Prelim Exam • No, he did not violate either the IIA’s Code

of Ethics or the Standards.

1. Internal auditors should maintain confidentiality
5. Internal auditors should be objective. Objectivity:
except in social environment.
a. Is required only in assurance engagement.
True False
b. Is managed at the individual auditor,
2. Internal auditors shall perform internal audit services
engagement, functional, and organizational
in accordance with the International Standards for
levels.
the Professional Practice of Internal Auditing.
c. Prohibits internal auditors from providing
True False
consulting services relating to operation for
3. Which situation most likely violates the IIA Code of
which they had previous responsibility.
Ethics and the Standards?
d. Requires internal auditors not to subordinate
a. Because the internal audit activity lacks skill and
their judgment on audit matters to that of
knowledge in a specialty area, the CAE has hired
others.
an expert. The engagement manager has been
6. The integrity of internal auditors established trust
asked to review the expert’s approach to the
and thus provides the basis for reliance on their
assignment. Although knowledgeable about the
judgment.
area under review, the manager is hesitant to
True False
accept the assignment because of lack of
7. The CAE has been appointed to a committee to
expertise.
evaluate the appointment of the external auditors.
b. The engagement manage has removed the most
The engagement partner for the external accounting
significant observations and recommendations
firm wants the CAE to join him for a week of hunting
from the final engagement communication. The
at his private lodge. The CAE should:
in-charge internal auditor opposed the removal,
a. Accept as long as it is not charged to employer
explaining that he knows the reported
time.
conditions exist. The in-charge internal auditor
b. Accept, if both their schedules allow.
agrees that, technically, information is not
c. Ask the comptroller whether accepting the
sufficient to support the observations, but
invitation is a violation of the organization’s
management cannot explain the conditions and
Code of Ethics.
the observations are the only reasonable
d. Refuse on the grounds of conflict of interest.
conclusions.
8. An internal auditor shall not disclose confidential
c. An organization’s charter for the internal audit
information obtain during an audit engagement in
activity requires the CAE to present the yearly
which on of the following situations?
engagement work schedule to the board for its
a. In defense of himself when sued by the client.
approval suggestions.
b. When the security of the state so requires.
d. The CAE disagrees with the engagement client
c. Under the rule against disclosing confidential
about the observations and recommendations
information.
in a sensitive area. The CAE discusses the detail
d. With the consent of the client.
of the observations and the proposed
9. The integrity of internal auditors established trust
recommendations with a fellow CAE from
and thus provides the basis for reliance on their
another organization.
judgment.
4. MAC, an internal auditor of RNB Company nearly
True False
finished with an engagement, discovers that COY
10. Which of the following is permissible under the IIA
(marketing director) has a gambling habit. The
Code of Ethics Rule of Conduct 1.2?
gambling issue is not directly related to the existing
a. Using engagement-related information in a
engagement, and MAC is under pressure to complete
decision to buy an ownership interest in the
it quickly. MAC notes the problem and passes the
employer organization.
information on to the chief audit executive but does
b. Accepting an unexpected gift from an employee
no further follow-up. Did MAC’s actions violate the
whom the internal auditor has praised in a
Code of Ethics and/or IIA standard?
recent engagement communication.
 c. Not reporting significant observations and
recommendation about illegal activity to the
board because management has indicated it will
address the issue.
d. Disclosing confidential, engagement-related
information that is potentially damaging to the
organization in response to a court order.
11. Internal auditors shall not use information for any
personal gain or in any manner that would be
contrary to the law or detrimental and ethical
objectives of the organization.
True False
12. Internal auditors shall perform their work with
honesty, diligence, and responsibility.
True False
13. Which of the following concurrent occupations could
appear to subvert ethical behavior of an internal
auditor?
a. Internal auditor and adjunct faculty member of a
local business college that educates potential
employees.
b. Internal auditor and landlord of multiple housing
that publicly advertises for tenants in a local
community newspaper listing monthly rental
fees.
c. Internal auditor and well—known charitable
organization’s local in-house chairperson.
d. Internal auditor and part-time business
insurance broker.
