Topic 2, Volume B
A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The
analysis involves rating auditable entities on risk factors using a scale of 1 to 10,with 10
representing the greatest risk. A partial list of risk factors and the ratings given to three of
the bank's departments is provided below:
Department
Risk Factor
A
B
C
Control structure
9
5
7
Nature of assets in department
2
7
9
Dollar value of assets
6
6
8
Complexity of transactions
3
4
8
Which of the following statements regarding risk in the departments is true?
A.
As compared to departments A and C,department B has a stronger control system to
compensate for the greater complexity of the department's transactions and dollar value of its assets.
B.
The internal audit activity should schedule audits of department B more often than audits
of department C because of the relative control strength of department C as compared to
department B.
C.
The nature of department A's control structure may be justified by the nature of the
department's assets and the complexity of its transactions.
D.
The relative ranking of the departments in order of their risk,from greatest to least risk,is:A; C; B.
Which of the following audit findings would have the least impact (either positive or
negative) on a department's control environment?
A.
The department makes long-term investment risk decisions to maximize return on investment.
B.
The department manager sets and demonstrates a tone of honesty and integrity in all business dealings.
C.
Many department functions are duplicated or verified by other department employees.
D.
Deficiencies were found in the appropriate authorization of transactions.
When developing the annual audit plan and reviewing risk assessment priorities,a chief
audit executive should always identifythe:
A.
Potential recommendations for each auditable activity.
B.
Persons to whom engagement reports will be communicated.
C.
Engagement procedures to be used during the engagements.
D.
Internal audit resources required to achieve the audit plan.
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 stockholder 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.
Which of the following internal controls is likely to prevent pollution from waste disposal
before it occurs,rather than detect it after it occurs?
A.
Identification of large budget variances in disposal costs for hazardous chemicals.
B.
Restricted access to environmental department files.
C.
Formal on-the-job training program conducted by the environmental staff.
D.
Samples of water and solid waste taken daily with the results recorded in a log.
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