Guiding the ethical conduct of internal auditors
a public agency
Establish the basis for evaluating internal auditing
performance
Promote an ethical culture among professionals who
serve others
To outline criteria for professional behavior to maintain
standards of integrity and objectivity.
Express standards of individual behavior for members of
the organization
Broad standards of conduct for the members of the
organization
II only A has established objective criteria by which an
individuals actions can be evaluated
Provisions for disciplinary action in the event of
violations
Reflect only legal standards of conduct for individuals
and the organization
Subjectivity in presenting information, preparing
reports, and making analyses
Avoidance of conflict of interest
Describe behavior norms expected of internal auditors
Apply and uphold the principles embodied in The IIAs
Code of Ethics
Use individual judgment in the application of the
principles set forth in the Code
None of the answers represent a violation of the Code
Take action consistent with the principles embodied in
The IIAs Code of Ethics
A report on each engagement
Violated the Code of Ethics by knowingly becoming a
party to an illegal act
In response to a subpoena, an auditor appeared in a
court of law and disclosed confidential, audit-related
information that could potentially damage the auditors
organization.
Honesty, diligence, and responsibility
Reporting apparent violations of antitrust statutes by
officers to government regulators
Not be unduly influenced by their own interests in
forming judgments
Participate (directly or indirectly) in the management of
Acceptance of the gift violates The IIAs Code of Ethics
and is prohibited for a CIA.
Refuse on the grounds of conflict of interest
Should still include the finding in the final engagement
communication
No. The internal auditor followed up the matter with
appropriate personnel within the organization and
reached a conclusion that no fraud was involved.
Objectively include the facts of the case in the
engagement communications
I and II Violates The IIAs Code of Ethics because serving
on the board may be in conflict with the best interests
of the internal auditors employer
Violates The IIAs Code of Ethics because the
information gained while serving on the board of
directors of the local bank may influence
recommendations regarding potential acquisitions
Internal auditor and part-time business insurance
broker
Accepting compensation from professional
organizations for consulting work
Not accept the payment because such acceptance is in
conflict with the Code of Ethics.
Preparing the personal tax return, for a fee, for one of
the organizations division managers
Not accept it if the gift is presumed to impair the
internal auditors judgment
Report the override of control to the board
Gambling habit - Are not in violation of either The IIAs
Code of Ethics or the Standards
Inform appropriate organizational officials
Assure the employee that you can maintain her
anonymity and listen to the information
Discuss the issue with management and take
appropriate action to ensure that the external auditors
are informed
Inform the external auditors of the misstatement
Has violated the Standards because the internal auditor
should inform the appropriate authorities in the
organization if fraud may be indicated
Acquaint the chief audit executive with the situation
and ask to be assigned to another audit
Both a violation of The IIAs Code of Ethics AND a
violation of the reporting requirements in the Standards
Failing to report to management information that
would be material to managements judgment
Report the facts to the appropriate individuals within
the organization
Conducting an unrelated business outside of office
hours
A control system that had been recommended by the
internal audit staff during the previous engagement was
found to be defective. The internal auditor reported the
defective function as an engagement client failure
Acceptance of airline tickets from an engagement client
A pen received from the sales manager of a subsidiary
with the imprinted name of the organizations product
and a phone number.
Disclose material facts known to the internal auditor
that could distort the final engagement communication
if not revealed
Accepting a moderate gift from a customer of his/her
organization
Reveal material facts that could distort communications
if not revealed
Knowing that management was aware of the situation,
an internal auditor purposely left a description of an
unlawful practice out of the final engagement
communication
Disclosing confidential, engagement-related
information that is potentially damaging to the
organization in response to a court order
The chief audit executive (CAE) disagrees with the
engagement client about the observations and
recommendations in a sensitive area. The CAE discusses
the detail of the observations and the proposed
recommendations with a fellow CAE from another
organization
The CAE refuses to provide information about
organizational operations to his father, who is a part
owner
