Midterm Quiz 1 -

ACELEC 332 (Short-term

AY 2021-2022)
Date of posting: June 28, 2022 (Tuesday), class
time
Time allotted for this quiz: 90 minutes
Note: Answers posted outside this Google Form
will not be considered. Late submission will
incur 5 points deduction.

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Class Code *

1232

Family Name, First Name, Middle Initial (e.g., *

Aquino, Benigno, C.)

Erbon, Allysa, M.

MULTIPLE CHOICE

Select the best answer from each of the following

statements (1 point each).
:
 One or more or neither of the statements below are
incorrect statement(s) about “#eldwork.” Choose
all the incorrect statements by clicking the box
next to it or choose “none of the above statements
are incorrect” if you believe otherwise.

Creating working papers that document

the audit is a work performed during
Seldwork.

None of the above statements are

incorrect

Expanding or altering audit procedures, if

circumstances warrant, is a work
performed during Seldwork.

Developing a written audit program is a

work performed during Seldwork.

Applying the audit program to accomplish

audit objectives is a work performed
during Seldwork.
:
 Reviewing annual audit plans and
monitoring audit results

Reviewing copies of the procedures

manuals for selected company operations
and meeting with company oXcials to
discuss them

Approving audit plans, scheduling, staXng

and meeting with the internal auditor as
needed

Protecting the independence of the

internal auditor from undue management
inZuence
:
 Internal auditing has evolved to verifying
the existence of assets and reviewing the
means of safeguarding assets

Internal auditing involves appraising the

economy and eXciency with which
resources are employed

Internal auditing involves evaluating

compliance with policies, plans,
procedures, laws and regulations

Internal auditing has evolved to more of

an operational orientation from a strictly
Snancial orientation

It should be approved by senior

management and the board.

It provides a basis for evaluating the

internal audit activity.

It speciSes the minimum resources

needed for the internal audit activity.

It deSnes the authorities and

responsibilities for the internal audit
activity.
:
 StaXng and supervision.

Continuing professional development and

due professional care.

Organizational status and objectivity.

Human relations and communications.

:
 Which actions are required to implement risk
based-planning under no risk management in
place?

Develop a strategy document that

supports the choices made and explains
the methodology used and judgements
made to arrive at decisions.

Score events in terms of probability and

impact

Identifying events that may give rise to

risk and opportunities across the audit
universe

Discuss approach with managers and

obtain agreement on the way risks are
being scored

Discuss and agree approach to

categorization with management

Produce initial risk factors

:
 Ensuring that fraud will not occur

Determining if the organizational

environment fosters control
consciousness

Evaluating the effectiveness of actions

taken by management to deter fraud

Being aware of activities in which fraud is

likely to occur

I, II, and IV only.

I, III, and IV only.

II, III, and IV only.

I, II, and III only.

:
 The internal audit activity should have no
role in this process in order to ensure
independence.

The internal audit activity should establish

a monitoring process to review the
adequacy and effectiveness of
management’s follow-up actions.

The internal audit activity should become

involved only if speciScally requested by
management or the board of directors.

The internal audit activity should only

become involved if the chief audit
executive has suXcient evidence that the
follow-up is not occurring.
:
 Evidence is competent to the extent that it is
consistent with fact (i.e., evidence is competent if it
is valid). Competent evidence is satis#ed by an
original signed document, but copies do not
provide competent evidence. Listed below are
examples of competent evidence, except:

A contract dispute has arisen between a

company and a major supplier. To resolve
the dispute, the most competent evidence
would be the original contract.

A positive conSrmation of an accounts

receivable that proves that it actually
exists is competent evidence.

The most “reliable” (competent) evidence

of determining a company’s legal title to
inventories is paid vendor invoices.

None of the above statements are

incorrect.

In deciding whether recorded sales are

valid, most “competent” evidence would
be obtained by looking at the shipping
document, the independent bill of lading,
and the invoice for the merchandise.
:
 Each participant in the interview—interviewer
(auditor) and interviewee (auditee)—has a role to
perform and a set of behaviors that assist in the
performance. Because the role and behaviors of
each one in$uence the conduct of the interview,
they a%ect the other participant. One or more of
the items below pertain(s) to the task(s) that the
audit must perform in conducting interviews.
Choose all the items that does not apply to the
above statement. If none of the statements met this
criteria, choose “none of the statements are
correct.”

