Operations Auditing - Midterm Exam: Input Process Output

OPERATIONS AUDITING – MIDTERM EXAM
1. In the context of management, operations, in 7. Undertaking a broad coverage of operations

general, involve these three (3) important and audit may be limited by which of the following
primary components that are also used as the factors:
main guidance for undertaking internal audit 1. Culture of the organization
reviews? 2. Ability of an enterprise to afford so broad an
INPUT audit
PROCESS 3. The difficulty of obtaining people who can
OUTPUT do a broad type of audit
4. Lack of management guidance
2. What are the five (5) identified consequential The very practical consideration that
processes involved in the transformation or individuals may not like to be reported upon
conversion of input to output? 2, 3, AND 5 ONLY
PLANNING
ORGANIZING 8. A broad definition of operations audit is that it
CONTROLLING is an independent, objective assurance and
LEADING consulting activity designed to add value and
STAFFING improve and organization’s operations by
helping it in accomplishing the corporate as well
3. ____ ____ refers, in general, to the review of as unit goals and objectives through a
the efficiency, effectiveness, and economy of systematic, disciplined approach to evaluate and
the different controls established for each step improve the effectiveness of risk management,
of the business process(es) specifically those control, and governance processes.
that require interfaces within and among the FALSE
different functions and segments/units across
the organization. 9. ____ is that can be utilized to determine the
OPERATIONS AUDITING approach and degree or scale of operations
audit to be applied for each specific function,
4. What is this aspect of broad definition of activity, or system specifically on the interfaces
operations audit that refers to the assurance across different operating segments or business
that accounts properly reflect the financial facts units.
as referenced to the conceptual framework of SAPG OR STANDARD AUDIT PROGRAM GUIDE
accounting i.e. faithful representation (fair
presentation), relevance, and understanding? 10. ___ refers to one of the approaches to
FINANCIAL operational audit where internal auditors are
looking for opportunities for improvement (in
5. ___ is one of the E’s of auditing that relates to business processes) and this can be indicated by
the conversion process of turning the actual a performance measurement that pertains to
inputs available into actual outputs. the ratio between planned inputs and actual
EFFICIENCY inputs in terms of unit costs of a given quality.
ECONOMY
6. Efficiency is measured by deriving the ratio of
the usable ___ to the actual ___ input into the
conversion process. 11. What are the four (4) main considerations that
OUTPUTS affect efficiency?
RESOURCES QUALITY OF RAW MATERIALS
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QUALITY OF LABOR TO DETERMINE THE RESPONSIVENESS AND
DESIGN OF THE PROCESSES COMPLIANCE TO THE SET GOALS AND
QUALITY OF TECHNOLOGY OBJECTIVES WHETHER AT THE INDIVIDUAL,
UNIT OR CORPORATE LEVEL.
12. ___ is one of the E’s of auditing that is
measured by the ratio of actual outputs against 19. In order to ensure that goals and objectives are
planned outputs (i.e. planned objectives). achieved either at the individual, unit, or
EFFECTIVENESS corporate level, the measurement standard
must be set at the LEAST MINIMUM
13. In strategic management, the resulting ACHIEVABLE result.
measurement of performance in relation to any FALSE
of the three (3) E’s is reflected in the ___ of
either the individual or unit level. 20. The performance measurement methods to be
BALANCE SCORECARD used must always be based on
ACCURATE AND RELIABLE DATA AND A PROVEN
14. ___ is another “E” of audit interest that refers to METHOD
the legal and moral conduct by management
and staff. 21. Which of the following are the primary
ETHICAL/ETHICS components in order to establish a performance
measurement? [Select three (3) from the
15. According to the Institute of Internal Auditors, choices]
“Proficiency” is described as internal auditors or GOALS/OBJECTIVES
the audit team who must possess the following KEY PERFORMANCE INDICATORS
needed to perform their responsibilities either STANDARD LEVEL OF MEASUREMENT
as individual or as a group.
KNOWLEDGE, SKILLS, AND OTHER 22. What is the most appropriate key performance
COMPETENCIES indicator to measure the efficiency of a machine
or equipment?
16. The following are options that the Chief Audit NUMBER OF UNITS PRODUCED PER HOUR
Executive can take when the internal auditors
lack the required proficiency. 23. What is the most appropriate key performance
ALL OF THE ABOVE indicator for a sales agent?
AMOUNT OF SALES GENERATED
17. This person is responsible for all internal audit
engagements, whether performed by or the 24. ____ ____ ____ auditing refers to the benefit
internal audit activity, and all significant that arises when the internal audit activity
professional judgements made throughout the provides an objective and relevant assurance
engagement. and contributes to the effectiveness and
CHIEF AUDIT EXECUTIVE efficiency of governance, risk management, and
control processes.
VALUE FOR MONEY
18. What is the PRIMARY and ULTIMATE reason why
there is a need for the measurement of 25. This is one of the approaches in establishing
productivity and performance? levels of performance measurements by
comparing one’s own performance in a specific
area with that applied by others in compatible need for change or review of their own
circumstances or similar situations. organization’s approach to internal auditing in
BENCHMARKING light of the survey data.
FALSE
26. It is necessary to understand fully the existing
processes, systems, and activities as a firm basis 31. One of the following is NOT a description of a
