B. Poor staff communication skills can be resolved with training, not by meeting with the engagement clients. C. Internal auditors must have skills in oral and written communications so that they can clearly and effectively convey such matters as engagement objectives, evaluations, conclusions, and recommendations (PA 1210-1). In this case the CAE should provide staff with sufficient training to enhance communication skills. D. Staff communication problems can be resolved with training.

(c) HOCK international, page 57

Part 1 (3-Part) : 12/13/14 22:25:28 Question 33 - CIA 1191 I.6 - Proficiency & Due Professional Care A. Unless the other staff members have sufficient knowledge of the competencies, hiring this person could bring out some staffing problems. B. Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities. The IAA should collectively possess or obtain knowledge, skills, and other competencies needed to perform its responsibilities (Standard 1210). The internal auditor does not have to be specialized in all areas. C. A mentor program should always be encouraged, regardless if hiring a new person or not. D. Internal auditors must enhance their knowledge, skills, and other competencies through continuing professional development (Standard 1230). This would apply to all internal auditors, regardless of their experience or background.

Question 34 - CIA 1195 I.49 - Purpose, Authority & Responsibility A. Internal auditors should be able to effectively communicate recommendations to the engagement client. B. Internal auditors should be skilled in oral & written communications so that they can clearly and effectively convey such matters as engagement objectives, evaluations, conclusions, and recommendations. However, risk assessment is not something that necessarily needs to be communicated. C. Internal auditors should be able to effectively communicate engagement objectives. D. Internal auditors should be able to effectively communicate engagement evaluations.

Question 35 - CIA QZP1A.12 - Proficiency & Due Professional Care A. Internal auditors must exercise of due professional care by considering: the extent of work needed to achieve the engagement's objectives; the relative complexity, materiality, or significance of matters to which assurance procedures are applied; adequacy and effectiveness of governance, risk management, and control processes; probability of significant errors, irregularities, or non-compliance; and cost of assurance in relation to potential benefits (Standard 1220.A.1). However, conducting an engagement with due professional care does not require the auditor to test every transaction. B. Due professional care does not entail testing every transaction. C. Due professional care does not entail testing every transaction. D. Due professional care does not entail testing every transaction.

Question 36 - CIA 597 1.60 - Introduction to Internal Auditing A. Fostering improved organizational processes and operations is one of the four purposes of the Standards. B. Establishing the basis for the measurement of the internal audit performance is one of the four purposes of the Standards.

(c) HOCK international, page 58

Part 1 (3-Part) : 12/13/14 22:25:28 C. Guiding the ethical conduct of the internal auditors is not one of the four purposes of the Standards. The four purposes include: (1) Delineate basic principles that represent the practice of internal auditing as it should be; (2) Provide a framework for performing and promoting a broad range of value-added internal audit activities; (3) Establish the basis for the measurement of internal audit performance; and (4) Foster improved organizational processes and operations. D. Delineating basic principles that represent the practice of internal auditing as it should be is one of the four purposes of the Standards.

Question 37 - CIA 1192 I.48 - Ethics A. Tax evasion is a felony and thus, is a discredit to the profession. The most likely consequence for this person is review by the IIA's Ethics Committee and forfeiture of the CIA designation. B. The IIA's Ethics Committee is responsible for imposing sanctions against CIAs. C. The Internal Auditing Standards Board does not impose sanctions against CIAs. This is the responsibility of the IIA's Ethics Committee. D. The act committed by the CIA is a felony and thus, is a discredit to the profession, even if the act was performed outside of the normal line of work.

Question 38 - CIA 596 1.59 - Proficiency & Due Professional Care A. The CAE may agree to perform work in connection with (the) annual audit. B. The CAE should communicate to senior management and the board any relevant comments about the performance of external auditors C. Actual coordination (of audit efforts) should be the responsibility of the CAE. D. The chief audit executive (CAE) should communicate to senior management and the board the results of evaluations of coordination with external auditors

Question 39 - HOCK CIA P1A.1 - Quality Assurance & Improvement Program A. Items I and II are true. In addition, the report should include how the internal audit activity contributed to the organization's governance, risk management and control processes. B. All three items are correct. The IAA's QAIP report should evaluate: Compliance with the Definition of Internal Auditing, the Code of Ethics and the Standards. Adequacy of the IAA's charter, goals, objectives, policies, and procedures. Contribution to the organization's governance, risk management and control processes. Compliance with applicable laws, regulations, and other governmental or industry standards. Effectiveness of continuous improvement activities and adoption of best practices. (c) HOCK international, page 59

Part 1 (3-Part) : 12/13/14 22:25:28 The extent to which the IAA adds value and improves the organization's operations. C. Items I and III are true concerning the IAA's quality program. However, item IV is not true. The QAIP report should be addressed to those requesting the assessment, which is normally senior management and the board. D. Items I, II and III are true. However, item IV is not true. The QAIP report should be addressed to the people who requested the assessment, which are normally senior management and the board.

Question 40 - CIA 1195 III.4 - Charter, Independence & Objectivity A. The CAE should report to a level within the organization that allows the IAA to fulfill its responsibility. Ideally, the CAE should report administratively the chief executive officer and functionally to the audit committee, board of directors, or other equivalent governing authority. This reporting system is best to ensure the independence of the IAA. B. The CAE should communicate directly with the audit committee, board of directors, or other governing authority. C. The CAE should communicate directly with the audit committee, board of directors, or other governing authority. D. This type of reporting system may impair independence of the IAA. The CAE should communicate directly with the audit committee, board of directors, or other governing authority.

Question 41 - CIA 598 1.76 - Purpose, Authority & Responsibility A. This is the purpose stated in the Standards. B. Correcting control weaknesses is a function of management, not of the internal auditor. C. This is a basic objective from a financial accounting and auditing perspective, but is not broad enough to cover the internal auditor’s entire purpose for review. D. This is a purpose of audit planning.

Question 42 - CIA 1196 III.30 - Purpose, Authority & Responsibility A. The primary role of the internal audit activity is to assist the management of a company in its responsibility of maintaining effective controls by evaluating the effectiveness of those controls. In this role, it serves as an appraisal function that adds value to operations. B. The role of internal auditing is not limited to serving as the investigative arm of the board. The internal audit activity assists the management of a company in its responsibility of maintaining effective controls by evaluating the effectiveness of those controls. C. One of the roles of internal auditing is the performance of studies to assist in the attainment of more efficient operations. However, primary role of internal auditing is much more than this. D. Although external audit fees may be reduced as a result of the internal auditing activities, this is not the primary role of internal auditing.

(c) HOCK international, page 60

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Question 43 - CIA 1195 I.48 - Proficiency & Due Professional Care A. Internal auditors must possess the knowledge, skills, and other competencies needed to perform their individual responsibilities. The internal audit activity collectively should have or obtain the knowledge, skills, and other competencies needed to perform its responsibilities (Standard 1210). As long as the senior internal auditor closely supervises the staff internal auditor then this would be an appropriate arrangement. B. Part I is correct. C. Supervision entails more than reviewing the engagement. D. Part I is correct, but Part II is not correct.

Question 44 - CIA 1196 III.23 - Quality Assurance & Improvement Program A. Quality control is instituted to satisfy the customer, not upper management. B. Determining the appropriate timing of inspections would be considered a secondary purpose of quality control, not its primary purpose. C. Conforming to ISO-9000 specifications would be part of a compliance audit, not quality control. D. The primary purpose of quality control is to ensure that goods and services conform with design specifications.

Question 45 - CIA 594 I.67 - Proficiency & Due Professional Care A. The internal auditor should have an appreciation of informational technology, and a proficiency in accounting only if the internal auditor works with financial records and reports. B. The internal auditor should have a proficiency in accounting and techniques during engagements involving financial records and reports. C. The internal auditor must have proficiency in applying internal auditing standards, procedures and techniques in performing engagements (PA 1210-1). D. The internal auditor should have a proficiency in internal auditing standards, procedures, and techniques.

Question 46 - CIA 594 3.6 - Purpose, Authority & Responsibility A. The controller is an auditee, and as such should have the least influence. The highest levels of management and the audit committee are directly involved in the appointment. The external auditor has influence on the appointment because the external auditor requires an appropriate level of expertise and independence in order to rely on the work of the internal auditor.

(c) HOCK international, page 61

Part 1 (3-Part) : 12/13/14 22:25:28 B. See the correct answer for the explanation. C. See the correct answer for the explanation. D. See the correct answer for the explanation.

Question 47 - CIA 594 1.69 - Charter, Independence & Objectivity A. These criteria are related to skill, not independence. B. Assumption of operating duties is related to independence. C. Communication is related to independence. D. The scope and depth of the audit objectives reflect on the department's indepen-dence.

Question 48 - CIA 1193 I.46 - Proficiency & Due Professional Care A. The testing of facility usage would be considered adequate and withstand normal scrutiny. B. The testing of both areas would be considered adequate and withstand normal scrutiny. C. Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility (Standard 1220). The testing of facility usage and personnel staffing would be considered adequate and withstand normal scrutiny. D. The testing of personnel staffing would be considered adequate and withstand normal scrutiny.

