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

A. An auditor reviews the procedures for a new electronic data interchange (EDI) connection to a major
customer before it is implemented.
B. A former purchasing assistant performs a review of internal controls over purchasing 4 months after being
transferred to the internal auditing department.
C. An auditor recommends standards of control and performance measures for a contract with a service
organization for the processing of payroll and employee benefits.
D. A payroll accounting employee assists an auditor in verifying the physical inventory of small motors.

[2] Gleim #: 1.2.2 -- Source: CIA 0597 I-52

Which of the following actions would be a violation of auditor independence?

A. Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result
of a promotion.
B. Reducing the scope of an audit due to budget restrictions.
C. Participating on a task force that recommends standards for control of a new distribution system.
D. Reviewing a purchasing agent's contract drafts prior to their execution.

[3] Gleim #: 1.2.3 -- Source: CIA 0597 I-62

Which of the following activities would not be presumed to impair the independence of an internal auditor?

I. Recommending standards of control for a new information

system application
II. Drafting procedures for running a new computer application
to ensure that proper controls are installed
III. Performing reviews of procedures for a new computer application
before it is installed

A. I only.
B. II only.
C. III only.
D. I and III.

[4] Gleim #: 1.2.4 -- Source: CIA 1194 I-49

According to the Standards, internal auditors must be objective in performing audits. Assume that the internal
auditing director received an annual bonus as part of that individual's compensation package. The bonus may
impair the auditing director's objectivity if

A. The bonus is administered by the board of directors or its salary administration committee.
B. The bonus is based on dollar recoveries or recommended future savings as a result of audits.
C. The scope of internal auditing work is reviewing control rather than account balances.
D. All of the answers are correct.

[5] Gleim #: 1.2.5 -- Source: CIA 0595 I-60

It has been established that an internal auditing charter is one of the more important factors positively affecting the
internal auditing department's independence. The Standards help clarify the nature of the charter by providing
guidelines as to the contents of the charter. Which of the following is not suggested in the Standards as part of
the charter?

A. The department's access to records within the organization.

B. The scope of internal auditing activities.
C. The length of tenure for the internal auditing director.
D. The department's access to personnel within the organization.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 1

 The auditor has planned an audit of the effectiveness of the quality assurance function as it affects the receiving
of goods, the transfer of the goods into production, and the scrap costs related to defective items. The auditee
argues that such an audit is not within the scope of the internal auditing function and should come under the
purview of the quality assurance department only. What would be the most appropriate audit response?

A. Refer to the auditing department charter and the approved audit plan that includes the area designated for
audit in the current time period.
B. Because quality assurance is a new function, seek the approval of management as a mediator to set the
scope of the audit.
C. Indicate that the audit will examine the function only in accordance with the standards set by, and approved
by, the quality assurance function before beginning the audit.
D. Terminate the audit because an operational audit will not be productive without the auditee's cooperation.

[7] Gleim #: 1.2.7 -- Source: CIA 1195 I-47

Management has requested the internal auditing department to perform an operational audit of the telephone
marketing operations of a major division and to recommend procedures and policies for improving management
control over the operation. The auditor should

A. Not accept the engagement because recommending controls would impair future objectivity of the
department regarding this auditee.
B. Not accept the engagement because auditing departments are presumed to have expertise on accounting
controls, not marketing controls.
C. Accept the engagement, but indicate to management that, because recommending controls impairs audit
independence, future audits of the area will be impaired.
D. Accept the audit engagement because independence will not be impaired.

Fact Pattern #: 1
The internal auditing department of an organization has been in existence for 10 years. It has established a
charter which has not yet been approved by the audit committee. However, the audit committee is chaired by the
chief executive officer (CEO) and includes the controller and one outside board member. The director reports
directly to the controller who approves the internal auditing work plan. Thus, the auditing department has never
felt the need to push for a formal approval of the charter. The organization is publicly held and has nine major
divisions. The previous director of internal auditing was recently dismissed following a dispute between the
director and a major auditee. The CEO accused the director of not operating "in the best interests of the
organization." A new director with significant experience in both public accounting and internal auditing has just
been hired. Within the first month, the new director encountered substantial resistance from an auditee regarding
the nature of an audit and the auditing department's access to records.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 2

 Which of the following combinations best illustrates a scope limitation and the appropriate response by the
director of internal auditing?

