Internal Audit MCQ Quiz - Objective Question with Answer for Internal Audit - Download Free PDF
Last updated on May 26, 2025
Latest Internal Audit MCQ Objective Questions
Internal Audit Question 1:
Tom Co
This scenario relates to three requirements.
It is 1 July 20X5. Tom Co operates six restaurant and bar venues which are open seven days a week. The company’s year end is 31 July 20X5. You are the audit supervisor reviewing the controls documentation in relation to the cash receipts and payments system in preparation for the interim audit, which will involve visiting a number of the venues as well as the head office. The company has a small internal audit (IA) department based at head office.
The bank system is not integrated within the computerised accounting system.
Petty cash
The purchasing department based at the company’s head office is responsible for ordering food and beverages for all six venues. In addition, each venue has a petty cash float of $400, held in the safe, which is used for the purchase of sundry items. When making purchases of sundries, employees are required to obtain the funds from the restaurant manager, purchase the sundries and return any excess money and the receipt to the manager. At any time the petty cash sum held and receipts should equal the float of $400 but it has been noted by the company’s IA department that on some occasions this has not been the case.
Cash receipts
Each venue has five cash tills (cash registers) to take payments from customers. Three are located in the bar area and two in the restaurant area. Customers can pay using either cash or a credit card and for any transaction either the credit card vouchers or cash are placed in the till by the employee operating the till. To speed up the payment process, each venue has a specific log on code which can be used to access all five tills and is changed every two weeks.
At each venue at the end of the day, the tills are closed down by the restaurant manager who counts the total cash in all five tills and the sum of the credit card vouchers and these totals are reconciled with the aggregated daily readings of sales taken from each till. Any discrepancies are noted on the daily sales sheet. The daily sales sheet records the sales per the tills, the cash counted and the total credit card vouchers as well as any discrepancies. These sheets are scanned and emailed to the cashier at head office at the end of each week.
Approximately 30% of Tom Co’s customers pay in cash for their restaurant or bar bills. Cash is stored in the safe at each venue on a daily basis after the sales reconciliation has been undertaken. Each safe is accessed via a key which the restaurant manager has responsibility for. Each key is stored in a drawer of the manager’s desk when not being used. Cash is transferred to the bank via daily collection by a security company. The security company provides a receipt for the sums collected, and these receipts are immediately forwarded to head office. The credit card company remits the amounts due directly into Tom Co’s bank account within two days of the transaction.
At head office, on receipt of the daily sales sheets and security company receipts, the cashier agrees the cash transferred by the security company has been banked for all venues. She agrees the cash per the daily sales sheets to bank deposit slips and to the bank statements. The cashier updates the cash book with the cash banked and details of the credit card vouchers from the daily sales sheets. On a monthly basis, the credit card company sends a statement of all credit card receipts from the six venues which is filed by the cashier.
Every two months, the cashier reconciles the bank statements to the cash book. The reconciliations are reviewed by the financial controller who evidences her review by signature and these are filed in the accounts department. All purchases of food and beverages for the venues are paid by bank transfer. At the relevant payment dates, the finance director is given the total amount of the payments list which he authorises.
| Control deficiency | Control recommendation |
(20 marks)
Answer (Detailed Solution Below)
Internal Audit Question 1 Detailed Solution
(a) Communication with those charged with governance
(i) Importance
It is important for the auditors to report to those charged with governance as it helps in the following ways:
- It assists the auditor and those charged with governance in understanding matters related to the audit, and in developing a constructive working relationship. This relationship is developed while maintaining the auditor’s independence and objectivity.
- It helps the auditor in obtaining, from those charged with governance, information relevant to the audit. For example, those charged with governance may assist the auditor in understanding the entity and its environment, in identifying appropriate sources of audit evidence and in providing information about specific transactions or events.
- It helps those charged with governance in fulfilling their responsibility to oversee the financial reporting process, thereby reducing the risks of material misstatement of the financial statements.
- It promotes effective two-way communication between the auditor and those charged with governance.
