Auditing Principles & Procedures Flashcards

Which procurement audit standard requires that auditors possess the knowledge, skills, and competencies needed to perform their responsibilities?

Answer: Standard of proficiency and due professional care

The IIA Standard on proficiency and due professional care requires that internal auditors apply the knowledge and skills needed to fulfill their audit responsibilities competently.

A purchasing department processes emergency sole-source purchases that bypass the normal competitive bidding process. How should auditors address this risk?

Answer: Test whether documented emergency justifications are adequate and approvals are at the proper authority level

Auditors should verify that emergency purchases have documented justifications and appropriate high-level approvals, ensuring the exception is genuine and not a routine bypass of controls.

In a procurement audit, 'substantive testing' differs from 'compliance testing' in that substantive testing:

Answer: Detects material errors or misstatements in transaction amounts

Substantive testing examines the actual dollar amounts and accuracy of transactions to detect material misstatements, while compliance testing checks whether procedures are being followed.

Which condition would most likely cause an auditor to expand the sample size during a procurement audit?

Answer: Initial sample testing reveals a higher-than-expected error rate

When initial sample results show higher error rates than expected, the auditor must expand the sample to obtain sufficient evidence to draw reliable conclusions about the population.

What is the primary objective of a 'walk-through' test in procurement auditing?

Answer: To trace a single transaction through the entire purchasing process to confirm controls operate as described

A walk-through traces one or a few transactions end-to-end to confirm that documented controls actually exist and function as described in the control narrative.

An auditor discovers that the same employee who approves purchase requisitions also approves the corresponding vendor invoices for payment. This represents:

Answer: A segregation of duties failure

Allowing one person to both authorize a purchase and approve its payment removes a key check and creates an opportunity for fraudulent or unauthorized disbursements.

Which report format is most appropriate when an auditor wants to communicate a high-priority procurement fraud risk to executive leadership quickly?

Answer: A flash report or management advisory memo highlighting the critical issue

A flash report or management advisory is used for time-sensitive, high-priority issues that cannot wait for the full formal audit report cycle.