Question 1

You have been assigned the role of lead internal auditor. Your task is to carryout the annual assessment of the production line maintenance department.
When planning for this audit, which of the following must be completed?

Options :

A : Prepare the report.

B : Establish whether the controls are adequate or not.

C : Decide how the controls will be tested.

D : Learn all about the systems and controls in the department.

E : Carefully consider any control weaknesses that are reported.

F : Review previous audit findings for the department.

Answer: A,C,D

Question 2

With regard to the rote of the audit committee which of the following statements are correct? Select ALL that apply

Options :

A : The audit committee should design the system of internal controls

B : The audit committee should decide annually whether it needs an internal audit function

C : The audit committee should decide annually whether it needs an external audit function

D : The audit committee should review and monitor the effectiveness of the company-s internal audit function

E : The audit committee should provide arrangements for whistle blowing

F : The audit committee should engage consultants to carry out business reviews

Answer: A,D

Question 3

An electricity company owns and operates a nuclear power station located ten miles from a large city. A recent and very extensive engineering examination of the power station concludes with the estimate that the probability of a major nuclear disaster within the next 20 years is 0.2%.
Which of the following best explains the relevance of quantifying the risk in that way?

Options :

A : There is no acceptable level of risk for a major nuclear accident and so the probability has little information value in itself.

B : The probability is so low as to be ignored.

C : The directors will be able to argue that they were not negligent in the event of a major disaster within the 20 year period.

D : The calculation of a precise probability demonstrates that the engineers who conducted the inspection are experts in their field.

Answer: A

Question 4

Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit. However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.
The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.
Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months' time?

Options :

A : $62,000 gain

B : $95,000 gain

C : $88,000 gain

D : $16,000 loss

Answer: A

Question 5

M, a manufacturing company, has had some problems with defects in one of the main productsitproduces. This product has been made by the company for many years and is very profitable. Last monthithad over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability
Which of the following controls could M introduce to reduce defects and also increase profitability?

Options :

A : M could increase the number of quality control staff.

B : M could introduce a procedure where quality control staff sign a form at the end of each dayto say they have examined 1 in 10 products for defects and they are satisfied with the quality.

C : The production director could examine one in every 10 products and sign a form to say they are satisfactory.

D : M could service machinery at least once a month as recommended by the machinery supplier.

E : M could check all employees qualifications to ensure they are qualified for their jobs.

Answer: A,B,D