(ii) Matters to be communicated
The auditor’s responsibilities with regards to providing an opinion on the financial statements and that they have carried out their work in accordance with International Standards on Auditing.
- The auditor should explain the planned approach to the audit as well as the audit timetable.
- Any key audit risks identified during the planning stage should be communicated.
- In addition, any significant difficulties encountered during the audit should be communicated.
- Also significant matters arising during the audit, as well as significant accounting adjustments.
- During the audit, any significant deficiencies in internal control identified should be communicated in writing or verbally.
- How the external auditor and internal auditor may work together and any planned use of the work of the internal audit function.
- Those charged with governance should be notified of any written representations required by the auditor.
- Other matters arising from the audit which are significant to the oversight of the financial reporting process.
- If any suspected frauds are identified during the audit, these must be communicated.
- If the auditors are intending to make any modifications to the audit opinion, these should be communicated to those charged with governance.
- For listed entities, a confirmation that the auditors have complied with ethical standards and appropriate safeguards have been implemented for any ethical threats identified.
b) Control deficiencies and recommendations
| Control deficiency | Control recommendation |
|
Each restaurant maintains a petty cash float of $400; at any point in time the receipts and funds present should equal the float. It has been noted by the internal audit (IA) department that on occasions there are differences because there is no log of petty cash requests. This could be due to sundry purchases without a relevant receipt or voucher. There is also a possibility that the cash is spent on non-business related items or stolen. |
A petty cash log should be maintained so the purchase of sundry items is recorded in the log along with the sum borrowed, date and employee. On purchase of the items, the relevant employee should return the relevant receipt or voucher and any funds not spent. The log should be updated to confirm return of funds and receipts. On a weekly basis, the restaurant manager should reconcile the petty cash and if any receipts are missing, these should be followed up with the relevant employee. If it is cash which is missing, this should be investigated further with the employees who made petty cash purchases during that period. |
|
To speed up the cash payment by customers, for each venue the tills have the same log on code and these codes are changed fortnightly. In the event of cash discrepancies arising in the tills, it would be difficult to ascertain which employees may be responsible as there is no way of tracking who used which till. This could lead to the misappropriation (theft) of cash. |
Each employee should be provided with a unique log on code and this is required to be entered when using the tills. To facilitate the investigation of till differences, employees should be allocated to a specific till point for their shift. Any discrepancies which arise should initially be double checked to confirm they are not arithmetic errors. If not, the relevant employees who had access to the till can be identified and further investigations conducted. |
|
The reconciliations of the tills to the daily sales readings are performed in total for all five tills at each venue rather than for each till. This means that when exceptions arise, it will be difficult to identify which till caused the difference and, therefore, which employees may require further till training or may have acted fraudulently. |
The reconciliations should be prepared on a till-by-till basis rather than in aggregate and any discrepancies noted should be investigated immediately |
|
Only one person, the restaurant manager, cashes up the tills and records any cash discrepancies . There is a fraud risk as the manager could remove some of the cash and record the amount an exception on the daily sales list. Also, as there is no segregation of duties, the restaurant manager could, through error or fraud, record the total sales per till incorrectly leading to incorrect identification of discrepancies. |
Two people should cash up the tills together; ideally an assistant manager and the restaurant manager. One should count the cash and the other record it. Any exceptions to the till reading should be double checked to confirm that they are not simply arithmetical errors. If still present, the relevant employees who had access to the till can be identified and further investigations can be conducted. |
|
Daily sales sheets are scanned and emailed to head office on a weekly basis. There is a possibility that some sales sheets could be misplaced by the restaurant manager resulting in the recording of incomplete sales and cash receipts data in the accounting system. |
Daily sales sheets for each venue should be sequentially numbered and remitted to head office daily. At head office, regular sequence checks should identify any missing sheets and any gaps should be investigated further. Once received, the cashier should post the sales and cash data for all six venues daily. Once processed, they should be signed as posted by the cashier and filed securely. |
|
Cash is stored in a safe at each venue and the restaurant manager stores the safe key in a desk drawer when not in use. Although cash is banked daily, there could still be a significant sum of cash onsite each day.
