CIA Challenge Exam Practice Questions, PDF Free Download

Question #1

After several years in the engineering department, an engineer was transferred to the internal audit department. One month later, the new auditor was assigned to an assurance engagement for the engineering department. When the auditor's former engineering supervisor suggested a change in the sample selection method, the auditor consulted with the audit supervisor. They determined that the suggested method would not be as representative and that the original selection method should be used. In this situation

A. aintained an independent mental attitude and is therefore objective

B. as subordinated professional judgment, and objectivity is therefore impaired

C. oes not have objectivity since the auditor recently transferred from the engineering department

D. oes not have independent organizational status since the auditor recently transferred from the engineering department

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Correct Answer: C

Question #2

An auditor for a major retail company suspects that inventory fraud is occurring at three stores which have high costs of goods sold. Which of the following audit activities would provide the most persuasive evidence that fraud is occurring?

A. se an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF and investigate all differences

B. nterview the three individual store managers to determine if their explanations about the observed differences are the same, and then compare their explanations to that of the section manager

C. chedule a surprise inventory audit to include a physical inventory and investigate areas of inventory shrinkage

D. elect a sample of individual store prices and compare them with the sales entered on the cash register for the same items

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Correct Answer: C

Question #3

According to the Standards, which of the following best describes the concept of due professional care?

A. nternal auditors must apply the diligence and skill expected of a reasonably prudent and competent internal auditor

B. nternal auditors must possess the knowledge, skills, and other competencies needed to perform their audit responsibilities

C. nternal auditors must have sufficient knowledge to identify fraud

D. nternal auditors must refrain from participating in an engagement when they lack sufficient knowledge, skills, and competencies to assess the audit area fully

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Correct Answer: A

Question #4

An internal audit activity implemented an integrated test facility to test payroll processing. The auditors identified the key controls and processing steps built into the computer program and developed test data to test them. The auditors submitted test transactions throughout the year and did not find any differences in their test results. The auditors can conclude that

A. he system is properly capturing the hours worked by employees during the year and the hours have been properly submitted to payroll and processed correctly

B. ll employees were correctly paid during the year and their pay was correctly computed

C. he computer application and its control procedures were processing payroll transactions correctly during the past year

D. ll of the above

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Correct Answer: C

Question #5

Which of the following is a disadvantage of a flat organizational structure?

A. mployees are not encouraged to be creative

B. he input of fresh ideas from outside the company is limited because employee turnover is low

C. anagers spend too much time training individuals and not enough time supervising

D. mployees may not be performing work tasks properly

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Correct Answer: D

Question #6

If the bank uses the minimax regret criterion for selecting the location of the branch, it will select

A. 1

B. 2

C. 3

D. 4

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Correct Answer: B

Question #7

The following information relates to the activity of the defined postemployment benefit plan of Twain Publishers, Ltd.:Twain's expense recognized in the income statement is

A. S $120, 000

B. S $135, 000

C. S $140, 000

D. S $145, 000

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Correct Answer: D

Question #8

While auditing a marketing department, the internal auditor discovered that the product life cycle model was used to structure the marketing mix. Under such a philosophy, the price charged on a consistent basis for a specific product would probably be lowest during which life cycle stage?

A. ntroduction stage

B. rowth stage

C. aturity stage

D. ecline stage

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Correct Answer: C

Question #9

According to a model developed by Arthur D Little, a firm with a better-than-average chance to improve its competitive position is in a

A. avorable position

B. ominant position

C. enable position

D. eak position

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Correct Answer: A

Question #10

The efficiency of internal audit operations is best enhanced if workpaper standards

A. ermit the extent of documentation to vary according to engagement objectives

B. equire supervisors to initial and date each workpaper that they review

C. llow access to workpapers by external parties if approved by senior management or the audit committee

D. andate the workpaper retention period

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Correct Answer: A

Question #11

An organization has developed a large database that tracks employees, employee benefits, payroll deductions, job classifications, and other similar information. In order to test whether data currently within the automated system are correct, an auditor should

A. se test data and determine whether all the data entered are captured correctly in the updated database

B. elect a sample of data to be entered for a few days and trace the data to the updated database to determine the correctness of the updates

C. se generalized audit software to provide a printout of all employees with invalid job descriptions

D. se generalized audit software to select a sample of employees from the database

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Correct Answer: D

Question #12

The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit. assuming all other variables remain constant?

A. ast-in, first-outLIFO)

B. irst-in, first-outFIFO)

C. eighted average

D. pecific identification

View answer

Correct Answer: B

Question #13

All of the following would be part of a control system to prevent release of waste water that does not meet discharge standards except

A. erforming chemical analysis of the water, prior to discharge, for components specified in the permit

B. pecifying (by policy, training, and advisory signs) which substances may be disposed of via sinks and floor drains within the facility

C. eriodically flushing sinks and floor drains with a large volume of clean water to ensure that pollutants are sufficiently diluted

D. stablishing a preventive maintenance program for the pretreatment system

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Correct Answer: C

Question #14

Futures and option contracts are examples of what type of financial instruments?