Ask questions in a prescribed order and

manner.

Develop rapport with the interviewee and

show interest.

Elicit responsiveness from the interviewer.

Ensure non-bias.

Ensure understanding.

Give the interviewee a reason to

participate.

Obtain suXcient answers.

Show sensitivity to the interviewer’s

burden.

None of the statements are correct.

:
 An auditor reviews the procedures for a
new electronic data interchange
connection to a major customer before it
is implemented.

A former purchasing assistant performs a

review of internal controls over purchasing
four months after being transferred to the
internal audit activity.

A payroll accounting employee assists an

auditor in verifying the physical inventory
of small motors.

An auditor recommends standards of

control and performance measures for a
contract with a service organization for
the processing of payroll and employee
beneSts.
:
 Statement 1: Top Down Risk Assessment considers
impact and likelihood of occurrence. Statement 2:
Bottom Up Risk Assessment evaluates risk on a
common basis.

Only Statement 1 is correct

Only Statement 2 is correct

Both statements are correct

Both statements are incorrect

:
 Automated work paper so&ware helps auditors to
increase e'ciency and productivity because it
relieves the boredom of writing out by hand. (e
so&ware automatically refers to audit work
program sections and related audit objectives. Any
corrections or changes can be done with ease and
without losing the continuity. Automated
documentation aids include:

Computer data Sle translation software

packages, which read the data Sle
descriptions in the computer program and
convert them into a convenient and
readable format (tabular and graphic).

None of the above statements are correct.

Automated Zowchart software packages,

which read the source code for a
computer program and convert it into an
easy-to-read Zowchart.

JCL software packages, which depict the

job control Zow as a graph or table
showing the sequence of jobs or steps
executed and indicating their procedure
names and numbers.

All of the above statements are correct.

:
 Which of the following statements are correct
regarding risk assessment as the term is used in
internal auditing? Choose all the items that apply
to this statement.

Statement 3: Risk assessment is a

systematic process of assessing and
integrating professional judgement about
probable adverse conditions and/or
events, providing a means of organizing
an internal audit schedule.

Statement 1: Risk assessment is a

judgmental process of assigning values to
the perceived level of risk found in an
auditable activity. These values allow
directors to select the auditees most likely
to result in identiSable audit savings.

Statement 2: The audit director should

incorporate information from a variety of
sources into risk assessment process,
including discussions with the board,
management, external auditors, and
review of regulations, and analysis of
Snancial or operating data.

Statement 4: As a result of an audit or

preliminary survey, the audit director may
revise the level of assessed risk of an
auditee at any time, making appropriate
adjustments to the work schedule.
:
 One or more or none of the statements below are
correct statements about the “$owcharts.” Choose
all the correct statements by clicking the button or
choose “none of the above statements are correct” if
you believe otherwise.

An auditor develops a Zowchart primarily

to analyze a system and identify internal
controls, to determine whether there is
ineXciency and lack of controls.

As a means of internal control evaluation,

Zowcharts allow users to follow
information Zow more easily than do
questionnaires and descriptive narratives.

Flowcharts would be most appropriate

during the preliminary stage of an area
that has not previously been audited.
Flowcharts help auditors in evaluating
internal control systems.

Flowcharts would most likely be used in

the evaluation of controls in a complex
system, not in a simple but well-
documented system.

None of the above statements are correct.

:
 Review the expenditure items and match
each item with the expenses incurred.

Ensure compliance with reporting

procedures.

Determine if there are any employees

expending funds without authorization.

Identify inadequate controls that increase

the likelihood of unauthorized
expenditures.
:
 An audit manager responsible for the supervision
and review of other auditors needs the necessary
skills and knowledge. Which of the following
describe a skill or knowledge necessary to supervise
a particular assignment? Choose all the items that
apply to this statement.