There is a risk of significant cash losses due to theft if access to the safe key is not carefully controlled. |
The current key lock safe should be replaced with a safe with a digital code. Only authorised personnel should have the code which should be updated regularly. |
|
The cashier is responsible for several elements of the cash receipts system. She receives the daily sales sheets from restaurants, agrees that cash is recorded on the bank statements, updates the cash book and performs the bank reconciliations.
There is a lack of segregation of duties and errors may not be identified on a timely basis. |
These key roles should be split between different members of the finance team; ideally, another member of the team should perform the bank reconciliations. |
|
The cashier is not checking credit card payments have resulted in cash receipts byTomCo. The credit card statements are not reviewed or reconciled; they are just filed away. There is a risk that receipts of cash by credit card may have been omitted and this would not be identified on a timely basis as the bank is only reconciled every two months and may result in difficulties in resolving any discrepancies with the credit card company. |
The cashier should reconcile the credit card vouchers per restaurant to the monthly statement received from the card company. The daily amounts per the statement should be agreed to the bank statement to confirm that all funds have been received. This reconciliation should be reviewed by a responsible official, such as the financial controller, who should evidence the review with a signature . |
|
The bank reconciliations are only carried out every two months. For a cash-based business, the bank reconciliation is a direct control which reduces the risk of fraud. If it is not reconciled regularly, the operating effectiveness of this control is significantly reduced as fraud and errors may not be identified on a timely basis. |
The bank reconciliations should be performed monthly rather than every two months. The financial controller should continue to review each reconciliation and evidence this by a signature on the bank reconciliation. |
|
The finance director only views the total amount of payments rather than the amounts to be paid to each supplier. Without looking at the detail of the payments list, as well as supporting documentation, there is a risk that suppliers could be paid incorrect amounts or that sums are paid to fictitious suppliers. |
The finance director should review the whole payments list before authorising. As part of this, he should agree the amounts to be paid to supporting documentation, as well as reviewing the supplier names to identify any duplicates or any unfamiliar names. He should evidence his review by signing the bank transfer list. |
Top Internal Audit MCQ Objective Questions
Internal Audit Question 2:
Tom Co
This scenario relates to three requirements.
It is 1 July 20X5. Tom Co operates six restaurant and bar venues which are open seven days a week. The company’s year end is 31 July 20X5. You are the audit supervisor reviewing the controls documentation in relation to the cash receipts and payments system in preparation for the interim audit, which will involve visiting a number of the venues as well as the head office. The company has a small internal audit (IA) department based at head office.
The bank system is not integrated within the computerised accounting system.
Petty cash
The purchasing department based at the company’s head office is responsible for ordering food and beverages for all six venues. In addition, each venue has a petty cash float of $400, held in the safe, which is used for the purchase of sundry items. When making purchases of sundries, employees are required to obtain the funds from the restaurant manager, purchase the sundries and return any excess money and the receipt to the manager. At any time the petty cash sum held and receipts should equal the float of $400 but it has been noted by the company’s IA department that on some occasions this has not been the case.
Cash receipts
Each venue has five cash tills (cash registers) to take payments from customers. Three are located in the bar area and two in the restaurant area. Customers can pay using either cash or a credit card and for any transaction either the credit card vouchers or cash are placed in the till by the employee operating the till. To speed up the payment process, each venue has a specific log on code which can be used to access all five tills and is changed every two weeks.
At each venue at the end of the day, the tills are closed down by the restaurant manager who counts the total cash in all five tills and the sum of the credit card vouchers and these totals are reconciled with the aggregated daily readings of sales taken from each till. Any discrepancies are noted on the daily sales sheet. The daily sales sheet records the sales per the tills, the cash counted and the total credit card vouchers as well as any discrepancies. These sheets are scanned and emailed to the cashier at head office at the end of each week.