Nature of Limitation Internal Auditing Action

A. Auditee limits scope Report only to the controller

of audit based upon

proprietary information.
B. Auditee will not provide Report to the board

access to records
needed for approved
audit work plan.
C. Auditee requests that Report directly to the CEO

the audit be delayed for and controller

2 weeks to allow it to
close its books.
D. Auditee will not allow No reporting needed since

auditor to contact major it is an operational

customers as part of a audit
performance audit to
measure efficiency of
operations.

[9] Gleim #: 1.2.9 -- Source: CIA 1195 I-45 (Refers to fact pattern 1)
In considering the internal auditing department's independence, which of the following facts, by themselves, could
contribute to a lack of internal auditing independence?

I. The CEO accused the previous director of not operating

"in the best interests of the organization."
II. The majority of audit committee members come from within the
organization.
III. The internal auditing charter has not been approved by the
board or the audit committee.

A. I only.
B. II only.
C. II and III only.
D. I, II, III.

[10] Gleim #: 1.2.10 -- Source: CIA 1195 I-46 (Refers to fact pattern 1)
Given the current dispute with an auditee regarding audit scope, which of the following internal auditing actions
are not appropriate?

A. Meet with the board to obtain approval of the auditing charter to mitigate the existence of this problem and
similar problems that may occur in the future.
B. Report the dispute, if it remains unresolved, to the board.
C. Review the approved work plan with the CEO and controller and ask for immediate guidance in dealing with
the auditee.
D. Indicate to the auditee that, if the resistance continues, the auditing department will not be available to
perform cost-benefit audits for the department in the future.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 3

 During the course of an audit, the auditor makes a preliminary determination that a major division has been
inappropriately capitalizing research and development expense. The audit is not yet completed, and the auditor
has not documented the problem or determined that it really is a problem. However, the auditor is informed that
the director of internal auditing has received the following communication from the president of the company:

"The controller of Division B informs me that you have

discovered a questionable account classification dealing
with research and development expense. We are aware of
the issue. You are directed to discontinue any further
investigation of this matter until informed by me to
proceed. Under the confidentiality standard of your
profession, I also direct you not to communicate with the
outside auditors regarding this issue."

Which of the following would be an appropriate action for the director to take regarding the questionable item?

A. Immediately report the communication to The Institute of Internal Auditors and ask for an ethical
interpretation and guidance.
B. Inform the president that this scope limitation will need to be reported to the chairperson of the audit
committee.
C. Continue to investigate the area until all the facts are determined and document all the relevant facts in the
audit working papers.
D. Immediately notify the external auditors of the problem to avoid aiding and abetting a potential crime by the
organization.

[12] Gleim #: 1.2.12 -- Source: CIA 0596 I-65

An organization was in the process of establishing its new internal auditing department. The controller had no
previous experience with internal auditors. Due to this lack of experience, the controller advised the applicants
that they would be reporting to the external auditors. However, the new director of internal auditing would have
free access to the controller to report anything important. The controller would convey the director's concerns to
the board of directors. Which of the following is true?

A. The internal auditing department will be independent because the director has direct access to the board of
directors.
B. The internal auditing department will not be independent because the director reports to the external
auditors.
C. The internal auditing department will not be independent because the controller has no experience with
internal auditors.
D. The internal auditing department will not be independent because the company did not specify that the
applicants must be certified internal auditors.

