Certified Internal Auditor CIA Sample Exam Questions

Question #1

On February 1. Year 1. a computer software firm agrees to program a software package. Twelve payments of US $1 0.000 on the first of each month are to be made, with the first payment March 1. Year 1 The software is accepted by the client June 1. Year 2. How much Year 1 revenue should be recognized?

A. S $0

B. S $100

C. S $110

D. S $120

View answer

Correct Answer: A

Question #2

According to Edward T. Hall, the perception of time is monochronic or polychronic. Which cultures perceive time as monochronic?

A. orthern European

B. atin American

C. rabic

D. editerranean

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Correct Answer: A

Question #3

A fleet maintenance division uses a different code for each type of inventory transaction. A daily summary report lists activity by part number and transaction code. The report is reconciled by the parts room supervisor to the day's material request forms and is then forwarded to the fleet manager for approval. An auditor is considering an analytical review of transaction codes and materials used. One objective of this review might be to

A. rovide evidence of inventory items that are overstocked

B. eveal shortages in perpetual inventory records

C. etermine whether inventory items are properly valued

D. dentify possible material lost due to employee theft

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Correct Answer: D

Question #4

Which of the following would be the most useful in developing an annual audit plan?

A. eneral purpose audit software

B. oting software and hardware

C. lowcharting and data capture software

D. isk assessment software

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Correct Answer: D

Question #5

In recording transactions, which of the following best describes the relation between expenses and losses?

A. osses are extraordinary charges to income, whereas expenses are ordinary charges to income

B. osses are material items, whereas expenses are immaterial items

C. osses are expenses that may or may not arise in the course of ordinary activities

D. xpenses can always be prevented, whereas losses can never be prevented

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Correct Answer: C

Question #6

Quality cost indices are often used to measure and analyze the cost of maintaining or improving the level of quality. Such indices are computed by dividing the total cost of quality over a given period by some measure of activity during that period for example, sales dollars). The following cost data are available for a company for the month of March. The company's quality cost index is calculated using total cost of quality divided by sales dollars.Sales US $400, 000Direct materials cost 100, 000Direct lab

A.

B.

C. 2

D.

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Correct Answer: A

Question #7

During which stage of group development does a group exhibit a consolidation of power and reach an agreement among members about authority, structure, and procedures?

A. onflict and challenge stage

B. isillusion stage

C. cceptance stage

D. ohesion stage

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Correct Answer: D

Question #8

A team member who focuses on the overall perspective and reminds others of the vision, mission, or goal of the team informally assumes the role of a:

A. ontributor

B. ollaborator

C. ommunicator

D. hallenger

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Correct Answer: C

Question #9

The relationship between the present value of a future sum and the future value of a present sum can be expressed in terms of their respective interest factors. lithe present value of US $200, 000 due at the end of 8 years. at 10%. is US $93, 300. what is the approximate future value of US $200, 000 invested for the same length of time and at the same rate?

A. S $93, 300

B. S $200, 000

C. S $293, 300

D. S $428, 724

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Correct Answer: D

Question #10

Which of the following does not describe a skill or knowledge necessary to supervise a particular audit engagement?

A. he ability to review and analyze an engagement program to determine if the proposed audit procedures will result in evidence relevant to the engagement objectives

B. he ability to use risk assessment and other judgmental processes to develop an engagement plan and schedule for the department, and present the plan to the audit committee

C. he ability to assure that an engagement final communication is supported and accurate relative to the evidence documented in the engagement working papers

D. he ability to determine that staff auditors have completed the audit procedures and that engagement objectives have been met

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Correct Answer: B

Question #11

A major justification for investments in computer-integrated manufacturing CIM) projects is

A. eduction in the costs of spoilage, reworked units, and scrap

B. ower Carr ring amount and depreciation expense for factory equipment

C. ncreased working capital

D. tabilization of market share

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Correct Answer: A

Question #12

The primary reason that a bank would maintain a separate compliance function is to

A. etter manage perceived high risks

B. trengthen controls over the bank's investments

C. nsure the independence of line and senior management

D. etter respond to shareholder expectations

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Correct Answer: A

Question #13

The primary difference between PERT and CPM is that

A. PM uses probabilities on the activity times and PERT does not

B. ERT considers activity costs and CPM does not

C. ERT can assign probabilities to activity times and CPM does not

D. PM considers activity costs and PERT does not

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Correct Answer: D

Question #14

Which of the following best describes a market synergy?

A. echnology transfer from one product to another

B. undling of products distributed through the same channels

C. roduction of multiple products at one facility

D. se of complementary management skills to achieve entry into a new market

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Correct Answer: B

Question #15

What are the effects of an adjusting entry used to accrue revenue from credit sales?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: B

Question #16

The least risky method of entering a market in a foreign country is by

A. ndirect exports

B. icensing

C. irect exports

D. irect investments

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Correct Answer: A

Question #17

To mitigate a possible loss and offset risk, an entity can use derivatives or other hedging instruments. Which of the following?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #18

Which of the following is not a characteristic of decentralized organizations?

A. ecentralized organizations are usually more flexible

B. ecentralized organizations have reduced costs through resource sharing

C. ecentralized organizations have fewer decisions made lower in the hierarchy that are monitored by senior management

D. ecentralization has a positive influence on morale

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Correct Answer: B

Question #19

A production worker in a plant often speaks for the entire work force when problems arise between labor and management. Although this individual has the same level of authority andexpertise as the individual's co-workers, the worker seems to possess a degree of power that others do not have. What type of power does this individual apparently have?

A. oercive

B. eferent

C. egitimate

D. eward

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Correct Answer: B

Question #20

A manufacturer receives an advance payment for special-order goods that are to be manufactured and delivered within the next year. The advance payment should be reported in the manufacturer's current-year balance sheet as a(n)

A. urrent liability

B. oncurrent liability

C. ontra asset amount

D. ccrued revenue

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Correct Answer: A

Question #21

While auditing a marketing department, the internal auditor discovered that the product life cycle model was used to structure the marketing mix. The manager has asked the auditor for advice about increasing advertising of various products. During which stage of the life cycle would it be appropriate to advertise that the company's product is the lowest price and best quality of all competitors?

A. ntroduction stage

B. rowth stage

C. aturity stage

D. ecline stage

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Correct Answer: C

Question #22

Conflict triggers include all of the following except

A. nclear job boundaries

B. nrealized expectations

C. tatus differentials

D. uperordinate goals

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Correct Answer: D

Question #23

Which of the following is a common element of any risk framework?

A. rganizational objectives

B. nticipated product losses

C. oard of directors' policies

D. elegation of authority

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Correct Answer: A

Question #24

What is the tax expense that would have been reported on Lally's income statement for the year ended December 31. Year 1?

A. S $1, 560, 000

B. S $1

C. S $1

D. S $1, 568, 000

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Correct Answer: A

Question #25

The primary role of the internal audit activity in regard to an organization's ethical climate is to

A. articipate as chief ethics officer

B. eriodically assess the ethical climate

C. tilize surveys to evaluate employee ethics

D. emonstrate ethical behavior

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Correct Answer: B

Question #26

The Huron Corporation purchases 60, 000 headbands per year. The average purchase lead time is 20 working days, and the maximum lead time is 27 working days. Safety stock equals 1, 750 units. The corporation works 240 days per year. Huron should reorder headbands when the quantity in inventory reaches

A. , 000 units

B. , 750 units

C. , 750 units

D. , 250 units

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Correct Answer: B

Question #27

Because of inexact estimates of the service life and the residual value of a plant asset, a fully depreciated asset was sold in the current year at a material gain. This gain most likely should be reported

A. n the other revenues and gains section of the current income statement

B. s part of sales revenue on the current income statement

C. n the extraordinary item section of the current income statement

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Correct Answer: A

Question #28

An entity sells a durable good to a customer on January 1, Year 1, and the customer is automatically given a 1-year warranty_ The customer also buys an extended warranty package extending the coverage for an additional 2 years to the end of Year 3. At the time of the original sale, the company expects warranty costs to be incurred evenly over the life of the warranty contracts. The customer has only one warranty claim durln2 the 3- year period, and the claim occurs during Year 2. The company will recognize

A. n January 1

B. n Year 2 and Year 3

C. t the time of the claim in Year 2

D. ecember 31

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Correct Answer: B

Question #29

If the entity uses the weighted-average method of inventory valuation, cost of goods sold for the period will be

A. S $186, 978

B. S $197, 000

C. S $228

D. S $235

E. nswer is Pending

View answer

Correct Answer: E

Question #30

Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?

