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QUESTION: 261

A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing engagement and there is pressure to complete the current engagement. The auditor notes the problem and forwards the information to the chief audit executive but performs no further followup. The auditor's actions would

I). Be in violation of the IIA Code of Ethics for withholding meaningful information.
II). Be in violation of the Standards because the auditor did not properly follow up on a red flag that might indicate the existence of fraud.
III). Not be in violation of either the IIA Code of Ethics or Standards.

I only.
II only.
III only.
I and II only.

Answer(s): C

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QUESTION: 262

A code of ethics within the internal auditing profession is necessary in order to

Reduce the likelihood that members of the profession will be sued for substandard work.
Ensure that all members of the profession perform at approximately the same level of competence.
Provide guidance to internal auditors in their service to others.
Require members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization.

Answer(s): C

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QUESTION: 263

An investment portfolio manager has the authority to use financial derivatives to hedge transactions but is not supposed to take speculative positions. However, the manager launches a scheme which includes

(1) taking a position larger than required by the hedge;
(2) putting the speculative gains in a suspense account; and
(3) transferring the funds to a nonexistent broker and from there to a personal account.

Which of the following audit procedures would be least effective in detecting this fraud?

Select a sample of individual trades and examine to determine whether the trades violate the authorization limit for the manager.
Select a sample of individual trades and determine the exact matching of the hedge.
Schedule and investigate all differences.
Select a sample of all debits to the suspense account and examine their disposition.
Select a sample of fund transfers to brokers and determine if the brokers are on the authorized list for company transactions.

Answer(s): A

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