[13] Gleim #: 1.2.13 -- Source: CIA 0596 I-48

You have been asked to be a member of a peer review team. In assessing the independence of the internal
auditing department being reviewed, you should consider all of the following factors except

A. Access to and frequency of communications with the board of directors or its audit committee.
B. The criteria of education and experience considered necessary when filling vacant positions on the audit
staff.
C. The degrees to which auditors assume operating responsibilities.
D. The scope and depth of audit objectives for the audits included in the review.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 4

 Which of the following statements would be an appropriate reason for the internal auditing department not to
participate in the systems development process?

A. Participation would affect audit independence, and the auditor would not be able to perform an objective
review after the system is implemented.
B. Participation would delay project implementation.
C. Participation would cause the auditor to be labeled as a partial owner of the application, and the auditor
would then have to share the blame for any problems that remain in the system.
D. None of the answers are correct.

[15] Gleim #: 1.2.15 -- Source: CIA 0593 II-5

During an audit of the organization's accounts payable function, an internal auditor plans to confirm balances with
suppliers. What is the source of authority for such contacts with units outside the organization?

A. Internal auditing department policies and procedures.

B. The Standards.
C. The Statement of Responsibilities of Internal Auditing.
D. The internal auditing department's charter.

[16] Gleim #: 1.2.16 -- Source: CIA 0595 III-23

The director of internal auditing routinely presents an activity report to the board of directors as part of the board
meeting agenda each quarter. Senior management has asked to review the director's board presentation before
each board meeting so that any issues or questions can be discussed beforehand. The director should

A. Provide the activity report to senior management as requested and discuss any issues that may require
action to be taken.
B. Withhold disclosure of the activity report to senior management because such matters are the sole
province of the board.
C. Disclose to the board only those matters in the activity report that pertain to expenditures and financial
budgets of the internal auditing department.
D. Provide information to senior management that pertains only to completed audits and findings available in
published audit reports.

[17] Gleim #: 1.2.17 -- Source: CIA 0592 I-2

Independence permits internal auditors to render impartial and unbiased judgments. The best way to achieve
independence is through

A. Individual knowledge and skills.

B. Organizational status and objectivity.
C. Supervision within the organization.
D. Organizational knowledge and skills.

[18] Gleim #: 1.2.18 -- Source: CIA 0594 I-37

When evaluating the independence of an internal auditing department, a quality review team considers several
factors. Which of the following factors has the least amount of influence when judging an internal auditing
department's independence?

A. Criteria used in making auditors' assignments.

B. The extent of auditor training in communications skills.
C. Relationship between audit working papers and audit report.
D. Impartial and unbiased audit judgments.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 5

 The director of internal auditing has assigned an auditor to perform a year- end review of payroll records. The
auditor has contacted the director of compensation and has been refused access to necessary documents.
According to the Standards,

A. Access to records relevant to performance of audits should be specified in the departmental charter.
B. Internal auditing should be required to report to the president of the company.
C. By following the long-range planning process, access to all relevant records should be guaranteed.
D. Audit committee approval should be required for all audit scope limitations.

[20] Gleim #: 1.2.20 -- Source: CIA 1190 I-2

A charter is being drafted for a newly formed internal auditing department. Which of the following best describes
the appropriate organizational status that should be incorporated into the charter?

A. The director of internal auditing should report to the chief executive officer but have access to the board of
directors.
B. The director of internal auditing should be a member of the audit committee of the board of directors.
C. The director of internal auditing should be a staff officer reporting to the chief financial officer.
D. The director of internal auditing should report to an administrative vice president.

[21] Gleim #: 1.2.21 -- Source: CIA 0594 I-70

A written charter, approved by the board of directors, that outlines the internal auditing department's purpose,
authority, and responsibility is primarily meant to enhance the department's

A. Due professional care.

B. Stature within the organization.
C. Relationship with management.
D. Independence.

[22] Gleim #: 1.2.22 -- Source: CIA 0593 I-5

The status of the internal auditing function should be free from the impact of irresponsible policy changes by
management. The most effective way to assure that freedom is to

A. Have the internal auditing charter approved by both management and the board of directors.
B. Adopt policies for the functioning of the auditing department.
C. Establish an audit committee within the board of directors.
D. Develop written policies and procedures to serve as standards of performance for the department.