A. ntegrated test facility

B. arallel simulation

C. est data

D. mbedded audit routines

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Correct Answer: D

Question #31

Edward T. Hall has distinguished between high-context and low-context cultures. Which culture is high-context?

A. nited States

B. anada

C. ermany

D. apan

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Correct Answer: D

Question #32

Under IAS 2, Inventories. all of the following should be decided when reporting inventories except

A. he use of the lower-of-cost-or-net-realizable-value method, if applicable

B. he cost formulas used

C. he carrying amount of inventories in classifications appropriate to the entire/

D. n estimated amount of obsolete inventory included in the total inventory valuation_

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Correct Answer: D

Question #33

A firm in a declining industry that adopts a harvest strategy assumes that:

A. ntense competition is absent

B. ockets of stable demand still exist

C. he highest recovery is obtainable by early sale

D. ggressive marketing will drive out competition

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Correct Answer: A

Question #34

On December 1. Year 1, a company using the installment sales method sold goods that cost US $1.000 for US $1.500. The buyer paid US $100 down. Monthly payments start January 1. Year 2. Interest accrues at 1% per month on the unpaid balance. To the nearest dollar, the effect on profit for Year 1 is

A. S $33 increase

B. S $47 increase

C. S $67 increase

D. S $114 increase

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Correct Answer: B

Question #35

A staff auditor is technically outstanding and works well with audit clients but is not good at leading an audit team. To improve the auditor's performance, the auditor should be:

A. ut in charge of the biggest project; the only way to learn is by performing the task

B. ut in charge of small projects with set milestones and a fully trained staff

C. ent to school for management theory classes

D. eft alone and given assignments that accentuate personal strengths and avoid personal weaknesses

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Correct Answer: B

Question #36

If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?

A. he confidence level could not be quantified

B. he precision would be larger

C. he projected value of inventory would be less reliable

D. he risk of incorrect acceptance would be higher

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Correct Answer: A

Question #37

During the development of a purchasing system, an auditor reviewed the payment authorization program. Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?

A. ssue an exception report

B. ay the amount billed and adjust the inventory account for the difference

C. eturn the invoice to the vendor for correction

D. uthorize payment of the full invoice, but maintain an open purchase order record for the missing goods

View answer

Correct Answer: A

Question #38

Of the major processes affecting the evolution of an industry, which one affects rivalry, entry, expansion, and supply?

A. ong-run changes in the industry growth rate

B. hanges in input costs

C. tructural changes in suppliers' and customers' industries

D. overnment policies

View answer

Correct Answer: A

Question #39

A transportation department maintains its vehicle inventory and maintenance records in a database. Which of the following audit procedures is most appropriate for evaluating the accuracy of the database information?

A. erify a sample of the records extracted from the database with supporting documentation

B. ubmit batches of test transactions through the current system and verify with expected results

C. imulate normal processing by using test programs

D. se program tracing to show how, and in what sequence, program instructions are processed in the system

View answer

Correct Answer: A

Question #40

Which of the following describes a control weakness?

A. urchasing procedures are well designed and are followed unless otherwise directed by the purchasing supervisor

B. renumbered blank purchase orders are secured within the purchasing department

C. ormal operational purchases fall in the range from $500 to $1, 000 with two signatures required for purchases over $1, 000

D. he purchasing agent invests in a publicly traded mutual fund that lists the stock of one of the company's suppliers in its portfolio

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Correct Answer: A

Question #41

On August I, Year 1. an entity issued s-year bonds with a face amount of US $10 million. The funds carry a stated interest rate of 11)35 and interest is payable annually on July 31. Which is the appropriate classification of bonds payable and the related accrued interest payable on the December 31, Year 5, balance sheet?

A. lassification

B. lassification

C. lassification

D. lassification

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Correct Answer: A

Question #42

The reason(s) governments most likely restrict trade includeI).To help foster new industries.II).To protect declining industries.III).To increase tax revenues.IV).To foster national security.

A. only

B. and II only

C. I and Ill only

D. , II, and IV only

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Correct Answer: D

Question #43

When reviewing a report prepared by an internal auditor who has a personal friend employed in the area being audited, a chief audit executive's primary focus would be to ensure that the report

A. s fair, impartial, and unbiased

B. s easily understood and findings are presented in a logical manner

C. s clearly worded and avoids unnecessary detail, redundancy, and wordiness

D. s free from errors and misstatements

View answer

Correct Answer: A

Question #44

A manufacturer uses a materials requirements planning 1RP) system to track inventory, orders, and raw material requirements. A preliminary audit assessment indicates that the organization's inventory is understated. Using audit software, what conditions should the auditor search for in the MRP database to support this hypothesis?I). Item cost set at zero.II). Negative quantities on hand.III). Order quantity exceeding requirements.IV). Inventory lead times exceeding delivery schedule.

A. and II only

B. and I only

C. I and I only

D. II and I only

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Correct Answer: A

Question #45

The effect of just-in-time production approaches

A. educes the dependency on suppliers

B. educes the cost of implementing strategies

C. ecreases production facility flexibility

D. ncreases the need for a dependable workforce

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Correct Answer: B

Question #46

An entity that sprays chemicals in residences to eliminate or prevent infestation of insects requires that customers prepay for 3 months' service at the beginning of each new quarter. Select the term that appropriately describes this situation from the viewpoint of the entity.

A. eferred income

B. arned income

C. ccrued income_

D. repaid expense

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Correct Answer: A

Question #47

Which of the following statements is true with respect to value engineering?I). Value engineering is a means of reaching targeted cost levels.II). Value engineering is the Japanese concept that emphasizes continuous improvement in all phases of company activities through numerous minor changes.III). Value engineering requires distinguishing between cost incurrence and locked-in costs, with an emphasis on controlling costs at the design stage.

A. tems I and II only

B. tems I and III only

C. tems II and III only

D. tems I, II, and III

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Correct Answer: B

Question #48

The most important component of quality control is

A. nsuring goods and services conform to the design specifications

B. atisfying upper management

C. onforming with ISO-9000 specifications

D. etermining the appropriate timing of inspections

View answer

Correct Answer: A

Question #49

Big Co. holds 18% of the outstanding voting common shares of Little Co. How will Big report unrealized holding gains and losses on these shares?

A. he treatment varies depending on whether Big classifies the shares as trading securities or available-for¬ sale securities

B. s items of other comprehensive income

C. s components in the calculation of net income

D. s either items of other comprehensive income or components in the calculation of net income, depending on whether the shares have been held longer than one year

View answer

Correct Answer: A

Question #50

An internal auditor is examining a large population of data and suspects that some of the data may be fraudulent. Which of the following sampling techniques would be most appropriate for the internal auditor to use?

A. andom number sampling

B. nterval sampling

C. top and go sampling

D. iscovery sampling

View answer

Correct Answer: D

Question #51

At December 31, SCM Ltd., a calendar-year entity, reported the following accounts for which the carrying amount differed from the tax base:

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #52

An organization's decision to outsource its computer systems support is an example of which of the following risk responses?

