CIA Challenge Exam Practice Questions

Question #1

Which of the following methods of data collection would be most appropriate to use in identifying hypotheses that can be tested on a larger scale?

A. ase study

B. ampling

C. valuation synthesis

D. odeling

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Correct Answer: A

Question #2

According to the International Professional Practices Framework, which of the following is true with respect to the different roles in the risk management process?I). Boards have an oversight role.II). Acceptance of residual risks can reside with the chief audit executive.III). The board can delegate the operation of the risk management framework to the management team.IV). The internal audit activity's role can range from having no responsibilities to managing and coordinating the process.

A. only

B. I and IV only

C. , III, and IV only

D. , II, III, and IV

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Correct Answer: C

Question #3

Behavior modification is the management of environmental factors to encourage desirable behavior and to discourage undesirable behavior. Environmental factors include antecedents that:

A. eward each occurrence of a behavior

B. gnore a behavior

C. ithdraw an unpleasant condition when a desired behavior occurs

D. ncourage a given behavior

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Correct Answer: D

Question #4

A company} is formulating its plans for the coming year, including the preparation of its cash budget. Historically, 30% of the company's sales are cash sales. The remaining 70% are credit sales with the following collection pattern.For the month of April, the total cash receipts from sales and collections on account would be

A. S $3, 729, 968

B. S $3, 781, 600

C. S $4, 025, 200

D. S $4, 408, 000

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Correct Answer: B

Question #5

The proper classification of noncurrent obligations scheduled to mature within 12 months of the balance sheet date but that are expected to be refinanced on a long-term basis should be to

A. xclude all such obligations from the current liabilities classification

B. nclude in the current liabilities classification those obligations that have actually been refinanced on a long-term basis after the balance sheet date but before the financial statements are authorized to be issued

C. xclude from the current liabilities classification those obligations that have been refinanced on a long-term basis after the balance sheet date but before the financial statements are authorized to be issued

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Correct Answer: B

Question #6

Cultures have been described as low-context or high-context. Which culture is high- context?

A. ermany

B. audi Arabia

C. reat Britain

D. willerland

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Correct Answer: B

Question #7

When making a cost-time trade-off in PERT analysis, the first activity that should be crashed is the activity

A. ith the largest amount of slack

B. ith the lowest unit crash cost

C. n the critical path with the maximum possible time reduction

D. n the critical path with the lowest unit crash cost

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Correct Answer: D

Question #8

Which of the following statements is true regarding leadership styles?

A. he manager dictates all decisions to the employees, so communication is downward and tasks are clearly defined in authoritarian leadership

B. mployees in a group are given the authority and responsibility to make individual decisions in democratic leadership

C. he leader delegates substantial authority and employees participate in defining and assigning tasks in laissez-faire leadership

D. one of the answers are correct

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Correct Answer: A

Question #9

Which of the following actions by management would reduce an employee's opportunity to commit fraud?

A. stablishing physical controls over company assets

B. liminating bonuses tied to sales or other performance goals

C. efining ethical behavior expectations in the company handbook

D. dentifying consequences, such as termination, for fraudulent activities

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Correct Answer: A

Question #10

Which of the following elements should an auditor recommend for inclusion in an organization's code of ethics?I). Ethics should vary with local customs in the organization's foreign operations.II). Whistle-blowing should be discouraged because it can cause distrust among employees and false accusations which waste organizational resources on investigations.III). Ethical behavior should not be incorporated into performance evaluations because it is too subjective and controversial.

A. only

B. I only

C. , II, and III

D. one of the above

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Correct Answer: D

Question #11

Which of the following audit activities is within the scope of assurance activities as stated in the International Professional Practices Framework?