[23] Gleim #: 1.2.23 -- Source: CIA 0589 I-3

An internal auditor who had been supervisor of the accounts payable section should not audit that section

A. Because there is no way to measure a reasonable period of time in which to establish independence.
B. Until enough time has elapsed to allow the new supervisor to influence the system of controls over
accounts payable.
C. Until after the next annual review by the external auditors.
D. Until it is clear that the new supervisor has assumed the responsibilities.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 6

 The Standards indicate that independence permits internal auditors to render the impartial and unbiased
judgments essential to the proper conduct of audits. Which of the following would best promote independence?

A. A policy that requires internal auditors to report to the director any situations in which a conflict of interest or
bias on the part of the individual auditor is present or may reasonably be inferred.
B. An internal auditing department policy that prevents it from recommending standards of control for systems
that it audits.
C. An organizational policy that allows internal audits of sensitive operations to be contracted out to other audit
providers.
D. An organizational policy that prevents personnel transfers from operating activities to the internal auditing
department.

[25] Gleim #: 1.2.25 -- Source: CIA 0593 I-43

Assuming that the internal auditing staff possesses the necessary experience and training, which of the following
services is appropriate for a staff internal auditor to undertake?

A. Substitute for the accounts payable supervisor while (s)he is out on sick leave.
B. Determine the profitability of alternative investment acquisitions and select the best alternative.
C. As part of an evaluation team, review vendor accounting software internal controls and rank according to
exposures.
D. Participate in an internal audit of the accounting department shortly after transferring from the accounting
department.

[26] Gleim #: 1.2.26 -- Source: CIA 1194 I-56

A medium-sized publicly owned corporation operating in Country X has grown to a size that the directors of the
corporation believe warrants the establishment of an internal auditing department. Country X has legislated
internal auditing requirements for government-owned companies. The company changed the corporate bylaws to
reflect the establishment of the internal auditing department. The directors decided that the director of internal
auditing must be a certified internal auditor and will report directly to the newly established audit committee of the
board of directors. Which of the items discussed above will contribute the most to the new audit director's
independence?

A. The establishment of the internal auditing department is documented in corporate bylaws.

B. Country X has legislated internal auditing requirements.
C. The director will report to the audit committee of the board of directors.
D. The director is to be a certified internal auditor.

[27] Gleim #: 1.2.27 -- Source: CIA 1196 I-26

Audit committees have been identified as a major factor in promoting both the internal and external auditor's
independence. Which of the following is the most important limitation on the effectiveness of audit committees?

A. Audit committees may be composed of independent directors. However, those directors may have close
personal and professional friendships with management.
B. Audit committee members are compensated by the organization and thus favor a shareholder's view.
C. Audit committees devote most of their efforts to external audit concerns and do not pay much attention to
internal auditing and the overall control environment.
D. Audit committee members do not normally have degrees in the accounting or auditing fields.

[28] Gleim #: 1.2.28 -- Source: CIA 0589 II-2

According to the Statement of Responsibilities, the authority of the internal auditing department is limited to that
granted by

A. The board of directors and the controller.

B. Senior management and the Standards.
C. Management and the board of directors.
D. The audit committee and the chief financial officer.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 7

 The internal auditor customarily has a dual relationship with corporate management and the audit committee.
This means that

A. Corporate management should help the internal auditors by revising and forwarding operational audit
reports to the audit committee.
B. The internal auditors should audit corporate operations and report directly to the audit committee, without
corroborating the report with corporate management.
C. The internal auditors should audit corporate operations, check the accuracy of the report with management,
and then report to corporate management and the audit committee.
D. Ideally, the internal auditor works under the audit committee, but reports to the chief operating officer on all
operational audits.