Question 49 - CIA 594 3.5 - Quality Assurance & Improvement Program A. See the correct answer for the explanation. B. The purpose of a quality assurance program is to evaluate the operations of the internal audit department. The CAE is responsible to implementing processes designed to provide reasonable assurance to the various stakeholders that that the IAA: Performs in accordance with the IAA charter, which is consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. Operates in an effective and efficient manner. Is perceived by those stakeholders as adding value and improving the organization's operations. These processes include appropriate supervision, periodic internal assessments and ongoing monitoring of quality assurance, and periodic external assessments (PA 1300-1). C. Proper training is an important component of maintaining a current staff, but does not provide feedback. D. See the correct answer for the explanation. (c) HOCK international, page 62

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Question 50 - CIA 593 II.3 - Charter, Independence & Objectivity A. The IAA should be independent, and internal auditors must be objective in performing their work. B. The IAA will still need to report to management. Ideally, the CAE should administratively report to the CEO. C. Senior management will approve the IIA's work schedule, staffing plan, and financial budget. The board will play a support and oversight role. D. The charter outlines the reporting structure, but it does not guarantee independence.

Question 51 - CIA 596 1.66 - Purpose, Authority & Responsibility A. The Standards prescribe highlighting significant audit findings and recommendations and reporting on the approved audit work schedule. B. The Standards prescribe informing the board of management's decision on significant audit findings. C. The auditor does not yet know if this is actually a problem which can adversely affect the organization. D. There is no provision for the discussion of the meeting or the related options for handling the necessary transaction in the Standards.

Question 52 - CIA 593 I.3 - Charter, Independence & Objectivity A. Joint planning with the external auditor will not affect independence. B. The review of contracts will not impair independence or objectivity. It gives the internal auditor the opportunity to evaluate the adequacy of control over proposed contracts. C. A dual reporting to the CEO and board would be ideal. D. Internal auditors need independence and objectivity. Objectivity is a function of independence. It is presumed that objectivity is impaired if the internal auditor drafts procedures for systems. The IAA should be independent, and internal auditors should be objective.

Question 53 - CIA 591 II.4 - Charter, Independence & Objectivity A. Accepting the engagement is presumed to impair objectivity. B. It is presumed that objectivity would be impaired if the internal auditor would discuss the need for such an engagement with the treasurer (former boss). Internal auditors should not subordinate judgment on engagement matters to others. C. The preparation of the engagement work program could possibly offer an opportunity for bias. (c) HOCK international, page 63

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D. The correct response would be to let another member of the internal auditing staff do the engagement. Persons transferred to, or temporarily engaged by, the internal audit activity should not be assigned to audit those activities they previously performed or for which they had management responsibility until at least one year has elapsed. Such assignments are presumed to impair objectivity, and additional consideration should be exercised when supervising the engagement work and communicating engagement results (PA 1130.A1-1).

Question 54 - CIA 1195 I.55 - Purpose, Authority & Responsibility A. The IIA has no authority in this case. B. The proper step for the internal auditor to take would be to inform the president of the possible scope limitation and that this matter will have to be communicated to the board, audit committee or other appropriate governing authority. C. Since, the engagement work in not yet complete the internal auditor has not yet formed an opinion on the issue. Therefore, any communication with the external auditor would be unwarranted. But, if the external auditor makes an inquiry about the matter then the internal auditor should share any information collected to date. D. The first step is for the internal auditor to consult with the board.

Question 55 - CIA 1188 II.47 - Ethics A. Rule of Conduct 2.2 states that internal auditors shall not accept anything that may impair, or be presumed to impair their professional judgment. Thus, the gift should not be accepted if it presumes to impair the internal auditor’s judgment. B. The timing of accepting the gift is irrelevant. C. The Rule of Conduct states that the internal auditor shall not accept "anything" that may impair, or be presumed to impair judgment. D. The Rule of Conduct states that the internal auditor shall not accept "anything" that may impair, or be presumed to impair judgment.

Question 56 - CIA 589 I.45 - Proficiency & Due Professional Care A. The internal auditor is unable to give 100% absolute assurance, only reasonable. B. Due professional care does not entail infallibility and extraordinary performance; it only entails reasonable care and skill. C. Due professional care implies reasonable care and competence, not infallibility or extraordinary performance (PA 1220-1). D. Due professional care does not entail reviewing all transactions.

(c) HOCK international, page 64

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Question 57 - CIA 594 3. 2 - Charter, Independence & Objectivity A. Audit committees should be made up of independent members of the board of directors or other similar oversight committees. B. See the correct answer for the explanation. C. See the correct answer for the explanation. D. See the correct answer for the explanation.

Question 58 - CIA 1191 I.46 - Ethics A. Decentralizing would create an opportunity for more fraud to be committed. B. This procedure will not necessarily eliminate the agents showing favoritism to one particular vendor. C. Competitive bidding if properly controlled and implemented can serve as an effective means to lower price. It also serves as a means of preventing kickbacks by restricting the ability of the agent to be rewarded. D. The problem is not authorization, but the way the vendors are selected.

Question 59 - CIA 598 3.28 - Charter, Independence & Objectivity A. The company's chief audit executive is responsible for staff promotions. B. The independence of the internal audit activity is enhanced when the audit committee participates in naming the CAE. C. The company's chief audit executive is responsible for approv-ing internal audit reports. D. This is a part of the internal audit activity's planning func-tion.

Question 60 - CIA 1190 II.4 - Purpose, Authority & Responsibility A. Internal auditors must be proficient in applying internal auditing standards, procedures, and techniques (PA 1210-1). B. An understanding of management principles is required, not proficiency. C. An appreciation of structured systems analysis would be required, not proficiency. D. An appreciation of quantitative methods is required, not proficiency.

(c) HOCK international, page 65

Part 1 (3-Part) : 12/13/14 22:25:28 Question 61 - CIA 1189 II.8 - Purpose, Authority & Responsibility A. The audit committee should provide support to the internal auditors. One way to do this is to follow up on recommendations made by the chief audit executive. B. Assigning the internal audit activity responsibility for interaction with governmental agencies does not strengthen the control process. C. According the Sarbanes-Oxley, the audit committee is to be directly responsible for the appointment, compensation, and oversight of the registered public accounting firm employed to perform the audit. D. Approving internal audit activity policies does not strengthen the control process.

Question 62 - CIA 1195 I.43 - Proficiency & Due Professional Care A. Internal auditors with professional certifications are responsible for obtaining sufficient continuing professional education (CPE) to satisfy requirements related to the professional certification held (PA 1230-1). B. The Standards to not formally state the hour requirements for the internal auditor. C. It is not required to get prior approval by the IIA for CPE courses. D. Attendance at formal IIA meetings does meet the criteria of continuing professional development.

Question 63 - CIA 593 I.44 - Proficiency & Due Professional Care A. Reasonable care was not exercised. It was not noted that there is a lack of segregation of duties over cash receipts. B. This is not exercising due professional care. C. It is not known if any irregularities occurred. D. The facts show that the internal auditor has not exercised due professional care. Exercising due professional care involves internal auditors being alert to the possibility of fraud, intentional wrongdoing, errors and omissions, inefficiency, waste, ineffectiveness, and conflicts of interest, as well as being alert to those conditions and activities where irregularities are most likely to occur (PA 1220-1). Cash has a high level of inherit risk so therefore should have tight controls. There should be a separation of duties between cash and record keeping, and this fact should have been mentioned in the auditor's notes.

Question 64 - CIA 597 I.45 - Charter, Independence & Objectivity A. Persons transferred to, or temporarily engaged by, the internal audit activity should not be assigned to audit those activities they previously performed or for which they had management responsibility until at least one year has elapsed. Such assignments are presumed to impair objectivity, and additional consideration should be exercised when supervising the engagement work and communicating engagement results (PA 1130.A1-1). B. It is acceptable for the internal auditor to be assisted by staff that does not work in areas where the engagement is

(c) HOCK international, page 66

Part 1 (3-Part) : 12/13/14 22:25:28 being performed. C. Objectivity is not impaired when the internal auditor recommends standards of control and performance standards for systems. D. In this situation objectivity is not affected when the internal auditor reviews the procedures before they are implemented.

Question 65 - CIA 595 I.56 - Charter, Independence & Objectivity A. The responsibility of the audit committee is to review and approve the engagement work schedule for the year. Therefore, the audit committee's deleting of an engagement would not be considered a scope limitation. B. Postponing a portion of an engagement would be considered to be a scope limitation. C. Not being able to contact certain customers would be considered a scope limitation. D. The audit committee deleting an engagement would not be considered a scope limitation. It is considered to be part of their responsibility.

Question 66 - CIA 1194 I.48 - Proficiency & Due Professional Care A. A proficiency in internal auditing procedures and techniques is required. B. An understanding of management principles is required. C. An appreciation is required of the fundamentals of subjects such as accounting, economics, commercial law, taxation, finance, quantitative methods, information technology, risk management, and fraud (PA 1210-1). An appreciation means the ability to recognize the existence of problems or potential problems and to identify the additional research to be undertaken or the assistance to be obtained. D. Internal auditors generally do not need to have an understanding, or an appreciation, or a proficiency in marketing techniques.

Question 67 - CIA 1195 I.45 - Charter, Independence & Objectivity A. Any one of the three instances could contribute to a lack of independence. B. The statement of the CEO indicates a lack of support of the IAA position. Also, the lack of audit committee members from the outside could contribute to a loss of independence. The charter enhances the independence of the IAA because it specifies the purpose, authority and responsibility of the IAA. C. Any one of the three instances could contribute to a lack of independence. D. Any one of the three instances could contribute to a lack of independence.