Approximately 30% of Tom Co’s customers pay in cash for their restaurant or bar bills. Cash is stored in the safe at each venue on a daily basis after the sales reconciliation has been undertaken. Each safe is accessed via a key which the restaurant manager has responsibility for. Each key is stored in a drawer of the manager’s desk when not being used. Cash is transferred to the bank via daily collection by a security company. The security company provides a receipt for the sums collected, and these receipts are immediately forwarded to head office. The credit card company remits the amounts due directly into Tom Co’s bank account within two days of the transaction.
At head office, on receipt of the daily sales sheets and security company receipts, the cashier agrees the cash transferred by the security company has been banked for all venues. She agrees the cash per the daily sales sheets to bank deposit slips and to the bank statements. The cashier updates the cash book with the cash banked and details of the credit card vouchers from the daily sales sheets. On a monthly basis, the credit card company sends a statement of all credit card receipts from the six venues which is filed by the cashier.
Every two months, the cashier reconciles the bank statements to the cash book. The reconciliations are reviewed by the financial controller who evidences her review by signature and these are filed in the accounts department. All purchases of food and beverages for the venues are paid by bank transfer. At the relevant payment dates, the finance director is given the total amount of the payments list which he authorises.
| Control deficiency | Control recommendation |
(20 marks)
Answer (Detailed Solution Below)
Internal Audit Question 2 Detailed Solution
(a) Communication with those charged with governance
(i) Importance
It is important for the auditors to report to those charged with governance as it helps in the following ways:
- It assists the auditor and those charged with governance in understanding matters related to the audit, and in developing a constructive working relationship. This relationship is developed while maintaining the auditor’s independence and objectivity.
- It helps the auditor in obtaining, from those charged with governance, information relevant to the audit. For example, those charged with governance may assist the auditor in understanding the entity and its environment, in identifying appropriate sources of audit evidence and in providing information about specific transactions or events.
- It helps those charged with governance in fulfilling their responsibility to oversee the financial reporting process, thereby reducing the risks of material misstatement of the financial statements.
- It promotes effective two-way communication between the auditor and those charged with governance.
(ii) Matters to be communicated
The auditor’s responsibilities with regards to providing an opinion on the financial statements and that they have carried out their work in accordance with International Standards on Auditing.
- The auditor should explain the planned approach to the audit as well as the audit timetable.
- Any key audit risks identified during the planning stage should be communicated.
- In addition, any significant difficulties encountered during the audit should be communicated.
- Also significant matters arising during the audit, as well as significant accounting adjustments.
- During the audit, any significant deficiencies in internal control identified should be communicated in writing or verbally.
- How the external auditor and internal auditor may work together and any planned use of the work of the internal audit function.
- Those charged with governance should be notified of any written representations required by the auditor.
- Other matters arising from the audit which are significant to the oversight of the financial reporting process.
- If any suspected frauds are identified during the audit, these must be communicated.
- If the auditors are intending to make any modifications to the audit opinion, these should be communicated to those charged with governance.
- For listed entities, a confirmation that the auditors have complied with ethical standards and appropriate safeguards have been implemented for any ethical threats identified.