A. eview a make-or-buy decision and report a recommendation to management for approval

B. articipate in negotiations for a corporate acquisition

C. ssess financing alternatives for a new generator

D. erform an evaluation of management's planning process

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Correct Answer: C

Question #12

In order to ensure that the internal auditors have the objectivity required by the Standards, the chief audit executive should

A. emonstrate willingness to include in engagement final communications all matters believed to be important

B. equire all auditors to sign statements attesting to their independent mental attitudes and honest belief in their work product

C. arefully assign personnel to individual audit engagements and require auditors to disclose all conflicts of interest

D. ppraise each auditor's performance on each audit assignment

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Correct Answer: C

Question #13

Departmentalization is a common form of business integration. Grouping together all related jobs, activities, and processes for a given business objective into a major organizational subunit is an example of:

A. roduct-service departmentalization

B. unctional departmentalization

C. eographic location departmentalization

D. ustomer classification departmentalization

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Correct Answer: A

Question #14

Using the balanced scorecard approach, an organization evaluates managerial performance based on

A. single ultimate measure of operating results, such as residual income

B. ultiple financial and nonfinancial measures

C. ultiple nonfinancial measures only

D. ultiple financial measures only

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Correct Answer: B

Question #15

When reviewing the information security in an organization, an internal auditor should always recommend to management the strongest security system that is compatible with the organization's

A. illingness to incur security costs

B. usiness practices and risk factors

C. xisting technical and staff competencies

D. nderstanding of security weaknesses

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Correct Answer: B

Question #16

Which of the following is required in order for an entity to record a provision?

A. he exact payee must be known

B. he exact date payable must be known

C. t must be reasonably possible that an outflow of resources will be required to settle the obligation

D. t must be possible to determine a reliable estimate of the amount of the obligation

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Correct Answer: D

Question #17

An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time. The application controls being verified by this analysis are

A. dit and validation controls

B. ejected and suspense item controls

C. ontrols over update access to the database

D. rogrammed balancing controls

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Correct Answer: A

Question #18

An organization has recently introduced total quality management TOM). Its senior management wants to determine an innovative approach to foster total participation throughout the organization. Management should:

A. eek isolation from all distractions in order to think the problem through

B. ring the employees together for a brainstorming session

C. ely on themselves to develop a new approach

D. se a disciplined problem-solving approach

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Correct Answer: B

Question #19

After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?I). Manager of disbursements.II). Controller.III). Chief operating officer.IV). Audit committee members.

A. only

B. and II only

C. I and III only

D. I, III, and IV only

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Correct Answer: B

Question #20

According to a model suggested by Arthur D Little, a consulting organization, market share will tend to

A. ncrease after gains in mind share but not heart share

B. ecrease after losses in heart share but not mind share

C. ncrease after gains in mind share and heart share

D. ot be affected by changes in mind share and heart share

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Correct Answer: C

Question #21

Teams may be built by all the following methods except:

A. articipating in a series of outdoor challenges

B. ncorporating a number of interdependent roles

C. ating group effectiveness

D. xerting direct pressure on dissenters

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Correct Answer: D

Question #22

Which of the following pricing policies involves the selling company setting freight charges to customers at the actual average freight cost?

A. reight absorption pricing

B. niform delivered pricing

C. one pricing

D. OB-origin pricing

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Correct Answer: B

Question #23

On May 1, Year 1, an entity issued, at 103 plus accrued interest, 500 of its 12%, US $1, 000 bonds. The bonds are dated January 1, Year 1, and mature on January 1, Year 6. Interest is payable semiannually on January 1 and July 1 The journal entry to record the issuance of the bonds and the receipt of the cash proceeds is

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: C

Question #24

A true market signal:

A. s a direct market communication indicating intent

B. ay involve a threat not intended to be carried out

C. ay be an attempt to minimize a future provocative move

D. nnounces a move that will occur

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Correct Answer: C

Question #25

What coefficient of correlation results from the following data?

A.

B. xad1

C. 1

D. annot be determined from the data given

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Correct Answer: B

Question #26

When film is sold for use with a camera, this is an example of which of the following product mix pricing strategies?

A. y-product pricing

B. ptional product pricing

C. aptive product pricing

D. roduct bundle pricing

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Correct Answer: C

Question #27

The key ingredient to group effectiveness is:

A. hallenge

B. rust

C. orms

D. oles

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Correct Answer: B

Question #28

Which of the following is a likely effect of a narrow span of control?

A. he manager closely supervises employees

B. ach employee is given more responsibility

C. he organizational structure is flexible

D. he manager's control over employees is limited

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Correct Answer: A

Question #29

ABC operates a catering service that specializes in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually. ABC should recognize revenue from its catering services at the date when a

A. ustomer places an order

B. uncheon is served

C. illing is mailed

D. ustomer's payment is received

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Correct Answer: B

Question #30

When reviewing management reports to the board of directors, the internal audit activity should

A. valuate the process used to prepare the management reports

B. aintain supporting documentation for the management reports

C. ie all financial numbers in the reports to the general ledger

D. ompare to prior-period reports for consistency

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Correct Answer: A

Question #31

Which of the following steps in the accounting cycle is completed later than the others?