Inform The IIAs Board of Directors and take the
personnel action required by organizational policy.
During an engagement, an internal auditor learned that
the organization was about to introduce a new product
that would revolutionize the industry. Because of the
probable success of the new product, the product
manager suggested that the internal auditor buy an
additional interest in the organization, which the
internal auditor did
Purchasing stock in a target entity after overhearing an
executives discussion of a possible acquisition
Yes. The internal auditor was not prudent in the use of
information acquired in the course of his/her duties
Lack of competence in this area
CPD - Both the International Standards for the
Professional Practice of Internal Auditing and The IIAs
Code of Ethics
They should comply with the International Standards for
the Professional Practice of Internal Auditing.
The internal audit activity violated the Standards by not
providing adequate supervision.
Auditor C is content as an internal auditor and has come
to look at it as a regular 9-to-5 job. Auditor C has not
engaged in continuing professional education or other
activities to improve effectiveness during the last 3
years. However, Auditor C feels performance of quality
work is the same as before.
Comply with the International Standards for the
Professional Practice of Internal Auditing.
Performance with proficiency and due professional care
Sufficient, reliable, relevant, and useful information
lends credibility to the opinion.
Accounts Payable - The internal audit activitys charter
Evaluate the adequacy and effectiveness of the
organizations controls
Access to records, personnel, and physical properties
relevant to the performance of engagements
Authority internal auditor - Management and the board
Least likely to be part of charter - The length of tenure
of the chief audit executive
Refer to the internal audit activitys charter and the
approved engagement plan that includes the area
designated for evaluation in the current time period
Access to records relevant to performance of
engagements should be specified in the internal audit
activitys charter.
Have the internal audit charter approved by the board
It specifies the minimum resources needed for the
internal audit activity
CAE - Person responsible for the internal audit function
The internal audit charter should be amended.
Staff meetings
Explaining administrative policies and obtaining
suggestions from the staff
Be clearly stated and based on evaluations of position
requirements and individual performance.
The CEO accused the new auditor of not operating in
the best interests of the organization.
I, II and III
The CEO accused the new auditor of not operating in
the best interests of the organization.
The majority of audit committee members come from
within the organization.
The internal audit activitys charter has not been
approved by the board
Request board approval of policies that include internal
audit activity relationships with the board
Not be independent because the CAE reports to the
external auditors
The CAE will report to the audit committee
Product development team leader
Day to day operations - Administrative reporting
Treasurer
II and III. Approval of the internal audit risk assessment
and related audit plan
Approval of annual compensation and salary
adjustments for the CAEIII
A dual-reporting relationship
The extent of internal auditor training in
communications skills
CEO or equivalent
The CAE should meet with the board, with management
present, to reinforce the independence of the internal
audit activity
Charter Independence
Chief executive officer and functionally to the board of
directors
Must be sufficient to permit the accomplishment of the
activitys responsibilities
Board - Appointment of the chief audit executive
CAE reports to board
The chief audit executive reports to the chief executive
officer but has access to the board.
Organizational status and objectivity IPPF
Independence - threaten internal auditors ability to do
unbiased work
Effectiveness
Consider the specific circumstances before deciding
whether to disclose the reasons for the information
request.
Ascertain if the feasibility study addresses cost-benefit
relationships
The bonus is based on monetary amounts recovered or
recommended future savings as a result of
engagements.
Continuation on an engagement at a division for which
(s)he will soon be responsible as the result of a
promotion.
Reports to the board but does not report fully about the
reason for corrective action taken.
Purchasing activity if a major supplier is owned by the
internal auditors sister-inlaw.
Telephone - Accept the engagement because objectivity
will not be impaired
Not to participate in the system development process -
None of the answers are correct
Assessing individual objectivity of internal auditors - the
chief audit executive
I and III, Recommending standards of control for a new
information system application
Performing reviews of procedures for a new computer
application before it is installed
Except - Directing the implementation of the redesigned