Ensuring that an audit report is supported

and accurate relative to the evidence
documented in the working papers of the
audit

Determining that staff auditors have

completed the audit procedures and that
audit objectives have been met.

Using risk assessment and other

judgmental processes to develop an audit
plan and schedule for the department and
present the plan to the audit committee

The ability to review and analyze an audit

program to determine if the proposed
audit procedure will result in evidence
relevant to the audit’s objectives
:
 Continuing on an audit assignment at a
division for which the auditor will soon be
responsible as the result of a promotion.

Reducing the scope of an engagement

due to budget restrictions.

Reviewing a purchasing agent's contract

drafts prior to their execution.

Participating on a task force which

recommends standards of control for a
new distribution system.
:
 Reviewing operations or programs to
ascertain whether results are consisten
with established objectives and goals and
whether the operations or programs are
being carried out as planned.

Reviewing the strategic management

process, assessing the quality of
management decision making both
quantatively and qualitatively, and
reporting the results to the audit
committee

Appraising the economy and eXciency

with which resources are employed

Reviewing the means of safeguarding

assets and, as appropriate, verifying the
existence of such assets
:
 Discussions with senior managers should be
conducted in an open manner and focus on the
following, except:

Identifying the minimum risk they face in

achieving the organization’s objective.

The result of internal and external audit

work is carried out during the year

Clarifying the organizations’ main

objective

Any concern that managers may have

over internal control

Engagement Level risk assessment key components

are as follows:

ConSrms risk with business owners.

Gain an understanding business process

Governance, risk management and

oversight

Analysis of quantitative risk information

Outstanding Issues

Document Risk within a data repository

Other:
:
 Statement 1: Risk based audit program should
formally documented and supported with written
analysis of risk. Statement 2: Risk based audit
program should exclude pro#les of signi#cant
business units, departments and products that
identify business and control risk and document
the structure of risk management and internal
control systems.

Only Statement 1 is correct

Both statements are correct

Both statements are incorrect

Only Statement 2 is correct

Evidence is su'cient if there is enough of it to

support the auditors’ #ndings. In determining the
su'ciency of evidence, it may be helpful to ask: Is
there enough evidence to persuade a reasonable
person of the validity of the #ndings? An essential
factor in evaluating the “su'ciency” of evidence is
that it must be convincing enough for a prudent
person to reach the same decision. Listed below are
examples of su'cient evidence, except:
:
 Verifying the quantity of Sxed assets on
hand by physical observation would
provide the most persuasive evidence of
quantity per record.

Using test data, an auditor has processed

both normal and atypical transactions
through a computerized payroll system to
test calculations of regular and overtime
pay amounts. SuXcient competent
evidence of controls exists if test data
results are compared to predetermined
results or expectations.

The audit procedure that provides the

most persuasive evidence about the loan’s
collectibility is to examine the
documentation of a recent, independent
appraisal of the real estate that was used
a security.

None of the above statements are

incorrect.

If the audit objective is to gain evidence

that payment actually has been made for
a speciSc invoice from a vendor, the most
persuasive evidence would be obtained by
a canceled check, made out to the vendor
and referenced to the invoice, included in
a cutoff bank statement that the auditor
received directly from the bank.
:
 A question is biased when it causes interviewees to
answer in a way that does not re$ect their true
positions on an issue. An interviewee may or may
not be aware of the bias. Problems result when the
interviewees are:

Unaware of the bias and inZuenced to

respond in the way that is directed by the
wording.

None of the above statements are correct.

All of the above statements are correct

Aware of the bias and deliberately answer

in a way that does not reZect their
opinions.

Refuse to answer because the question is

biased.
:
 Best evidence is o&en referred to as primary
evidence and is the evidence that is the most
natural and reliable. It is con#ned to documentary
evidence and applies to proof of the content in
writing. Listed below are examples of best evidence,
except:

None of the above statements are

incorrect.

The best evidence in assessing the

acceptability of various beneSt programs
to employees is to evaluate program
participation ratios and their trends during
an audit of the personnel function, where
participation in some of these beneSt
programs is compulsory.

