According to IIA guidance, which of the following is true regarding audit supervision?
1.Supervision should be performed throughout the planning, examination, evaluation, communication, and follow-up stages of the audit engagement.
2.Supervision should extend to training, time reporting, and expense control, as well as administrative matters.
3.Supervision should include review of engagement workpapers, with documented evidence of the review.

• A.1, 2, and 3
• B.1 and 2 only
• C.1 and 3 only
• D.2 and 3 only

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A manufacturing organization is considering a merger with a similar firm, and requests that the chief audit executive (CAE) perform a due diligence audit. During the preliminary survey, the CAE notes that inventory management is a high risk area. In consultation with the external auditors and legal advisors, the CAE learns that they share those concerns. Which of the following is the CAE's best course of action?

• A.Perform an independent audit of the merging firm's inventory management practices to verify the concerns and to provide relevant and reliable results to management for their consideration and action.
• B.Advise management that internal audit, external audit, and legal advisors all have concerns about inventory management and, given the high materiality of inventory, management should not proceed with the merger.
• C.Coordinate with the merging firm's internal audit department to better understand the inventory management function and whether the concerns are well-founded.
• D.Coordinate a review of inventory management with external auditors and legal advisors and ensure each group focuses on their area of expertise to ascertain the extent of the problems, if any.

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When approving the final engagement report, which of the following is most critical?

• A.Conclusions are reached for all objectives.
• B.Opinions are adequately supported.
• C.Report is distributed to appropriate parties.
• D.Report is clear and concise.

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A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The analysis involves rating auditable entities on risk factors using a scale of 1 to 10, with 10 representing the greatest risk. A partial list of risk factors and the ratings given to three of the bank's departments is provided below:

Which of the following statements regarding risk in the department is true?

• A.The nature of department A's control structure may be justified by the nature of the department's assets and the complexity of its transactions.
• B.The internal audit activity should schedule audits of department B more often than audits of department C because of the relative control strength of department C as compared to department B.
• C.As compared to departments A and C, department B has a stronger control system to compensate for the greater complexity of the department's transactions and dollar value of its assets.
• D.The relative ranking of the departments in order of their risk, from greatest to least risk, is: A; C; B.

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The chief audit executive (CAE) notes during review of the final report of an assurance engagement that management has decided to accept the risks of two significant exposures identified by the audit. Which of the following actions by the CAE would be least prudent in these circumstances?

• A.Review the working papers and conclusions as to the perceived residual risk.
• B.Implement follow-up procedures to monitor the potential impact of those risks.
• C.Meet with the auditor-in-charge to review the conclusions.
• D.Meet with senior management to consider their reasoning for the decision.

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