[30] Gleim #: 1.2.30 -- Source: CIA 1192 I-6

The audit committee can serve several important purposes, some of which directly benefit internal auditing. The
most significant benefit provided by the audit committee to the internal auditor is

A. Protecting the independence of the internal auditor from undue management influence.
B. Reviewing annual audit plans and monitoring audit results.
C. Approving audit plans, scheduling, staffing, and meeting with the internal auditor as needed.
D. Reviewing copies of the procedures manuals for selected company operations and meeting with company
officials to discuss them.

[31] Gleim #: 1.2.31 -- Source: CIA 1187 I-4

Which of the following would be an appropriate responsibility for an audit committee?

A. Performing a review of the procurement function of the company.

B. Reviewing the internal audit plan presented by the director of internal auditing.
C. Reviewing the working papers of the public accounting firm to determine the firm's competence.
D. Recommending the assignment of specific audit staff members for specific audits.

[32] Gleim #: 1.2.32 -- Source: CIA 0593 II-13

To avoid creating conflict between the chief executive officer (CEO) and the audit committee, the internal auditing
director should

A. Submit copies of all audit reports to the CEO and audit committee.
B. Strengthen independence through organizational status.
C. Discuss all pending reports to the CEO with the audit committee.
D. Request board establishment of policies covering internal auditing relationships with the audit committee.

[33] Gleim #: 1.2.33 -- Source: CIA 1191 I-3

An external quality assurance group was evaluating the independence of an internal auditing department. The
internal auditing department performs audits of all of the elements included in the scope provisions of the
Standards. Which of the following reporting responsibilities would most likely threaten the department's
independence? Reporting to the

A. President.
B. Treasurer.
C. Executive vice president.
D. Audit committee.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 8

 Which of the following actions would be an appropriate response by companies wishing to improve the public's
perception of their financial reporting?

A. Increased adoption of audit committees composed of outside directors.

B. Viewing internal auditing as a transient profession -- a stepping stone to managerial positions.
C. Requiring internal auditors to report all significant findings of illegal activity to the company president.
D. Keeping external and internal auditing work separated to maintain independence.

[35] Gleim #: 1.2.35 -- Source: CIA 1191 II-4

Which of the following would not be an appropriate member of an audit committee?

A. The vice president of the local bank used by the company.

B. An academic specializing in business administration.
C. A retired executive of a firm that had been associated with the corporation.
D. The firm's vice president of operations.

[36] Gleim #: 1.2.36 -- Source: CIA 0590 II-5

Which of the following audit committee activities would be of the greatest benefit to the internal auditing
department?

A. Review and approval of audit programs.

B. Assurance that the external auditor will rely on the work of the internal auditing department whenever
possible.
C. Review and endorsement of all internal auditing reports prior to their release.
D. Support for appropriate follow-up of recommendations made by the internal auditing department.

[37] Gleim #: 1.2.37 -- Source: CIA 1191 I-4

An audit committee of the board of directors of a corporation is being established. Which of the following would
normally be a responsibility of the committee?

A. Approval of the selection and dismissal of the internal auditing director.

B. Development of the annual internal auditing schedule.
C. Approval of internal auditing programs.
D. Determination of findings appropriate for specific internal auditing reports.

[38] Gleim #: 1.2.38 -- Source: CIA 0592 I-3

When faced with an imposed scope limitation, the director of internal auditing should

A. Refuse to perform the audit until the scope limitation is removed.

B. Communicate the potential effects of the scope limitation to the audit committee of the board of directors.
C. Increase the frequency of auditing the activity in question.
D. Assign more experienced personnel to the engagement.

[39] Gleim #: 1.2.39 -- Source: CIA 0595 I-56

It is important that the auditor be able to carefully distinguish between a scope limitation and other limitations on
the audit. According to the Standards, which of the following would not be considered a scope limitation?