b) Control deficiencies and recommendations
| Control deficiency | Control recommendation |
|
Each restaurant maintains a petty cash float of $400; at any point in time the receipts and funds present should equal the float. It has been noted by the internal audit (IA) department that on occasions there are differences because there is no log of petty cash requests. This could be due to sundry purchases without a relevant receipt or voucher. There is also a possibility that the cash is spent on non-business related items or stolen. |
A petty cash log should be maintained so the purchase of sundry items is recorded in the log along with the sum borrowed, date and employee. On purchase of the items, the relevant employee should return the relevant receipt or voucher and any funds not spent. The log should be updated to confirm return of funds and receipts. On a weekly basis, the restaurant manager should reconcile the petty cash and if any receipts are missing, these should be followed up with the relevant employee. If it is cash which is missing, this should be investigated further with the employees who made petty cash purchases during that period. |
|
To speed up the cash payment by customers, for each venue the tills have the same log on code and these codes are changed fortnightly. In the event of cash discrepancies arising in the tills, it would be difficult to ascertain which employees may be responsible as there is no way of tracking who used which till. This could lead to the misappropriation (theft) of cash. |
Each employee should be provided with a unique log on code and this is required to be entered when using the tills. To facilitate the investigation of till differences, employees should be allocated to a specific till point for their shift. Any discrepancies which arise should initially be double checked to confirm they are not arithmetic errors. If not, the relevant employees who had access to the till can be identified and further investigations conducted. |
|
The reconciliations of the tills to the daily sales readings are performed in total for all five tills at each venue rather than for each till. This means that when exceptions arise, it will be difficult to identify which till caused the difference and, therefore, which employees may require further till training or may have acted fraudulently. |
The reconciliations should be prepared on a till-by-till basis rather than in aggregate and any discrepancies noted should be investigated immediately |
|
Only one person, the restaurant manager, cashes up the tills and records any cash discrepancies . There is a fraud risk as the manager could remove some of the cash and record the amount an exception on the daily sales list. Also, as there is no segregation of duties, the restaurant manager could, through error or fraud, record the total sales per till incorrectly leading to incorrect identification of discrepancies. |
Two people should cash up the tills together; ideally an assistant manager and the restaurant manager. One should count the cash and the other record it. Any exceptions to the till reading should be double checked to confirm that they are not simply arithmetical errors. If still present, the relevant employees who had access to the till can be identified and further investigations can be conducted. |
|
Daily sales sheets are scanned and emailed to head office on a weekly basis. There is a possibility that some sales sheets could be misplaced by the restaurant manager resulting in the recording of incomplete sales and cash receipts data in the accounting system. |
Daily sales sheets for each venue should be sequentially numbered and remitted to head office daily. At head office, regular sequence checks should identify any missing sheets and any gaps should be investigated further. Once received, the cashier should post the sales and cash data for all six venues daily. Once processed, they should be signed as posted by the cashier and filed securely. |
|
Cash is stored in a safe at each venue and the restaurant manager stores the safe key in a desk drawer when not in use. Although cash is banked daily, there could still be a significant sum of cash onsite each day.
There is a risk of significant cash losses due to theft if access to the safe key is not carefully controlled. |
The current key lock safe should be replaced with a safe with a digital code. Only authorised personnel should have the code which should be updated regularly. |
|
The cashier is responsible for several elements of the cash receipts system. She receives the daily sales sheets from restaurants, agrees that cash is recorded on the bank statements, updates the cash book and performs the bank reconciliations.
There is a lack of segregation of duties and errors may not be identified on a timely basis. |
These key roles should be split between different members of the finance team; ideally, another member of the team should perform the bank reconciliations. |
|
The cashier is not checking credit card payments have resulted in cash receipts byTomCo. The credit card statements are not reviewed or reconciled; they are just filed away. There is a risk that receipts of cash by credit card may have been omitted and this would not be identified on a timely basis as the bank is only reconciled every two months and may result in difficulties in resolving any discrepancies with the credit card company. |
The cashier should reconcile the credit card vouchers per restaurant to the monthly statement received from the card company. The daily amounts per the statement should be agreed to the bank statement to confirm that all funds have been received. This reconciliation should be reviewed by a responsible official, such as the financial controller, who should evidence the review with a signature . |
|
The bank reconciliations are only carried out every two months. For a cash-based business, the bank reconciliation is a direct control which reduces the risk of fraud. If it is not reconciled regularly, the operating effectiveness of this control is significantly reduced as fraud and errors may not be identified on a timely basis. |
The bank reconciliations should be performed monthly rather than every two months. The financial controller should continue to review each reconciliation and evidence this by a signature on the bank reconciliation. |
|
The finance director only views the total amount of payments rather than the amounts to be paid to each supplier. Without looking at the detail of the payments list, as well as supporting documentation, there is a risk that suppliers could be paid incorrect amounts or that sums are paid to fictitious suppliers. |
The finance director should review the whole payments list before authorising. As part of this, he should agree the amounts to be paid to supporting documentation, as well as reviewing the supplier names to identify any duplicates or any unfamiliar names. He should evidence his review by signing the bank transfer list. |