14. A CIA is working in a non-internal auditing position as
the director of purchasing. The CIA signed a contract
to procure a large order from the supplier with the
best price, quality, and performance. Shortly after
signing the contract, the supplier presented the CIA
with a gift of significant monetary value. Which of
the following statements regarding the acceptance
of the gift is correct?
• Acceptance of the gift violates the IIA’s code of
Ethics and is prohibited for a CIA.
15. Which of the following is permissible under the IIA
Code of Ethics?
a. Accepting an unexpected gift from an employee
whom the internal auditor praised in a recent
audit report.
b. Using engagement-related information in a
decision to buy shares of stock in the employer
organization.
c. Disclosing confidential information that is
potentially damaging to the client in response
to a court order.
d. Not reporting significant observations and
recommendations about illegal activity to the
Board because management has indicated it will
address the issue.
16. Internal auditors respect the value and ownership
oof information they receive and do not disclose
information without appropriate authority unless
there is a legal or professional obligation to do so.
True False
17. Internal auditors shall not continually improve their
proficiency and the effectiveness and quality of their
services.
True False
18. Internal auditors exhibit the highest level of
professional objectivity in gathering, evaluating, and
communicating information about the activity or
process being examined.
True False
19. Which of the following is the least required in
attaining professional competence?
a. Period of meaningful work experience.
b. Continuing awareness of development in the
accountancy profession.
c. High standard of general education.
d. Specific education, training, and examination in
professionally relevant subjects.
20. Internal auditors shall disclose all material facts
known to them that, if not disclosed, may distort the
reporting of activities under review.
True False
21. Which of the following statement is correct
regarding core principles for professional practice of
internal auditing?
a. It educated practitioners and other relevant
audience on best practices in internal auditing.
b. The core principles, taken as a whole, articulate
internal audit effectiveness.
c. It articulates what internal audit aspires to
accomplish within an organization.
d. It demonstrates how practitioners should
leverage the entire framework to facilitate their
ability to achieve the Mission.
22. Which of the following best describes assurance
services?
a. Services designed for the improvement of
operations, resulting in better outcomes.
 b. The preparation of financial statements or the
collection, classification, and summarization of
other financial information.
c. Services designed to express an opinion on the
fairness of historical financial statements based
on the results of an audit.
d. Independent professional services that are
intended to enhance the credibility of
information to meet the needs of an intended
user.
23. The purpose of the IIA’s Code of Ethics is to?
a. Accomplish its objectives by bringing a
systematic, disciplined approach to evaluate and
improve the effectiveness of risk management,
control, and governance processes.
b. Provide dynamic leadership for the global
profession of internal auditing.
c. Promote an ethical culture in the profession of
internal auditing.
d. Enhance and protect organizational value by
providing risk-based and objective assurance,
advice, and insight.
24. The following are the elements of mandatory
guidance, except?
a. Code of Ethics
b. Internal standards on auditing
c. Core principles for the professional practice of
internal auditing
d. Definition of internal auditing
25. Activities in support of the IIA mission will include the
following, except:
a. Educating practitioners and other relevant
audiences on best practices in internal auditing.
b. Researching, disseminating, and promoting
knowledge concerning internal auditing and its
appropriate role in control risk management,
and governance to selected stakeholders only.
c. Providing comprehensive professional
educational and development opportunities,
standards and other professional practice
guidance, and certification programs.
d. Bringing together internal auditors from all
countries to share information and experiences.
26. Assessing individual objectivity of internal auditors is
the responsibility of?
a. The chief audit executive.
b. The chief executive officers.
c. The audit committee.
d. The board.
27. A chief audit executive has reviewed credentials,
checked references, and interviewed a candidate for
a staff position. The CAE concludes for staff position.
The CAE concludes that the candidate has a thorough
understanding of internal audit techniques,
accounting, and finance. However, the candidate has
limited knowledge of economics and information
technology. Which action is most appropriate?
a. Offer the candidate apposition despite lack of
knowledge in certain essential areas.
b. Encourage the candidate to obtain additional
training in economics and information
technology and then reapply.
c. Reject the candidate because of the lack of
knowledge required by the Standards.
d. Offer the candidate a position if other staff
members possess sufficient knowledge in
economics and information technology.
