1.

The purposes of the Standards include all of the following except

a. Establishing the basis for the measurement of internal audit performance.

b. Guiding the ethical conduct of internal auditors.
c. Stating basic principles that represent the practice of internal auditing.
d. Fostering improved organizational processes and operations.

2. The proper organizational role of internal auditing is to

A. Assist the external auditor to reduce external audit fees.

B. Perform studies to assist in the attainment of more efficient operations.
C. Serve as the investigative arm of the board.
D. Serve as an independent, objective assurance and consulting activity that
adds value to operations.

3. One of the purposes of the International Standards for the Professional Practice
of Internal Auditing (“the Standards”) is to

a. Encourage the professionalization of internal auditing.

b. Establish the independence of the internal audit activity and emphasize
the Objectivity of internal auditing.
c. Encourage external auditors to make more extensive use of the work of
internal auditors.
d. Establish the basis for evaluating internal auditing performance.

4. Which Standards expand upon the other categories of Standards?

a. Performance Standards.
b. Attribute Standards.
c. Implementation Standards.
d. All of the choices are correct.

5. A major reason for establishing an internal audit activity is to

a. Relieve overburdened management of the responsibility for establishing

effective controls.
b. Safeguard resources entrusted to the organization.
c. Ensure the reliability and integrity of financial and operational information.
d. Evaluate and improve the effectiveness of control processes.

6. An internal auditor often faces special problems when performing an engagement at

a foreign subsidiary. Which of the following statements is false with respect to the
conduct of international engagements?

a. The IIA Standards do not apply outside of the United States.

 b. The internal auditor should determine whether managers are in compliance
with local laws.
c. There may be justification for having different organizational policies in force
in foreign branches.
d. It is preferable to have multilingual internal auditors conduct engagements at
branches in foreign nations.

7. The purpose of the internal audit activity can be best described as

A. Adding value to the organization.

B. Providing additional assurance regarding fair presentation of financial
statements.
C. Expressing an opinion on the adequate design and functioning of the system
of internal control.
D. Assuring the absence of any fraud that would materially affect the financial
statements.

8. Which of the following best describes the purpose of the internal audit activity?

A. To add value and improve an organization’s operations.

B. To assist management with the design and implementation of risk
management and control systems
C. To examine and evaluate an organization’s accounting system as a service to
management.
D. To monitor the organization’s internal control system for the external auditors.

9. The internal audit activity’s scope of responsibilities includes

A. Eliminating risk.
B. Managing risk.
C. Evaluating risk.
D. Controlling risk.

10. The Standards consist of three types of Standards. Which Standards apply to the
characteristics of providers of internal auditing services?

a. Implementation Standards.
b. Performance Standards.
c. Attribute Standards.
d. Independence Standards.

11. According to The IIA’s International Professional Practices Framework, which of the
following constitute mandatory guidance for implementing the Standards?

a. Development Aids.
b. Practice Aids.
 c. Performance Standards.
d. Practice Advisories.

12. Under the Sarbanes-Oxley Act of 2002 (SOX),

a. At least one member of the audit committee must be a financial expert.

b. The chairman of the board of directors must be a financial expert.
c. The audit committee must rotate at least one seat on an annual basis.
d. All members of the audit committee must be financial experts.

13. The Sarbanes-Oxley Act of 2002 (SOX) imposes which of the following
requirements?

A. The board of directors must be composed entirely of independent

shareholders.
B. At least one member of the audit committee must be a former partner of the
independent public accounting firm.
C. The audit committee must be composed entirely of independent members of
the board.
D. Once the audit committee has selected the independent public accounting
firm, the committee must not interfere with the firm’s conduct of the financial
statement audit.
14. Which one of the following must be included in the internal audit charter?

a. Internal audit scope.

b. Internal audit responsibility.
c. Chief audit executive’s compensation plan.
d. Number of full-time internal audit employees deemed to be the necessary
minimum.

15. Which one of the following is not included in the internal audit charter?

a. Risk assessment of the internal audit activity.

b. Responsibility of the internal audit activity.
c. Purpose of the internal audit activity.
d. Authority of the internal audit activity.

16. The transportation department of a publicly held company has asked the internal
audit activity to review the design specifications for a proposed new warehouse and
repair acility. The best reason for the internal audit activity to decline the request is

A. Such a review does not fall within the authority granted in the internal audit
charter.
B. The CEO and the head of the transportation department are neighbors and
belong to the same social clubs.
 C. The internal audit activity performed a thorough review of the transportation
department the previous year.
D. The transportation department’s budget is immaterial to the organization’s
total budget.

