13 - Multiple Choice Questions

a.
The internal auditor randomly selects participants in the job retraining program for
the past year to verify that they had met all the eligibility requirements. This type of
audit is best referred to as which of the following?
1. Compliance audit
2. Operational audit
3. Economy and efficiency audit
4. Program audit
b. Which of the following types of audit has the widest scope?
1. External audit of financial statements

2. Regulatory compliance auditing
3. Internal auditing
4. Operational auditing
c. Which of the following terms is used in internal auditing literature to refer to the
accomplishment of an enterprise’s objectives?
1. Efficiency
2. Effectiveness
3. Economy
4. Control
d. Which of the following falls outside of the scope of internal auditing?
1. Evaluating management’s efforts to minimize fraud

2. Evaluating the goals and objectives of the enterprise
3. Evaluating compliance with environmental legislation
4. Evaluating the efficiency of a company’s manufacturing operations
e. In the definition of internal auditing, which of the following statements about

assurance activities is true?
1. They are characterized by two-party reporting.

2. They refer only to the activities of the external auditor reporting on
the annual financial statements.
3. They include reporting on management’s fulfillment of its governance
responsibilities.
4. They consist mainly of providing advice to management.
f. In applying standards of conduct from either the CGA-Canada or IIA codes of

ethics, how should an internal auditor who is a member of both organizations
conduct himself or herself?
1. Be guided by his or her employer in the application of the ethical

requirements.
2. Use his or her discretion in deciding whether to comply with the
ethical requirements.
3. Exercise his or her judgment in applying the ethics standards to
specific situations.
4. Be guided by the management of the unit being audited for each
engagement.
g. Which of the following is the most important benefit to management of the

establishment of an internal auditing department?
1. Deterrence and detection of fraud

2. Reduction in the cost of the annual external audit
3. Increased confidence in the organization’s risk management, control, and governance
processes
4. Increased confidence that the organization is complying with all laws and regulations
a. In which of the following areas would an internal auditor be required by IIA

Practice Advisory 1210 to have proficiency when carrying out an audit of corporate
governance processes?
1. Computerized management information systems

2. Management and financial accounting
3. Internal auditing standards, procedures, and techniques
4. Fundamentals of commercial law
b. Under which of the following situations would the type of annual bonus offered to
the internal auditor be acceptable under the IIA standards concerning his or her
objectivity?
1. The bonus is based on dollar recoveries from financial audits.

2. The bonus is based on expected future savings from audit
recommendations.
3. The bonus is determined by the chief executive officer and approved
by the audit committee of the board.
4. The bonus is based on the number of complaints received by the CEO
about the work of the audit department.
c. An internal auditor suspects that a cashier is “lapping receipts” (that is, covering up
temporary or permanent misappropriation by delaying recording transactions). What
is the first action that the internal auditor should take?
1. Immediately suspend the cashier, pending a fraud investigation.

2. Implement better controls over receipts and bank deposits so that
such an activity is no longer possible.
3. Confront the cashier with his or her suspicions.
4. Report the matter to the cashier’s supervisor.
d. In drawing up a charter for a newly created internal auditing department, what is
the most appropriate organizational status for the department?
1. The director of internal audit should be a member of the audit

committee of the board of directors.
2. The director of internal audit should report to the controller.
3. The director of internal audit should report to the president with
guaranteed access to the audit committee of the board of directors.
4. The director of internal audit should report to the partner responsible
for the company’s external audit with access to the company’s
administrative vice-president, who would act as a liaison to senior
management and the board of directors.
e. The chief audit executive (CAE) provides a report at each quarterly meeting of the
audit committee of the board. Senior management has requested that a copy of this
report be provided to senior managers prior to the audit committee meeting so that
issues can be resolved before the actual meeting where possible. How should the
CAE react to this request?
1. The CAE should provide the report as requested.
2. The CAE should provide the report to management only after the
audit committee meeting.
3The CAE should not provide the report to management because this is an
unacceptable limitation on the independence of the internal auditor.
4The CAE should provide the report for information only, and consider any
attempts by management to resolve issues prior to the committee meeting
as unwarranted interference with the independence of the audit function.
a. The definition of internal auditing and the IIA Standards set out which of the
following as included in the nature of work of internal auditing?
1. Assessing effectiveness, efficiency, and economy of operations