process
Internal Audit activity - Reviewing systems of control
before implementation
Internal auditors frequently draft revised procedures for
departments whose procedures have been criticized in
an engagement communication.
Drafting operating procedures for the new system
Help assure that systems have adequate control
procedures
As part of an evaluation team, review vendor
accounting software internal controls and rank
according to exposures.
Objectivity - Requires internal auditors not to
subordinate their judgment on audit matters to that of
others.
CAE - Foster individual objectivity
It is performed at the discretion of the CAE
CAE to internal auditors Assess
CAE - Maintain individual objectivity
Internal auditors avoiding conflicts of interest
Maintain
Communicate the potential effects of the scope
limitation to the board
A former purchasing assistant performs a review of
internal controls over purchasing 4 months after being
transferred to the internal auditing department.
The board reviews the engagement work schedule for
the year and deletes an engagement that the chief audit
executive thought was important to conduct.
B. Nature of Limitation - Engagement client will not
provide access to records needed for approved work
schedule
Internal Audit Action - Report to the board
Until at least 1 year has elapsed
Suggest that the engagement be performed by another
member of the internal audit staff.
Communicated, preferably in writing, to the board
Notify the chief audit executive of the potential conflict
of interest
Report to the board scope of limitation
Requiring internal auditors to report to the chief audit
executive any conflicts of interest or bias.
Beachfront condo - Should reject the offer and report it
to the appropriate supervisor
Inform audit management and ask for direction on
whether to accept the gift
A. One internal auditor told the review team that,
during an engagement to review the payroll function,
the payroll manager approached the auditor. The
manager indicated the need for an accountant to
prepare financial statements for the managers part-
time business. The internal auditor agreed to perform
this work for a reduced fee during non-work hours
XYZ Corp. - Assurance services
Ability to organize and express thoughts well
Accept the audit engagement and begin immediately,
since it is a high-risk area
Internal auditors who collectively have the knowledge
and skills needed to perform the responsibilities of the
internal audit activity.
Proficiency - Internal audit procedures and techniques
Understanding - Management principles
Appreciation - Accounting principles and techniques
Excluding - The ability to conduct training sessions in
quantitative methods
Understanding of management principles
Proficient in - Internal auditing standards
I, II, IV Internal auditors should understand human
relations and be skilled in dealing with people.
Internal auditors should be able to recognize and
evaluate the materiality and significance of deviations
from good business practices.
Internal auditors should be skilled in oral and written
communication.
Communications skill except - The risk assessment used
in selecting the area for investigation
Proficiency in applying internal auditing standards and
procedures without extensive recourse to technical
research and assistance
Provide staff with sufficient training to enhance
communication skills
Positive perception consultative
Participation with engagement clients to improve
methods
Responsible in determining level of education and
experience of Audit staff Chief audit executive
External service provider
Healthcare - All of the answers are correct
Offer the candidate a position if other staff members
possess sufficient knowledge in economics and
information technology.
Engage an engineering consultant to perform the
comparison
Could limit the range of services that could be
performed due to the internal audit activitys narrow
expertise and backgrounds
May hire the engineer despite the lack of knowledge of
internal audit standards
Least useful - Determining that all applicants have an
accounting degree
Seek permission from the audit committee to obtain
appropriate support from an HSE professional.
Yes. The actuary has skills not usually found among
internal auditors to identify and quantify self-insurance
risks.
Other internal auditors possess sufficient knowledge of
economics and information technology.
Internal audit staff assessed annually
Reliance on an outside service provider when
appropriate
Contacting others familiar with the ESPs work
D. Structure. It may more easily accommodate
engagement requirements in distant locations.
An engagement communication should never be viewed
as providing an infallible truth about a subject
No, alertness to conditions most likely indicative of
irregularities was not shown
The conduct of extensive examinations
Adverse effects related to the item are likely to occur
Consider the relative materiality or significance of
matters to which assurance procedures are applied.
Review every control feature pertaining to petty cash
receipts
