Sample Model Exam Questions

PART I: THE INTERNAL AUDIT ACTIVITY'S ROLE

IN GOVERNANCE, RISK, AND CONTROL

1. According to the International Professional Practices Framework, the

independence of the internal audit activity is achieved through:
a. Staffing and supervision.
b. Continuing professional development and due professional care.
c. Human relations and communications.
d. Organizational status and objectivity.

Solution: d
a. Incorrect. Staffing and supervision relate to the professional proficiency of
the internal audit activity.
b. Incorrect. Continuing professional development and due professional care
relate to the professional proficiency of the internal auditor.
c. Incorrect. Human relations and communications relate to the professional
proficiency of the internal auditor.
d. Correct. According to Practice Advisory 1110-1, organizational status and
objectivity permit members of the internal audit activity to render the
impartial and unbiased judgments essential to the proper conduct of
engagements.

2. The internal audit activity has recently experienced the departure of two internal
auditors who cannot be immediately replaced due to budget constraints. Which
of the following is the least desirable option for efficiently completing future
engagements, given this reduction in resources?
a. Using self-assessment questionnaires to address audit objectives.
b. Employing information technology in audit planning, sampling, and
documentation.
c. Eliminating consulting engagements from the engagement work schedule.
d. Filling vacancies with personnel from operating departments that are not
being audited.

Solution: c
a. Incorrect. Self-assessment questionnaires are a means of efficiently
addressing the objectives of certain internal audits.
b. Incorrect. Use of technology is an appropriate means of achieving
efficiencies in audit execution.
c. Correct. The audit schedule should only be reduced as a last resort once all
other viable alternatives have been explored, including the request for
additional resources.
d. Incorrect. Using operating personnel with internal audit interest and
corporate experience is an appropriate way to enhance internal audit
resources.

p. 1
3. Which of the following observations by an auditor is most likely to indicate the
existence of control weaknesses over safeguarding of assets?

I. A service department's location is not well suited to allow adequate service

to other units.
II. Employees hired for sensitive positions are not subjected to background
checks.
III. Managers do not have access to reports that profile overall performance in
relation to other benchmarked organizations.
IV. Management has not taken corrective action to resolve past engagement
observations related to inventory controls.

a. I and II only.
b. I and IV only.
c. II and III only.
d. II and IV only.

Solution: d (II and IV only)

I. Incorrect. This is a symptom of weak controls for achieving organizational
goals and objectives, but not for safeguarding of assets.
II. Correct. This is a symptom of weak controls for safeguarding of assets.
III. Incorrect. This is a symptom of weak controls for achieving organizational
goals and objectives, but not for safeguarding of assets.
IV. Correct. Management's failure to take corrective action on past engagement
observations, which related to safeguarding of assets, is a weakness
related to safeguarding of assets.

4. Which of the following fraudulent entries is most likely to be made to conceal

the theft of an asset?
a. Debit expenses, and credit the asset.
b. Debit the asset, and credit another asset account.
c. Debit revenue, and credit the asset.
d. Debit another asset account, and credit the asset.

Solution: a
a. Correct. Most fraud perpetrators would attempt to conceal their theft by
charging it against an expense account.
b. Incorrect. Debiting the stolen asset account would be going in the wrong
direction to conceal an asset theft.
c. Incorrect. An entry decreasing revenue would be unusual and would stand
out.
d. Incorrect. This entry would not permanently conceal the fraud. It would
simply shift the irreconcilable balance to another asset account.

p. 2