A. djustments

B. ournalization

C. osting

D. dentification and measurement of transactions

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Correct Answer: A

Question #32

Subsequent measurement of trade receivables is at

A. air value through profit or loss

B. ost

C. mortized cost

D. air value through equity

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Correct Answer: C

Question #33

An entity had the following selected per-unit data relating to work-in-process:Selling price US $100Comparison cost 10Historical cost 91Replacement cost 108Normal gross profit 20Selling cost 5In comparison with historical cost, what will be the per-unit impact on gross profit of measuring ending inventory.

A. o effect

B. eduction of US %6

C. eduction of US $26

D. ncrease of US $5,

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Correct Answer: B

Question #34

Which of the following situations might allow an employee to steal checks sent to an organization and subsequently cash them?

A. hecks are not restrictively endorsed when received

B. nly one signature is required on the organization's checks

C. ne employee handles both accounts receivable and purchase orders

D. ne employee handles both cash deposits and accounts payable

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Correct Answer: A

Question #35

An internal audit activity is participating in the due diligence work for an acquisition that a company is considering. One engagement objective is to determine if the acquisition's accounts payable contain all outstanding liabilities. Which of the following audit procedures would not be relevant for this objective?

A. xamine supporting documentation of subsequent (after period) cash disbursements and verify period of liability

B. end confirmations, including zero balance accounts, to vendors with whom the company normally does business

C. elect a sample of accounts payable from the accounts payable list and verify the supporting receiving reports, purchase orders, and invoices

D. race receiving reports issued before the period end to the related vendor invoices and accounts payable list

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Correct Answer: C

Question #36

IAS 34, interim Financial Reporting, provides guidelines for interim reporting stating that enterprises

A. ay use estimates based on sales margins for interim inventory valuation although a different method is used for annual reporting

B. ust determine income tax expense by applying progressive tax rates to income on a quarterly basis

C. ay prorate extraordinary items over four quarters

D. eed not disclose basic and diluted earnings per share each quarter

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Correct Answer: A

Question #37

A lack of cohesiveness and attractiveness in a group may lead to

A. lack of commitment by the members

B. issension in the formal organization

C. ooperation among group members

D. ubstantial group member interaction

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Correct Answer: A

Question #38

RLF Corporation had profit before taxes of US $60, 000 for the year. Included in this amount were depreciation of US $5, 000. a charge of US $6, 000 for the amortization of bond discounts, and US $4, 000 for interest expense. The estimated cash flow for the period is

A. S $60, 000

B. S $66, 000

C. S $49, 000

D. S $71, 000

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Correct Answer: D

Question #39

The first stage in the development of a crisis management program is to

A. ormulate contingency plans

B. onduct a risk analysis

C. reate a crisis management team

D. ractice the response to a crisis

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Correct Answer: B

Question #40

Which particular type of organization structure will likely have unity-of-command problems unless there is frequent and comprehensive communication between the various functional and project managers?

A. ine and staff

B. trategic business unit

C. entralized

D. atrix

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Correct Answer: D

Question #41

If the construction company uses the percentage-of-completion [cost-to-cost basis) method of revenue recognition, in Year 1 the amount of revenue it will recognize on the long-term contract will be

A. S $3, 000, 000

B. S $4, 705, 882

C. S $5, 000, 000

D. S $6, 000, 000

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Correct Answer: B

Question #42

Which of the following leadership styles is least likely to consider input from employees in the decision process?

