OPERATIONS AUDITING – MIDTERM EXAM

1. In the context of management, operations, in 7. Undertaking a broad coverage of operations

general, involve these three (3) important and audit may be limited by which of the following
primary components that are also used as the factors:
main guidance for undertaking internal audit 1. Culture of the organization
reviews? 2. Ability of an enterprise to afford so broad
INPUT an audit
PROCESS 3. The difficulty of obtaining people who can
OUTPUT do a broad type of audit
4. Lack of management guidance
2. What are the five (5) identified consequential The very practical consideration that
processes involved in the transformation or individuals may not like to be reported
conversion of input to output? upon
PLANNING 2, 3, AND 5 ONLY
ORGANIZING
CONTROLLING 8. A broad definition of operations audit is that it
LEADING is an independent, objective assurance and
STAFFING consulting activity designed to add value and
improve and organization’s operations by
3. ____ ____ refers, in general, to the review of helping it in accomplishing the corporate as well
the efficiency, effectiveness, and economy of as unit goals and objectives through a
the different controls established for each step systematic, disciplined approach to evaluate
of the business process(es) specifically those and improve the effectiveness of risk
that require interfaces within and among the management, control, and governance
different functions and segments/units across processes.
the organization. FALSE
OPERATIONS AUDITING
9. ____ is that can be utilized to determine the
4. What is this aspect of broad definition of approach and degree or scale of operations
operations audit that refers to the assurance audit to be applied for each specific function,
that accounts properly reflect the financial facts activity, or system specifically on the interfaces
as referenced to the conceptual framework of across different operating segments or business
accounting i.e. faithful representation (fair units.
presentation), relevance, and understanding? SAPG OR STANDARD AUDIT PROGRAM GUIDE
FINANCIAL
10. ___ refers to one of the approaches to
5. ___ is one of the E’s of auditing that relates to operational audit where internal auditors are
the conversion process of turning the actual looking for opportunities for improvement (in
inputs available into actual outputs. business processes) and this can be indicated by
EFFICIENCY a performance measurement that pertains to
the ratio between planned inputs and actual
6. Efficiency is measured by deriving the ratio of inputs in terms of unit costs of a given quality.
the usable ___ to the actual ___ input into the ECONOMY
conversion process.
OUTPUTS
RESOURCES
 OPERATIONS AUDITING – MIDTERM EXAM
11. What are the four (4) main considerations that 18. What is the PRIMARY and ULTIMATE reason
affect efficiency? why there is a need for the measurement of
QUALITY OF RAW MATERIALS productivity and performance?
QUALITY OF LABOR TO DETERMINE THE RESPONSIVENESS AND
DESIGN OF THE PROCESSES COMPLIANCE TO THE SET GOALS AND
QUALITY OF TECHNOLOGY OBJECTIVES WHETHER AT THE INDIVIDUAL,
UNIT OR CORPORATE LEVEL.
12. ___ is one of the E’s of auditing that is
measured by the ratio of actual outputs against 19. In order to ensure that goals and objectives are
planned outputs (i.e. planned objectives). achieved either at the individual, unit, or
EFFECTIVENESS corporate level, the measurement standard
must be set at the LEAST MINIMUM
13. In strategic management, the resulting ACHIEVABLE result.
measurement of performance in relation to any FALSE
of the three (3) E’s is reflected in the ___ of
either the individual or unit level. 20. The performance measurement methods to be
BALANCE SCORECARD used must always be based on
ACCURATE AND RELIABLE DATA AND A
14. ___ is another “E” of audit interest that refers PROVEN METHOD
to the legal and moral conduct by management
and staff. 21. Which of the following are the primary
ETHICAL/ETHICS components in order to establish a
performance measurement? [Select three (3)
15. According to the Institute of Internal Auditors, from the choices]
“Proficiency” is described as internal auditors or GOALS/OBJECTIVES
the audit team who must possess the following KEY PERFORMANCE INDICATORS
needed to perform their responsibilities either STANDARD LEVEL OF MEASUREMENT
as individual or as a group.
KNOWLEDGE, SKILLS, AND OTHER 22. What is the most appropriate key performance
COMPETENCIES indicator to measure the efficiency of a machine
or equipment?
16. The following are options that the Chief Audit NUMBER OF UNITS PRODUCED PER HOUR
Executive can take when the internal auditors
lack the required proficiency. 23. What is the most appropriate key performance
ALL OF THE ABOVE indicator for a sales agent?
AMOUNT OF SALES GENERATED
17. This person is responsible for all internal audit
engagements, whether performed by or the 24. ____ ____ ____ auditing refers to the benefit
internal audit activity, and all significant that arises when the internal audit activity
professional judgements made throughout the provides an objective and relevant assurance
engagement. and contributes to the effectiveness and
CHIEF AUDIT EXECUTIVE efficiency of governance, risk management, and
control processes.
VALUE FOR MONEY
 OPERATIONS AUDITING – MIDTERM EXAM
25. This is one of the approaches in establishing 30. Benchmarking is more commonly used to
levels of performance measurements by determine the business entity ‘s competitive
comparing one’s own performance in a specific position in the market or industry rather than
area with that applied by others in compatible enabling the company to take a view of the
circumstances or similar situations. need for change or review of their own
BENCHMARKING organization’s approach to internal auditing in
light of the survey data.
26. It is necessary to understand fully the existing FALSE
processes, systems, and activities as a firm basis
for subsequent comparison with external points 31. One of the following is NOT a description of a
of reference (such as industry or professional business process:
standards or even competition) in order to A CHAIN OF UNRELATED ACTIVITIES BUT
maximize the benefit from the benchmarking INTERFACES WITH OTHER PROCESSES.
exercise.
TRUE 32. Which of the following best describes the
general pattern by which a business process or
27. What are the objectives of benchmarking? a process, in general, is designed and
a. Maintaining a competitive advantage in the established?
appropriate market ESTABLISH GOALS, DETERMINE THE STEPS OR
b. Establishing the current methods, best ACTIVITIES, IDENTIFY THE PROCESS OWNERS
practice, and related trends AND ASSIGN THE RESPONSIBILITIES AND
c. Ensuring the future survival of the ACCOUNTABILITIES.
organization
d. Maintaining an awareness of customer 33. In internal auditing, this is the general term
expectations (and being able to address used in referring to the wide, vast, and broad
them) spectrum of processes, functions, and systems
e. Ensuring that the organization has the from which the subject of the audit
appropriate approach to quality issues engagement will be selected, planned, and
ALL ARE CONSIDERED AS OBJECTIVE OF carried out.
BENCHMARKING AUDIT UNIVERSE