A. isk acceptance

B. isk sharing

C. isk avoidance

D. isk reduction

View answer

Correct Answer: B

Question #53

An organization has a compensation system for its managers based on a management-by- objectives MBO) approach. The essential premise of MBO is that

A. ompensation should be based on qualitative factors

B. mployees should be concerned with routine matters, and managers should attend to exceptions

C. mployees should participate in setting objectives

D. anagers should establish objectives for their employees

View answer

Correct Answer: C

Question #54

One of the audit objectives for a manufacturing company is to verify that all rework is reviewed by the production engineer. Which of the following audit procedures would provide the best evidence for meeting this objective?

A. race a sample of entries in the rework log to remedial action taken

B. race a sample of rework orders to entries in the rework log

C. race a sample of entries in the review log to rework orders

D. race a sample of rework orders to entries in the review log

View answer

Correct Answer: D

Question #55

A company uses straight-line depreciation for financial reporting purposes, but uses accelerated depreciation for tax purposes. Which of the following account balances would be lower in the financial statements used for tax purposes than it would be in the general purpose financial statements?

A. ccumulated depreciation

B. ash

C. etained earnings

D. ross fixed assets

View answer

Correct Answer: C

Question #56

Strategic choices in an emerging industry are inherently subject to great uncertainty and risk with regard to competitors, industry structure, and competitive rules. Accordingly, a firm considering entry into an emerging industry:

A. as little need to be concerned with industry cooperation

B. s least likely to be able to shape the industry structure at this stage

C. ay enjoy such benefits of pioneering as experience advantages and early commitment to suppliers

D. ust be prepared for responding vigorously to competitors' moves

View answer

Correct Answer: C

Question #57

Which of the following leadership types is best known as an agent of change?

A. articipative leader

B. raitist leader

C. ransformational leader

D. ree-rein leader

View answer

Correct Answer: C

Question #58

In an internal audit department, group decision making would be most appropriate for determining whether to:

A. eport a significant audit finding that is critical of management

B. xpand an audit program because of uncertainty and risk regarding the operations of the audited entity

C. xpand audit procedures when initial sample results indicate a strong possibility of fraud

D. eview a critical audit finding with the client before preparation of the engagement final communication

View answer

Correct Answer: B

Question #59

To identify those components of a telecommunications system that present the greatest risk, an internal auditor should first

A. eview the open systems interconnect network model

B. dentify the network operating costs

C. etermine the business purpose of the network

D. ap the network software and hardware products into their respective layers

View answer

Correct Answer: C

Question #60

In which of the following situations will organizational politics most likely have a significant impact?

A. hen space allocations are made according to objective criteria

B. hen the budget allows for generous salary increases for all employees

C. hen promotions are based on an employee's attitude

D. hen performance outcomes are clearly stated and objective

View answer

Correct Answer: C

Question #61

According to the International Professional Practices Framework, internal auditors should possess which of the following competencies?I). Proficiency in applying internal auditing standards, procedures, and techniques.II). Proficiency in accounting principles and techniques.III). An understanding of management principles.IV). An understanding of the fundamentals of economics, commercial law, taxation, finance, and quantitative methods.

A. only

B. I only

C. and III only

D. , III, and IV only

View answer

Correct Answer: D

Question #62

Which of the following is a red flag associated with fictitious revenues?

A. low growth or unusually low profitability

B. nusual decrease in the number of days' sales in receivables

C. ubstantial increase in receivables turnover

D. ignificant transactions with related parties

View answer

Correct Answer: D

Question #63

An internal auditor for a large regional bank holding company was asked to serve on the board of directors of a local bank. The bank competes in many of the same markets as the bank holding company but focuses more on consumer financing than on business financing. In accepting this position, the auditorI). Violates the IIA Code of Ethics because serving on the board is in direct conflict with the best interests of the auditor's employer.II). Violates the IIA Code of Ethics because the information gained whi

A. only

B. I only

C. II only

D. and II only

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Correct Answer: D

Question #64

To determine if a new computer system is improving the use of a manufacturer's limited facilities in serving the largest number of customers, an auditor should compare

A. he number of reworked orders and their costs before and after system installation

B. nventory and materials handling costs before and after system installation

C. he number of orders filled and their cycle times before and after system installation

D. he number of reworked orders and orders filled before and after system installation

View answer

Correct Answer: C

Question #65

Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?I). Physically inspect all assets on the organization's property.II). Select a sample department and physically inspect assets in the department.III). Select a sample from the organization's records of physical assets and physically locate each asset.IV). Identify assets at a sample of locations and trace to the organization's records.

A. only

B. and IV only

C. I and III only

D. II and IV only

View answer

Correct Answer: D

Question #66

Which of the following is most likely to be an element of an effective compliance program?

A. he internal audit activity is assigned responsibility for overseeing the program

B. he program is communicated to employees in a video format on a one-time basis

C. he organization uses monitoring systems designed to detect improper activity

D. he organization obtains as much information as possible when performing background checks on employees

View answer

Correct Answer: C

Question #67

New credit policies have been implemented in an automated order entry system to improve the collection of receivables. Sales management has compiled several examples that show decreased sales and delayed order entry, and contends that these examples are a direct result of the new credit policy constraints. Sales management's data and information provide

A. eedback control data

B. rrelevant and argumentative information

C. vidence that the new credit policies do not meet the stated corporate objective to improve collections

D. statistically valid conclusion about the impact of the new credit policies on customer goodwill

View answer

Correct Answer: A

Question #68

Which of the following has been identified as the most important cause of organizational decline?

A. entralization

B. anagement complacency

C. oor employee morale

D. ack of innovation

View answer

Correct Answer: B

Question #69

Total inventory ordering costs per year equal

A. S $1, 250

B. S $2, 400

C. S $2, 880

D. S $3, 600

View answer

Correct Answer: C

Question #70

At the beginning of Year 1. a company began work on a 3-year construction contract. This contract is accounted for by the percentage-of-completion method for financial accounting purposes and the completed-contract method for tax purposes. Dun l fig "(par 1, the company reported US $800, UUU of in from this contract. However, because of cost overruns incurred in Year 2. the company reported a US $500, 000 loss from this contract. What should the company's Year 2 balance sheet include?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: D

Question #71

Which strategy in a global industry is most likely to rely on domestic content rules or high tariffs?

A. protected niche strategy

B. national focus strategy

C. national segment strategy

D. global focus strategy

View answer

Correct Answer: A

Question #72

Correlation is a term frequently used in conjunction with regression analysis and is measured by the value of the coefficient of correlation, r. The best explanation of the value r is that it

A. s always positive

B. nterprets variances in terms of the independent variable

C. anges in size from negative infinity to positive infinity

D. s a measure of the relative relationship between two variables

View answer

Correct Answer: D

Question #73

Which of the following is a reason for a firm to remain in an industry despite poor profits?

A. ack of vertical integration

B. conomies of scale are not significant

C. he firm's assets have a low liquidation value

D. istribution channels are willing to accept new products

View answer

Correct Answer: C

Question #74

An entity uses the retail method of inventory estimation for interim reporting purposes. Management expects some normal shrinkage in the inventory because of theft. What effect will the failure to consider this shrinkage have on the computation of1) the cost- retail ratio, and2) the estimated ending inventory at retail?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #75

The expected value of perfect information is the

A. ame as the expected profit under certainty

B. um of the conditional profit loss) for the best event of each act times the probability of each event occurring

C. ifference between the expected profit under certainty and the expected opportunity loss

D. ifference between the expected profit under certainty and the expected monetary value of the best act under uncertainty

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Correct Answer: D

Question #76

Which of the following is not a factor to be considered in discovery sampling?

A. opulation size

B. rror rate

C. ost per sample observation

D. onfidence level

View answer

Correct Answer: C

Question #77

The alignment of managerial goals with organizational goals usually requires:I). Assigning responsibility for activities.II). Delegating the authority to perform necessary tasks.III). Establishing accountability.IV). Measuring and evaluating performance.