A. aissez faire

B. utocratic

C. articipative

D. onsultative

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Correct Answer: B

Question #43

Finance leases are differentiated from operating leases in that finance leases normally

A. rovide for maintenance service at no extra cost to the lessee

B. re cancelable at any time upon request by the lessee

C. ave rental payments that are approximately equal to the amortized cost of the leased asset

D. re used only by financial institutions

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Correct Answer: C

Question #44

If the annual audit plan does not allow for adequate review of compliance with all material regulations affecting the company, the internal audit activity should

A. nsure that the regulations that were not included be reviewed in the subsequent year

B. nclude a memo in the audit planning file listing the reasons for the lack of coverage

C. otify the board of directors and senior management of the limitation

D. ecrease the scope of operational and financial audits to make additional audit time available

View answer

Correct Answer: C

Question #45

The amortization of intangible assets with finite useful lives is justified by the

A. conomic entity assumption

B. oing concern assumption

C. onetary unit assumption

D. istorical cost assumption

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Correct Answer: B

Question #46

Developing brand equity in a foreign market may be desirable but is subject to considerable risk. A global firm launching a new product in a new market most likely should

A. nitially place most of the firm's emphasis on advertising geared to the local culture

B. ully decentralize control of the marketing process

C. void creating partnerships with local distribution channels to avoid dilution of the brand

D. alance standardization and customization of the product

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Correct Answer: D

Question #47

Which of the following is not an appropriate objective for a quality assurance and improvement program?

A. ontinually monitor the internal audit activity's effectiveness

B. ssure conformance with the Standards and Code of Ethics

C. erform an internal assessment at least once every five years

D. ommunicate the results of quality assessments to the board

View answer

Correct Answer: C

Question #48

On December 31, Year 1, Health entities reported a US $150, 000 warranty expense in its income statement. The expense was based on actual warranty cost of US$30, 000 in Year 1 and expected warrant costs of US $35, 000 in Year 2, US $40, 000 in Year 3, and US $45, 000 in Year 4. For tax purposes, warrant costs are not deductible until paid. At December 31, Year 1, deferred taxes should be based on a

A. S $ 120, 000 deductible temporary difference

B. S $ 150, 000 deductible temporary difference

C. S $ 120, 000 taxable temporary difference

D. S $ 150, 000 taxable temporary difference

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Correct Answer: A

Question #49

At the introduction stage of an innovative product, the profit growth is normally slow due to

A. xpensive sales promotion

B. igh competition

C. mass market

D. vailable alternatives

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Correct Answer: A

Question #50

At the end of September, a entity has outstanding accounts receivable of US $350 on third-quarter credit sales, composed as follows.The percentage of receivables in the 31-to-5O-day age group at the end of September is

A. 2

B. 8

C. 8

D. 1

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Correct Answer: C

Question #51

A firm that manufactures refrigerators sold ice boxes in urban areas of less developed countries. Many residents lacked electricity to power refrigerators but could purchase blocks of ice from local vendors for use in ice boxes. According to Keegan's model of adaptation strategies, this firm adopted a strategy of

A. roduct adaptation

B. ual adaptation

C. ackward invention

D. orward invention

View answer

Correct Answer: C

Question #52

A bakery chain has a statistical model that can be used to predict daily sales at individual stores based on a direct relationship to the cost of ingredients used and an inverse relationship to rainy days. What conditions would an auditor look for as an indicator of employee theft of food from a specific store?

A. n a rainy day, total sales are greater than expected when compared to the cost of ingredients used

B. n a sunny day, total sales are less than expected when compared to the cost of ingredients used

C. oth total sales and cost of ingredients used are greater than expected

D. oth total sales and cost of ingredients used are less than expected

View answer

Correct Answer: B

Question #53

Which statement is not true regarding the performance management process?

A. taff specialists own the process in order to ensure implementation and accountability

B. ubordinates and superiors have shared responsibility for managing the process

C. erformance management is linked to competence and knowledge management

D. erformance management is integrated into other organizational and human resource processes

View answer

Correct Answer: A

Question #54

An organization has a policy requiring two signatures on all checks written for amounts in excess of $10, 000. When evaluating controls over disbursements, an auditor would conclude that a greater risk exists if

A. he auditor located two checks for $9, 000 each that contained one authorized signature

B. he $10, 000 was an immaterial amount to the organization and very few cash disbursements required an amount in excess of $10, 000

C. he director of accounting was not one of the authorized signers

D. here were several instances in which successively numbered checks for amounts between $5, 000 and $10, 000 were made payable to the same vendor

View answer

Correct Answer: D

Question #55

According to keegan's model of adaptation strategies, a firm that decides to operate globally by changing its product and its promotion methods has chosen

A. dual adaptation strategy

B. he backward variant of a product invention strategy

C. he forward variant of a product invention strategy

D. straight extension strategy

View answer

Correct Answer: A

Question #56

In Year 2, the entity had cash provided by operations of

A. S $219, 000

B. S $244, 000

C. S $344, 000

D. S $469, 000

View answer

Correct Answer: A

Question #57

Which of the following is a staff position in the bank?