28. Freedom from conditions that threaten internal
auditors’ ability to do unbiased work is?
a. Independence
b. Control
c. Compliance
d. Avoidance of conflicts of interest
29. Due professional care implies reasonable care and
competence, not infallibility or extraordinary
performance. Thus, which of the following is
unnecessary?
a. The conduct of examinations and verifications to
a reasonable extent.
b. The conduct of extensive examinations.
c. The reasonable assurance that compliance does
exist.
d. The consideration of the possibility of material
irregularities.
30. The CAE should report functionally to the board. The
board is responsible for which of the following
activities?
I. Internal communication and information
flows.
II. Approval of the internal audit risk
assessment and related audit plan
III. Approval of annual compensation and
salary adjustments for the CAE
a. 1, 2, and 3.
b. 1 and 2 only.
c. 1 and 3 only.
d. 2 and 3 only.
31. When evaluating the independence of an internal
audit activity, a quality assurance review team
performing an external assessment considers several
factors. Which of the following factors has the least
amount of influence when judging an internal audit
activity’s independence?
a. Criteria used in making internal auditors’
assignment.
b. Impartial and unbiased judgment.
c. The extent of internal auditor training in
communications skills.
d. Relationship between engagement records and
engagement communications.
32. At a minimum, how often should be skills of the
internal audit staff be assessed?
a. Annually
b. Quarterly
c. Every 5 years
d. Semi-annually
33. In which of the following situations does an internal
auditor potentially lack objectivity?
a. A former purchasing assistant performs a
review of internal controls over purchasing 4
months after being transferred to the internal
auditing department.
b. A payroll accounting employee assists an internal
auditor in verifying the physical inventory of
small motors.
c. An internal auditor recommends standards of
control and performance measures for a
contract with a service organization for the
processing of payroll and employee benefits.
d. An internal auditor reviews the procedures for a
new electronic data interchange (EDI)
connection to a major customer before it is
implemented.
34. When hiring entry-level internal auditing staff, which
of the following will most likely predict the
applicant’s success as an internal auditor?
a. Ability to fit well socially into a group.
b. Grade point average in college accounting
courses.
c. Ability to organize and express thoughts well.
d. Level of detailed knowledge of the organization.
35. Which of the following actions is required of the CAE
in regard to the objectivity of internal auditors?
a. Maximize
b. Assess
c. Manage
d. Prioritize
36. Which action is not consistent with functional
reporting?
a. The board should have the final authority to
approve the internal audit risk assessment.
b. Organizational independence is effectively
achieved when the CAE reports functionally to
the board.
c. The CAE should meet with the board, with
management present, to reinforce the
independence of the internal audit activity.
d. The board should approve the CAE’s
performance evaluation.
37. A treasury department employee transferred to the
internal audit activity of the same organization last
month. The chief financial officer of the organization
has suggested that, because of the employee’s
significant knowledge in this area, it would be a good
idea for the employee to immediately begin an
engagement to evaluate the treasury department. In
this circumstance, the employee should?
a. Suggest that the engagement be performed by
another member of the internal audit staff.
b. Offer to prepare an engagement work program
but suggest that interviews with the employee’s
former co-workers be conducted by other
members of the internal audit staff.
c. Accept the engagement and begin work
immediately.
d. Discuss the need for such an engagement with
the employee’s former superior, the CFO.
38. The internal audit activity can perform an important
role in preventing and detecting significant fraud by
being assigned all but which one of the following
tasks?
a. Review large, abnormal, or unexplained
expenditures.
b. Review contributions by the organization that
appear to be unusual.
c. Review every control feature pertaining to
petty cash receipts.
d. Review sensitive expenses, such as legal fees,
consultant fees, and foreign sales commissions.