A. The divisional management of an auditee has indicated that the division is in the process of converting a
major computer system and has indicated that the EDP portion of the planned audit will have to be
postponed until next year.
B. The audit committee reviews the audit plan for the year and deletes an audit that the director thought was
important to conduct.
C. The auditee has indicated that certain customers cannot be contacted because the organization is in the
process of negotiating a long-term contract with the customers and they do not want to upset the
customers.
D. None of the answers are correct.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 9

 You have been asked to be a member of a peer review team. In assessing the independence of the internal audit
department being reviewed, you should consider all of the following factors except

A. Access to and frequency of communications with the board of directors or its audit committee.
B. The criteria of education and experience considered necessary when filling vacant positions on the audit
staff.
C. The degree to which auditors assume operating responsibilities.
D. The scope and depth of audit objectives for the audits included in the review.

[41] Gleim #: 1.2.41 -- Source: CIA 1192 I-2

Which of the following reporting structures would best depict the internal audit organizational guidelines contained
in the Standards?

A. Administratively to the board of directors, functionally to the chief executive officer.

B. Administratively to the controller, functionally to the chief financial officer.
C. Administratively to the chief executive officer, functionally to the board of directors.
D. Administratively to the chief executive officer, functionally to the external auditor.

[42] Gleim #: 1.2.42 -- Source: CIA 0593 II-3

According to the Standards, the organizational status of the internal auditing department

A. Should be sufficient to permit the accomplishment of its audit responsibilities.

B. Is best when the reporting relationship is direct to the board of directors.
C. Requires the board's annual approval of the audit schedules, plans, and budgets.
D. Is guaranteed when the charter specifically defines its independence.

[43] Gleim #: 1.2.43 -- Source: CIA 0593 II-4

Audit committees are most likely to participate in approving

A. Staff promotions and salary increases.

B. Internal audit report findings and recommendations.
C. Audit work schedules.
D. Appointment of the internal audit director.

[44] Gleim #: 1.2.44 -- Source: CIA 0591 II-4

You transferred from the treasury department to the internal auditing department of the same company last
month. The chief financial officer of the company has suggested that, because you have significant knowledge in
this area, it would be a good idea for you to immediately begin an audit of the treasury department. In this
circumstance, you should

A. Accept the audit engagement and begin work immediately.

B. Discuss the need for such an audit with your former superior, the treasurer.
C. Suggest that the audit be performed by another member of the internal auditing staff.
D. Offer to prepare an audit program but suggest that interviews with your former co-workers be conducted by
other members of the internal auditing staff.

[45] Gleim #: 1.2.45 -- Source: CIA 0592 I-1

An activity appropriately performed by internal auditing is

A. Designing systems of control.

B. Drafting procedures for systems of control.
C. Reviewing systems of control before implementation.
D. Installing systems of control.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 10

 Which of the following most seriously compromises the independence of the internal auditing department?

A. Internal auditors frequently draft revised procedures for departments whose procedures they have criticized
in an audit report.
B. The director of internal auditing has dual reporting responsibility to the firm's top executive and the board of
directors.
C. The internal auditing department and the firm's external auditors engage in joint planning of total audit
coverage to avoid duplicating each other's work.
D. The internal auditing department is included in the review cycle of the firm's contracts with other firms
before the contracts are executed.

[47] Gleim #: 1.2.47 -- Source: CIA 0591 I-6

According to the Standards, the organizational status of the internal audit department

A. Should be sufficient to permit the accomplishment of its audit responsibilities.

B. Is best when the reporting relationship is direct to the board of directors.
C. Requires the board's annual approval of the audit schedules, plans, and budgets.
D. Is guaranteed when the charter specifically defines its independence.

[48] Gleim #: 1.2.48 -- Source: CIA 1194 I-08

Which of the following actions would be a violation of independence?

A. Continuing on an audit assignment at a division for which the auditor will soon be responsible as the result
of a promotion.
B. Reducing the scope of an audit due to budget restrictions.
C. Participating on a task force which recommends standards for control of a new distribution system.
D. Reviewing a purchasing agent's contract drafts prior to execution.