Consider the possibility of nonconformance or
irregularities at all times during an engagement.
Due professional Care - Consideration of the possibility
of material irregularities during every engagement
Because of a highly developed system of internal
control over the cash function, the final engagement
communication assured senior management that no
irregularities existed.
I, III - Consider the probability of significant
noncompliance
Weigh the cost of assurance against the benefit
CIAs have formal requirements that must be met in
order to continue as CIAs
I,II,III - Needs and expectations of engagement clients
Relative complexity and extent of work needed
Cost of the consulting engagement
Due prof. Care - Evaluating established operating
standards and determining whether those standards are
adequate
Not testing for possible misstatement because the
engagement work program had already been approved
by engagement management
Whether existing procedures within the internal audit
activity provide for proper planning and quality
assurance
Annual appraisals of individual internal auditors
performance
A.Adequacy of the oversight of the work of external
auditors
Quality Assurance and Improvement program CAE
It is supported by the results of the quality program
After an external review completed within the past 5
years
B,The results of external assessments are
communicated upon their completion
Supervision of an internal auditors work is performed
throughout each audit engagement.
Internal quality program reports to the - CAE
Written engagement work programs
Periodic internal assessment CAE
Provide independent assurance
Not likely to evaluate -Detailed cost-benefit analysis of
the internal audit activity
To the entire spectrum of assurance and consulting
work
External assessments can provide senior management
and the board with independent assurance about the
quality of the internal audit activity.
Control
Assignment of responsibility for deviations
Standards are adopted, results are compared with the
standards, and corrective actions are undertaken
Controlling cannot operate effectively without the tools
provided by planning
Control is the result of proper planning, organizing, and
directing by management
Management takes action to enhance the likelihood
that established goals and objectives will be achieved.
Quality of performance in relation to the organizations
travel policy
purchases be made from suppliers on an approved
vendor list preventive control
Controls that are designed to provide management with
assurance of the realization of specified minimum gross
margins on sales directive controls
The procedure requiring preparation of a prelisting of
incoming cash receipts, with copies of the prelist going
to the cashier and to accounting preventive
Requiring all members of the internal audit activity to
be CIAs directive control
control function performed by policies and procedures
feedforward control
feedback control variance analysis
Feedforward anticipation of problems
Machinery to be purchased feedforward
Feedback measures actual performance
Finished goods feedback control
FS analysis feedback
often difficult for internal auditors to evaluate because
of the lack of criteria or standards operating controls
Procedures providing for clear levels of purchase order
approvals based on the value of the requisition.
Directing - Informing purchasing personnel of the future
need for long-lead-time products in ample time.
Detective - Goods received are counted and compared
with quantities on purchase order and receiving reports.
Sales invoice request - Active, detective control
Feedback control - Inspection of completed goods
Fraud - Single employee
Require a supervisor in the department, who does not
have the ability to change the table of pay rates, to
compare the changes with a signed management
authorization.
A report of all new employees added be approved by
someone outside of the payroll department. Also, a
report showing all employees and hours worked should
be sent to the supervisors department for review
C. Human resources adds employees, and payroll
processes hours and enters employee bank account
numbers. Paychecks are automatically deposited in the
employees bank account.
The treasurer has the authority to sign checks but gives
the signature block to the assistant treasurer to run the
check-signing machine.
Using a master price list for marking the sale price
Segregating the receiving function from the
authorization of parts purchases
An accounts receivable clerk, who approves sales
returns and allowances, receives customer remittances
and deposits them in the bank. Limited supervision is
maintained over the employee.
Timekeeping and preparation of payroll journal entries
Write-offs of delinquent accounts
Review of all purchase requisitions by a supervisor in
the user department prior to submitting them to the
purchasing department.
One employee issues a prenumbered receipt for all cash
collections; another employee reconciles the daily total
of prenumbered receipts to the bank deposits.
Requiring a specific mail clerk to list and restrictively