A. and IV only

B. , II, and III only

C. I, Ill, and IV only

D. , II, Ill, and IV)

View answer

Correct Answer: D

Question #78

According to the International Professional Practices Framework, all workpapers prepared by an internal auditor are the property of the

A. hief audit executive

B. nternal auditor

C. rganization

D. udit committee

View answer

Correct Answer: C

Question #79

A manager can use power and authority to accomplish objectives. The relationship between these two important concepts is best explained as follows:

A. ower is the right to do things, while authority is the ability to do things

B. uthority is the right to do things, while power is the ability to do things

C. ower and authority are both required to accomplish a task

D. ower and authority are simply two words that describe the same concept -- how to get things done in organizations

View answer

Correct Answer: B

Question #80

Assume that C Company offers to perform the operation 2 function on 1, 000 units at a unit price of US $40, excluding direct materials cast. Also assume that Y Company offers to perform the Operation 1 function an 1, 000 units at a unit price of US $7, excluding direct materials cost. Which of these mutually exclusive offers is acceptable?

A. but not Y

B. but not C

C. or Y

D. either offer should be accepted

View answer

Correct Answer: A

Question #81

The entity had net purchases for the period of

A. S $340

B. S $346

C. S $370

D. S $376

E. nswer is Pending

View answer

Correct Answer: E

Question #82

Insurance companies often receive electronic hospitalization claims directly from hospitals. Which of the following control procedures would be most effective in detecting fraud in such an environment?

A. se integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing

B. evelop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department

C. se generalized audit software to match the claimant identification number with a master list of valid policyholders

D. evelop batch controls over all items received from a particular hospital and process those claims in batches

View answer

Correct Answer: B

Question #83

A corporation adheres to an open-systems perspective belief that the organization must adapt to changes in the environment to be successful. Which of the following would be inconsistent with the corporation following an open-systems framework?

A. he corporation attempts to utilize resources in order to be self-sufficient

B. he corporation experiments with different production methods to find the method that is the most efficient and effective

C. he corporation emphasizes the overall result of projects instead of the individual inputs

D. he corporation requires employees to undergo monthly training seminars

View answer

Correct Answer: A

Question #84

Which of the following changes in accounting policies resulting from a significant change in the expected pattern of economic benefit will increase profit?

A. change from FIFO to LIFO inventory valuation when costs are rising

B. change from FIFO to weighted-average inventory valuation when costs are falling

C. change from accelerated to straight-line depreciation in the later years of the depreciable lives of the assets

D. change from straight-line to accelerated depreciation in the early years of the depreciable lives of the assets

View answer

Correct Answer: B

Question #85

During the course of a bank audit, an auditor discovers that one loan officer has approved loans to a number of related but separate organizations, in violation of regulatory policies. The loan officer indicated that it was an oversight and would not happen again. However, the auditor believes that the action may have been intentional because the loan officer is a relative of one of the primary owners of the corporate group that controls the related organizations. The auditor should

A. nform management of the conflict of interest and the violation of the regulatory requirements and suggest further investigation

B. eport the violation to the regulatory agency because it constitutes a significant breakdown of the bank's control structure

C. ot report the violation if the loan officer agrees to take corrective action

D. xpand the audit work to determine if there may be fraudulent activity on the part of the loan officer and report the findings to management when the followup investigation is complete

View answer

Correct Answer: A

Question #86

If management has not established a risk management process, the internal audit activity could

A. ake a proactive role that supplements traditional assurance activities

B. dentify and mitigate risks to the organization

C. ssume responsibility for the management of identified risks

D. ssume primary responsibility for determining if adequate and effective processes are in place

View answer

Correct Answer: A

Question #87

A weakness of cohesive groups may be:

A. onformity

B. roupthink

C. he development of norms

D. ommitment by members

View answer

Correct Answer: B

Question #88

An entity most likely may derecoginize a financial liability if it

A. ransfers amounts to a trust to be used to repay the obligation

B. xchanges debt instruments with the lender with substantially similar terms

C. xchanges debt instruments with the lender with substantially different terms

D. ransfers amounts in a transaction that meets the requirements of an in-substance defeasance

View answer

Correct Answer: C

Question #89

A large company uses assembly line techniques to manufacture a single product. Its choice of relatively mechanistic organizational design was more likely based on its:

A. eed for rapid response to environmental change

B. rimary concern for operational efficiency

C. ow fixed technology requirements

D. roject management emphasis

View answer

Correct Answer: B

Question #90

A medium-sized municipality provides 8.5 billion gallons of water per year for 31, 000 customers. The water meters are replaced at least every five years to ensure accurate billing. The department recently issued the following activity report ActivityMonth OneMonth TwoMonth ThreeActual 1st Quarter1st Quarter GoalMeters replaced1, 2351, 425Leaks reportedLeaks repaired100%Based on the activity reported for leaks repaired during the first quarter, an internal auditor would conclude that

A. he leak-repair program is adequately staffed

B. he operating standard should be changed

C. eviations from the goal should be analyzed and corrected

D. stablished operating standards are understood and are being met

View answer

Correct Answer: D

Question #91

A transfer of receivables. with recourse, in exchange for cash should

A. ot be recorded until all of the receivables have been collected

B. e recorded as a sale or a borrowing transaction, depending on the provisions of the transfer agreement

C. e recorded as a sale of receivables

D. e recorded as a borrowing transaction

View answer

Correct Answer: B

Question #92

Which of the following fraudulent acts is not designed primarily to benefit the organization?

A. ale or assignment of fictitious assets

B. mproper payments such as bribes or kickbacks

C. mproper valuation of transactions

D. cceptance of bribes or kickbacks

View answer

Correct Answer: D

Question #93

Which of the following is not an appropriate role for internal auditors after a disaster occurs?

A. onitor the effectiveness of the recovery and control of operations

B. orrect deficiencies of the entity's business continuity plan

C. ecommend future improvements to the entity's business continuity plan

D. ssist in the identification of lessons learned from the disaster and the recovery operations

View answer

Correct Answer: B

Question #94

An internal auditor for a financial institution has just completed an audit of loan processing. Of the 81 loans approved by the loan committee, the auditor found seven loans which exceeded the approved amount. Which of the following actions would be inappropriate on the part of the auditor?

A. xamine the seven loans to determine if there is a pattern

B. eport the amounts to the loan committee and leave it up to them to correct

C. ollow up with the appropriate vice president and include the vice president's acknowledgment of the situation in the engagement final communication

D. etermine the amount of the differences and make an assessment as to whether the dollar differences are material

View answer

Correct Answer: B

Question #95

The organizational culture may encourage politics by creating unreasonable obstacles to group and individual advancement. Which type of political tactic involves taking credit for another person's work?

A. oyalty cliques

B. estructive competition

C. mpire building

D. osturing

View answer

Correct Answer: D

Question #96

The four categories of costs associated with product quality costs are

A. xternal failure, internal failure, prevention, and carrying

B. xternal failure, internal failure, prevention, and appraisal

C. xternal failure, internal failure, training, and appraisal

D. arranty, product liability, training, and appraisal

View answer

Correct Answer: B

Question #97

Paul Hersey and Ken Blanchard developed a situational leadership model with two dimensions:task and relationship behaviors. In this model, a participating leadership style has which dimensions?

A. igh task and high relationship

B. igh task and low relationship

C. ow task and high relationship

D. ow task and low relationship

View answer

Correct Answer: C

Question #98

Which one of the following statements best describes the asset-liability method of accounting for deferred income taxes?

