FAR EASTERN UNIVERSITY

INSTITUTE OF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

NAME: GONZAGA, STEPHENIE VAN M. SUBJECT : AUD 1201

SECTION : ____1__ PROF. : SOLITA R. VITUG
EXERCISE ON ATTRIBUTE STANDARDS 1200 TO 1230

I. MULTIPLE CHOICE. Write the letter that represents the best answer.

1. The internal audit activity collectively must possess or obtain certain competencies. Internal audit staff
should be competent in
A. The use of the International Professional Practices Framework.
B. Finance
C. General management principles
D. Marketing

2. The internal audit activity collectively must possess or obtain certain competencies. Internal audit staff
should be competent in
A. Evaluating marketing campaigns.
B. Applying tax laws to returns.
C. Determining whether personnel decisions reflect general management principles.
D. The exercise of business acumen

3. Internal auditing is unique in that its scope often encompasses all areas of an organization. Thus, it is
not possible for each internal auditor to possess detailed competence in all areas that might be the
subject of engagements. In which of the following must the internal audit activity collectively be
proficient?
A. Finance
B. Tax law
C. Emerging issues.
D. Commercial law

4. The internal audit activity collectively must possess or obtain certain competencies, excluding
A. Knowledge of the IPPF.
B. Knowledge of cost accounting concepts.
C. The ability to assess relevant basic macroeconomic factors.
D. The ability to conduct training sessions in quantitative methods.

5. Internal auditors must possess the knowledge, skills, and other competencies essential to the
performance of their individual responsibilities. Consequently, all internal auditors should be
competent with regard to
A. Operating within the organization’s framework for governance, risk management, and
control.
B. Evaluating investments in securities.
C. Applying management principles at the operational level.
D. Performing structured systems analysis.

6. The chief audit executive (CAE) is setting up a team to perform an assurance engagement on the
organization’s information system security structure. The organization has offices all over the world
that rely on the system. The audit team will assess risks, monitor implementation of corrective action,
and evaluate controls. Which question does not require an answer when selecting the team to conduct
this audit engagement?
A. What types of skills are needed on the engagement?
B. How many hours are needed to complete the engagement?
C. Which auditors have the skills and experience to work on this audit?
D. Are specialty skills from outside the internal audit department required?

7. The consultative approach to internal auditing emphasizes

A. Imposition of corrective measures.
B. Fraud investigation.
C. Participation with engagement clients to improve methods.
D. Implementation of policies and procedures.

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8. Which of the following statements is true with respect to due professional care?
A. An engagement communication should never be viewed as providing an infallible truth about
a subject.
B. An internal auditor should perform detailed tests of all transactions before communicating results.
C. An item should not be mentioned in an engagement communication unless the internal auditor is
absolutely certain of the item.
D. An internal auditor has no responsibility to recommend improvements.

9. An internal auditor observes that a receivables clerk has physical access to and control of cash receipts.
The auditor worked with the clerk several years before and has a high level of trust in the individual.
Accordingly, the auditor notes in the engagement working papers that controls over receipts are
adequate. Has the auditor exercised due professional care?
A. Yes, reasonable care has been taken.
B. No, alertness to conditions most likely indicative of irregularities was not shown.
C. No, irregularities were not noted.
D. Yes, the engagement working papers were annotated.

10. Due professional care implies reasonable care and competence, not infallibility or extraordinary
performance. Thus, which of the following is unnecessary?
A. The conduct of examinations and verifications to a reasonable extent.
B. The reasonable assurance that compliance does exist.
C. The consideration of the possibility of material irregularities
D. The conduct of extensive examinations.

11. An internal auditor judged an item to be immaterial when planning an assurance engagement.
However, the assurance engagement may still include the item if it is subsequently determined that
A. Adverse effects related to the item are likely to occur.
B. Sufficient staff is available.
C. Related information is reliable.
D. Miscellaneous income is affected.

12. Use of external service providers with expertise in healthcare benefits is appropriate when the internal
audit activity is
A. Evaluating the organization’s estimate of its liability for postretirement benefits, which include
healthcare benefits.
B. Comparing the cost of the organization’s healthcare program with other programs offered in the
industry.
C. Training its staff to conduct an audit of healthcare costs in a major division of the organization.
D. All of the answers are correct.

13. Which one of the following is responsible for determining the appropriate levels of education and
experience needed for the internal audit staff?
A. Human resource manager.
B. Chief executive officer.
C. Chief audit executive.
D. Chief financial officer.

14. A professional engineer applied for a position in the internal audit activity of a high technology firm.
The engineer became interested in the position after observing several internal auditors while they
were performing an engagement in the engineering department. The chief audit executive
A. Should not hire the engineer because of the lack of knowledge of internal audit standards.
B. May hire the engineer despite the lack of knowledge of internal audit standards.
C. Should not hire the engineer because of the lack of knowledge of accounting and taxes.
D. May hire the engineer because of the knowledge of internal auditing gained in the previous
position.

15. A chief audit executive has reviewed credentials, checked references, and interviewed a candidate for a

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 staff position. The CAE concludes that the candidate has a thorough understanding of internal audit
techniques, accounting, and finance. However, the candidate has limited knowledge of economics and
information technology. Which action is most appropriate?
A. Reject the candidate because of the lack of knowledge required by the Standards.
B. Offer the candidate a position if other staff members possess sufficient knowledge in economics
and information technology.
C. Offer the candidate a position despite lack of knowledge in certain essential areas.
D. Encourage the candidate to obtain additional training in economics and information technology
and then reapply.

II. TRUE OR FALSE.

1. TRUE Proficiency is a collective term that refers to the knowledge, skills, and other competencies
required of internal auditors to effectively carry out their professional responsibilities. It encompasses
consideration of current activities, trends, and emerging issues, to enable relevant advice and
recommendations.
2. TRUE Internal auditors must possess the knowledge, skills and knowledge needed to perform their
individual responsibilities.
3. FALSE Internal auditors are expected to have the expertise in detecting and investigating fraud.
4. TRUE Internal auditors must enhance their knowledge, skills, and other competencies through
continuing professional development.
5. TRUE Internal auditors must apply the care and skill expected of a reasonably prudent and competent
internal auditor.

Notes: You can write your answers here or in a half-sheet paper (lengthwise).