endorse each check
Has custody of the check signature stamp machine
A security guard allows one of the warehouse
employees to remove assets from the premises without
authorization.
Preparing attendance data and preparing the payroll
The treasurers office prepares checks for suppliers
based on vouchers prepared by the accounts payable
department.
Reviewing and canceling supporting documents when a
check is issued
Overpayment for partial deliveries
Receiving reports are forwarded to purchasing where
they are matched with purchase orders and sent to
accounts payable
Shipping documents are prenumbered and are
independently accounted for and matched with sales
invoices.
D. Recording of cash receipts and preparation of bank
reconciliations
Paychecks are distributed by the employees immediate
supervisor
Authorization of additions and deletions from the
payroll
Credit memoranda being improperly recorded
Numerically sequence and independently account for all
controlling documents (such as packing slips and
shipping orders) when sales journal entries are recorded
The personnel department authorizes the hiring and
pay levels of all employees
Post the receipts to the accounts receivable subsidiary
ledger cards
Delinquent accounts are reviewed only by the sales
manager
Vendors invoices are matched against purchase orders
and receiving reports before a liability is recorded
Purchase requisitions, purchase orders, receiving
reports, and vendor invoices
Use and accountability of pre-numbered checks
Initiation of purchase of materials and supplies
Inventory control department
Accounts payable, receiving, and inventory control
departments
Segregation of payroll preparation and maintenance of
year-to-date records
Safekeeping unclaimed checks - Cashier department
Approval of a sales credit memo because of a product
return by the sales department with subsequent posting
to the customers account by the accounts receivable
department
Establishing a proper organizational culture and
specifying a system of internal control.
There is no receiving function located at individual
stores
Required material specifications for all purchases
Periodic internal review of the in-force list to evaluate
the adequacy of insurance coverage
The research and development budget is properly
allocated between new products, product maintenance,
and cost reduction programs.
I only - Require managerial approval for materials to be
declared scrap or obsolete
Require existing security guards to log the time of plant
departure and scrap yard arrival. The elapsed time
should be reviewed by a supervisor for fraud.
Maintain vehicles in a secured location with release and
return subject to approval by a custodian
Having bank reconciliations performed by a third party
Rotate purchasing agent assignments periodically
Regular reconciliation of physical inventories to
accounting records
Match the back order file to goods received daily
II & Iv Employees hired for sensitive positions are not
subjected to background checks
Management has not taken corrective action to resolve
past engagement observations related to inventory
controls.
Rotating buyer assignments periodically
The individual who initiates wire transfers not reconcile
the bank statement
Develop a program that identifies procedures
performed on an individual in excess of expectations
based on the age of the employee, whether a similar
procedure was performed recently, or the average cost
per claim.
A statement requiring board review of each transaction
because of the risk involved in such transactions.
Use a lockbox to receive all donations
Ensures the accuracy and completeness of data input
Comparison of invoices with purchase orders or
contracts
The initiation of a conflict-of-interest policy
Final settlements are negotiated after claims are
developed and submitted
Inform XYZ about its risk appetite regarding supply
failures
Only storeroom personnel and line supervisors have
access to the raw materials storeroom.
The employee could pledge organizational investments
as security for a short-term personal bank loan.
Using predetermined totals to control posting routines
A plan of job classifications based on predefined
evaluation criteria
Supported by periodic appraisals
Written policies requiring review of major
funding/repayment proposals by the board.
Purchasing procedures are well designed and are
followed unless otherwise directed by the purchasing
supervisor.
Require management review of reports on the cost of
consumable items used in relation to budget.
COSO framework - All of the answers are correct
Elements of control environment all answers are
correct
Not component of COCO model Control environment
I only - A bonus system should be considered part of the
control environment of an organization and should be
considered in formulating a report on internal control.
Establishing a proper organizational culture and
specifying a system of internal control.
Control Environment
The cost of internal control should not exceed its
benefits
Control self-assessment is not an approach to audit soft
controls
