Internal Audit Function Quiz

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Internal Audit Function Quiz - Quiz

Internal audit is one of the most important organizational functions. Let's see how much knowledge you have about it with this 'Internal audit function' quiz. As the name suggests, an internal audit refers to the audit that is conducted to evaluate and improve the risk management effectiveness and ensure that the company is complying with all of the laws and regulations. Get ready cause it's time for you to prove to us your auditing knowledge. Best of luck on this test!


Questions and Answers
  • 1. 

    The internal audit function is generally considered independent when it can carry out its work freely and ___________.

    • A.

      Efficiently

    • B.

      Effectively

    • C.

      Objectively

    • D.

      All of the above.

    Correct Answer
    C. Objectively
    Explanation
    The internal audit function is generally considered independent when it can carry out its work freely and objectively. Objectivity is crucial because it ensures that the internal auditors remain unbiased and impartial in their assessments and evaluations. By being objective, they can provide accurate and reliable information to management and stakeholders, helping them make informed decisions. This independence allows the internal audit function to effectively identify and address potential risks and deficiencies within the organization, ultimately contributing to its overall efficiency and effectiveness.

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  • 2. 

    It is an independent appraisal function established within the organization to carry out the role and responsibility defined in the Internal Audit Charter.

    • A.

      Internal Audit Department

    • B.

      External Audit Department

    • C.

      Independent Audit Department

    • D.

      None of the above.

    Correct Answer
    A. Internal Audit Department
    Explanation
    The correct answer is Internal Audit Department because it is an independent appraisal function established within the organization to carry out the role and responsibility defined in the Internal Audit Charter. This department is responsible for evaluating and assessing the effectiveness of the organization's internal controls, risk management, and governance processes. They provide valuable insights and recommendations to improve the organization's operations, compliance, and financial reporting.

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  • 3. 

    It is a formal written statement that defines the approved purpose, authority, and responsibility of the internal audit activity.

    • A.

      Internal Audit Plan

    • B.

      Internal Audit Charter

    • C.

      Internal Audit Program

    • D.

      None of the above.

    Correct Answer
    B. Internal Audit Charter
    Explanation
    An internal audit charter is a formal written statement that outlines the purpose, authority, and responsibility of the internal audit activity within an organization. It serves as a guiding document that defines the scope and objectives of the internal audit function, as well as the roles and responsibilities of the internal auditors. The charter helps to ensure that the internal audit activity operates independently and objectively, and that it aligns with the organization's overall goals and objectives.

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  • 4. 

    Statement 1.  External auditors generally consider operations a whole relative to objectives while internal auditors focus primarily on financial systems that have a direct, significant effect on the amounts reported in financial statements. Statement 2.  External auditors consider even small amounts of fraud, waste, and abuse as symptoms of underlying issues. The internal auditor considers just what materially affects the financial statements since that is the nature of their engagement.

    • A.

      Only Statement 1 is correct.

    • B.

      Only Statement 2 is correct.

    • C.

      Both statements are correct.

    • D.

      Both statements are wrong.

    Correct Answer
    D. Both statements are wrong.
    Explanation
    The explanation for the given correct answer is that both statements are wrong. Statement 1 is incorrect because internal auditors do not solely focus on financial systems, but also assess operational processes and risks. Statement 2 is incorrect because internal auditors do consider fraud, waste, and abuse as important issues, not just what materially affects financial statements.

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  • 5. 

    ____________________  are expected to take a more focused oversight role in respect of risk management and internal control.

    • A.

      Internal Auditors

    • B.

      Audit Committees

    • C.

      External Auditors

    • D.

      None of the above.

    Correct Answer
    B. Audit Committees
    Explanation
    Audit committees are expected to take a more focused oversight role in respect of risk management and internal control. This is because audit committees are responsible for ensuring that the organization's financial statements are accurate and reliable, and that the organization has effective internal controls in place to mitigate risks. They work closely with internal auditors and external auditors to review and assess the effectiveness of the organization's risk management and internal control processes. Therefore, audit committees play a crucial role in overseeing and monitoring risk management and internal control within an organization.

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  • 6. 

    Internal Audit is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the efficiency of risk management, control, and governance processes.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    True. The statement provided is an accurate description of the role and purpose of internal audit within an organization. Internal audit is indeed an independent, objective assurance and consulting activity that is designed to add value and enhance an organization's operations by evaluating and improving various aspects of risk management, control, and governance processes.

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  • 7. 

    Related to independence is the assumption that internal auditors have unrestricted access to whatever they might need to make an objective assessment. That includes restricted access to plans, forecasts, people, data, products, facilities, and records necessary to perform their independent evaluations.

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the answer "False" is that while internal auditors should ideally have unrestricted access to the necessary resources for an objective assessment, this is not always the case. There may be certain restrictions or limitations placed on internal auditors' access to certain information, such as confidential or sensitive data. Therefore, the assumption of unrestricted access is not always true, making the answer false.

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  • 8. 

    ____________________ is an appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control.

    • A.

      Internal Audit

    • B.

      External Audit

    • C.

      Any of the above.

    • D.

      None of the above.

    Correct Answer
    A. Internal Audit
    Explanation
    An internal audit is an appraisal activity that is established or provided as a service to the entity. Its functions include examining, evaluating, and monitoring the adequacy and effectiveness of internal control. This means that the internal audit department within an organization is responsible for reviewing and assessing the internal controls and processes in place to ensure they are functioning effectively and meeting the organization's objectives. The internal audit function provides independent and objective assurance to management and the board of directors regarding the effectiveness of internal controls, risk management, and governance processes.