A. he amount of deferred tax is based on tax rates in effect when temporary differences originate

B. he amount of deferred tax is based on the tax rates expected to be in effect during the periods in which the deferred tax liabilityDTL) is settled or the deferrer tax assetDTA) is realized

C. he tax effects of temporary differences are not reported separately but are reported as adjustments to the amounts of specific assets and liabilities and the related revenues and expenses

D. he appropriate tax rate to be reported on the income statement is the tax actually levied in that year, meaning no deferred taxes would be reported

View answer

Correct Answer: B

Question #99

The belief that successful leadership occurs when the leader's style matches the situation is the basis for:

A. he contingency approach to leadership

B. he managerial-grid model of leadership

C. behavioral approach to leadership

D. n achievement-oriented approach to leadership theories

View answer

Correct Answer: A

Question #100

A post office serves customers in a single line at one service window. During peals periods, the rate of arrivals has a Poisson distribution with an average of 100 customers per hour and service times that are exponentially distributed with an average of 0 seconds per customer.From this, one can conclude that the

A. ueue will expand to infinity

B. erver' will be idle one-sixth of the time

C. verage rate is 100 customers per hour

D. verage customer waiting time is minutes

View answer

Correct Answer: A

Question #101

Is PERT analysis a control tool or a planning tool?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #102

Which of the following would be the most appropriate starting point in a compliance evaluation of software licensing requirements for an organization with more than 15, 000 computer workstations?

A. etermine if software installation is controlled centrally or distributed throughout the organization

B. etermine what software packages have been installed on the organization's computers and the number of each package installed

C. etermine how many copies of each software package have been purchased by the organization

D. etermine what mechanisms have been installed for monitoring software usage

View answer

Correct Answer: A

Question #103

Which of the following factors is least likely to affect a manager's direct span of control?

A. requency of supervisor-subordinate contact

B. he manager's willingness to delegate authority

C. he manager's training and communication skills

D. umber of people in the corporation

View answer

Correct Answer: D

Question #104

Which of the following is key to any plan to empower teams?

A. ive structure to team members

B. onitor progress and offer timely feedback on performance

C. educe authority of the team when mistakes are made

D. void tension and conflict within the team

View answer

Correct Answer: B

Question #105

Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?

A. bservation

B. racing

C. ecomputation

D. ouching

View answer

Correct Answer: B

Question #106

Which of the following environments is most likely to help prevent fraud within an organization?I). Realistic organizational goals and objectives have been set.II). Legal counsel is available for consultation on a timely basis.III). Procedures exist to investigate fraud when it is identified.IV). A well-designed control system exists.

A. and II only

B. and IV only

C. I and III only

D. II and IV only

View answer

Correct Answer: B

Question #107

Product-quality-related costs are part of a total quality control program. A product-quality- related cost incurred in detecting individual products that do not conform to specifications is an example of a n)

A. revention cost

B. ppraisal cost

C. xternal failure cost

D. pportunity cost

View answer

Correct Answer: B

Question #108

Which one of the following is least likely to contribute to group cohesiveness in an organization?

A. oal consensus

B. ubgroup formation

C. eadership acceptance

D. nterpersonal trust

View answer

Correct Answer: B

Question #109

Which of the following is the best approach for obtaining feedback from engagement clients regarding the quality of internal audit work?

A. sk questions during the exit interviews and send copies of the documented responses to the clients

B. all engagement clients after the exit interviews and send copies of the documented responses to the clients

C. istribute questionnaires to selected engagement clients shortly before preparing the internal audit annual activity report

D. rovide questionnaires to engagement clients at the beginning of each engagement and request that the clients complete and return them after the engagements

View answer

Correct Answer: D

Question #110

A cable television entity receives deposits from customers that are refunded when service is terminated. The average customer stays with the entity 8 years. How should these deposits be shown on the financial statements?

A. perating revenue

B. ther revenue

C. hare capital

D. iability

View answer

Correct Answer: D

Question #111

In a dynamic equilibrium, successful organizations have a balance between fragmentation and coordination. Which of the following may cause an organization to risk the loss of this equilibrium?

A. framework of rules

B. hierarchy of authority

C. ormation of cross-functional groups

D. ivision of labor and technical specialization

View answer

Correct Answer: D

Question #112

The internal audit activity's key responsibility for information security is to

A. dentify technical aspects, risks, processes, and transactions to be examined

B. etermine the scope and degree of testing to achieve engagement objectives

C. eriodically assess information security practices

D. ocument engagement procedures

View answer

Correct Answer: C

Question #113

Which of the following would be the least effective in preventing purchasing agents from taking kickbacks or gifts from vendors in exchange for favorable contracts?

A. specific corporate policy prohibiting the acceptance of anything of value from a vendor

B. corporate code of ethics prohibiting any activity that might impair objectivity

C. requirement for purchasing agents to develop a company profile of each new vendor before it is added to the authorized vendor list

D. he establishment of long-term contracts with major vendors, with the contract terms approved by senior management

View answer

Correct Answer: C

Question #114

Which of the following is a benefit of decentralization?

A. he head of the company is aware of and can influence all decisions before they are made

B. he company is operated as one unit

C. pecialists for a particular product have no authority but advise the company's top management

D. ecisions are made on a more timely basis

View answer

Correct Answer: D

Question #115

Which of the following terms is not used in project management?

A. ummy activity

B. atest finish

C. ptimistic time

D. umpy demand

View answer

Correct Answer: D

Question #116

Which of the following is true regarding the internal audit activity's management of a third- party consulting engagement?

A. he consultant should be empowered to lead the engagement as deemed necessary to meet the audit objectives

B. he internal auditor should understand the work of the consultant and ensure that audit objectives are being met

C. he consultant should issue the final audit report if the auditor does not have the technical expertise to discuss the issues

D. he auditor may provide advice but has no responsibility for the final audit report issued by the consultant

View answer

Correct Answer: B

Question #117

Which of the following is typically not a reason for committing financial statement fraud?

A. o dispel negative market perception

B. o disguise a duplicate payment to a vendor

C. o obtain more favorable terms on financing

D. o receive performance related bonuses

View answer

Correct Answer: B

Question #118

Which of the following is not an appropriate type of coordination between the internal audit activity and regulatory auditors?

A. egulatory auditors share their perspective on risk management, control, and governance with the internal auditors

B. nternal auditors perform fieldwork at the direction of the regulatory auditors

C. nternal auditors review copies of regulatory reports in planning related internal engagements

D. egulatory and internal auditors exchange information about planned activities

View answer

Correct Answer: B

Question #119

Assuming an available-for-sale financial asset that is not part of a hedge is remeasured to fair value at the balance sheet, the gain or loss not arising from foreign exchange transactions or impairment

A. ust be recognized in profit or loss

B. ust be recognized directly in equity

C. ay be recognized in profit or loss or directly in equity

D. ust be recognized in profit or loss if the result is a loss and directly in equity if the result is a gain

View answer

Correct Answer: B

Question #120

After completing a net present value (NPV) calculation on a proposed project, an analyst explores the change in NPV with changes in the interest rate. This additional analysis is referred to as

A. ecision analysis

B. imulation

C. ensitivity analysis

D. ariance analysis

View answer

Correct Answer: C

Question #121

Which of the following might alert an auditor to the possibility of fraud in a division?I). The division is not scheduled for an external audit this year.II). Sales have increased by 10 percent.III). A significant portion of management's compensation is directly tied to reported net income of the division.

A. only

B. II only

C. and II only

D. , II, and III

View answer

Correct Answer: B

Question #122

Which of the following best describes the underlying premise of the COSO enterprise risk management framework?

A. anagement should set objectives before assessing risk

B. very entity exists to provide value for its stakeholders

C. olicies are established to ensure that risk responses are performed effectively

D. nterprise risk management can minimize the impact and likelihood of unanticipated events

View answer

Correct Answer: B

Question #123

Which of the following types of risk factors are used within risk models to establish the priority of internal audit engagements?I). Management competence.II). Quality of internal controls.III). Audit staff experience.IV). Regulatory requirements.