for subsequent comparison with external points business process:
of reference (such as industry or professional A CHAIN OF UNRELATED ACTIVITIES BUT
standards or even competition) in order to INTERFACES WITH OTHER PROCESSES.
maximize the benefit from the benchmarking
exercise. 32. Which of the following best describes the
TRUE general pattern by which a business process or a
process, in general, is designed and established?
27. What are the objectives of benchmarking? ESTABLISH GOALS, DETERMINE THE STEPS OR
a. Maintaining a competitive advantage in the ACTIVITIES, IDENTIFY THE PROCESS OWNERS
appropriate market AND ASSIGN THE RESPONSIBILITIES AND
b. Establishing the current methods, best ACCOUNTABILITIES.
practice, and related trends
c. Ensuring the future survival of the 33. In internal auditing, this is the general term
organization used in referring to the wide, vast, and broad
d. Maintaining an awareness of customer spectrum of processes, functions, and systems
expectations (and being able to address from which the subject of the audit engagement
them) will be selected, planned, and carried out.
e. Ensuring that the organization has the AUDIT UNIVERSE
appropriate approach to quality issues
ALL ARE CONSIDERED AS OBJECTIVE OF 34. What is that activity that the internal auditor or
BENCHMARKING the internal audit team may undertake to
determine the main reasons for any finding and
28. In the context of benchmarking, competitive explaining the occurrence for such findings
advantage is best described as specifically on the matters that pertain to non-
THE ABILITY AND/OR ATTRIBUTES OF THE compliance to internal controls from which
BUSINESS ENTITY IN ENSURING THAT ITS recommendations will be expected by
POSITION AS A MARKET OR INDUSTRY LEADER management?
IS MAINTAINED ROOT CAUSE ANALYSIS
29. Audit findings should ONLY be provided in 35. What could be a secondary process that can be
writing EXCLUSIVELY and in confidentiality to assigned to a function that involves handling
the HEAD of the concerned unit being subjected and monitoring of Accounts Receivable?
to audit review. ALL OF THE ABOVE
FALSE 36. All of the following are important uses of the
performance measurement methods EXCEPT
30. Benchmarking is more commonly used to IT CANNOT BE USED AS A VALID BASIS IN
determine the business entity ‘s competitive INVESTIGATIONS WHERE MANAGEMENT’S
position in the market or industry rather than LACK OF RESPONSE TO AN ADVERSE
enabling the company to take a view of the MEASUREMENT.
established and at this stage, the “audit
37. The business entity is not required to establish objectives” are considered the same as the
realistic measurement standards and methods “management’s objectives”.
because internal controls are already in place FALSE
and it is the responsibility of the internal auditor
to determine if there is compliance or non-
compliance to such internal controls. 45. The following approaches that can be used by
FALSE the internal auditor as a guide to establishing
levels of standards from which performance
may be measured
38. Generally, internal audit activities will involve all
of the following EXCEPT A, C, D AND F ONLY (BENCHMARKING,
FINANCIAL REPORTING COMPARING, MEASURING AND AIMING NGA
ANSWERS)
39. Including in the audit team a technical expert
from within the business organization is a 46. _________ is a way that can be applied in
violation of internal audit procedures. evaluating business processes particularly in
FALSE identifying whether there is any initial potential
for improvement, and then subsequently used
40. This term refers to the way the organization is to monitor that the required levels of
structured in terms of unit levels of offices as performance are maintained.
well as position titles. PERFORMANCE MEASUREMENT/ METHODS
ORGANIZATIONAL CHART
47. In both the management and audit assessment
41. This term refers to the different standards that of matters of value of money, the usual
have been set up within and across functions, approach is to make comparisons with a range
processes and/or units of the organization and of options or possible solutions to the principal
that must be complied with and from which problem including measurement methods
measurement will be undertaken to establish a which must be discussed and agreed upon with
level of assurance that goals and objectives are the management.
achieved. TRUE
INTERNAL CONTROLS
48. Referring to SAPG, in carrying out the stock and
42. What is the primary business process that is materials handling and management function,
consistent with the main function involving the the following processes shall be the primary
handling of General Ledger and Management subjects of operations audit review EXCEPT
Accounts? FINANCIAL REPORTING
FINANCIAL REPORTING PROCESS
43. What is the primary process if the function 49. Using the SAPG format, management and
involves the handling of petty cash and administration as a function would involve the
expenses related it. following business processes EXCEPT:
EXPENDITURE PROCESS WARRANTY ARRANGEMENTS
44. During the planning phase of the audit 50. It is described as “a series of cradle to grave”
engagement, the audit objectives need to be processes or cycles, where a CHAIN OF
INTERRELATED EVENTS or activities is plotted interrelationship in terms of functions and
from the origin to the conclusion.” process interfaces between the subject of the
review with other departments or units will not
BUSINESS OPERATIONS be an important factor to be considered so that
audit results can be confined to the specific
51. This term is generally used when undertaking a review required.
business process review that usually refers to an FALSE
activity or set of activities and/or utilities that
when performed or utilized will result in the 57. This approach of subdividing and defining the