(c) HOCK international, page 67

Part 1 (3-Part) : 12/13/14 22:25:28 Question 68 - CIA 1190 I.6 - Quality Assurance & Improvement Program A. External assessments of an IAA caontain an expressed opinion as to the entire spectrum of assurance and consulting work performed (or that should have been performed based on the internal audit charter) by the IAA, including its conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards and, as appropriate, includes recommendations for improvement. These assessments can have considerable value to the CAE and other members of the IAA, especially when benchmarking and best practices are shared (PA 1312-1). B. Appropriate follow-up is also the responsibility of the CAE. C. The 'Code of Ethics' provides guidance for ethical conduct, but the IAA's work will be primarily measured against the Standards. D. Supervision is not limited to only planning, examination, evaluation, communication, and follow-up process. Supervision should also include training, employee performance evaluation, time and expense control, and similar administrative areas.

Question 69 - CIA 1186 II.48 - Ethics A. Rule of Conduct 3.1 states that internal auditors shall be prudent in the use and protection of information acquired in the course of their duties. Thus, refusing to provide information about operations to the CAE's father would be appropriate since the information could be used for insider trading. B. Rule of Conduct 1.1 states that internal auditors shall perform their work with honesty, diligence, and responsibility. Deciding to delay an engagement so the branch manager (his nephew) will have time to "clean things up" would not be considered professionally ethical. C. Rule of Conduct 4.3 states that internal auditors shall continually improve their proficiency and the effectiveness and quality of their services. Canceling staff training for the next two years would not contribute to improving the staff’s proficiency, effectiveness, or quality of their services. D. Rule of Conduct 4.2 states that internal auditors shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing. Based on the Standards, information should be sufficient, reliable, relevant, and useful to achieve the engagement objectives.

Question 70 - CIA 598 2.66 - Proficiency & Due Professional Care A. An auditor's opinion is not just based on experience and free from all bias. B. An auditor's opinion is not just limited to giving an opinion on the effectiveness of controls. C. An auditor's opinion is not just expressed when requested by top management, or management of the audited function. D. Audit opinions may encompass the entire scope of the audit or only specific aspects. Opinions should be identified as such and should be based on factual information gathered during the audit.

(c) HOCK international, page 68

Part 1 (3-Part) : 12/13/14 22:25:28 Question 71 - CIA 1191 II.4 - Charter, Independence & Objectivity A. Requirements for audit committee members are: 1. They must be independent. That is, they must not be employed by the company in any capacity other than as a member of the audit committee, the board of directors, or any other board committee. 2. One member of the audit committee must have accounting or financial management expertise. 3. All members of the audit committee must be financially literate. The vice president of the local bank would be an independent director and, as the vice president of a bank, would be financially literate. Thus, this person would be an appropriate member of the audit committee. B. Requirements for audit committee members are: 1. They must be independent. That is, they must not be employed by the company in any capacity other than as a member of the audit committee, the board of directors, or any other board committee. 2. One member of the audit committee must have accounting or financial management expertise. 3. All members of the audit committee must be financially literate. An academic specializing in business administration would be an independent director and with knowledge of business administration would be financially literate. Thus, this person would be an appropriate member of the audit committee. C. Requirements for audit committee members are: 1. They must be independent. That is, they must not be employed by the company in any capacity other than as a member of the audit committee, the board of directors, or any other board committee. 2. One member of the audit committee must have accounting or financial management expertise. 3. All members of the audit committee must be financially literate. A retired executive of a firm that had been associated with the organization would be an independent director and as an executive, would be financially literate. Thus, this person would be an appropriate member of the audit committee. D. Requirements for audit committee members are: 1. They must be independent. That is, they must not be employed by the company in any capacity other than as a member of the audit committee, the board of directors, or any other board committee. 2. One member of the audit committee must have accounting or financial management expertise. 3. All members of the audit committee must be financially literate. The organization's vice president of operations is a member of management and thus would not be independent.

Question 72 - CIA 598 1.60 - Introduction to Internal Auditing A. The Code of Ethics defines the minimum ethical standards for the internal auditor, not the Standards. B. The Standards defines the practice of internal auditing "as it should be."

(c) HOCK international, page 69

Part 1 (3-Part) : 12/13/14 22:25:28 C. The Standards is applicable across all industries and types of internal audit activities. D. This is the purpose of the Performance Standards, which describe the internal audit activities and criteria against which the performance of these services can be evaluated.

Question 73 - CIA 1195 I.18 - Proficiency & Due Professional Care A. Due to the complexity of calculating health care costs an outside consulting service may be required to assist the internal auditor perform all or some of the engagement. B. Due to the complexity of calculating health care costs an outside consulting service may be required to assist the internal auditor perform all or some of the engagement. C. Due to the complexity of calculating health care costs an outside consulting service may be required to assist the internal auditor perform all or some of the engagement. D. Calculating health care benefits can be very complex, and the internal auditor may not possess all of the necessary knowledge or skills to adequately complete the engagement. In this case, it would be appropriate to employ an outside consulting service company who has the necessary skills to perform all or some of the engagement.

Question 74 - CIA 598 2.35 - Proficiency & Due Professional Care A. Due care implies reasonable care and competence, not infallibility or extraordinary performance. B. Due professional care requires the auditor to conduct examinations and verifications to a reasonable extent, but does not require detailed audits of all transactions. C. Due professional care implies reasonable care and competence, not infallibility. D. Internal auditors cannot give absolute assurance that noncompliance or irregularities do not exist.

Question 75 - CIA QZP1A.11 - Introduction to Internal Auditing A. Supervision is not limited to only planning, examination, evaluation, communication, and follow-up process. Supervision should also include training, employee performance evaluation, time and expense control, and similar administrative areas. B. The 'Code of Ethics' provides guidance for ethical conduct, but the IAA's work will be primarily measured against the Standards. C. External assessments of an IAA contain an expressed opinion as to the entire spectrum of assurance and consulting work performed (or that should have been performed based on the internal audit charter) by the IAA, including its conformance with the Definition of Internal Auditing, the Code of Ethics, and the Standards and, as appropriate, includes recommendations for improvement. These assessments can have considerable value to the CAE and other members of the IAA, especially when benchmarking and best practices are shared (PA 1312-1.2).

(c) HOCK international, page 70

Part 1 (3-Part) : 12/13/14 22:25:28 D. Appropriate follow-up is also the responsibility of the CAE.

Question 76 - CIA 1194 I.47 - Proficiency & Due Professional Care A. It would be required to have a proficiency in internal auditing procedures and techniques, not an understanding. B. Internal auditors generally do not need to have an understanding, or an appreciation, or a proficiency in marketing techniques. C. It is only required to have an appreciation of accounting principles and techniques. D. An understanding of management principles is required to recognize and evaluate the materially and significance of deviations from good business practices. An understanding means the ability to apply broad knowledge to situations likely to be encountered, to recognize significant deviations, and be able to carry out the research necessary to arrive at reasonable solutions (PA 1210-1).

Question 77 - CIA 592 II.5 - Proficiency & Due Professional Care A. The internal auditor would be required to have an understanding of management principles. B. A proficiency in applying internal auditing standards would be a requirement. C. The internal auditor would need to have the ability to maintain good interpersonal relations. D. The internal auditor is required only to have an appreciation of quantitative methods, not have the ability to conduct training sessions, which would require a high degree of proficiency.

Question 78 - CIA 1191 I.49 - Charter, Independence & Objectivity A. Due care implies reasonable care and competence, not infallibility or extraordinary performance (PA 1220-1). B. This answer is not correct because internal auditors should evaluate the established operating targets and expectations and should determine whether those operating standards are acceptable and are being met. C. The internal audit should consider the cost of assurance in relation to potential benefits. D. Internal auditors must apply the care and skill expected of a reasonably prudent and competent internal auditor. Due professional care does not imply infallibility (Standard 1220). The internal auditor must exercise due professional care by considering the (Standard 1220.A1): Extent of work needed to achieve the engagement's objectives; Relative complexity, materiality, or significance of matters to which assurance procedures are applied; Adequacy and effectiveness of risk management, control, and governance processes; Probability of significant errors, irregularities, or noncompliance; and Cost of assurance in relation to potential benefits.

(c) HOCK international, page 71

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Question 79 - CIA 589 I.3 - Charter, Independence & Objectivity A. Persons transferred to, or temporarily engaged by, the IAA should not be assigned to audit those activities they previously performed or for which they had management responsibility until at least one year has elapsed. Such assignments are presumed to impair objectivity, and additional consideration should be exercised when supervising the engagement work and communicating engagement results (PA 1130.A1-1). B. It is assumed that the supervisor would immediately take over the department's responsibilities. Therefore, a reasonable period of time would not have elapsed. C. The external audit review will not have any bearing on the restoration of the internal auditor's objectivity. D. Independence is maintained if a reasonable period of time (at least one year) has elapsed.

Question 80 - CIA 1194 1.52 - Ethics A. Telling the neighbor about a plant closing is the only violation of the IIA Code of Ethics. B. Telling the neighbor about a plant closing is the only violation of the IIA Code of Ethics. C. Telling the neighbor about a plant closing is the only violation of the IIA Code of Ethics. D. Rule of Conduct 3.2 states that internal auditors shall not use information for any personal gain or in any manner that would be contrary to the law or detrimental to the legitimate and ethical objectives of the organization. Thus, telling the neighbor about the plant closing would be considered a violation of the confidentiality code.

