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A manufacturing organization is considering a merger with a similar firm, and requests that the chief audit executive (CAE) perform a due diligence audit. During the preliminary survey, the CAE notes that inventory management is a high risk area. In consultation with the external auditors and legal advisors, the CAE learns that they share those concerns. Which of the following is the CAE's best course of action?
A. Perform an independent audit of the merging firm's inventory management practices to
verify the concerns and to provide relevant and reliable results to management for their
consideration and action.
B. Advise management that internal audit, external audit, and legal advisors all have concerns about inventory management and, given the high materiality of inventory, management should not proceed with the merger.
C. Coordinate a review of inventory management with external auditors and legal advisors and ensure each group focuses on their area of expertise to ascertain the extent of the problems, if any
According to the Standards, which of the following should be the basis for scheduling follow-up of engagement recommendations?
A. The follow-up manual procedures.
B. The internal audit charter.
C. The agreement made between internal auditors and management.
D. The risks and exposures involved.
According to the Standards, which of the following control strategies would be the most effective in helping to prevent fraud?
A. Have employees annually sign a code of conduct requiring that they report any known
B. Implement a whistleblower hotline where individuals can make anonymous phone calls to report fraudulent activities
C. Provide periodic fraud awareness training to employees and test their understanding of the training through online surveys.
D. Conduct routine employee surveys to solicit their knowledge of fraud and unethical behavior within the organization.
Which of the following would not include recommendations for process improvements?
A. Due diligence engagement.
B. Forensic investigation.
C. Internal audit engagement.
D. Consulting engagement.
Which of the following events would most likely cause the chief audit executive to considerchanging the current year's audit plan?The government announced that new regulatory requirements will be introduced in thecoming years which may significantly impact the organization's primary product.A major competitor unexpectedly introduced a new model at a lower price point to competewith the organization's market leading product.The organization announced a new joint venture with a long time corporate partner tointroduce a new product with development costs and sales beginning next fiscal year.An equal joint venture partner filed a lawsuit against the organization and requested thatthe court issue an immediate suspension of future product shipments.
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 4 only
D. 3 and 4 only
An internal auditor was assigned to conduct an inventory control and stock room area engagement. During the audit, the auditor observed that there were some items that have a shelf life expiration date requirement based on a certificate of conformance received with the product. The certificates of conformance are kept on file in the inventory area office and the expiration date is verified at the time the item is taken from stock. The auditor reviewed the items in the stock room and also on the production floor for the expiration dates to see if there was any expired product. All items with a shelf life requirement were found to be within the expiration date requirement. Which of the following recommendations would be appropriate?
A. Take no action, because all the items were within the expiration date requirement, and
no corrective action is needed
B. Permit production staff the access to files where the certificates of conformity are kept, so they can choose the items with the closest expiration date.
C. Determine the cost of inventory for the items that have a shelf life and apply a new policy regarding inventory levels to be maintained (i.e., minimums, maximums, reorder points etc.).
D. Add to the product label a "use by date" line, enter the expiration at the time of receipt, and perform periodic inventory checks.
According to IIA guidance, which of the following are potential benefits of using an assurance map?
A. Indication of any gaps in assurance coverage, and improved relevance of assurance
B. Identification of duplicate or overlapping assurance activities, and improved relevance of assurance recommendations.
C. Indication of gaps in assurance coverage, and enhanced effectiveness of assurance providers.
D. Enhanced effectiveness of assurance providers, and improved relevance of assurance recommendations.
The chief audit executive (CAE) is adding a new audit position to the team. According to the International Professional Practices Framework, which of the following candidates would the CAE be least likely to accept for the position?
A. The candidate is applying for an IT audit position, while originally coming from an IT
background, but has only experiences of financial and compliance audits in the previous
B. The candidate is knowledgeable about potential indicators of fraud including typical risks, but has only participated as a staff auditor in one investigative fraud audit.
C. The candidate meets the minimum educational requirements established by the chief audit executive, but has less formal education than any of the other candidates being considered.
D. The candidate provides examples of previous reports demonstrating excellent writing skills, but lacks ability to clearly communicate ideas and conclusions in a meeting.
If the chief audit executive believes that senior management has accepted a level of residual risk that is unacceptable to the organization, they should:
A. Accept the decision of senior management as they are ultimately responsible for risk
B. Report the concern directly to the board.
C. Discuss the concern with management and if not resolved, escalate it to the board.
D. Disclose the issue in the audit report when auditing the area where the risk was identified.
An internal auditor for a large telecommunications organization identified potential risk factors related to a planned billing system conversion. Which of the following risk factors would present the least potential exposure to the organization?
A. Critical customer support functions are not available for a short period.
B. Invoice generation disruptions due to required maintenance.
C. Inaccurate billing of telephone calls due to database error.
D. End user criticism and lack of support for the new system.