[49] Gleim #: 1.2.49 -- Source: CIA 1194 I-50

A company is planning to develop and implement a new computerized purchase order system in one of its
manufacturing subsidiaries. The Vice President of Manufacturing has requested that internal auditors participate
on a team consisting of representatives from Finance, Manufacturing, Purchasing, and Marketing. This team will
be responsible for the implementation effort. Eager to take on this high profile project, the Director of Auditing
assigns a senior auditor to the project to assist "as needed." Assuming the senior auditor performed all of the
following activities, which one would impair objectivity if the auditor is asked to review the purchase order system
on a post-audit basis?

A. Helping to identify and define control objectives.

B. Testing for compliance with system development standards.
C. Reviewing the adequacy of systems and programming standards.
D. Drafting operating procedures for the new system.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 11

 An internal audit department is currently undergoing its first external quality assurance review since its formation
three years ago. From interviews with a few of the staff auditors, the review team is informed of certain auditor
activities which occurred over the past year. Which of the following activities could affect the quality assurance
review team's evaluation of the objectivity of the internal audit department?

A. One internal auditor told the review team that, during the payroll audit, he was approached by the payroll
manager. The manager indicated he was looking for an accountant to prepare his financial statements for
his part-time business. The internal auditor agreed to perform this work for a reduced fee during non-work
hours.
B. During the audit of the company's construction of a building addition to the corporate office, the Vice
President of Facilities Management gave the auditor a commemorative mug with the company's logo.
These mugs were distributed to all employees present at the ground-breaking ceremony.
C. After reviewing the installation of a data processing system, the auditor made recommendations on
standards of control. Three months after completing the audit, the auditee requested the auditor's review
of certain procedures for adequacy. The auditor agreed and performed this review.
D. An auditor's participation was requested on a task force to reduce the company's inventory losses from
theft and shrinkage. This is the first consulting assignment undertaken by the audit department. The
auditor's role is to advise the task force on appropriate control techniques.

[51] Gleim #: 1.2.51 -- Source: CIA 0595 I-54

The internal auditing department encounters a scope limitation from senior management that will affect its ability
to meet its goals and objectives for a potential auditee. The nature of the scope limitation should be

A. Noted in the audit working papers, but the audit should be carried out as scheduled and the scope limitation
worked around, if possible.
B. Communicated to the external auditors so they can investigate the area in more detail.
C. Communicated, preferably in writing, to the board.
D. Communicated to management stating that the limitation will not be accepted because it would impair the
audit department's independence.

Fact Pattern #: 2
During a year-end planning meeting with senior management, the director of internal auditing learns that a recent
draft audit report on one of the company's inventory costing systems had provoked a discussion in the accounting
area. The audit report proposed a relatively large adjustment due to an error in the local inventory system. The
auditor's conclusion stated that six other production facilities using the same costing system would require similar
inventory adjustments. The total required adjustment for all seven locations represented a material adjustment to
the financial statements, according to the chief financial officer (CFO). The CFO questioned the method used by
the auditor to calculate the amount of the inventory adjustment and asked the director of internal auditing to delay
processing the audit report until all aspects of the finding had been fully considered. The director of internal
auditing reports directly to the CFO. The audit committee has not been apprised of this audit because the audit
report is still in draft stage awaiting management comment.

[52] Gleim #: 1.2.52 -- Source: CIA 0596 I-66 (Refers to fact pattern 2)
Assuming that there is a meeting later the same day with the audit committee of the board, which of the following
is not a responsibility of the director of internal auditing?

A. Inform the audit committee of senior management's decisions on all significant audit findings.
B. Highlight significant audit findings and recommendations and report on the approved audit work schedule.
C. Inform the audit committee of the outcome of earlier meetings with the CFO and the options being
considered for recording the inventory adjustment.
D. Attempt to resolve the inventory issue before reporting the finding to the audit committee.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 12

 Which of the following actions should the director take?

A. Schedule audits to review the inventory costing systems at all locations after year-end.
B. Recall all copies of the draft audit report sent out for management review and response.
C. Tell the representatives of senior management that distorting financial reports is not acceptable.
D. Offer to review the basis for the conclusion about the inventory valuation at all locations.