2. Evaluating financial and operational controls
3. Evaluating and improving risk management, control, and governance processes
4. Performing financial, compliance, and operational audits
a. Which of the following is included in the IIA internal control objectives but not
explicitly included in the CoCo categories of control objectives?
1. Safeguarding of assets
2. Effectiveness and efficiency of operations
3. Reliability of internal and external reporting
4. Compliance with laws, regulations, policies, and procedures
b. Which of the following roles in the risk management process should not be
undertaken by the internal audit activity?
1. Setting the risk limits

2. Co-ordinating ERM activities
3. Evaluating risk management processes
4. Facilitating the identification of risks
c. According to the CoCo Guidance for Directors — Governance Processes for Control,
who is responsible for monitoring management control?
1. The chief executive officer of the organization

2. The organization’s board of directors (or equivalent body)
3. The organization’s internal audit department
4. The organization’s external auditors
d. The CoCo Guidance on Control says that control cannot provide absolute assurance,
in part because there are inherent limitations in control. What do these inherent
limitations include?
1. The need for controls to be cost-effective

2. The possibility of circumvention of controls through collusion
3. The inability to have adequate segregation of responsibilities in small
businesses
4. Improper design of controls such that they do not achieve their
objectives
e. Which of the following statements about the CoCo assessment principles is true?
1. The assessment should be based on the CoCo control framework.

2. The assessment must be carried out by internal auditors working with
other members of the organization’s management.
3. The assessment may be conducted from the perspective of the overall
organization or from that of any particular sub-unit.
4. The assessment is the responsibility of the board of directors.
f. Enterprise risk management means identifying the risks faced by the enterprise and
establishing an acceptable tolerance limit for each major risk to which the
enterprise is exposed. Which of the following statements is consistent with the
definition of risk limit?
1. Risk limit represents the amount of inherent risk that the enterprise is
prepared to accept.
2. Risk limit represents the amount of residual risk that the enterprise is
prepared to accept.
3. Risk limit represents the amount of systemic risk that the enterprise is
prepared to accept.
4. Risk limit represents the amount of audit procedures risk that the
enterprise is prepared to accept.
g. Which of the following is considered by the CoCo board to be a responsibility of

management and not of the board of directors or equivalent body?
1. Developing the company’s mission, vision, and strategy

2. Assessing the board’s effectiveness
3. Monitoring corporate ethics
4. Evaluating the performance of senior management
5.

13 - Multiple Choice Questions

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13 - Multiple Choice Questions

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a.

b. Which of the following types of audit has the widest scope?

1. External audit of financial statements

d. Which of the following falls outside of the scope of internal auditing?

1. Evaluating management’s efforts to minimize fraud

e. In the definition of internal auditing, which of the following statements about

1. They are characterized by two-party reporting.

f. In applying standards of conduct from either the CGA-Canada or IIA codes of

1. Be guided by his or her employer in the application of the ethical

g. Which of the following is the most important benefit to management of the

1. Deterrence and detection of fraud

a. In which of the following areas would an internal auditor be required by IIA

1. Computerized management information systems

1. The bonus is based on dollar recoveries from financial audits.

1. Immediately suspend the cashier, pending a fraud investigation.

1. The director of internal audit should be a member of the audit

1. The CAE should provide the report as requested.

1. Assessing effectiveness, efficiency, and economy of operations

1. Setting the risk limits

1. The chief executive officer of the organization

1. The need for controls to be cost-effective

1. The assessment should be based on the CoCo control framework.

g. Which of the following is considered by the CoCo board to be a responsibility of

1. Developing the company’s mission, vision, and strategy

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