A. I only

B. , II, and III only

C. , II, and IV only

D. , III, and IV only

View answer

Correct Answer: C

Question #124

The punishing of employees is made less effective by

A. tating the offending behavior specifically

B. ostponing the start of disciplinary procedures

C. ermitting employees to challenge individual culpability

D. ocusing the discussion on the offending behavior instead of the offender

View answer

Correct Answer: B

Question #125

A line position:

A. s indirectly responsible for achieving the organization's basic objectives

B. akes administrative and operating decisions

C. dvises and assists staff positions

D. s indirectly involved with the organization's product(s) and/or services

View answer

Correct Answer: B

Question #126

The journal entry required to close the utilities expense account is

A. tilities expense US $1, 400Income summary US $1, 400

B. ncome Summary US $1, 400Utilities expense US $1, 400

C. ental expense US $1, 400Utilities expense US $1, 400

D. tilities expense US $1, 400Retained earnings US $1, 400

View answer

Correct Answer: B

Question #127

The required adjusting entry at December 31 related to salaries and wages is

A. alaries & wages expense US $1, 700Income summary US $1, 700

B. alaries & wages payable US $1, 700Salaries & wages expense US $1, 700

C. alaries & wages expense US $1, 700Salaries & wages payable US $1, 700

D. ncome summary US $1, 700Salaries & wages payable US $1, 700

View answer

Correct Answer: C

Question #128

Using the leadership grid developed by Robert Blake and Jane Mouton where each axis has a scale of 1 to 9, a primary style of 9, 9 would indicate:

A. ittle concern for production or people (impoverished management)

B. oderate concern for production and people to maintain status quo (middle-of-the-road management)

C. reat concern for production and people, trust, teamwork, and commitment (team management)

D. rimary concern for production, little concern for people (authority-compliance management)

View answer

Correct Answer: C

Question #129

A company manufactures banana hooks for retail sale. The bill of materials for this item and the parts inventory for each material required are as follows:

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #130

Which of the following steps would not be included in a program of selecting and developing human resources for an internal audit department?

A. cheduling periodic meetings with individual auditors, during which the chief audit executive provides counsel regarding each auditor's performance and professional career development

B. stablishing an internal review team to assess the auditors' and audit department's compliance with standards, level of audit effectiveness, and compliance with departmental policy

C. eveloping specific job descriptions for audit staff, audit managers, and other auditing positions

D. stablishing in-house training programs and requiring continuing education for audit staff

View answer

Correct Answer: B

Question #131

Which of the following sampling plans should an internal auditor use to estimate the number of units in a certain class of inventory without counting each item?

A. ttributes sampling

B. iscovery sampling

C. ariables sampling

D. top or go sampling

View answer

Correct Answer: C

Question #132

A company has entered into a $20, 000, 000 fixed-price contract with a general contractor for the construction of a new retail outlet. For this contract, which of the following would represent the greatest risk?

A. xcessive labor charged to the project

B. oor physical protection of materials and equipment

C. ailure to complete the project within budget

D. ubstitution of inferior materials

View answer

Correct Answer: D

Question #133

Conformance is how well a product and its components meet applicable standards.According to the robust quality concept,

A. certain percentage of defective units is acceptable

B. nits are acceptable if their characteristics lie within an acceptable range of values

C. he goal is for all units to be within specifications

D. very unit should reach a target value

View answer

Correct Answer: D

Question #134

The time that car 3 will have to wait to be serviced

A. -2 minutes

B. minutes

C. minutes

D. + minutes

View answer

Correct Answer: C

Question #135

Through the use of decision models, managers thoroughly analyze many alternatives and decide on the best alternative for the company. Often the actual results achieved from a particular decision are not what was expected when the decision was made. In addition, an alternative that was not selected would have actually been the best decision for the company. The appropriate technique to analyze the alternatives by using expected inputs and altering them before a decision is made is

A. xpected value analysis

B. inear programming

C. rogram evaluation review technique PERT)

D. ensitivity analysis

View answer

Correct Answer: D

Question #136

Which of the following is not an advantage of group effort compared with work performed by individuals?

A. roups provide support to members

B. roups make decisions that are more easily accepted

C. roups provide a clear link between effort and outcome

D. roups control and discipline members

View answer

Correct Answer: C

Question #137

An internal auditor downloaded all database records pertaining to payables, purchases, production, inventory, and receivables, and wrote a program to verify that All payables had an authorizing purchase order.All production materials were legitimate inventory items.All receivables derived from production.What is the internal auditor testing?

A. eferential integrity

B. odeling consistency

C. ata redundancy

D. oncurrency control

View answer

Correct Answer: A

Question #138

The main reason to establish internal controls in an organization is to

A. ncourage compliance with policies and procedures

B. afeguard the resources of the organization

C. nsure the accuracy, reliability, and timeliness of information

D. rovide reasonable assurance on the achievement of objectives

View answer

Correct Answer: D

Question #139

A firm sells its product in a foreign market for a much higher price than in the firm's home market. The reason is most likely:

A. rice elasticity of demand

B. umping

C. ray market activity

D. rice escalation

View answer

Correct Answer: D

Question #140

A records management system is an example of what type of control?

A. reventive

B. etective

C. orrective

D. irective

View answer

Correct Answer: A

Question #141

An adhocracy is most likely to be found in what kind of organizational structure?

A. echanistic

B. rganic

C. ureaucratic

D. lassical

View answer

Correct Answer: B

Question #142

If a supervisor fails to give an employee a negative evaluation because of fear of damaging a good working relationship, this is known as the

A. eniency error

B. ecency effect

C. alo effect

D. ontrast error

View answer

Correct Answer: A

Question #143

Which of the following is not an appropriate role of the internal audit activity in governance activities?

A. upport the board in enterprise-wide risk assessment

B. nsure the timely implementation of audit recommendations

C. onitor compliance with the organization's ethics policies

D. iscuss areas of significant risk

View answer

Correct Answer: B

Question #144

A large fishing operation has information on the interval, time, and probabilities of shrimp schools staying beneath their fishing boats. In order to use this information to predict when and where to send their boats, which of the following techniques should be used?

A. imulation

B. east squares

C. ueuing theory

D. xponential smoothing

View answer

Correct Answer: A

Question #145

What ensures that a company is complying with the documented quality management system QMS: procedures and ISO 9000 standards?

A. he internal audit

B. he registrar

C. n-site inspections by an external auditor

D. anagement commitment

View answer

Correct Answer: A

Question #146

Based on the Year 2 year-end balance of accounts receivable and the Year 2 income statement, the company had an average collection period for Year 2 of

A. 9 days

B. 2 days

C. 3 days

D. 8 days

View answer

Correct Answer: C

Question #147

The primary reason for adopting TOM was to achieve

A. reater customer satisfaction

B. educed delivery time

C. educed delivery charges

D. reater employee participation

View answer

Correct Answer: A

Question #148

Which of the following would provide a chief audit executive with the most useful information on how the internal auditors interact with management during audit activities?

A. ustomer surveys

B. nterviews with auditors

C. esponses to the audit report

D. orkpaper narratives

View answer

Correct Answer: A

Question #149

The chief audit executive for an organization has just completed a risk assessment process, identified the areas with the highest risk, and assigned an audit priority to each. Which of the following statements is true and consistent with the International Professional Practices Framework?I). Items should be ranked in the order of quantifiable dollar exposure to the organization.II). The audit priorities should be in order of major control deficiencies.III). The risk assessment, though quantified, is the res

A. only

B. II only

C. I and III only

D. , II, and III

View answer

Correct Answer: B

Question #150

A pricing strategy that sells combinations of products at a price lower than the combined prices of the individual items is

A. redatory pricing

B. oing-rate pricing

C. roduct-bundle pricing

D. aptive-product pricing

View answer

Correct Answer: C

Question #151

In forecasting purchases of inventory for a firm, all of the following are useful except