Safeguarding of assets
The Turnbull Report
Management prepares a detailed analysis of gross
margin per store and investigates any store that shows
a significantly lower gross margin.
Monitoring performance
Integrity and ethical values, assignment of authority,
and human resource policies
Monitors risk as part of the enterprise risk management
team
Involves the identification of events with negative
impacts on organizational objectives
Avoiding
Risk risk that is not managed
Event identification, risk assessment, control activities,
and objective setting
COCO
Increasing the net present value of investments
The risk when management has not taken action to
reduce the impact or likelihood of an adverse event.
Nonretention of customers
Management purchased insurance on previously
uninsured property
In practice, management has primary responsibility
Emphasis on specific functions
Provide assurance on the management of the risk
Better manage perceived high risks
Maximize shareholder value
Responsibility for risk, Advisory role, Oversight role
(RAO)
Determine whether the treasurer is getting higher or
lower rates of return on investments than are
treasurers in comparable organizations.
Risk management processes
Exposure to the elements
Outside the scope of IA - Safeguarding of assets
Preferences of the independent auditor
Managing the identified risks
I & II - Significant risks
Ongoing monitoring activities
Codified in the charters of the internal audit activity and
the board
Control process.B. Risk management
I, II, III, and IV -Monitoring activities.I. Evaluating the risk
management process as part of the engagement plan.II.
Participating on oversight committees, monitoring of
activities, and status reporting. III. Managing and
coordinating the process
Determine that the key objectives of risk management
processes are being met
Formally discuss with the directors their obligations for
risk management processes.
The use of derivatives by the organization
To oversee the establishment, administration, and
assessment of the organizations system of risk
management processes.
Fraud is characterized by deceit, concealment, or
violation of trust
Embezzlement
I, II, and III - Determining whether objectives have been
accomplishedI. Using the criteria in their evaluationII.
Working with management to develop appropriate
control evaluation criteriaIII
False representation or concealment of a material fact
Intentional deception
Examining and evaluating the adequacy and
effectiveness of that divisions actions taken to prevent
fraud.
I, II, and III prevention of fraud
There were no written policies describing prohibited
activities and the action required whenever violations
are discovered.
By evaluating the adequacy and effectiveness of
controls in light of the potential exposure or risk
Evaluating the adequacy of controls to prevent fraud
Examining and evaluating the adequacy and the
effectiveness of control, commensurate with the extent
of the potential exposure or risk in the various segments
of the organizations operations
Ensuring that fraud will not occur
Evaluate the system of internal control
Recommend an investigation if appropriate
Recognize and question changes that occur in
organizations
Expand activities to determine whether an investigation
is warranted
Recommend an investigation
Evaluate fraud indicators and decide whether further
action is necessary
Decide whether to recommend an investigation
The internal auditor should have sufficient knowledge
to identify the indicators of fraud but is not expected to
be an expert.
Management has delegated the authority to make
purchases under a certain value to subordinates.
Unreasonable sales and production goals
The red flags literature is not well enough established to
have a positive impact on internal auditing.
Cash receipts, net of the amounts used to pay petty
cash-type expenditures, are deposited in the bank daily.
Be living beyond their obvious means of support
Regular comparison of actual results with budgets
The use of blanket purchase orders
Analytical procedures revealed an extraordinary
increase in account balances
Total asset turnover
Takes no vacations and has refused promotion to vice
president of finance
Items for cycle count are selected by stockroom
personnel
A significant portion of managements compensation is
directly tied to reported net profit of the division. Naa
puy all are correct
Rapid turnover of the organizations financial executives
Financial pressures on the organization
Debit expenses and credit the asset
Population
Extent to which the individual values of the items in the
population are spread about the mean
VARIABILITY standard Deviation
true population value confidence Level
True population mean lies within the specified
confidence interval
The experience and knowledge of the auditor
Provides a quantitative measure of sampling risk
Quantify sampling risk
Population estimates with measurable reliability can be
made
Reliable and objective
Failing to give each item in the population an equal
chance of selection
Item in the population has an equal chance of being
selected
