Question 1

Which of the following is an indicator of increased risk of fraud? The controller

Options :

A : Takes no vacations and has refused promotion to vice president of finance.

B : Takes no vacations and has just accepted a promotion to vice president of finance.

C : Takes all vacations and has just accepted a promotion to vice president of finance.

D : Takes all vacations and has refused promotion to vice president of finance.

Answer: A

Question 2

In which of the following situations does the internal auditor potentially lack objectivity?

Options :

A : A payroll accounting employee assists an internal auditor in verifying the physical inventory of small motors.

B : An internal auditor recommends standards of control and performance measures for contracting with a service organization.

C : Four months after being transferred to the internal audit activity, a former purchasing assistant performs a review of internal controls over purchasing.

D : An internal auditor reviews the procedures for a new electronic data interchange connection for a customer before it is implemented.

Answer: C

Question 3

Which of the following is not a type of control?

Options :

A : Detective.

B : Reactive.

C : Preventive.

D : Directive.

Answer: B

Question 4

Due professional care calls for

Options :

A : Consideration of the possibility of material irregularities during every engagement.

B : Testing in sufficient detail to give absolute assurance that noncompliance does not exist.

C : Infallibility and extraordinary performance when the system of internal control is known to be weak.

D : Detailed reviews of all transactions related to a particular function.

Answer: A

Question 5

An entity should consider the cost of a control in relationship to the risk. Which of the following controls best reflects this philosophy for a large dollar investment in heavy machine tools?

Options :

A : Having all dispositions approved by the vice president of sales.

B : Placing security guards at every entrance 24 hours a day.

C : Conducting a weekly physical inventory.

D : Imprinting a controlled identification number on each tool.

Answer: D

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