17. The purpose, authority, and responsibility of the internal audit activity are formally
defined in

A. The records of the proceedings of the board of directors.

B. The corporate bylaws.
C. The memorandum of understanding.
D. A formal, written charter.

18. The types of services provided by the internal audit activity can best be described as

A. Auditing and engagement.

B. Auditing and consulting.
C. Assurance and consulting.
D. Auditing and assurance.

19. Support from which persons or combination of persons listed below is most
important to the success of the internal audit activity?

A. The chief executive officer and chief financial officer.

B. The chief executive officer.
C. Management and the board.
D. The audit committee.

20. Which of the following is not appropriate for inclusion in the internal audit charter?

A. The nature of the chief audit executive’s functional reporting relationship with the
board.
B. Authorization of internal audit access to records, personnel, and physical
properties.
C. Definition of the scope of internal C. audit activities.
D. Authorization of the board to approve the charter.

21. A primary purpose of establishing a code of conduct within a professional

organization is to

A. Reduce the likelihood that members of the profession will be sued for
substandard work.
B. Ensure that all members of the profession perform at approximately the same
level of competence.
C. Promote an ethical culture among professionals who serve others.
 D. Require members of the profession to exhibit loyalty in all matters pertaining to
the affairs of their organization.

22. An accounting association established a code of ethics for all members. What is one
of the association’s primary purposes of establishing the code of ethics?

A. To outline criteria for professional behavior to maintain standards of integrity and

objectivity.
B. To establish standards to follow for effective accounting B. practice.
C. To provide a framework within which accounting policies could be effectively
developed and executed.
D. To outline criteria that can be used in conducting interviews of potential new
accountants.

23. The best reason for establishing a code of conduct within an organization is that
such codes

A. Are typically required by governments.

B. Express standards of individual behavior for members of the organization.
C. Provide a quantifiable basis for personnel evaluations.
D. Have tremendous public relations potential.

24. The code of ethics of a professional organization sets forth

A. Broad standards of conduct for the members of the organization.

B. The organizational details of the profession are governing body.
C. A list of illegal activities that are proscribed to the members of the profession.
D. A basis for the measurement of internal audit performance.

25. In analyzing the differences between two recently merged businesses, the chief
audit executive of Organization A notes that it has a formal code of ethics and
Organization does not. The code of ethics covers such things as purchase agreements,
relationships with vendors, and other issues. Its purpose is to guide individual behavior
within the firm. Which of the following statements regarding the existence of
the code of ethics in A can be logically inferred?

I. A exhibits a higher standard of ethical behavior I. than does B.

II. A has established objective criteria by which an individual’s actions can be
evaluated.
III. The absence of a formal code of ethics in B would prevent a successful review of
ethical behavior in that organization.

A. I and II.
B. II only.
C. III only.
D. II and III.

26. A review of an organization’s code of conduct revealed that it contained

comprehensive guidelines designed to inspire high levels of ethical behavior. The
review also revealed that employees were knowledgeable of its provisions. However,
some employees still did not comply with the code. What element should a code of
conduct contain to enhance its effectiveness?

A. Periodic review and acknowledgment by all employees.

B. Employee involvement in its development.
C. Public knowledge of its contents and purpose.
D. Provisions for disciplinary action in the event of violations.

27. A formal code of ethics should do all of the following except

A. Effectively communicate acceptable values to all members.

B. Communicate the organization’s value system to outsiders.
C. Reflect only legal standards of conduct for individuals and the organization.
D. Provide a method of policing and disciplining members of the organization for
violations.

28. A typical code of ethical conduct for financial managers or management

accountants in an organization requires all of the following except

A. Integrity and a refusal to compromise professional values for the sake of

personal goals.
B. Independence from conflicts of economic interest.
C. Independence from conflicts of professional interest.
D. Subjectivity in presenting information, preparing reports, and making analyses.
29. Objectivity is an ethical requirement for all persons engaged in the professional
practice of internal auditing. One aspect of objectivity requires

a. Performance of professional duties in accordance with relevant laws.

b. Avoidance of conflict of interest.
c. Refraining from using confidential information for unethical or illegal advantage.
d. Maintenance of an appropriate level of professional expertise.

30. The IIA Rules of Conduct set forth in The IIA’s Code of Ethics

a. Describe behavior norms expected of internal auditors.

B. Are guidelines to assist internal auditors in dealing with engagement clients.
C. Are interpreted by the Principles.
D. Apply only to particular conduct specifically mentioned.

31.