Question 81 - CIA 1190 II.3 - Introduction to Internal Auditing A. If the related information is reliable, then additional engagement procedures might not be needed. B. If adverse effects related to the item come to the attention of the internal auditor then it would be considered appropriate to include these items in the engagement. C. If the internal auditor already judged the item to be immaterial, then devoting more staff would be considered inappropriate. D. It would be more appropriate to include if recurring income rather than miscellaneous income items are affected.

Question 82 - CIA 1190 II.45 - Ethics A. Accepting compensation from professional organizations for consulting work is not likely to impair, or be presumed to impair the internal auditors’ professional judgment. B. Rule of Conduct 3.1 states that internal auditors shall be prudent in the use and protection of information in the course of their duties. (c) HOCK international, page 72

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C. Serving as consultants to suppliers might create a conflict of interest. D. Serving as consultants to competitor organizations might create a conflict of interest.

Question 83 - CIA 596 I.64 - Proficiency & Due Professional Care A. Setting standards is a way of promoting professionalism. B. This policy would not restrict the IAA from using outside service providers. C. This policy might in fact result in better quality engagements relating to finance and accounting. D. The IAA may need a wide range of expertise that is not restricted to finance and accounting, for example, expertise in economics, statistics, IT, engineering, taxation, law, etc. The IAA should have a balance of skills to permit the performance of a wide range of engagements.

Question 84 - CIA 1196 1.48 - Proficiency & Due Professional Care A. Management explicitly asked the auditor to assess the risks that the organization had incurred by moving to self-insurance. Auditors normally do not have these abilities. If necessary, the audit staffing should be expanded to include the expertise of an actuary. B. An actuary should be used. C. An auditor can determine whether costs are reasonable. D. An actuary should be used.

Question 85 - CIA 588 I.46 - Ethics A. Establishing an employee counseling program is unlikely to change the behavior of dishonest employees. B. Pressures within the organization should not be cause for the buyer to accept brides from the vendor. C. Reviewing the buyer's lifestyle would be difficult to analysis, unless there was a noticeable change in lifestyle. D. Management is responsible for establishing and maintaining effective internal control to prevent or detect fraud at a reasonable cost. Thus, a strong, written statement of management’s commitment to organizational ethics will reduce the likelihood of future acceptance of such rewards by the buyers.

Question 86 - CIA 596 I.65 - Charter, Independence & Objectivity A. The CAE would not have direct access to the board. Information would first have to pass through the controller. B. At a minimum, the CAE needs to report to an individual in the organization with sufficient authority to (c) HOCK international, page 73

Part 1 (3-Part) : 12/13/14 22:25:28 promote independence and to ensure board audit coverage, adequate consideration of engagement communications, and appropriate action on engagement recommendations (PA 1110-1). Since external auditors are not members of the organization they would not be in a position to promote the IAA's independence. The IAA's independence can only come from reporting to someone within the organization who has the proper authority to promote independence. C. Whether or not the controller has experience with internal auditors will not affect the independence of the IAA. D. Being a CIA is not mandatory to be an internal auditor.

Question 87 - CIA 1186 I.30 - Quality Assurance & Improvement Program A. Weekly status reports do not have any bearing on the planning process. B. Project assignment documentation provides less relevant information for assessment purposes than work programs. C. Long-range engagement work schedule does not relate to individual engagements. D. Internal assessments should include ongoing reviews of the performance of the IAA and periodic reviews performed through self-assessment or by other persons within the organization with knowledge of internal auditing practices and the Standards. The engagement work program establishes the procedures for identifying, analyzing, evaluating, and recording information during the engagement, therefore, it is an essential part of planning the engagement.

Question 88 - CIA 589 II.44 - Proficiency & Due Professional Care A. An auditor is not responsible to report suspected wrongdoing to external authorities. B. It is not possible for an auditor to state with absolute assurance that no irregularities exist. C. If an internal auditor detects inefficiency due to overstaffing, it is appropriate to include it in the report. D. It is appropriate to select a sample of transactions to test.

Question 89 - CIA 596 I.70 - Ethics A. The Rules of Conduct provide guidelines to assist internal auditors in dealing not only with engagement clients. B. The Rules of Conduct are an aid to interpreting the Principles. C. The Rules of Conduct applies to all conduct that is deemed unacceptable. D. The Rules of Conduct set forth in The IIA Code of Ethics describe the behavior norms expected of internal auditors. These rules are an aid to interpreting the principles into practical applications and are intended to guide the ethical conduct of the internal auditors.

(c) HOCK international, page 74

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Question 90 - CIA 595 1.37 - Introduction to Internal Auditing A. See the correct answer for the explanation. B. See the correct answer for the explanation. C. See the correct answer for the explanation. D. None of the actions constitute a violation of the Standards.

Question 91 - CIA QZP1A.13 - Charter, Independence & Objectivity A. Items I and II would be considered scope limitations, but item III would not be considered a scope limitation. Merely postponing an engagement by 2 weeks would not generally be considered a scope limitation. B. Both I and II would be considered scope limitations. Scope limitations are situations which preclude the IAA from achieving its engagement objectives and plans. C. Item II would be considered a scope limitation, but merely postponing an engagement by 2 weeks would not generally be considered a scope limitation. D. Besides item I, item II would also be considered a scope limitation.

Question 92 - CIA 594 1.30 - Introduction to Internal Auditing A. Additional discussion with the audit manager is not necessary before discussion with the director of internal audit. B. Resigning is an option always available to the auditor without a Code of Ethics violation. C. It is the CAE who is responsible to communicate with the external auditor. D. Including facts in the working papers is not a violation of the Code of Ethics.

Question 93 - CIA 598 1.6 - Charter, Independence & Objectivity A. The scope limitation and its potential effects should be communicated to the audit committee of the board of directors. B. The audit may be conducted under a scope limitation. C. A scope limitation would not necessarily cause the need for more experienced personnel. D. A scope limitation would not necessarily cause the need for more frequent audits.

(c) HOCK international, page 75

Part 1 (3-Part) : 12/13/14 22:25:28 Question 94 - CIA 593 I.43 - Charter, Independence & Objectivity A. Selecting investment acquisitions is the responsibly of management. Internal auditors should not be involved in these processes. B. Internal auditors should not be assigned to engagements concerning activities they previously performed until a reasonable period of time has elapsed (at least a one year period). C. Recommending standards of control and reviewing procedures for new systems is not perceived to impair objectivity. D. It would not be appropriate for the internal auditor to substitute for the accounts payable supervisor while on sick leave. Objectivity would be presumed to be impaired for a reasonable period of time with respect to activities (s)he previously performed.

Question 95 - CIA 1191 II.48 - Proficiency & Due Professional Care A. The internal auditor can only give reasonable assurance, not absolute. B. Testing all transactions before communicating results is not necessary. C. Due professional care is not about providing infallible truth on a subject. There is always the possibility that an error will exist that is not discovered by the internal auditor. D. The internal auditor has a responsibility to recommend improvements.

Question 96 - CIA 581 I.5 - Introduction to Internal Auditing A. Management is still responsible for establishing the organization's controls. B. Management needs to ensure the reliability and integrity of financial and operational information. C. Management is responsible to safeguard the organization's resources. D. This is the major reason for establishing the internal audit activity. The internal auditing activity "helps an organization accomplish it objectives by bringing systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes."

Question 97 - CIA 1190 I.38 - Introduction to Internal Auditing A. Determining the requirements for preparing a manual of specifications would be a task for management. B. It would be most appropriate for this task to be assigned to a trained technician. C. Serving on a task force for a preliminary survey would be an appropriate role for management. D. Internal auditors must consider standards of control and review procedures before implementation. But objectivity would be considered to be impaired if they would design, install, draft procedures, or operate

(c) HOCK international, page 76

Part 1 (3-Part) : 12/13/14 22:25:28 systems (PA 1120-1). Therefore, ascertaining if the feasibility study addresses cost-benefit relationships would be an appropriate role for the internal auditor.

Question 98 - CIA 591 II.14 - Proficiency & Due Professional Care A. Checking on references would be an acceptable method to check on qualifications. B. Determining previous job experience would be an acceptable method during the hiring process. C. Obtain transcripts would be an acceptable method to check on qualifications. D. Each member of the internal audit staff need not have an accounting degree. The internal audit activity collectively must possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities (Standard 1210).

Question 99 - CIA 1194 1.54 - Ethics A. Receiving royalties from a book publisher is the only action that is not a violation of the IIA Code of Ethics. B. There are three violations of The Code of Ethics. 1. Rule of Conduct 2.1 states, "Internal auditors shall not participate in any activity or relationship that may impair or be presumed to impair their unbaised assessment. This participation includes those activities or relationships that may be in conflict with the interest of the organization." Thus, it may be preceived as a conflict of interest if the internal auditor works part-time for a real estate company that received a commission from the internal auditor's firm. 2. Rule of Conduct 2.2 states, "Internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment" Receiving an item of value from a fellow employee in the same company, even if the department has never been audited, or is not scheduled to be audited in the foreseeable future may still be preceived as impairing the internal auditor's judgment. 3. Rule of Conduct 2.3 states, "Internal auditors shall disclose all material facts known to them, that, if not disclosed, may distort the reporting of activities under review." Not reporting the bottleneck problem caused by the supervisor's absence violates this code, even if there are extenuating circumstances (sick child). C. Receiving royalties from a book publisher is the only action that is not a violation of the IIA Code of Ethics. D. Receiving royalties from a book publisher is the only action that is not a violation of the IIA Code of Ethics.