Is likely to result in an unbiased sample
For very large populations, the absolute size of the
sample has more impact on the precision of its results
than does its size relative to its population.
Can be identified with a unique number
11-60
The auditor should first determine how similar the new
process is to the old process before deciding what to
do.
Precision difference between Expected error rate and
maximum tolerable error
Precision estimate of the population characteristic is
expected to fall
Expected occurrence rate
Decrease if the internal auditor increases the tolerable
rate of deviation
Attribute Sampling
Confidence direct
Precision inverse
Variable sampling increase confidence, increase same
size inverse
Variability- standard deviation
Planned precision
Increasing the confidence level to 95% and decreasing
the tolerable control failure rate to 3% will increase
audit effectiveness.
Actual size of the sample selected
A 95% probability that the actual rate of occurrence in
the population is less than the critical rate if no
exceptions are found.
Stop-or-go sampling - Total expected sample size will
always be smaller
Stop-or-go sampling may reduce the size of the sample
that needs to be taken from a population, thus reducing
sampling costs.
Sample size will increase
Variable testing - Acceptable risk level
Stratified sampling - Reduction in sample size
Stratified variables sampling - Monetary values
Whether the sample is designed to estimate a mean or
a proportion
A number of nonproportional differences between
carrying amounts and audited amounts exist.
Subsidiary ledger book balances for some inventory
items are unknown
Pilot sample
Has a probability proportional to its monetary value of
being selected
Is concerned with overstatements
Each account is of equal importance
The auditor expects to find that a large percentage of
items sampled have misstatements.
Results in a smaller sample size than classical variables
sampling for larger numbers of misstatements.
Increase in sample size No change in sample size
The population is expected to contain few differences
between the recorded amount and the actual amount.
Mean-per-unit
Using multiple random starts
The population is arranged randomly with respect to
the audit objective
3000 time cards for signature Interval sampling
Difference or ratio estimation
Accounts Receivable attribute sampling
Obtain evidence on the proper sales cut-off by sampling
items from the monthly sales journal to determine if the
items were recorded in the correct time period.
Use stratified sampling where the strata are defined by
marital and family status, age, and salaried/hourly
status.
Identify atleast one irregularity - Discovery sampling
Use generalized audit software to read the total loan
file, age the file by last payment due, and extract a
statistical sample stratified by the current and aged
population. Examine each loan selected for proper
collateralization and aging.
An understanding of the details contained in the
processing task
D.Take a discovery sample of employee claims that
were submitted through dentist offices, and confirm the
type of service performed by the dentist through direct
correspondence with the employee who had the service
performed.
Discovery sampling to select a sample of vouchers
processed by the department during the past year.
Discovery 100%
Mean-per-unit sampling variability of monetary
amount
Mean-per-unit sampling- gas and electric appliance
Mean-per-unit sampling automobile claims
Sample so that the probability of a given inventory item
being selected is proportional to its book value
Engagement - Evaluating the adequacy and
effectiveness of controls
An analysis of quality control documents
Preliminary survey
A process used to become familiar with activities and
risks to identify areas for engagement emphasis.

Consider the engagement to be terminated with no

communication of results needed because the
engagement client has already agreed to take
constructive action.

A need for additional testing to determine related

controls and the current exposure to duplicate
payments made to suppliers.

Assess the performance of the subsidiary and indicate

where additional engagement work may be needed.

It involves the engagement clients supervisory

personnel in the engagement

Help evaluate the effectiveness of internal control

Engagement information must be corroborated in some

way

Provides the opportunity to insert questions to probe

promising areas

Clarifying all answers with written remarks and

explanations

Questions should be worded such that a No answer

indicates a problem

The auditor failed to consider the importance of the

information offered

The engagement client will respond only to the

questions asked, without volunteering additional
information.

Provides indirect evidence that might need

corroboration

Ask people about their jobs

Resisting both internal and external distractions

Risk - Uncertainty of the occurrence of an event that

could affect the achievement of objectives.

Combining purchasing functions

Assess computer control risk