A. he manager of customer service-checking, the department that handles checking account inquiries and transactions

B. he directory of personnel, the department that handles the hiring, firing, promotion, etc

C. he chief loan officer, who is in charge of final approval of all loans

D. he vice president in charge of the mortgage department, which handles mortgages on business and residential property

View answer

Correct Answer: B

Question #58

Which of the following is an advantage of a tall organizational structure?

A. he flow of communications from top to bottom and bottom to top is improved

B. he organization's overall objectives are familiar to all employees

C. ore opportunity to advance

D. abor expenses are reduced

View answer

Correct Answer: C

Question #59

Which one of the following statements about quality circles is false?

A. quality circle is typically comprised of a group of 8 to 10 subordinates and supervisors

B. art of the quality circle concept includes teaching participants communication skills, quality strategies, and problem analysis techniques

C. uality circles meet on the company premises and on company time

D. he quality circle has the final control over implementation of recommended solutions

View answer

Correct Answer: D

Question #60

The primary difference between centralization and decentralization is:

A. eparate offices for all managers

B. eographical separation of divisional headquarters and central headquarters

C. he extent of freedom of decision making by many levels of management

D. he relative size of the firm

View answer

Correct Answer: C

Question #61

Which of the following would be of the most assistance to a chief audit executive in prioritizing the annual audit plan?

A. isk assessment

B. alue-at-risk technique

C. alue-for-money approach

D. ontrol standards

View answer

Correct Answer: A

Question #62

Which of the following is used to identify and prioritize critical business applications to determine those that must be restored and the order of restoration in the event that a disaster impairs information systems processing?

A. ontingent facility contract analysis

B. ystem backup analysis

C. endor supply agreement analysis

D. isk analysis

View answer

Correct Answer: D

Question #63

The arrival time follows which probability distribution?

A. inomial

B. hi-Square

C. oisson

D. xponential

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Correct Answer: C

Question #64

An internal auditor who is working at a company without an enterprise-wide risk management process should

A. iscuss the need for a risk management process with management

B. reate and implement an audit risk assessment process as a substitute

C. evelop a risk management process for use by the board

D. otify the external auditors of the lack of a risk management process

View answer

Correct Answer: A

Question #65

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is

A. xpected value analysis

B. earning curve analysis

C. ensitivity analysis

D. egression analysis

View answer

Correct Answer: C

Question #66

A company that wishes to improve its rate of retention of its experienced employees might

A. bolish its hire-from-within policy

B. mprove its fringe benefit package

C. nitiate job simplification programs

D. et a mandatory retirement age

View answer

Correct Answer: B

Question #67

One of the main reasons that implementation of a total quality management program works better through the use of teams is

A. eams are more efficient and help an organization reduce its staffing

B. mployee motivation is always higher for team members than for individual contributors

C. eams are a natural vehicle for sharing ideas, which leads to process improvement

D. he use of teams eliminates the need for supervision, thereby allowing a company to reduce staffing

View answer

Correct Answer: C

Question #68

The feasible solution region is bounded by the lines connecting points

A. , 4, 6, and 7

B. , 5, 6, and 8

C. , 4, , , and 8

D. , E

View answer

Correct Answer: A

Question #69

During which of the following systems development stages would it be most useful for an internal auditor to be involved?

A. oding and testing

B. ser acceptance and post implementation

C. esign and implementation

D. esting and user acceptance

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Correct Answer: C

Question #70

If a company is customer-centered, its customers are defined as

A. nly people external to the company who have purchased something from the company

B. nly people internal to the company who directly use its product

C. nyone external to the company and those internal who rely an its product to get their jab done

D. verybody external to the company who is currently doing, or may in the future do, business with the company

View answer

Correct Answer: C

Question #71

A department store sells gift certificates that may be redeemed for merchandise. Each certificate expires 3 years after issuance. The revenue from the gift certificates should be recognized

A. venly over 3 years from the date of issuance

B. n the period the certificates are sold

C. n the period the certificates expire

D. n the period the certificates are redeemed or in the period they expire if they are allowed to lapse

View answer

Correct Answer: D

Question #72

In order to effectively handle conflict between audit team members, an audit team leader should