Question 100 - CIA 598 3.8 - Charter, Independence & Objectivity A. Internal auditors should perform this service. B. Internal auditors should perform this service.

(c) HOCK international, page 77

Part 1 (3-Part) : 12/13/14 22:25:28 C. Internal auditors should not become directly involved in the implementation of the redesigned process. This would impair their independence and objectivity. D. Internal auditors should perform this service.

Question 101 - CIA 594 1.18 - Introduction to Internal Auditing A. The true cause of a finding may require additional expertise and may only be determi-nable through additional management study. B. Avoiding honest difference of opinion is not an acceptable reason for deleting a recommendation. C. If the finding is significant enough to report, time must be found to determine what action would solve the deficiency. D. Recommendations do not impair an auditor's independence. Management is responsible for decision making and implementing suggestions or formulating new solutions.

Question 102 - CIA 1186 I.45 - Proficiency & Due Professional Care A. The internal auditor must exercise due professional care by considering the relative complexity, materiality, or significance of matters to which assurance procedures are applied. Cost of assurance in relation to potential benefits should also be considered (Standard 1220.A1). Therefore, the review of every control pertaining to petty cash would be considered excessive and inefficient. B. Reviewing sensitive expenses such as legal fees, consulting fees, and foreign sales commissions would be appropriate for the prevention and detection of fraud. C. Reviewing unusual contributions would be appropriate for the prevention and detection of fraud. D. For the review of fraud the internal auditor would consider large, abnormal, or unexplained expenditures.

Question 103 - CIA 1196 I.4 - Charter, Independence & Objectivity A. The IAA is able to recommend standards of control or review procedures during systems development. Objectivity would be impaired if the IAA were to design, install or operate the system. B. The IAA is able to participate in system's development as long as this participation is not involved in the design, installation or systems operations. C. IAA's participation in the project would not delay the implementation. D. Objectivity is not impaired as long as participation is restricted to recommending standards of control, or reviewing procedures. The auditor's objectivity is considered to be impaired if the auditor designs, installs, or drafts procedures for, or operates such systems (PA 1120-1).

(c) HOCK international, page 78

Part 1 (3-Part) : 12/13/14 22:25:28 Question 104 - CIA 595 1.39 - Introduction to Internal Auditing A. Formulating criteria would not be a violation of the Standards. B. Failing to report the lack of criteria would be a violation of the Standards. The lack of established criteria should be reported to the appropriate levels of management. This would normally be one level above the auditee. The negotiated formulation of the criteria may result in the correct criteria, but it should be discussed with, and communicated to, the appropriate level of management. C. Auditor's should comment on the quality of operations in comparison with suitable criteria. The problem in this situation was the manner in which the criteria were formulated. D. See the correct answer.

Question 105 - CIA 1194 I.49 - Charter, Independence & Objectivity A. Objectivity would be impaired if compensation is based on monetary amounts recovered, or recommendations for future savings as a result of engagements. It is presumed that a bonus based on either of these could unduly influence the judgment of the CAE. B. The board of directors should administer the CAE's compensation package. C. The scope of the auditing work is to evaluate control processes, as well as risk management and governance. D. Only compensation based on monetary amounts recovered, or recommendations for future savings would be considered impairment to objectivity.

Question 106 - CIA 595 I.54 - Charter, Independence & Objectivity A. There is no requirement for a scope limitation to be communicated to the external auditor. B. Conflicts with management should be communicated to the board. C. A scope limitation along with its potential effect must be communicated preferably in writing, to the board, audit committee, or other appropriate governing authority. D. A scope limitation must be communicated to the board.

Question 107 - CIA 1193 I.1 - Introduction to Internal Auditing A. Internal auditing involves much more than just evaluating the effectiveness and efficiency with which resources are employed. B. Internal auditing involves much more than just evaluating compliance with laws, regulations, and contracts. C. The Institute of Internal Auditors (IIA), the U.S. professional organization of internal auditors, has defined internal auditing as: "an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a

(c) HOCK international, page 79

Part 1 (3-Part) : 12/13/14 22:25:28 systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes." D. Internal auditing involves much more than just verifying the existence of assets and reviewing the means of safeguarding assets.

Question 108 - CIA 584 I.1 - Introduction to Internal Auditing A. The increased interest by graduate students and experienced auditors has added to the advancement of the profession, but is not the primary reason for the advancement. B. The increase complexity and sophistication of the business operations required management to rely more on the internal audit activity. The internal audit activity adds value by evaluating and contributing to the improvement of the risk management, control and governance processes. C. The improved job qualifications were the direct result of the increased complexity and sophistication of the business operations. D. The limitation of the external auditors scope has not contributed to the advancement of the internal auditing profession.

Question 109 - CIA 1192 II.7 - Charter, Independence & Objectivity A. Submitting monthly budget variance reports to management will not be a primary objective of the internal audit activity. B. It expected that only significant engagement results would be discussed with the audit committee. C. The purpose, authority, and responsibility of the internal audit activity should be formally defined in a charter, consistent with the Definition of Internal Auditing, the Code of Ethics, and the Standards. The CAE must periodically review the internal audit charter and present it to senior management and the board for approval (Standard 1000). The internal audit activity must assist the organization in maintaining effective controls by evaluating their effectiveness and efficiency and by promoting continuous improvement (Standard 2130). D. It is not the responsibility of the internal auditor to report to regulatory agencies of unethical business practices. But, it is expected that internal auditor will follow the law and make disclosures expected by the law and profession.

Question 110 - CIA 1195 I.47 - Charter, Independence & Objectivity A. The engagement should be accepted because recommending procedures and policies are not considered impairment to objectivity. B. The engagement should be accepted because the IAA is to evaluate the adequacy and effectiveness of controls. C. The engagement should be accepted because recommending controls will not impair independence and objectivity. D. The CAE should accept the engagement because recommending procedures and policies are not

(c) HOCK international, page 80

Part 1 (3-Part) : 12/13/14 22:25:28 considered impairment to objectivity. The auditor's objectivity is considered to be impaired if the auditor designs, installs, drafts procedures for, or operates such systems (PA 1120-1).

Question 111 - CIA 1184 I.3 - Charter, Independence & Objectivity A. Objectivity is not deemed impaired if the internal auditor's participation was limited to recommending standards of control or reviewing procedures before implementation. B. It would be preferable to rotate assignments, but there would be no perceived conflict of interest if the internal auditor had performed the service the previous three times. C. The IAA should not be assigned to audit those activities they previously performed until a reasonable period of time (at least one year) has elapsed (PA 1130.A1-1). Therefore, it is presumed that there would be no conflict of interest if the employee were employed 5 years previously. D. The relationship to the internal auditor would call into question the objectivity when performing the engagement. The 'Code of Ethics' states that the internal auditor shall not participate in any activity or relationship that may impair or be presumed to impair their unbiased assessment. This participation includes those activities or relationships that may be in conflict with the interests of the organization.

Question 112 - CIA 597 3.33 - Introduction to Internal Auditing A. Negotiation is not an alternative since the two parties do not have equal power. Furthermore, internal auditors often do not have immediate rewards available to them to offer management. B. Involving top management in this manner is not appropriate. C. Manipulation is not an option since it can be done only if the party manipulating has power. Its effects are also short-lived and do not lead to long-term commitment. D. Education and communication, although lengthy and costly, are the only way to achieve long-term results.

Question 113 - CIA QZP1A.9 - Charter, Independence & Objectivity A. The acceptance of a gift or money from a client will impair objectivity of the auditor. B. Objectivity is considered to be impaired if the auditor designs, installs, or drafts procedures for, or operates such systems. C. Objectivity is assumed to be impaired if the auditor performs an assurance review of an activity for which they will be responsible for in the near future. D. Accepting a small token after the completion of an audit would not impair objectivity.

Question 114 - CIA 1193 I.3 - Charter, Independence & Objectivity

(c) HOCK international, page 81

Part 1 (3-Part) : 12/13/14 22:25:28 A. Disclosures made to the audit committee are a responsibility of the internal audit activity, not an element of authority. B. Access to the external auditors engagement records will depend on the external auditor, not the charter. C. The charter should establish the internal audit activity's position within the organization; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities. Final approval of the internal audit charter resides with the board. D. The charter will not specifically identify the subjects of the engagements.

Question 115 - CIA 594 I.16 - Charter, Independence & Objectivity A. The internal auditor has responsibly to report any and all conflicts of interest. B. The CAE must obtain competent advice and assistance if the IAA staff lacks the knowledge, skills, or other competencies needed to perform all or part of the engagement (Standard 1210.A1). Therefore, having a consulting company provide services would be appropriate in some circumstances. C. It is advised to periodically rotate internal auditor staff assignments. D. At any point that assigned activities involve the assumption of operating authority, audit objectivity would be presumed to be impaired with respect to that activity (1130.A2-1).