The audit procedure providing the best

evidence about the collectibility of notes
receivable would be an examination of
cash receipts records to determine
promptness of interest and principal
payments.

Reconciling shipping records to recorded

sales is a substantive Seldwork procedure
providing best evidence about the
completeness of recorded revenues.

In testing the write-off of a deteriorated

piece of equipment, the best evidence of
the condition of the equipment would be a
physical inspection of the actual piece of
equipment.
:
 Consider the possibility of
nonconformance or irregularities at all
times during an engagement.

Ensure that all audit tests are fully

documented.

Ensure that all Snancial information

related to the audit is included in the audit
plan and examined for nonconformance
or irregularities.

Communicate any noncompliance or

irregularity discovered during an
engagement promptly to the audit
committee.

(e auditors’ approach to determining the

su'ciency, relevance, and competence of evidence
depends on the source of the information that
constitutes the evidence. Which of the following
statements is incorrect regarding information
sources of evidence?
:
 The auditors’ evidence may also include
data gathered by third parties. In some
cases, these data may already have been
audited, or the auditors may be able to
audit this evidence themselves. Often,
however, it is not practical to obtain
evidence of the data’s validity and
reliability.

All of the above statements are correct.

Auditors should obtain suXcient evidence

that computer-processed data are valid
and reliable when those data are
signiScant to the overall body of evidence
supporting the auditors’ Sndings and any
conclusions or recommendations.

Data gathered by the auditors include the

auditors’ own observations and
measurements. Among the methods for
gathering these types of data are
questionnaires, structured inter views, and
direct observations.

Auditors can use data gathered by the

auditee as part of their evidence. If those
data are insigniScant to the overall body of
evidence supporting their Sndings,
auditors should obtain additional evidence
regarding the reliability of those data.
:
 Statement 1: In an IT environment, it is not
possible to follow the path of a transaction through
its processing cycle solely by following the
paperwork $ow, since the computer accomplishes
many of the functions performed by employees and
no hard-copy documents are produced. Statement
2: (e snapshot audit technique o%ers the ability of
listing all the data that were involved in a speci#c
decision-making process. (e technique requires
the necessary logic to be preprogrammed in the
system. A mechanism, usually a special code in the
transaction record, is added for tri*ering, lo*ing,
and printing of the data in question for analysis.

Both statements are incorrect

Only statement 2 is incorrect

Only statement 1 is incorrect

Both statements are correct

:
 I, II, and IV only.

II only.

I and III only.

III and IV only.

:
 Employees using personal computers have been
reporting occupational injuries and claiming
substantial workers’ compensation bene#ts.
Working papers of an operational audit to
determine the extent of company exposure to such
personal injury liability should include.

Reviews of documentation supporting

purchases of personal computers

Listing of all personal computers in use

and the employees who are assigned to
use them.

ConSrmations from insurance carriers as

to claim paid under workers’
compensation policies in force.

Analysis of claims by type of equipment

and extensiveness of use by individual
employees.

(e decision to use a questionnaire should be made

only a&er carefully considering the comparative
advantages and disadvantages of the various ways of
administering a questionnaire over other data
collection techniques. (e following statements
relate to when to use questionnaires, except:
:
 None of the above statements are
incorrect.

Questionnaires are diXcult to use if the

respondent population cannot be readily
identiSed or if the information being
sought is not widely distributed among
the population of those who hold the
knowledge.

Questionnaires are frequently used with

sample survey strategies to answer
descriptive and normative audit questions.
They are often less central in studies
answering cause-and-effect questions
since good answers require an in-depth
qualitative and quantitative analysis.

Questionnaires can be useful when the

auditor needs a cost-effective way to
collect a large amount of standardized
information, when the information to be
collected varies in complexity, when a
large number of auditees are needed,
when different populations are involved,
and when auditees in those populations
are in widely separated locations.

Questionnaires are usually more versatile

than other methods. They can be used to
collect more types of information from a
wider variety of sources than other
methods because they use people, who
can report facts, Sgures, amounts,
statistics, dates, attitudes, opinions,
experiences, events, assessments, and
judgments during a single contact.
:
 Which of the following operational risk falls under
Capacity? Choose all the items that apply to this
statement.