A. nowledge of the behavior of business cycles

B. nternal allocations of costs to different segments of the firm

C. nformation on the seasonal variations in demand

D. conometric modeling

View answer

Correct Answer: B

Question #152

In a critical path analysis, if slack time in an activity exists, the activity

A. s not essential to the overall project

B. s a backup activity to replace a main activity should it fail

C. ould be delayed without delaying the overall project

D. nvolves essentially no time to complete

View answer

Correct Answer: C

Question #153

Confirmation would be most effective in addressing the existence assertion for

A. he addition of a milling machine to a machine shop

B. ales of merchandise during the regular course of business

C. nventory held on consignment

D. he granting of a patent for a special process developed by the organization

View answer

Correct Answer: C

Question #154

Of the following entities, a matrix organization would be most appropriate for:

A. company operating a set of geographically dispersed telephone call centers that provide technical support

B. company which starts several complex, multidisciplinary engineering and construction projects each year

C. retail company, which sells to customers through multiple stores, located in shopping malls, as well as through a website and mailed catalogs

D. company that provides temporary staffing help to a wide variety of commercial and governmental agencies

View answer

Correct Answer: B

Question #155

An advantage of a direct investment strategy when entering a foreign market is

A. eduction in the capital at risk

B. hared control and responsibility

C. ssurance of access when the foreign country imposes domestic content rules

D. voidance of interaction with the local bureaucracy

View answer

Correct Answer: C

Question #156

A major difference between enterprise risk management and traditional risk management lies in the narrow focus of traditional risk management onI). Property and liability risks.II). Risks with insurance solutions.III). Risks impacting organizational objectives.

A. and II only

B. and III only

C. I and III only

D. , II, and III

View answer

Correct Answer: A

Question #157

Activity scheduling information for the installation of a new computer system is given belowThe earliest completion time for the project is

A. -C

B. -E

C. -D-E

D. -D-C

View answer

Correct Answer: C

Question #158

Which of the following is the best course of action for an internal auditor to take when new, relevant information is revealed immediately after an exit conference?

A. ocument the situation for future followup and continue with the next assignment

B. equest that management provide additional resources so that the audit can be extended

C. ostpone the next audit assignment and continue to investigate the issue

D. eport the issue immediately to senior management of the internal audit activity

View answer

Correct Answer: D

Question #159

The problem just described is beast approved by use of which quantitative method?

A. ntegrated autoregressive-moving average ARIMA) modeling

B. xponential smoothing, multiple parameters

C. ueuing theory

D. inear programming

View answer

Correct Answer: C

Question #160

Which of the following tests must an internal auditor perform in order to ensure that inbound electronic data interchange (EDI) transactions are received and translated accurately?I). Computerized tests to assess transaction reasonableness and validity.II). Review of log books to ensure that transactions are logged upon receipt.III). Edit checks to identify unusual transactions.IV). Verification of limitations on the authority of users to initiate specific EDI transactions.

A. and IV only

B. I and III only

C. , II, and III only

D. , II, III, and IV

View answer

Correct Answer: C

Question #161

Which of the following elements is important for an internal auditor to consider when performing a privacy risk assessment of an organization?I). Areas where personal information is collected, used, stored, and disseminated.II). Inherent risk.III). Privacy practices of competitors.IV). Third-party recipients of information.

A. II only

B. and II only

C. , II, and IV only

D. , II, III, and IV

View answer

Correct Answer: C

Question #162

Forecasting early and late markets is necessary to shape product development and marketing efforts and to predict structural evolution of an industry. Which factor is the most significant in obtaining customer acceptance of a new industry's product or service?

A. igh switching costs

B. equired regulatory approval

C. igh cost of obsolescence

D. performance rather than a cost advantage

View answer

Correct Answer: D

Question #163

Company F produces and sells two products. Product A costs US $10 per unit and Product B costs US $5 per unit. Product A is selling ver well, but sales of Product B are low. In order to increase sales of Product B, Company F has begun setting a price of US $13 for one of each.What is the pricing method?

A. roduct-bundle pricing

B. y-product pricing

C. alue pricing

D. ollusive pricing

View answer

Correct Answer: A

Question #164

After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use

A. imple random sampling to select a sample of vouchers processed by the department during the past year

B. robability proportional to size sampling to select a sample of vouchers processed by the department during the past year

C. iscovery sampling to select a sample of vouchers processed by the department during the past year

D. udgmental sampling to select a sample of vouchers processed by clerks who were identified by the department manager as acting suspiciously

View answer

Correct Answer: C

Question #165

Which of the following is false with regard to quality circles and self-managed teams?

A. anagerial acceptance by tradition-oriented managers

B. elf-managed teams are assigned by management, and quality circle teams are voluntary

C. elf-managed teams and quality circles often have better cohesion among members

D. elf-managed teams and quality circles are often able to help the organization operate more efficiently and effectively

View answer

Correct Answer: A

Question #166

If, in addition to the estimated profits, management of the bank assesses the probabilities of high, medium, and low demands to be 0.3, 0.4, and 0.3 respectively, what is the expected opportunity loss from selecting location of L4?

A.

B.

C.

D.

View answer

Correct Answer: A

Question #167

When interviewing an individual suspected of fraud, what type of questions would be asked after the introductory questions?

A. nformational questions

B. dmission seeking questions

C. ssessment questions

D. losing questions

View answer

Correct Answer: A

Question #168

The average labor cost per unit for the first batch produced by a new process is US $120. The cumulative average labor cost after the second batch is US $72 per product. Using a batch size of 100 and assuming the learning curve continues, the total labor cost of four batches will be

A. S $4, 320

B. S $10, 368

C. S $2, 592

D. S $17, 280

View answer

Correct Answer: D

Question #169

In an audit test designed to determine if fictitious employees are on the payroll, evidence that all timecards are approved by the employee's immediate supervisor would meet which of the following evidence tests?I). Sufficient.II). Competent.III). Relevant.

A. only

B. and III only

C. I and III only

D. , II, and III

View answer

Correct Answer: C

Question #170

An auditor evaluating excessive product rejection rates should investigateI). Communication between sales and production departments on sales returns.II). Volume of product sales year to date in comparison to prior year to date.III). Changes in credit ratings of customers versus sales to those customers.IV). Detailed product scrap accounts and accumulations.

A. and III only

B. and IV only

C. I, III, and IV only

D. , II, III, and IV

View answer

Correct Answer: B

Question #171

Dale has 20 days to complete production of an order for an important customer. The customer wants 96 units of product that may be painted either red or white. The red units can be produced at a rate of 4 per day. The white units, because of a different quality of paint, can be produced at a rate of 7 per day. The materials for the red units cost US $80 each, while the white units cost US $120 each. Dale wants to keep costs at a minimum. What is the constraint that expresses the number of units to be produce

A. R + 7W = 20

B. 4) + W = 7) <20

C. + W = 20

D. R + 7W = 96

View answer

Correct Answer: B

Question #172

All of the following tools are employed to control large scale projects except

A. rogram evaluation and review technique (PERT)

B. ritical path method

C. tatistical process control

D. antt charts

View answer

Correct Answer: C

Question #173

On the first day of the current fiscal year, an entity issued 1.000 bonds. each of which is convertible into 199 ordinary shares of the issuer. The face amount of each bond is US $1.000. the nominal annual interest rates: i 7%. and the market annual interest rate for similar nonconvertible debt is 9%. Interest is payable at the end of each year of the bonds' 5-year term. The present values of 1 for 5 periods at 7% and 9% are .71 3 and respectively. The present values of an ordinary annuity of 1 for 5 period

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #174

How do temporary and permanent differences between taxable income and pre-tax financial income differ?

A. emporary differences do not give rise to future taxable or deductible amounts

B. nly permanent differences have deferred tax consequences

C. nly temporary differences have deferred tax consequences

D. emporary differences include items that enter into pre-tay financial income but never into taxable income

View answer

Correct Answer: C

Question #175

Risk assessments are valuable to the internal audit activity's planning process because they assist in

A. liminating all areas with low risk from the audit plan

B. ducating management on the importance of keeping the internal audit activity informed of organizational changes

C. dentifying the audit universe or auditable activities that need to be reviewed

D. dentifying risks that management and the internal auditors have overlooked

View answer

Correct Answer: C

Question #176

Which is the least effective form of risk management?