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  • 9. 

    Which of the following option is not one of the five directives from the IIA's Statement of Responsibilities of Internal Auditing that are included in most charters?

    • A.

      Appraise the economy and efficiency with which resources are employed;

    • B.

      Review the means of safeguarding assets and, verify the existence of such assets;

    • C.

      Review the systems established to ensure compliance with those policies, procedures, laws, regulations, and contracts which could have an important impact on operations and reports.

    • D.

      Create operations or programs to ascertain whether results are consistent with established objectives and goals and whether the operations or programs are being carried out as planned.

    Correct Answer
    D. Create operations or programs to ascertain whether results are consistent with established objectives and goals and whether the operations or programs are being carried out as planned.
    Explanation
    The correct answer is "Create operations or programs to ascertain whether results are consistent with established objectives and goals and whether the operations or programs are being carried out as planned." This option is not one of the five directives from the IIA's Statement of Responsibilities of Internal Auditing that are included in most charters. The other options, such as appraising the economy and efficiency of resources, reviewing the means of safeguarding assets, and reviewing systems for compliance, are all part of the IIA's directives for internal auditing.

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  • 10. 

    There are three important assumptions implicit in the definition, objectives, and scope for internal auditing. Which is not one of them?

    • A.

      The assumption that the internal auditing function is staffed with people possessing the necessary education, experience, and proficiency to perform competently.

    • B.

      Auditor independence.

    • C.

      The assumption that the evaluations and conclusions contained in internal auditing reports are directed internally to management and the board, not to stockholders, regulators, or the public.

    • D.

      The presumption that the evaluations and conclusions contained in internal auditing reports are directed internally to management and the board, not to stockholders, regulators, or the public.

    Correct Answer
    C. The assumption that the evaluations and conclusions contained in internal auditing reports are directed internally to management and the board, not to stockholders, regulators, or the public.
    Explanation
    The correct answer is "The assumption that the evaluations and conclusions contained in internal auditing reports are directed internally to management and the board, not to stockholders, regulators, or the public." This means that internal auditing reports are intended for internal use only and are not meant to be shared with external stakeholders such as stockholders, regulators, or the public. This assumption ensures that the internal auditing function can provide unbiased and objective assessments of the organization's operations without external influences or pressures.

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  • 11. 

    Name the costs that a company expects to be levied in the future when the plant is shut-down.

    • A.

      De-commission liability

    • B.

      Commission liability 

    • C.

      Asset Property costs

    • D.

      None of the above

    Correct Answer
    A. De-commission liability
    Explanation
    De-commission liability refers to the costs that a company expects to incur in the future when the plant is shut down. This includes expenses related to dismantling and removing equipment, disposing of hazardous materials, and restoring the site to its original condition. Therefore, de-commission liability is the correct answer as it accurately represents the costs associated with shutting down a plant.

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  • 12. 

    There are ______ types of internal audits. 

    • A.

      5

    • B.

      2

    • C.

      4

    • D.

      6

    Correct Answer
    C. 4
    Explanation
    The correct answer is 4 because internal audits can be classified into four types: compliance audits, operational audits, Information technology (IT) audits and financial audits. Compliance audits ensure that an organization is adhering to laws and regulations, operational audits evaluate the efficiency and effectiveness of processes, and financial audits review financial statements for accuracy and compliance with accounting standards. Information technology (IT) audits are a specialized subset of internal audits that focus on an organization's IT systems, infrastructure, and data handling processes.

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  • 13. 

    Choose the 5 C's of internal audit. 

    • A.

      Criteria

    • B.

      Condition

    • C.

      Clause

    • D.

      Consequence

    • E.

      Corrective Action Plans

    • F.

      Cheques

    Correct Answer(s)
    A. Criteria
    B. Condition
    D. Consequence
    E. Corrective Action Plans
    Explanation
    The 5 C's of internal audit are criteria, condition, consequence, corrective action plans. These elements are essential in conducting an effective internal audit. Criteria refers to the standards or benchmarks against which the audit is conducted. Condition involves assessing the current state or situation being audited. Consequence refers to the potential impact or outcome of the findings. Corrective action plans are the measures or steps taken to address any identified issues or deficiencies. These 5 C's provide a comprehensive framework for conducting thorough and meaningful internal audits.

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  • 14. 

    State true or false- The final reports of the internal audits of an organization are shared with shareholders or members who are outside the organization's governance structure. 

    • A.

      True 

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The final reports of the internal audits of an organization are not shared with shareholders or members who are outside the organization's governance structure. These reports are typically shared with key stakeholders within the organization, such as management and the board of directors, to ensure transparency and accountability. Sharing the reports with external shareholders or members who are not part of the governance structure could potentially compromise the confidentiality and integrity of the audit process.

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  • 15. 

    An internal audit is completely similar to an external audit. 

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    An internal audit and an external audit are not completely similar. While both audits involve reviewing and evaluating financial records and processes, there are key differences. An internal audit is conducted by employees within the organization to assess internal controls, identify risks, and improve operational efficiency. On the other hand, an external audit is performed by independent auditors who are not part of the organization to provide an unbiased opinion on the accuracy of financial statements. Therefore, the statement that an internal audit is completely similar to an external audit is false.

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