Question 116 - CIA 590 I.44 - Proficiency & Due Professional Care A. The internal auditor is only able to give reasonable assurances, not absolute. In this case, due care was applied because the internal auditor used appropriate sampling methods. B. The internal auditor is not able to give 100% absolute assurance that fraud will not go undetected. C. The internal auditor should not be held responsible for the oversight since appropriate sampling methods were used. D. Reviewing all transactions is not required and in most cases, not feasible.

Question 117 - CIA 1196 I.6 - Introduction to Internal Auditing A. The internal auditor should follow both The IIA Standards and governmental Standards. B. The internal auditor should follow both The IIA Standards and governmental Standards. C. Rule of Conduct 4.2 states, "Internal auditors shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing." In addition, the internal auditor is obligated to follow the government’s standards when performing grant compliance audits. D. The internal auditor should follow both The IIA Standards and governmental Standards.

(c) HOCK international, page 82

Part 1 (3-Part) : 12/13/14 22:25:28

Question 118 - CIA 1193 I.45 - Ethics A. The purpose of the internal auditing activity is to be an independent, objective assurance and consulting activity designed to add value and improve operations. The IIA Code of Ethics is intended to be the ethical guide of conduct for internal auditors. B. Although, reduced lawsuits might result from establishing a code of conduct, this is not its primary purpose. C. There are different levels of competence, and thus, it would be impossible for all members of the profession to have approximately the same level of competence. D. Responsibility to the public takes precedence over the loyal to one’s organization.

Question 119 - CMA 682 3.17 - Introduction to Internal Auditing A. Internal audit activities cannot assure compliance with legal requirements. B. Internal audit activities cannot assure that fraudulent activities will be detected. C. Internal audit activities cannot assure that published financial statements are correct. D. Internal audit activities can assist the management of a company in its responsibility of maintaining effective controls by evaluating the effectiveness of those controls with the goal of continuous improvement.

Question 120 - CIA 1193 II.5 - Proficiency & Due Professional Care A. The Standards do not require that the internal auditor possess all knowledge on all subjects. B. It is not necessary for each member of the IAA to be qualified in all areas as long as they collectively possess or obtain the knowledge, skills, and other competencies needed to perform its responsibilities. C. The needs of the department may not be adequately fulfilled. D. Encouraging the candidate to obtain additional training will not fulfill the current staffing needs.

Question 121 - CIA 1196 III.27 - Quality Assurance & Improvement Program A. Identifying potential candidates for further leadership development can be a consequence of the quality control circles. B. Improving communication between employees and managers can be a consequence of the quality control circles. C. Quality control circles are used because it offers management opportunity to tap the creative problem-solving potential of the employees. The upside to quality control circles is the potential to lower costs, improved employer-employee relations, and increased employee commitment.

(c) HOCK international, page 83

Part 1 (3-Part) : 12/13/14 22:25:28 D. Improving the quality of leadership is not the primary goal of quality control circles.

Question 122 - CIA 1195 I.54 - Ethics A. The Standards and The IIA Code of Ethics were not followed by the IAA. B. It is not expected that an internal auditor would be proficient in all areas. C. Even though The IIA Code of Ethics does specifically address supervision, "Internal auditors shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing." In addition, Standard 2340 states that every engagement must be properly supervised to ensure objectives are achieved, quality is assured, and staff is developed. D. Even though The IIA Code of Ethics does specifically address supervision, "Internal auditors shall perform internal auditing services in accordance with the International Standards for the Professional Practice of Internal Auditing." Furthermore, all engagements should be conducted with proficiency and due professional care. According to Standard 2340, every engagement must be properly supervised to ensure objectives are achieved, quality is assured, and staff is developed. Supervision includes ensuring that that the auditors assigned have the necessary knowledge, skills and other competences to perform the engagement.

Question 123 - CIA 1189 I.45 - Ethics A. If facts are considered to be immaterial, then they do not need to be included in the final engagement communication. B. Testing was curtailed by management, not by the internal auditor. C. Rule of Conduct 2.3 states that internal auditors shall disclose all material facts known to them that, if not disclosed, may distort the reporting of activities under review. This is considered to be a violation since the control system had been recommended by the internal audit staff, but the internal auditor reported it as an engagement client failure. Therefore, the internal auditor did not properly disclose all relevant facts about the findings. D. The comments were removed by management, not by the internal auditor.

Question 124 - CIA 596 1.60 - Charter, Independence & Objectivity A. Follow-up authority and responsibility may be cited in applicable audit reports, but the definition should be first contained in the departmental charter. B. This memo may contain a statement about responsibility for follow-up, but such a statement should be based on the wording and authority of the departmental charter. C. Follow-up is not specified in the content of the audit committee's mission statement. D. Responsibility for follow-up should be defined in the internal auditing department's written charter.

(c) HOCK international, page 84

Part 1 (3-Part) : 12/13/14 22:25:28

Question 125 - CIA 595 III.22 - Quality Assurance & Improvement Program A. Benchmarking is a continuous process that entails both quantitative and qualitative measurement of the difference between the performance of an activity and the performance by the best (either within the company or outside the company). The percentage of customer orders delivered on time at the company's most efficient plant is an example of a nonfinancial benchmark. B. A product's average actual cost per pound is a financial benchmark. C. The labor rate of comparably skilled employees at a major competitor's plant is a financial benchmark. D. A dollar limit on training programs is a financial benchmark.

Question 126 - CIA 1195 I.51 - Ethics A. The internal auditor should always apply and uphold the principles of The IIA Code of Ethics. The core principles of the Code are integrity, objectivity, confidentiality, and competency. B. The internal auditor should always apply and uphold the principles of The IIA Code of Ethics. It does not seem practical for the internal auditor to seek counsel from an independent attorney concerning all ethical issues. C. The internal auditor should always apply and uphold the principles of The IIA Code of Ethics. It does not seem practical for the internal auditor to seek counsel of the board concerning all ethical issues. D. The internal auditor should always apply and uphold the principles of The IIA Code of Ethics. If the standards of the organization are not consistent with the profession’s standards, the internal auditor will first be held to the standards of the profession.

Question 127 - CIA 595 1.59 - Charter, Independence & Objectivity A. Doing nothing is not acceptable. The auditor could be perceived as a party to the fraud if no action is taken. B. Although the action recommended may be necessary to ultimately disassociate the auditor from the fraud, alternatives within the organization should be pursued first. This means that the auditor should report the problem directly to the audit committee and await their decision on further action to be taken. C. The auditor is not required to report the finding to the external auditor but should be free to communicate the problem if an inquiry is made by the external auditor. D. The auditor cannot knowingly be a party to any illegal act. If the auditor does not do anything, he or she might be perceived as a party. The auditor should report the problem directly to the audit committee and await their decision on further action to be taken.

Question 128 - CIA 1193 I.47 - Proficiency & Due Professional Care A. Requirement III lacks due professional care.

(c) HOCK international, page 85

Part 1 (3-Part) : 12/13/14 22:25:28 B. Due professional care was not exercised in both requirements (III and IV). C. The internal auditor's conclusion that no significant amount of nonproductive work was being performed is based solely on interviews conducted with employees. In this respect, the internal auditor failed to apply reasonable care and competence. The opinion of the employees whose work was in question would lack reliability. Requirement IV would also be suspect, since its information was based on that for requirement III. D. Both requirements (III and IV) lack due professional care.

Question 129 - CIA 1195 I.56 - Proficiency & Due Professional Care A. Approval from the engagement client is not needed in this case. B. It is expected that engagement work programs can be modified if changes in the work environment have changed. Thus, the internal auditor would not be exercising due professional care if he or she failed to investigate a possible misstatement based on the fact that the work program had already been approved. C. Identifying potential ways in which a misstatement could occur and ranking them is exercising due professional care on part of the internal auditor. D. Asking for advice is exercising due professional care.

Question 130 - CIA 598 2.45 - Quality Assurance & Improvement Program A. The CAE may use these criteria on a timely basis to monitor goal accomplishment. B. This is not timely enough; day-to-day management is required. C. This is not timely enough; day-to-day management is required. D. This would get the audit committee too involved with the day-to-day management of the department.

Question 131 - CIA 1185 I.2 - Quality Assurance & Improvement Program A. The scope of an external assessment embraces more than the effectiveness of the internal audit coverage. B. External assessments of the IAA should be performed to appraise and express an opinion on the IAA's compliance with the Standards and, as appropriate, should include recommendations for improvement. The CAE must communicate the results of the assessment to senior management and the board. C. An external or internal assessment assesses the overall effectiveness of the quality program, not the adequacy of the organization's controls. D. An opinion should be expressed on compliance with the Standards.

(c) HOCK international, page 86

Part 1 (3-Part) : 12/13/14 22:25:28 Question 132 - CIA 596 1.67 - Charter, Independence & Objectivity A. See the correct answer for the explanation. B. The CAE cannot do this and maintain independence. C. Reviews after year end will not address the current year's financial reporting integrity. D. Because the case indicates that the amount of the inventory adjustment is in question, this would be the appropriate step for the CAE to take.

Question 133 - CIA 593 I.6 - Proficiency & Due Professional Care A. It would be inappropriate to accept the contractor's written representations. B. It would be acceptable to use outside services if current staff members do not possess the knowledge or skills necessary to adequately complete the engagement. C. If current IAA members do not have the expertise to perform the engagement then outside experts may be needed for some, or all the engagement. D. If current IAA members do not have the expertise to perform the engagement then outside experts may be needed for some, or all the engagement.