A. ystems-based preventive control

B. eople-based preventive control

C. ystems-based detective control

D. eople-based detective control

View answer

Correct Answer: D

Question #177

Patents are granted to encourage firms to invest in the research and development of new products. Patents are an example of

A. ertical integration

B. arket concentration

C. ntry barriers

D. ollusion

View answer

Correct Answer: C

Question #178

In making a cash flow analysis of property, plant, and equipmentPPE), the internal auditor discovered that depreciation expense for the period was US $10, 000. PPE with a cost of US $50, 000 and related accumulated depreciation of US $30, 000 was sold for a gain of US $1.000. If the carrying amount of PPE increased by US $80, 000 during the period, how much PPE was purchased this period?

A. S $01

B. S $100, 000

C. S $110, 000

D. S$119, 000

View answer

Correct Answer: C

Question #179

Which of the following is not an effective principle for guiding a manager's use of leadership techniques?

A. erve as a model of the behavior expected from others

B. alue accountability

C. alue differences

D. ollow written procedures at all times

View answer

Correct Answer: D

Question #180

A company has several departments that conduct technical studies and prepare reports for clients. Recently, there have been long delays in having these reports copied at the company's centralized copy center because of the dramatic increase in business. !Management is considering decentralizing copy services to reduce the turnaround and provide clients with timely reports. An appropriate technique for minimizing turnaround time and the cost of providing copy services is

A. ueuing theory

B. inear programming

C. egression analysis

D. ame theory

View answer

Correct Answer: A

Question #181

The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?I). Financial measuresII). Internal business process measuresIII). Client satisfaction measuresIV). Innovation and learning measures

A. only

B. I and IV only

C. II and IV only

D. I, III, and IV only

View answer

Correct Answer: D

Question #182

An entity sells inventory for US $80, 000 that had an inventory cost of U'; $40, 1: X11 i1: i The terms of the sale involve payments receivable of US $10, 000 in the first year, 11F; $45, 000 in the second year, and US $25, 000 in the third year. The buyer of the inventory is a new firm with no credit history. If the cost-recovery method of revenue recognition is used, the amount of gross profit to be recognition in the second year is

A. S $0

B. S $5, 000

C. S $15, 000

D. S $45, 000

View answer

Correct Answer: C

Question #183

The manager of a team of actuaries has been asked to develop the basic pricing structure for a new health insurance product. The team has successfully designed other pricing structures in recent years. The manager was assigned to the team 6 months ago that is the best leadership style for the manager of this team?

A. irective

B. upportive

C. articipative

D. chievement-oriented

View answer

Correct Answer: C

Question #184

When interviewing an individual suspected of a fraud, the interviewer should

A. nsure the suspect's supervisor is present during the interview

B. ock the door to deter interruptions

C. ay attention to the wording choices of the suspect

D. sk if the suspect committed the fraud

View answer

Correct Answer: C

Question #185

On March 15, Year 1. Kathleen Corp. adopted a plan to accumulate US $1.000.000 by September 1. Year 5. Kathleen plans to make four equal annual deposits to a fund that will earn interest at 10% compounded annually. Kathleen made the first deposit on September 1, Year 1. Future value and future amount factors are as follows:Future value of US $1 at 1 O% for four periods 1.46 Future amount of ordinary annuity of US $1at 10% for four periods 4.64Future amount of annuity in advance of US $1at 10% for four perio

A. S $250, 000

B. S $215, 500

C. S $195, 700

D. S $684, 930

View answer

Correct Answer: C

Question #186

An auditor conducts a consulting engagement that involves analysis and measurement of key outputs against those of best organizations as well as identification of key actions that contribute to the performance differences. What type of engagement does this represent?

A. ssurance

B. ompliance

C. ue diligence

D. otal quality management

View answer

Correct Answer: D

Question #187

The process of adding resources to shorten selected activity times on the critical path in project scheduling is called

A. rashing

B. he Delphi technique

C. BC analysis

D. branch-and-bound solution

View answer

Correct Answer: A

Question #188

Which one of the following will usually be accounted for by recognizing a provision?

A. ust prior to the balance sheet date, the board decided b

B. s of the balance sheet date, the board was aware that a new law would require the entity to fit smoke filters to its factories within the next year

C. law requires an airline to overhaul its aircraft once every 3 years

D. remiums offered to customers

View answer

Correct Answer: D

Question #189

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the

A. opulation

B. ttribute of interest

C. ample

D. ampling unit

View answer

Correct Answer: A

Question #190

Which combination below explains the impact of credit card interest incurred and paid during the period on1) equity on the balance sheet and2) the statement of cash flows?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #191

The process of making sure that the model measures what it is supposed to measure is called

A. tatistical inference

B. ypothesis testing

C. onfidence coefficient analysis

D. alidation

View answer

Correct Answer: D

Question #192

The use of teams in total quality management TOM) is important because

A. ell-managed teams can be highly creative and are able to address complex problems better than individuals can

B. eams are quicker to make decisions, thereby helping to reduce cycle time

C. mployee motivation is higher for team members than for individual contributors

D. he use of teams eliminates the need for supervision, thereby alloying a company to become leaner and more profitable

View answer

Correct Answer: A

Question #193

The present value of US $100, 000 due at the end of eight years. at 10%. is US $46.650. What is the approximate value of US $100.000 invested for the same length of time and at the same rate?

A. S $46

B. S $100, 000

C. S $114

D. S $214, 360

View answer

Correct Answer: D

Question #194

Which of the following criteria would be most useful to a sales department manager in evaluating the performance of the manager's customer-service group?

A. he customer is always right

B. ustomer complaints should be processed promptly

C. mployees should maintain a positive attitude when dealing with customers

D. ll customer inquiries should be answered within 7 days of receipt

View answer

Correct Answer: D

Question #195

Which of the following is a false statement about cost-based pricing?

A. ast-based price should cover casts and provide the desired return an investment

B. commonly used cost-plus pricing formula is to all a markup percentage to the total cost

C. ariable casts may not be used as the basis for casts

D. cost-plus price equals the cost plus a markup

View answer

Correct Answer: C

Question #196

Prices vary directly with capacity usage under

A. ollusive pricing

B. eak-load pricing

C. arket-based pricing

D. ost-based pricing

View answer

Correct Answer: B

Question #197

An entity has a US $100, 000 liability on the books. In 12 months, US $110.000 will be due. including 10% interest. The entity negotiates settlement of the debt today by exchanging customer receivables with a carrying amount of US $90, 000. What is the journal entry today?

A. iability US $110

B. iability US $100

C. iability US $110

D. iability US $100, 000Receivables US $90, 000Gain 10

View answer

Correct Answer: D

Question #198

Which of the following statements is false regarding the efficient and economical achievement of the organization's objectives?

A. conomical performance accomplishes objectives with minimal use of resources with no regard to risk exposure

B. fficient performance accomplishes objectives in a timely manner

C. conomical performance accomplishes objectives with minimal use of resources commensurate with the risk exposure

D. fficient performance accomplishes objectives in an accurate and economical manner

View answer

Correct Answer: A

Question #199

According to the Boston Consulting Group's portfolio model for competitive analysis, the strategy fora strong cash cow should be

A. arvest

B. ivest

C. old

D. uild

View answer

Correct Answer: C

Question #200

What is the most likely source of information for a detailed schedule of a company's insurance policies in force?

A. riginal journal entries found in the cash disbursements journal, along with supporting checks processed by the bank

B. olicies and procedures governing insurance coverage

C. he current fiscal year's budget for insurance, together with the beginning balance of the prepaid insurance account

D. he files containing insurance policies with various carriers

View answer

Correct Answer: D

Question #201

What amounts should be retorted for prepaid insurance and insurance expense in the annual financial statements prepared at December 31?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

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