28. In the context of benchmarking, competitive 34. What is that activity that the internal auditor or
advantage is best described as the internal audit team may undertake to
THE ABILITY AND/OR ATTRIBUTES OF THE determine the main reasons for any finding and
BUSINESS ENTITY IN ENSURING THAT ITS explaining the occurrence for such findings
POSITION AS A MARKET OR INDUSTRY LEADER specifically on the matters that pertain to non-
IS MAINTAINED compliance to internal controls from which
recommendations will be expected by
29. Audit findings should ONLY be provided in management?
writing EXCLUSIVELY and in confidentiality to ROOT CAUSE ANALYSIS
the HEAD of the concerned unit being subjected
to audit review. 35. What could be a secondary process that can be
FALSE assigned to a function that involves handling
and monitoring of Accounts Receivable?
ALL OF THE ABOVE
 OPERATIONS AUDITING – MIDTERM EXAM
36. All of the following are important uses of the 43. What is the primary process if the function
performance measurement methods EXCEPT involves the handling of petty cash and
IT CANNOT BE USED AS A VALID BASIS IN expenses related it.
INVESTIGATIONS WHERE MANAGEMENT’S EXPENDITURE PROCESS
LACK OF RESPONSE TO AN ADVERSE
MEASUREMENT. 44. During the planning phase of the audit
engagement, the audit objectives need to be
37. The business entity is not required to establish established and at this stage, the “audit
realistic measurement standards and methods objectives” are considered the same as the
because internal controls are already in place “management’s objectives”.
and it is the responsibility of the internal FALSE
auditor to determine if there is compliance or
non-compliance to such internal controls. 45. The following approaches that can be used by
FALSE the internal auditor as a guide to establishing
levels of standards from which performance
may be measured
38. Generally, internal audit activities will involve all
A, C, D AND F ONLY (BENCHMARKING,
of the following EXCEPT COMPARING, MEASURING AND AIMING NGA
FINANCIAL REPORTING ANSWERS)