Question 134 - CIA 1194 I.51 - Quality Assurance & Improvement Program A. The receipt of the mug would not be considered an impairment to objectivity. B. As long as the internal auditor does not take on operating responsibility it is acceptable to recommend standards of control or review procedures before implementation. C. It is unethical for an internal auditor to accept a fee or gift from an employee, client, customer, supplier, or business associate. Accepting a fee or gift may create the appearance that the auditor's objectivity has been impaired. The appearance that objectivity has been impaired may apply to current and future engagements conducted by the auditor. D. Recommending standards of control or reviewing procedures before implementation will not impair objectivity.

Question 135 - CIA QZP1A.15 - Proficiency & Due Professional Care A. Items II and III are true concerning Continuing Professional Education (CPE). Internal auditors are responsible for continuing their education in order to maintain their proficiency, and internal auditors can obtain CPEs by attending formal IIA meetings. B. Item I is not true. The Standards do not formally state the hour requirements for the internal auditor. Item II is true. Internal auditors are responsible for continuing their education in order to maintain their proficiency. C. Only items II and III are true. Item I is not true. The Standards do not formally state the hour requirements for the

(c) HOCK international, page 87

Part 1 (3-Part) : 12/13/14 22:25:28 internal auditor. D. CIAs are required to obtain 40 hours of continuing professional education each year and a minimum of 80 hours over a 2-year period. However, the Standards do not formally state the hour requirements for the internal auditor.

Question 136 - CIA 589 II.2 - Purpose, Authority & Responsibility A. The Standards do not grant authority to the internal audit activity. B. Management and the board of directors grant authority to the internal audit activity. C. No single officer and no single committee grant authority to the internal audit activity. D. No single manager grants authority to the internal audit activity.

Question 137 - CIA QZP1A.1 - Introduction to Internal Auditing A. The primary purpose of the Standards is to establish a basis for measuring and guiding internal audit operations, not establishing the CIA certification program. B. Delineating basic principles that represent best practice of internal auditing is one of the purposes of the IIA professional Standards. C. Fostering improved organizational processes and operations is one of the purposes of the IIA professional

Standards. D. Providing a framework for performing and promoting a broad range of value-added internal audit activities is one of the purposes of the IIA professional Standards.

Question 138 - CIA 1194 I.56 - Charter, Independence & Objectivity A. Reporting to the audit committee will enhance the CAE's independence. The CAE should report to a level within the organization that allows the IAA to fulfill its responsibilities. B. The establishment of the IAA being documented in the bylaws will do little to enhance the CAE's independence. C. Country X requiring internal auditing will not promote independence. D. Being a CIA does not ensure organizational independence.

Question 139 - CIA 594 I.70 - Charter, Independence & Objectivity A. Proficiency deals with the knowledge, skill and other competencies possessed by the internal auditor. B. The exercise of due professional care deals with work performed.

(c) HOCK international, page 88

Part 1 (3-Part) : 12/13/14 22:25:28 C. The internal audit charter establishes the IAA's position within the organization; authorizes access to records, personnel, and physical properties relevant to the performance of engagements; and defines the scope of internal audit activities. D. The charter defines the IAA's purpose, authority, and responsibility. The charter will not enhance the internal auditor's relationship with management.

Question 140 - CIA 598 1.5 - Purpose, Authority & Responsibility A. Designing systems is presumed to impair audit objectivity. B. Installing systems of controls is presumed to impair independence. C. Reviewing systems, even before implementation, is an activity appropriately performed by the internal auditing activity and does not impair objectivity. D. Drafting procedures for systems is presumed to impair independence.

Question 141 - CIA 1190 I.48 - Ethics A. Rule of Conduct 2.2 states, that internal auditors shall not accept anything that may impair or be presumed to impair their professional judgment. A pen would be considered an immaterial gift, and thus, not violate the code of ethics. B. A gift from the department’s manager that may be reviewed in the future would most likely violate the code of ethics. C. A gift from the organization’s treasurer that will be reviewed in the future would most likely violate the code of ethics. D. A gift from the department’s manager that is being reviewed would most likely violate the code of ethics.

Question 142 - CIA 1195 III.5 - Charter, Independence & Objectivity A. The best way to gain the cooperation of the branch managers is to have two-way communication. Increasing the solicitation of engagement client concerns would foster this relationship. B. Increasing technical skills would not necessarily lead to a more cooperative relationship with the branch managers. C. Increasing confidentially of investigative engagements might not necessarily lead to better relationships with the branch managers. Two-way communication would be the best way to gain cooperation. D. Trying to increase focus on control responsibilities could lead to a more confrontational relationship. Two-way communication would be the best way to gain the cooperation of the branch managers.

(c) HOCK international, page 89

Part 1 (3-Part) : 12/13/14 22:25:28 Question 143 - CIA 1194 1.53 - Ethics A. Receiving an item of value from a customer of the employer and failure to disclose a kickback are the only violations of the IIA Code of Ethics. B. Receiving an item of value from a customer of the employer and failure to disclose a kickback are the only violations of the IIA Code of Ethics. C. There are two violations committed by Auditor 2. Rule of Conduct 2.2 states that internal auditor shall not accept anything that may impair or be presumed to impair their professional judgment. Thus, receiving an item of value from a customer of the employer would be preceived as impairing the internal auditor's judgment. Furthermore, Rule of Conduct 2.3 states that internal auditors shall disclose all material facts to them that, if not disclosed, may distort the reporting of activities under review. Not reporting the kickback violates this rule. D. Receiving an item of value from a customer of the employer and failure to disclose a kickback are the only violations of the IIA Code of Ethics.

Question 144 - CIA 1194 I.50 - Charter, Independence & Objectivity A. Drafting producers for a new system is presumed to impair objectivity. In addition, designing, installing, or operating systems are also presumed to impair the internal auditor's objectivity. B. Reviewing the adequacy of systems and programming standards is not presumed to impair objectivity. The internal auditor may recommend standards of control and review producers before implementation. C. Helping to identify and define control objectives will not impair objectivity. D. The internal auditors should evaluate the controls relating to laws, regulations, and contracts.

Question 145 - CIA 592 II.2 - Purpose, Authority & Responsibility A. The audit committee provides an oversight role, not an operational. B. The purpose, authority and responsibility of the internal audit activity should be defined in the charter. The charter should establish the internal audit activity's position within the organization. C. Communicating all engagement results to both senior management and the audit committee is not necessary and would be inefficient. D. Strengthening the independence of the internal audit activity would not necessarily eliminate a conflict between senior management and audit committee.

Question 146 - CIA 595 I.23 - Purpose, Authority & Responsibility A. There is no requirement to age loans receivable and determine the proper allowance to address the three regulations noted in the scenario.

(c) HOCK international, page 90

Part 1 (3-Part) : 12/13/14 22:25:28 B. This audit procedure directly addresses the third regulation. By selecting a random sample of all loans over $100,000 and then examining the supporting documentation, the internal auditor would be able to determine whether the loans are in compliance or not. C. There is no need to confirm accounts receivable to address the specific regulations noted in the scenario. D. Only one of the choices would help the internal auditor determine whether there are any violations to the three regulations noted in the scenario.

Question 147 - CIA QZP1A.4 - Purpose, Authority & Responsibility A. Objectivity is assumed to be impaired if an auditor performs an assurance review of any activity over which he or she recently had responsibility. This is regardless of whether the person was the manager of the department or not. B. Internal auditors must refrain from assessing specific operations for which they were previously responsible. Objectivity is pressumed to be impaired if an auditor provides assurance services for an activity for which the auditor had responsibility within the previous year (Standard 1130.A1). C. Objectivity is assumed to be impaired if an auditor performs an assurance review of any activity over which he or she recently had responsibility. This is regardless of whether the person was the manager of the department or not. D. Objectivity is assumed to be impaired if an auditor performs an assurance review of any activity over which he or she recently had responsibility. This includes both managers and non-managers.

Question 148 - CIA 594 III.7 - Proficiency & Due Professional Care A. An outside service provider from a college or university would be acceptable. B. An outside service provide from the organization's external auditor would be acceptable. C. It would be unacceptable to use the services of the engagement client. This person would not be objective, or unbiased. D. It would be acceptable to use the services of the organization's external auditor, college or university and outside consulting firm.

Question 149 - CIA 1196 I.26 - Purpose, Authority & Responsibility A. The audit committee is concerned with external audits, but they will also devote some attention to the internal audit activity as well. B. It is not a requirement of audit committee members to have accounting or auditing degrees. However, it is recommended that the committee have at least one member who is a financial expert. C. Generally, the compensation that the audit committee members receive is fairly minimal. D. The audit committee should be made up of outside members who are independent of management. Independence could be impaired if audit committee members have close personnel or business relationships with management. (c) HOCK international, page 91

Part 1 (3-Part) : 12/13/14 22:25:28

Question 150 - 1.A - Introduction to Internal Auditing A. The internal auditor can assist the external audit, but this is not the primary objective of internal auditing. B. The external auditor will form an opinion on the accuracy and completeness of the quarterly financial statements, not the internal auditor. C. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operation. The internal auditing function would be evaluate and assess controls so errors and fraud can be minimized. D. If employees can more effectively perform their jobs then there is greater chance that the goals and objectives of the company will be realized.

