IIA-CIA-Part1 Practice Test

When an external auditor unknowingly fails to modify an opinion on financial statements
that are materially misstated,this is an exampleof:

A.

 An inherent risk.

B.

 A control risk.

C.

 An audit risk.

D.

 A residual risk.

The audit committee has asked the chief audit executive (CAE) to assist in the selection of
a new external audit firm. Which of the following is an appropriate action by the CAE?

A.

The CAE and two managers from the audit staff review the bids and select one firm to
meet with the audit committee for the committee's approval.

B.

The CAE develops a formal set of criteria for the audit committee to use in selecting the external auditor.

C.

The CAE,chief financial officer,and controller review the bids,interview two firms,and
recommend one of the two firms to the audit committee for its approval.

D.

The CAE declines to participate in the process because providing this assistance would
result in compromising the internal audit activity's objectivity.

A company has entered into a $20,000,000 fixed-price contract with a general contractor
for the construction of a new retail outlet. For this contract,which of the following would
represent the greatest risk?

A.

Excessive labor charged to the project.

B.

Poor physical protection of materials and equipment.

C.

Failure to complete the project within budget.

D.

Substitution of inferior materials.

To enhance the independence of both the internal and external audit functions,audit
committees should be composed of:

A.

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

B.

A combination of external members of the board of directors and company officers.

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 other similar oversight committees.

In a manufacturing company,which department would be the internal audit activity's most
reliable source of information on the controls over minimizing defective goods?

A.

Manufacturing.

B.

Quality control.

C.

Research and development.

D.

Inventory management.