39. Including in the audit team a technical expert 46. _________ is a way that can be applied in
from within the business organization is a evaluating business processes particularly in
violation of internal audit procedures. identifying whether there is any initial potential
FALSE for improvement, and then subsequently used
to monitor that the required levels of
40. This term refers to the way the organization is performance are maintained.
structured in terms of unit levels of offices as PERFORMANCE MEASUREMENT/ METHODS
well as position titles.
ORGANIZATIONAL CHART 47. In both the management and audit assessment
of matters of value of money, the usual
41. This term refers to the different standards that approach is to make comparisons with a range
have been set up within and across functions, of options or possible solutions to the principal
processes and/or units of the organization and problem including measurement methods
that must be complied with and from which which must be discussed and agreed upon with
measurement will be undertaken to establish a the management.
level of assurance that goals and objectives are TRUE
achieved.
INTERNAL CONTROLS 48. Referring to SAPG, in carrying out the stock and
materials handling and management function,
42. What is the primary business process that is the following processes shall be the primary
consistent with the main function involving the subjects of operations audit review EXCEPT
handling of General Ledger and Management FINANCIAL REPORTING
Accounts?
FINANCIAL REPORTING PROCESS
 OPERATIONS AUDITING – MIDTERM EXAM
49. Using the SAPG format, management and
administration as a function would involve the 56. One of the advantages of subdividing the audit
following business processes EXCEPT: universe using the functional or departmental
WARRANTY ARRANGEMENTS  approach is that the area under review is clearly
bounded and the focus of the audit review is on
50. It is described as “a series of cradle to grave” the specific area of interest. Therefore, the
processes or cycles, where a CHAIN OF interrelationship in terms of functions and
INTERRELATED EVENTS or activities is plotted process interfaces between the subject of the
from the origin to the conclusion.” review with other departments or units will not
BUSINESS OPERATIONS  be an important factor to be considered so that
audit results can be confined to the specific
51. This term is generally used when undertaking a review required.
business process review that usually refers to FALSE
an activity or set of activities and/or utilities
that when performed or utilized will result in 57. This approach of subdividing and defining the
the achievement of the specific objectives for internal audit universe of auditable units refers
which these activities or utilities are designed. to different specific operational functions where
FUNCTION(S) different activities are identified and established
rather than a department or unit of the
52. This approach (in subdividing the audit organization that may have different function
universe) of defining audit reviews is described attached to it.
as “Each unit in the organizational structure is BUSINESS PROCESS APPROACH
considered as a separate functional unit apart
from the other units” 58. This refers to a process, method, or tool by
FUNCTIONAL OR DEPARTMENTAL APPROACH which a specific department(s) examines factors
to improve the existing internal controls and/or
53. Many opportunities for improvement lie as the implements new internal controls to mitigate
points of _______ between that part of the risks associated with a process or function.
business and other parts of the business and CONTROL SELF ASSESSMENT 
system or departments where controls are
critical with which there needs to be effective 59. “Control is likely to be weaker between
coordination. sections or organizational units than within a
INTERFACES OR INTERACTION  functional unit for BEHAVIORAL REASONS”
These behavioural reasons are evident in the
54. Self-assessment for controls within the following situations EXCEPT.
department may be undertaken through the LOYALTY IS NEVER AN IMPORTANT FACTOR
following EXCEPT. BECAUSE IT CAN BE COMPROMISED BASED ON
GUIDANCE AND DIRECTIVES FROM THE INDIVIDUAL BENEFITS THAT CAN BE
MANAGEMENT DERIVED