Question 151 - CIA 1196 I.43 - Ethics A. Serving on the board of a local bank would raise conflict of interest concerns since both banks compete in many of the same markets, and the information gained while serving on the board may influence recommendations regarding potential acquisitions. B. Serving on the board of a local bank would raise conflict of interest concerns since both banks compete in many of the same markets, and the information gained while serving on the board may influence recommendations regarding potential acquisitions. C. Serving on the board of a local bank would violate The IIA Code of Ethics. The internal auditor may be in conflict with the best interest of the auditor’s employer, and the information gained while serving on the board may influence recommendations regarding potential acquisitions. D. Serving on the board of a local bank would raise conflict of interest concerns since both banks compete in many of the same markets, and the information gained while serving on the board may influence recommendations regarding potential acquisitions.

Question 152 - CIA 1192 I.6 - Charter, Independence & Objectivity A. None of the mentioned activities is as important as protecting the independence of the internal audit activity. B. None of the mentioned activities is as important as protecting the independence of the internal audit activity. C. None of the mentioned activities is as important as protecting the independence of the internal audit activity. D. The most important function of the audit committee is to protect the independence of the internal audit activity from undue management influence.

Question 153 - CIA 1192 I.7 - Charter, Independence & Objectivity

(c) HOCK international, page 92

Part 1 (3-Part) : 12/13/14 22:25:28 A. The internal auditor is able to recommend standards of control for new systems. B. Transferring personnel to the IAA from an operating activity is generally permitted. But, these personnel would not be assigned to engagements where they had previously duties, until a reasonable period of time has elapsed. C. Staff assignments should be made so that potential and actual conflicts of interest and bias are avoided. The CAE should periodically obtain from the internal auditing staff information concerning potential conflicts of interest and bias. Staff assignments of internal auditors should be rotated periodically whenever it is practicable to do so. Internal auditors are to report to the CAE any situations in which an actual or potential impairment to independence or objectivity may reasonably be inferred, or if they have questions about whether a situation constitutes an impairment to objectivity or independence. If the CAE determines that impairment exists or may be inferred, he or she needs to reassign the auditor(s) (PA 1130-1). D. A policy of outsourcing certain sensitive engagements will not promote the independence of the IAA.

Question 154 - CIA 1191 I.27 - Charter, Independence & Objectivity A. Proposing enhancements for subsequent development and implementation would be considered managerial responsibilities, not a function of the IAA. B. Gaining familiarity with the system would not be a primary reason to be involved in the system development. C. Objectivity is not presumed to be impaired if involvement is limited to recommending standards of control or reviewing procedures before they are implemented. The auditor's objectivity is considered to be impaired if the auditor designs, installs, drafts procedures for, or operates such systems (PA 1120-1). D. Helping to minimize costs and development time would be not be considered a primary reason to be involved in the system development.

Question 155 - CIA 597 I.62 - Charter, Independence & Objectivity A. Drafting procedures for running a new computer application system would be considered impairment to objectivity. B. Recommending standards of control is not presumed to impair objectivity. Also, reviewing procedures is also not considered to impair objectivity. C. Reviewing procedures is not considered impairment to objectivity. D. Recommending standards of control and reviewing procedures are not considered impairments to objectivity for new systems. The auditor's objectivity is considered to be impaired if the auditor designs, installs, drafts procedures for, or operates such systems (PA 1120-1).

Question 156 - CIA 1193 II.44 - Introduction to Internal Auditing A. The code of ethics does not establish standards to follow for effective accounting practice. B. The primary purpose for establishing the code of ethics is to outline criteria for professional behavior to maintain standards of integrity, objectivity, confidentiality, and competence.

(c) HOCK international, page 93

Part 1 (3-Part) : 12/13/14 22:25:28 C. The primary purpose of the code of ethics is not to outline criteria that can be used in conducting interviews of potential accountants. D. The code of ethics does not provide a framework within which accounting polices are developed and executed.

Question 157 - CIA 596 I.51 - Charter, Independence & Objectivity A. The scope limitation would have to be communicated with the appropriate governing board. B. A scope limitation is a restriction placed on the internal audit activity that precludes the activity from accomplishing its objectives and plans. A scope limitation occurs any time the auditors are not able to perform all of the tests that they would like to perform. A scope limitation along with its potential effect needs to be communicated, preferably in writing, to the board (PA 1130-1). C. The internal auditor would not communicate with the board of the VAN. D. The internal auditor would not communicate with the board of the VAN.

Question 158 - CIA 591 I.13 - Quality Assurance & Improvement Program A. Senior management is a secondary user of an internal quality assessment. B. The IAA staff are secondary users of the internal quality assessment. C. Internal quality assessments primarily serve the needs of the CAE; however they may also provide senior management and the board with an assessment of the IAA. The CAE needs assurance that the IAA is in compliance with the Definition of Internal Auditing, the Code of Ethics and Standards. D. The board of directors are secondary users of the internal quality assessment.

Question 159 - CIA 595 1.38 - Introduction to Internal Auditing A. It is not a violation of the Standards. B. Auditors cannot omit necessary procedures because of a time constraint. C. Auditors are not required to perform control evaluations and certainly are not required to fill out standard internal control questionnaires. D. Internal control evaluations are not required on every audit.

Question 160 - CIA 1196 III.34 - Charter, Independence & Objectivity A. It is more likely that the internal auditing staff will be continuously available.

(c) HOCK international, page 94

Part 1 (3-Part) : 12/13/14 22:25:28 B. The internal auditor would be more likely to be familiar with the organization, not the external auditor. C. The large accounting firms are ordinarily multinational and are geographically dispersed. In this respect an organization may find outsourcing the internal auditing function to be feasible. D. The CAE can also hire experienced, knowledgeable, and certified (CIA) staff.

Question 161 - CIA 1190 II.49 - Proficiency & Due Professional Care A. Establishing suitable criteria of education and experience for filling internal auditing positions has to do with proficiency, not due professional care. B. Exercising due professional care has to do with the internal auditor considering the adequacy and effectiveness of risk management, control, and governance processes. Evaluating established operating standards and determining whether those standards are acceptable and are being met is exercising due professional care. C. Internal auditors are not able to give absolute assurance that irregularities do not exist. D. This situation has to do with maintaining the independence of the IAA, not with exercising due professional care.

Question 162 - CIA 592 I.1 - Charter, Independence & Objectivity A. Recommending standards of control and reviewing procedures before implementation is not presumed to impair objectivity. However, an internal auditor's objectivity is presumed to be impaired by designing, installing, operating or drafting procedures for systems. B. Designing system is presumed to impair objectivity. C. Installing systems of control is presumed to impair objectivity. D. Drafting procedures is presumed to impair objectivity.

Question 163 - CIA 592 I.50 - Proficiency & Due Professional Care A. The possibility of material irregularities should be considered. B. Examination and verification needs to be done only to a reasonable extent. C. Conducting extensive examinations is not considered exercising due professional care. D. The internal auditor would be unable to give "absolute" assurance that compliance does exist, only reasonable assurance.

Question 164 - CIA 1187 I.4 - Charter, Independence & Objectivity

(c) HOCK international, page 95

Part 1 (3-Part) : 12/13/14 22:25:28 A. Reviewing the engagement records of the public accounting firm requires specific technical ability. B. Recommending assignment's for specific internal staff members is a function of the IAA management. C. Reviewing the procurement function of the organization would be outside the scope of the audit committee's activities. It would also be doubtful that the audit committee members would have the technical skill to review the procurement function. D. Reviewing the IAA's engagement work schedule is an appropriate responsibility of the audit committee.

Question 165 - CIA 595 I.60 - Charter, Independence & Objectivity A. The charter authorizes access to personnel within the organization. B. The charter does not specify the length of tenure of the chief audit executive. C. The charter defines the scope of internal audit activities. D. The charter authorizes the internal audit activity's access to records within the organization.

Question 166 - CIA 1194 I.46 - Proficiency & Due Professional Care A. Proficiency in applying internal auditing standards, procedures, and techniques is required in performing engagements. Proficiency means the ability to apply knowledge to situations likely to be encountered and to deal with them without extensive recourse to technical research and assistance (PA 1210-1). B. Internal auditors generally don't need to have a proficiency in marketing techniques. C. Only an appreciation of accounting principles would be required. D. Only an understanding of management principles is required to recognize and evaluate the materially and significance of deviations from good business practices. An understanding means the ability to apply broad knowledge to situations likely to be encountered, to recognize significant deviations, and be able to carry out the research necessary to arrive at reasonable solutions (PA 1210-1).

Question 167 - CIA 1194 3.14 - Charter, Independence & Objectivity A. An unbiased evaluation of audit staff would not be affected by lack of cooperation on the part of non-audit management. B. An operating budget variance report is a control device used to monitor actual performance versus budget. Management foot-dragging could cause unfavorable variances, but favorable variances could also occur if many audits were cut short due to scope impairments. C. Policies and procedures of the internal audit activity (IAA) are developed by the internal audit department and should not be affected by non-audit management. D. In this type of situation, management is highly averse to analysis or possible criticism of their actions and

(c) HOCK international, page 96

Part 1 (3-Part) : 12/13/14 22:25:28 will not grant the internal auditors an adequate charter.

(c) HOCK international, page 97