A. void addressing the conflict until the leader is sure that there is a problem

B. e assertive and keep the team members focused on a resolution

C. sk one of the team members to resolve the issue by being more conciliatory

D. ransfer one of the team members to another assignment

View answer

Correct Answer: B

Question #73

Senior management at a financial institution has received allegations of fraud at its derivatives trading desk and has asked the internal audit activity to investigate and issue a report concerning the allegations. The internal audit activity has not yet developed sufficient proficiency regarding derivatives trading to conduct a thorough fraud investigation in this area. Which of the following courses of action should the chief audit executive (CAE) take to comply with the Standards?

A. ngage the former head of the institution's derivatives trading desk to perform the investigation and submit a report with supporting documentation to the CAE

B. equest that senior management allow a delay of the fraud investigation until the internal audit activity's on-staff certified fraud examiner is able to obtain the appropriate training regarding the analysis of derivatives trading

C. equest that senior management exclude the internal audit activity from the investigation completely and instead contract with an external certified fraud examiner with derivatives experience to perform all aspects of the investigation and subsequent reporting

D. ontract with an external certified fraud examiner with derivatives experience to perform the investigation and subsequent reporting, with the chief audit executive approving the scope of the investigation and evaluating the adequacy of the work performed

View answer

Correct Answer: D

Question #74

Under a difined contribution pension plan is reported on the balance sheet only if the amount organization has contributed to the pention trust is the amount required.

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #75

If RCF does not maintain a safety stock, the estimated total carrying costs for the computer chairs for the coming year based on their current schedule is

A. S $4, 000

B. S $5, 000

C. S $6, 250

D. S $12, 500

View answer

Correct Answer: C

Question #76

Which is a key long-term objective of implementing control self-assessment (CSA)?

A. ransfer assessment work traditionally performed by the CSA team to work unit personnel

B. uickly gather large amounts of data on control deficiencies from work units, using voting technology

C. mprove control awareness and the ability of work unit personnel to manage risk

D. educe costs by identifying opportunities to improve efficiencies

View answer

Correct Answer: C

Question #77

Which of the following best defines an engagement conclusion?

A. n auditor's determination of the cause of an engagement observation

B. n auditor's professional judgment of the situation which was reviewed

C. n opinion that must be included in the engagement final communication

D. recommendation for corrective action

View answer

Correct Answer: B

Question #78

Price wars are most likely in a(n):

A. merging industry

B. ature industry

C. eclining industry

D. ragmented industry

View answer

Correct Answer: C

Question #79

Which of the following would provide the greatest assurance of the accuracy of a computer program's computation of freight charges for catalog sales?

A. se discovery sampling, selecting transactions from invoices which should have freight charges added to them

B. se either test data or parallel simulation to test the computer application

C. se difference estimation, selecting transactions from invoices which should have freight charges added to them

D. se generalized audit software to select a monetary unit sample of invoices that have been billed to customers

View answer

Correct Answer: B

Question #80

A strategic group analysis does all but which of the following?

A. etermines what mobility barriers exist

B. orecasts future group actions and trends

C. onsiders how the firm compares with the competitors within the chosen strategic group

D. redicts reaction patterns to events such as competitive attacks

View answer

Correct Answer: C

Question #81

An entity started in Year 1 with 200 scent. 1 3ndles on hand at a cost of US $3.50 each. These candles sell Lich. The following schedule represents the purchases and sales of candles during Year 1:If the entity uses periodic FIFO inventory pricing, the gross profit for Year 1 would be

A. S $2, 755

B. S $2, 805

C. S $2, 854

D. S $2, 920

View answer

Correct Answer: B

Question #82

Business process reengineering is most likely to

A. mplement modern information systems technology to eliminate some controls

B. e applied within individual departments

C. mprove existing procedures

D. pply a continuous improvement model

View answer

Correct Answer: A

Question #83

In assessing the independence of the internal audit activity, a member of a peer review team should consider all of the following factors except:

A. ccess to and frequency of communications with the board of directors or its audit committee

B. he criteria of education and experience considered necessary when filling vacant positions on the audit staff

C. he degree to which auditors assume operating responsibilities

D. he scope and depth of engagement objectives for the audit engagements included in the review

View answer

Correct Answer: B

Question #84

On August 1. Jones leased property to Smith for a 5-year period. The annual US $20, 000 lease payment is payable at the end of each year. The expected residual value at the end of the lease term is US $10, 000. Jones's implicit interest rate is 12%. The cost of the property to Jones was US $50, 000, which is the fair value at the lease date. The present value of an ordinary annuity of I for five periods is 3.605. The present value of I at the end of five periods is .567. At the inception of the lease, the r

A. S $110, 000

B. S $100, 000

C. S $72

D. S $90

View answer

Correct Answer: A

Question #85

Which of the following statements is the best description of reversing entries?