achievement of the specific objectives for which internal audit universe of auditable units refers
these activities or utilities are designed. to different specific operational functions where
FUNCTION(S) different activities are identified and established
rather than a department or unit of the
52. This approach (in subdividing the audit organization that may have different function
universe) of defining audit reviews is described attached to it.
as “Each unit in the organizational structure is BUSINESS PROCESS APPROACH
considered as a separate functional unit apart
from the other units” 58. This refers to a process, method, or tool by
FUNCTIONAL OR DEPARTMENTAL APPROACH which a specific department(s) examines factors
to improve the existing internal controls and/or
53. Many opportunities for improvement lie as the implements new internal controls to mitigate
points of _______ between that part of the risks associated with a process or function.
business and other parts of the business and CONTROL SELF ASSESSMENT
system or departments where controls are
critical with which there needs to be effective 59. “Control is likely to be weaker between sections
coordination. or organizational units than within a functional
INTERFACES OR INTERACTION unit for BEHAVIORAL REASONS” These
behavioural reasons are evident in the following
54. Self-assessment for controls within the situations EXCEPT.
department may be undertaken through the LOYALTY IS NEVER AN IMPORTANT FACTOR
following EXCEPT. BECAUSE IT CAN BE COMPROMISED BASED ON
GUIDANCE AND DIRECTIVES FROM THE INDIVIDUAL BENEFITS THAT CAN BE
MANAGEMENT DERIVED
55. What is the role of the internal auditor in 60. The critical contents of the proposed SAPG are a
situations when behavioural reasons affect the number of issues related to the following that is
operations audit review? relevant to the specific system:
ALL OF THE ABOVE RISKS OR CONTROL
61. _______ refers to a group of representatives
from specific groups or units within the
56. One of the advantages of subdividing the audit organization who are competent and trained to
universe using the functional or departmental be group coordinators and who are tasked with
approach is that the area under review is clearly ensuring that cohesive workgroups are
bounded and the focus of the audit review is on maintained between the related and inter-
the specific area of interest. Therefore, the related units or departments of an organization.
This group is created to respond to one of the to the task of giving reasonable assurance of
“behavioural reasons” for weaknesses in achievement of objectives.
compliance with internal controls specifically THE STATEMENT PERTAINS TO THE
relating to interfaces. IMPORTANCE OF SAPG IN UNDERTAKING THE
LINKING PINS CONTROL SELF ASSESSMENT.
62. This term used in audit in general implies the 67. In the auditing context, there are a number of
preparation and retention within an ways that the organization can be divided for
organization for an adequate period, in a the purposes of reviewing the effectiveness of
reasonably accessible form, and in enough internal controls as follows: a. Functionally
detail to satisfy the auditors, of records which based on organizational ___ or b. Operationally
allow each detailed element of any transaction based on prime ____
to be tracked from its source through each CHART/STRUCTURE
intermediate stage to its final disposition (or ACTIVITIES
dispositions); and vice versa.
AUDIT TRAIL 68. _____ identifications is important in audit
reviews because it is basically a potent
63. The purpose of the SAPG is determinant in directing audit work particularly
ALL OF THE ABOVE the level of audit planning and activity to be
undertaken especially in the matters related to
64. How does the SAPG help the internal auditor? internal control compliance.
[Select the two (2) correct answers from the RISK
choices below to get one (1) full point.]
GUIDES THE INTERNAL AUDITOR 69. At this level of audit planning and activity, the
DETERMINING WHETHER THE SITUATION internal auditor uses risk assessment where the
NEEDS TO BE REPORTED TO MANAGEMENT auditor may choose to apply risk assessment
techniques to the potential universe of possible
HELPS THE INTERNAL AUDITOR TO CONSIDER audit projects as a means of setting relative
THEIR EFFECTIVENESS, AND DEPENDENT UPON priorities and thus determine those higher risk
THAT INTERPRETATION, RECORD THE NATURE audit projects for inclusion into the annual audit
AND RESULTS OF ANY AUDIT TESTING APPLIED plan.
TACTICAL OR PLANNING LEVEL
65. In a business approach of subdividing audit
universe, the specific activities are identified to
a function that is performed by the
PROCESS OWNER
66. SAPG documents offer an ideal basis for control 70. The internal auditor used the risk assessment of
self-assessment where auditing is done in a self- identifying audit activities at this LEVEL where
audit context where management, together the risk linked to an evaluation of control
with their staff, consider in quite a formalized effectiveness will direct the focus of the
through participative way in identifying the risks auditor's attention on aspects of the subject
of not achieving their objectives now and into under review which are more deserving of his
the future, and whether internal control is equal or her attention.
OPERATIONAL LEVEL
71. The use of risk assessment is a major factor in

identifying audit activities because, with audit
resources under pressure, it is important that
auditing efforts are concentrated on the highly
risky, poorly controlled aspects where
management action may be required.
TRUE
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OPERATIONS AUDITING – MIDTERM EXAM

1. In the context of management, operations, in 7. Undertaking a broad coverage of operations

71. The use of risk assessment is a major factor in

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