[54] Gleim #: 1.2.54 -- Source: CIA 1184 I-31

In which of the following auditing situations would an internal auditor have a conflict of interest under the
Standards?

A. Auditing a financial activity in which the auditor had been a key employee 5 years previously.
B. Auditing a purchasing activity if a major supplier is a company owned by the auditor's brother-in-law.
C. Auditing a data processing center the auditor had audited three times previously.
D. Auditing a computer system for which the auditor had been internal auditing's representative on the design
team.

[55] Gleim #: 1.2.55 -- Source: CIA 1190 I-28

The Standards assign the responsibility for providing appropriate audit supervision to the

A. Audit committee.
B. Director of internal auditing.
C. Audit supervisor.
D. Senior auditor.

[56] Gleim #: 1.2.56 -- Source: CIA 1195 I-5

The internal auditing department has just completed an audit of loan processing and commercial loan account
balances for a financial institution. Following is an excerpt from their working papers indicating a potential audit
finding:

We noted three instances in which loans were made to related groups of

companies without an analysis of the total amount of loans made to the
controlling entity. There may be statutory limitations on the amount
of loans that can be made to any individual controlling organization.
The statistical sample was taken with a 95% confidence level using attribute sampling with a tolerable error limit of
4%. You may assume that the sampling plan was implemented correctly. Which of the following would be
correct?

I. The deviation rate is under 4%, therefore the finding need not
be reported to management and the audit committee.
II. The auditor should review appropriate regulations and possibly
get legal counsel opinion on the finding prior to including the
finding in the final audit report.
III. The auditor should report the finding to the vice president who
approved the loans and ask for a follow-up report during the audit
scheduled next year. No further action need be taken at this time.
IV. Review a plan by the loan committee to prevent such occurrences in
the future and include a summary and analysis of the plan in the
final audit report.

A. I only.
B. III only.
C. II and IV.
D. II only.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 13

 Which of the following is most important in a fund accounting environment?

A. Achieving an adequate rate of return.

B. Meeting desires of the chief executive officer.
C. Meeting requests of clients for increased services.
D. Achieving compliance with applicable laws.

[58] Gleim #: 1.2.58 -- Source: CIA 1190 I-16

A primary concern of an operational audit of the family welfare department of a governmental unit would be

A. Determining that proper measures of performance are used.

B. Generating an adequate return on investment.
C. Adhering to generally accepted accounting principles (GAAP).
D. Ensuring that persons with direct client contact have at least a bachelor's degree.

[59] Gleim #: 1.2.59 -- Source: CIA 1191 I-27

The major reason for the internal auditor's involvement in EDP system development is for the internal auditor to

A. Gain familiarity with systems for use in subsequent reviews.

B. Help assure that systems have adequate control procedures.
C. Help minimize the cost and development time for new systems.
D. Propose enhancements for subsequent development and implementation.

[60] Gleim #: 1.2.60 -- Source: CIA 0590 II-6

Which of the following relationships best depicts the appropriate dual reporting responsibility of the internal
auditor? Administratively to the

A. Board of directors, functionally to the chief executive officer.

B. Controller, functionally to the chief financial officer.
C. Chief executive officer, functionally to the board of directors.
D. Chief executive officer, functionally to the external auditor.

[61] Gleim #: 1.2.61 -- Source: CIA 1196 III-10

An audit committee should be designed to enhance the independence of both the internal and external audit
functions and to insulate the audit functions from undue management pressures. Using this criterion, audit
committees should be composed of

A. A rotating subcommittee of the board of directors or its equivalent.

B. Only members from the relevant outside regulatory agencies.
C. Members from all important constituencies, specifically including representatives from banking, labor,
regulatory agencies, shareholders, and officers.
D. Only external members of the board of directors or its equivalent.

Printed from Gleim's CIA Test Prep software (© 1998) -- Page 14