A. he recording of reversing entries is a mandatory step in the accounting cycle

B. eversing entries are made at the end of the next accounting period, after recording regular transactions of the period

C. eversing entries are identical to the adjusting entries made in the previous period

D. eversing entries are the exact opposite of the adjustments made in the previous period

View answer

Correct Answer: D

Question #86

In which product-mix pricing strategy is it appropriate for the seller to accept any price that exceeds the storage and deliver} casts for the product?

A. y-product pricing

B. ptional-product pricing

C. aptive-product pricing

D. roduct-bundle pricing

View answer

Correct Answer: A

Question #87

Plantation should treat Lease A as a(n)

A. inance lease with an initial asset amount of US $101

B. perating lease charging US $14, 200 in rental expense and US $800 in executory costs to annual operations

C. perating lease charging the present value of the yearly rental expense to annual operations

D. perating lease charging US $15

View answer

Correct Answer: D

Question #88

When internal auditors provide consulting services, the scope of the engagement is primarily determined by

A. nternal auditing standards

B. he audit engagement team

C. he engagement client

D. he internal audit activity's charter

View answer

Correct Answer: C

Question #89

An Internal Audit Department adopts a training posture that provides training to management on fraud awareness, including an overview of the corporate fraud policy and hotline. This training posture best demonstrates that the Internal Audit Department is taking which of the four leadership roles?

A. ath finding, which focuses on a purpose and how to achieve it

B. ligning, which focuses on how to align systems and processes to achieve a purpose

C. mpowering, which focuses on how to cultivate people to have the right authority, responsibility, and commitment to best help achieve a purpose

D. odeling, which focuses on how to demonstrate the values to convince others to follow an example and take responsibility for achieving a purpose

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Correct Answer: C

Question #90

An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications. The best control to ensure that the table is updated correctly for only valid pay changes would be to

A. imit access to the data table to management and line supervisors who have the authority to determine pay rates

B. equire a supervisor in the department, who does not have the ability to change the table, to compare the changes to a signed management authorization

C. nsure that adequate edit and reasonableness checks are built into the automated system

D. equire that all pay changes be signed by the employee to verify that the change goes to a bona fide employee

View answer

Correct Answer: B

Question #91

According to the International Professional Practices Framework, which of the following is an appropriate reason for issuing an interim report?I). To keep management informed of audit progress when audit engagements extend over a long period of time.II). To provide an alternative to a final report for limited scope audit engagements.III). To communicate a change in engagement scope for the activity under review.

A. and II only

B. and III only

C. I and III only

D. , II, and III

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Correct Answer: B

Question #92

Which of the following represents the most effective governance structure? Operating Executive Internal Management Management AuditingI). Responsibility for risk Oversight role Advisory role II). Oversight role Responsibility for risk Advisory role III). Responsibility for risk Advisory role Oversight role IV). Oversight role Advisory role Responsibility for risk

A.

B. I

C. II

D. V

View answer

Correct Answer: A

Question #93

Which of the following is the correct ratio to use in calculating the dollar value of the population if the auditor is using ratio estimation? Number of ItemsAudited ValueCarrying AmountSample$500, 000$480, 000Population3, 000$5, 000, 000

A.

B.

C.

D. 0

View answer

Correct Answer: C

Question #94

The key component of an organization configured as a professional bureaucracy is the:

A. trategic apex

B. echno structure

C. ine administration

D. perating core

View answer

Correct Answer: D

Question #95

Firms in a fragmented industry have insignificant market shares and little influence on such matters as market price and total output. A likely economic cause of this fragmentation is the existence of:

A. learning curve effect

B. iseconomies of scale

C. igh entry barriers

D. ow exit barriers

View answer

Correct Answer: B

Question #96

The workers in a factory have been told that the current machines are obsolete and will be replaced by new, computer- assisted machines. The workers must be retrained and are eager to learn everything about the new machines. The manager was recently hired from a company where the new machines were extensively used and is very familiar with them. In this case, what is the best leadership style for the manager?