39. With regard to the exercise of due professional care,
an internal auditor should
a. Emphasize the potential benefits of an
engagement without regard to the cost.
 b. Select procedures that are likely to provide
absolute assurance that irregularities do not
exist.
c. Consider the relative materiality or significance
of matters to which assurance procedures are
applied.
d. Consider whether criteria have been established
to determine whether goals are achieved, not
whether those criteria are adequate.
40. The IIA indicated that to achieve necessary
independence, the CAE should report functionally to
whom?
a. Senior management
b. Chief executive officer
c. The board
d. Shareholders
41. Due professional care calls for:
a. Infallibility and extraordinary performance when
the system of internal is known to be weak.
b. Detailed reviews of all transactions related to a
particular function.
c. Testing in sufficient detail to give absolute
assurance that noncompliance does not exist.
d. Consideration of the possibility of material
irregularities during every engagement.
42. An internal auditor who had been supervisor of the
accounts payable section should not perform an
assurance review of that section:
a. Until it is clear that the new supervisor has
assumed the responsibilities.
b. Until at least 1 year has elapsed.
c. Because a reasonable period od time in which to
establish independence cannot be determined.
d. Until after the next annual review by the external
auditors.
43. Which of the following describes the chief audit
executive’s optimal reporting line to enhance the
independence of the internal audit activity?
a. Functional reporting to the audit committee.
b. Administrative reporting to the chief financial
officer.
c. Functional and administrative reporting to the
president of the organization
d. Administrative reporting to the board.
44. An external quality assessment team was evaluating
the independence of an internal aduit activity, The
internal audit activity performs engagements
concerning all of the elements included in its scope.
Whichh of the following reporting responsibilities is
most likely to threaten the internal audit activity’s
independence? Reporting to the:
a. Audit committee
b. Executive vice president
c. President
d. Chief financial officer.
45. To avoid being the apparent cause of conflict
between an organization’s senior management and
the board, the chief audit executive should:
a. Discuss all reports to senior management with
the board first.
b. Request board approval of policies that include
internal audit activity relationships with the
board.
c. Strengthen the independence of the internal
audit activity through organizational position.
d. Communicate all engagement results to both
senior management and the board.
46. Prior to implementation, management has
requested the internal audit activity to perform an
engagement to recommend procedures and policies
for improving management control over the
telephone marketing operations of a major division.
The chief audit executive should:
a. Not accept the engagement because internal
audit activities are presumed to have expertise
regarding accounting controls, not marketing
controls.
b. Accept the engagement, but indicate to
management that, because recommending
controls impairs independence, future
engagements in the area will be impaired.
c. Not accept the engagement because
recommending controls would impair future
objectivity regarding this operation.
d. Accept the engagement because objectivity will
not be impaired.
47. A certified internal auditor performed an assurance
engagement to review a department store’s cash
function. Which of the following actions will be
deemed lacking in due professional care?
a. Because of a highly developed system of
internal control over the cash function, the final
engagement communication assured senior
management that no irregularities existed.
b. A flowchart of the entire cash function was
developed but only a sample of transactions was
tested.
 c. Organizational records were reviewed to
determine whether all employees who handle
cash receipts and disbursement were bonded.
d. The final engagement communication included a
well-supported recommendation for the
reduction in staff, although it was known that
such a reduction would adversely affect morale.
48. Maintaining individual objectivity of internal auditors
is the responsibility of:
a. The external assessment team.
b. The chairperson of the audit committee.
c. The chairperson of the board of directors.
d. The chief audit executive.
49. George is the new internal auditor for XYZ
Corporation. George was in charge of payroll for XYZ
just 10 months ago. Performing what services in
regard to payroll is considered an impairment of
independence or objectivity if performed by George?
a. Assurance services
b. Assurance or consulting services
c. Neither assurance nor consulting services
d. Consulting services
50. Which of the following facts by themselves, could
contribute to a lack of independence of internal audit
activity?
I. The CEO accused the new auditor 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 audit activity’s charter has
not been approved by the board.
a. 1, 2, and 3.
b. 2 only
c. 1 only
d. 2 and 3 only.