55. What is the role of the internal auditor in 60. The critical contents of the proposed SAPG are a
situations when behavioural reasons affect the number of issues related to the following that is
operations audit review? relevant to the specific system:
ALL OF THE ABOVE  RISKS OR CONTROL
 OPERATIONS AUDITING – MIDTERM EXAM
61. _______ refers to a group of representatives 66. SAPG documents offer an ideal basis for control
from specific groups or units within the self-assessment where auditing is done in a self-
organization who are competent and trained to audit context where management, together
be group coordinators and who are tasked with with their staff, consider in quite a formalized
ensuring that cohesive workgroups are through participative way in identifying the risks
maintained between the related and inter- of not achieving their objectives now and into
related units or departments of an organization. the future, and whether internal control is
This group is created to respond to one of the equal to the task of giving reasonable assurance
“behavioural reasons” for weaknesses in of achievement of objectives.
compliance with internal controls specifically THE STATEMENT PERTAINS TO THE
relating to interfaces. IMPORTANCE OF SAPG IN UNDERTAKING THE
LINKING PINS  CONTROL SELF ASSESSMENT.

62. This term used in audit in general implies the 67. In the auditing context, there are a number of
preparation and retention within an ways that the organization can be divided for
organization for an adequate period, in a the purposes of reviewing the effectiveness of
reasonably accessible form, and in enough internal controls as follows: a. Functionally
detail to satisfy the auditors, of records which based on organizational ___ or b. Operationally
allow each detailed element of any transaction based on prime ____
to be tracked from its source through each CHART/STRUCTURE
intermediate stage to its final disposition (or ACTIVITIES
dispositions); and vice versa.
AUDIT TRAIL  68. _____ identifications is important in audit
reviews because it is basically a potent
63. The purpose of the SAPG is determinant in directing audit work particularly
ALL OF THE ABOVE the level of audit planning and activity to be
undertaken especially in the matters related to
64. How does the SAPG help the internal auditor? internal control compliance.
[Select the two (2) correct answers from the RISK
choices below to get one (1) full point.]
GUIDES THE INTERNAL AUDITOR 69. At this level of audit planning and activity, the
DETERMINING WHETHER THE SITUATION internal auditor uses risk assessment where the
NEEDS TO BE REPORTED TO MANAGEMENT auditor may choose to apply risk assessment
techniques to the potential universe of possible
HELPS THE INTERNAL AUDITOR TO CONSIDER audit projects as a means of setting relative
THEIR EFFECTIVENESS, AND DEPENDENT UPON priorities and thus determine those higher risk
THAT INTERPRETATION, RECORD THE NATURE audit projects for inclusion into the annual audit
AND RESULTS OF ANY AUDIT TESTING APPLIED plan.
TACTICAL OR PLANNING LEVEL 
65. In a business approach of subdividing audit
universe, the specific activities are identified to
a function that is performed by the
PROCESS OWNER
 OPERATIONS AUDITING – MIDTERM EXAM
70. The internal auditor used the risk assessment of
identifying audit activities at this LEVEL where
the risk linked to an evaluation of control
effectiveness will direct the focus of the
auditor's attention on aspects of the subject
under review which are more deserving of his
or her attention.
OPERATIONAL LEVEL

71. The use of risk assessment is a major factor in

identifying audit activities because, with audit
resources under pressure, it is important that
auditing efforts are concentrated on the highly
risky, poorly controlled aspects where
management action may be required.
TRUE