A. irective

B. upportive

C. articipative

D. chievement-oriented

View answer

Correct Answer: A

Question #97

Companies that adapt just-in-time purchasing systems often experience

A. n increase in carrying costs

B. reduction in the number of suppliers

C. greater need for inspection of goods as the goods arrive

D. ess need for linkage with a vendor's computerized order entry system

View answer

Correct Answer: B

Question #98

In the determination of cost of goods sold, must be cash payments for goods along with other adjustments.

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: A

Question #99

Which of the following are typical steps in the design of an organization's performance measurement system?

A. nderstand organizational strategy; perform a situational assessment; establish measurement categories; and take actions based upon measurement results

B. ategorize performance measures; establish a data collection plan; analyze data; and predict future performance

C. stablish a measurement plan; create an organizational strategy linked to those measurements; trend measurement data; and measure data variability

D. erform a situational assessment; generate macro measurements; review measurement data; and change strategy based upon measurement results

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Correct Answer: A

Question #100

The following data were extracted from the financial statements of a company for the year ended December 31.

A. S $11

B. S $17

C. S $54

D. S $69

View answer

Correct Answer: A

Question #101

As part of a risk analysis, an auditor wishes to forecast the percentage growth in next month's sales for a particular plant using the past 30 months' sales results. Significant changes in the organization affecting sales volumes were made within the last 9 months. The most effective analysis technique to use would be

A. nweighted moving average

B. xponential smoothing

C. ueuing theory

D. inear regression analysis

View answer

Correct Answer: B

Question #102

Which of the following is a reason for delegating?

A. he manager wants to make more decisions

B. ubordinates lack initiative

C. he manager wants to remain the sole expert in the manager's field

D. ubordinates have too many responsibilities

View answer

Correct Answer: B

Question #103

An entity had cash receipts from sales of US $175, 000 during year 2, of which US $30, 000 was unearned at the end of Year 2. At the end of Year 1. the company had US $40, 000 of deferred revenue, all of which was earned in Year 2. The company's sales revenue for Year 2 would be

A. S $145, 000

B. S $165, 000

C. S $175, 000

D. S $185, 000

View answer

Correct Answer: D

Question #104

Which of the following would be the best source of information for a chief audit executive to use in planning future audit staff requirements?

A. iscussions of audit needs with executive management and the audit committee

B. eview of audit staff education and training records

C. eview of audit staff size and composition of similar-sized companies in the same industry

D. nterviews with existing audit staff

View answer

Correct Answer: A

Question #105

As part of a preliminary survey, a staff auditor has been assigned to flowchart the purchasing process for office supplies. Which source of audit evidence would provide the least value in flowcharting the process?

A. n interview with the purchasing supervisor

B. review of a sample of purchase orders which were completed during the last month

C. review of the purchasing policies and procedures manual

D. walk through of the process with a member of the purchasing staff

View answer

Correct Answer: B

Question #106

A large financial services firm has a formal privacy policy and recently hired a chief privacy officer. Since the new chief privacy officer has taken over, risk assessments have been performed, priorities have been established, and resources have been allocated to ensure that effective and consistent privacy controls could be implemented and maintained throughout the company. Based on the Capability Maturity Model (CMM), what level of maturity has the firm reached regarding its privacy strategy?

A. efined

B. anaged

C. epeatable

D. ptimized

View answer

Correct Answer: A

Question #107

When an external auditor unknowingly fails to modify an opinion on financial statements that are materially misstated, this is an example of

A. n inherent risk

B. control risk

C. n audit risk

D. residual risk

View answer

Correct Answer: C

Question #108

Management literature describes generic influence tactics used to change the behavior of others in the workplace. According to the relevant research.

A. ale managers are significantly more likely than female managers to use pressure tactics

B. emale managers are significantly more likely that male managers to use consultation

C. nfluence tactics tend to be used laterally and downward, but not upward

D. nfluence tactics tend to vary with the leadership styles of superiors

View answer

Correct Answer: D

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