Failing to maintain beneScial relationship

with customers

Inability to secure needed resources

Process Generating excessive amounts of

waste

Failure to meet external requirements

Inability to produce as many units as

required

Delivering ordered goods or services

Social unrest triggered by changes in

government
:
 Statement 1: Risk assessment should be well
documented and dynamic, re$ecting changes to the
system of internal controls, infrastructure, work
processes and new/ changed business lines or laws
and regulations. Statement 2: A high-level
summary of risk assessment results should be
provided to the audit committee and include the
most signi#cant risks facing the institution, as well
as how those risks have been addressed in the audit
plan

Only Statement 2 is correct

Only Statement 1 is correct

Both statements are incorrect

Both statements are correct

:
 Statement 1: Risk factors may be helpful in
selecting audit objects and identifying how o&en
this should be audited. Statement 2: Risk is static
concept, it does not change.

Only Statement 1 is correct

Both statements are incorrect

Only Statement 2 is correct

Both statements are correct

Audit staff promotions and salary

increases.

Audit work schedules.

The internal audit report observations and

recommendations.

The appointment of the chief audit

executive.
:
 (e internal auditor is considering performing risk
analysis, as a basis for determining which areas of
the organization ought to be examined. Which of
the following statements is incorrect regarding risk
analysis? Choose all the items that apply to this
statement.

The highest risk assessment should

always be assigned to the area with
highest probability of occurrence.

Risk analysis must be reduced to a

quantitative term in order to provide
meaningful comparisons across an
organization

The highest risk assessment should

always be assigned to the area with the
largest potential loss.

The extent to which management

judgements are required in an area could
serve as a risk factor in assisting the
auditor in making a comparative risk
analysis.
:
 (e reliability of questionnaire results tests
whether a question always gets the same results
when repeated under similar conditions. Answers
can be highly-reliable without being either veri#ed
or valid. A reliable measure is one that, used
repeatedly in order to make observations, produces
consistent results. Which of the following
statements is incorrect?

Testing reliability is diXcult and

expensive, because auditors have to either
replicate the data collection or return to
those who were questioned before.
People do not like to be retested.

The procedures for testing the reliability of

answers are the same from those for
verifying answers.

To test reliability, auditors have to

administer the same test to the same
source.

When information is veriSed, auditors

usually go to a different source for the
same information or use a different
technique on the same source, such as
observations or in-depth interviews.

None of the above statements are

incorrect.
:
 One or more or neither of the statements below are
incorrect statement(s) about “planning.” Choose all
the incorrect statements by clicking the box next to
it or choose “none of the above statements are
incorrect” if you believe otherwise.

Audit working papers aid in the planning,

performance, and review of audits.

None of the above statements are

incorrect

While audit risk should be considered in

planning the audit, the nature and extent
of audit risk should be documented in the
audit work papers, speciScally in the
planning section.

In planning a system of internal controls,

the role of the internal auditor is to create
the procedures for the planning process.

In planning an audit, an on-site survey

could assist with evaluating the
effectiveness of the system of internal
controls.
:
 One or more or neither of the statements below are
incorrect statement(s) about the role of the Chief
Audit Executive (CAE) during the planning stage.
Choose all the incorrect statements by clicking the
box next to it or choose “none of the above
statements are incorrect” if you believe otherwise.

None of the above statements are

incorrect

The chief audit executive should consider

accepting proposed consulting
engagements based on the engagement’s
potential to improve management of risks,
add value, and improve the internal audit’s
function.

The chief audit executive consults with

senior management and the board and
obtains an understanding of the
organization’s strategies, key business
objectives, associated risks, and risk
management processes.

The chief audit executive must identify

and consider the expectations of senior
management, the board, and other
stakeholders for internal audit opinions
and other conclusions.

The chief audit executive must review and

adjust the plan, as necessary, in response
to changes in the organization’s business,
risks, operations, programs, systems, and
controls

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