A. onderivatives

B. nderlyings

C. erivatives

D. quity instruments

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Correct Answer: C

Question #15

Managerial attitudes toward global operations are viewed by researcher HowardPerl mutteras a key to understanding multinational firms. A polycentric attitude is indicated by

A. n identification with the nationality of the owner

B. valuation and control standards that are both local and global

C. igh information flow in multiple directions

D. elatively little decision making by the central administrative authority

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Correct Answer: D

Question #16

A followup review found that a significant internal control weakness had not been corrected. The chief audit executive (CAE) discussed this matter with senior management and was informed of management's willingness to accept the risk. The CAE should

A. o nothing further because management is responsible for deciding the appropriate action to be taken in response to reported audit findings and recommendations

B. nitiate a fraud investigation to determine if employees had taken advantage of the internal control weakness

C. nform senior management that the weakness must be corrected and schedule another followup review

D. ssess the reasons that senior management decided to accept the risk and inform the board of senior management's decision

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Correct Answer: D

Question #17

Which of the following is a noncash item?

A. dministrative expense

B. nterest expense

C. ncome tax expense

D. epreciation expense

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Correct Answer: C

Question #18

All of the following are useful for forecasting the needed level of inventory except

A. nowledge of the behavior of business cycles

B. nternal accounting allocations of costs to different segments of the company

C. nformation about seasonal variations in demand

D. conometric modeling

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Correct Answer: B

Question #19

Why is the concept of residual risk important?

A. ecause residual risk is difficult to measure

B. ecause residual risk is all of the risk that remains after controls are established

C. ecause the cost-benefit analysis supporting control design is part of the measure of residual risk

D. ecause the risk that remains after control design and implementation needs to be acceptable to senior management

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Correct Answer: D

Question #20

An audit to test the system of controls over the purchase, distribution, and use of radioactive material is being conducted at a company's plants. The process is well documented, and employees in the safety department are very familiar with the department's procedures. Since the purchasing and facilities departments are involved in the process, the auditor is considering reviewing their radioactive material-handling procedures as well. The auditor should

A. ave confidence in the rigorous and detailed safety department procedures, since that department has the main responsibility for radiation safety, and should not use audit time to review other departments

B. djust the engagement schedule and budget, if needed, and interview the appropriate individuals in the purchasing and facilities departments to ascertain whether additional controls exist that complement those identified within the safety department

C. est the controls identified within the safety department; if results are unfavorable, the auditor should consider whether to involve the other departments

D. efer questions regarding purchasing, facilities, and other departments until audit projects can be scheduled for those departments

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Correct Answer: B

Question #21

If receivables transferred with recourse qualify for derecognition, the proceeds from the transfer are

A. ccounted for as a collateralized borrowing

B. ecorded at fair value for the assets obtained and liabilities incur, d

C. ecorded at the historical cost of the assets obtained

D. educed by the fair value of the recourse obligation

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Correct Answer: D

Question #22

An audit identified a number of weaknesses in the configuration of a critical client/server system. Although some of the weaknesses were corrected prior to the issuance of the audit report, correction of the rest will require between six and 18 months for completion.Consequently, management has developed a detailed action plan, with anticipated completion dates, for addressing the weaknesses. Which of the following is the most appropriate course of action for the chief audit executive to take?

A. ssess the adequacy of the action plan and monitor key dates and deliverables

B. chedule a followup audit engagement to assess the status of corrective action

C. eassign information systems auditors to assist the information technology department in correcting the weaknesses

D. valuate statistics related to unplanned system outages, unauthorized access attempts, and denials of service to assess the effectiveness of corrections

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Correct Answer: A

Question #23

A warehouse manager for a supply company stated that products are shipped on a timely basis. During a preliminary walk through, an internal auditor observes some instances of delayed shipping. What can the auditor logically conclude from this contradictory information?

A. he warehouse manager does not understand the operations

B. he auditor's observations were not representative of the population

C. nternal controls over customer orders are weak

D. dditional information is needed before a conclusion can be drawn

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Correct Answer: D

Question #24

During the growth stage of a product's life cycle,

A. he quality of products is poor

B. ew product models and features are introduced

C. here is little difference between competing products

D. he quality of the products becomes more variable and products are less differentiated

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Correct Answer: B

Question #25

A company's cellular phone costs vary significantly by sales representative and by month. Which of the following would be the most appropriate approach for a consulting project concerning this issue?

A. ontrol self-assessment involving sales representatives

B. enchmarking with other cellular phone users

C. usiness process review of cellular phone needs

D. erformance measurement and design of the budgeting process

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Correct Answer: C

Question #26

Finance and operating leases differ in that the lessor

A. btains use of the asset only under a finance lease

B. s using the lease as a source of financing only under an operating lease

C. akes rent payments that are actually installment payments constituting a payment of both principal and interest only under a finance lease

D. inances the transaction through the leased asset only under a finance lease

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Correct Answer: D

Question #27

What is the annual carrying cost, stated as a percentage of investment in inventory, that would be used in model?

A. 2%

B. 7%

C. 4%

D. 2%

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Correct Answer: A

Question #28

Which of the following are conditions for a successful mentoring relationship?I).The relationship should be aimed at improvement of the mentee.II).The relationship should be based on growth of the mentee.III). The pairing of mentor and mentee should be voluntary.IV). Mentoring requires a positive work environment.

A. and II only

B. II and IV only

C. , II, and Ill only

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Correct Answer: C

Question #29

An internal audit activity has just completed a fraud investigation involving the company's president. Before the audit report is issued, a front page article appears in a major newspaper alleging that the president has been using the organization's funds for personal purposes. The chief audit executive (CAE), who has enough information to confirm the allegations, is contacted by the newspaper to confirm the facts. Which of the following would be the best response by the CAE?

A. espond truthfully and fully since the CAE is in a position to confirm the facts

B. irect the inquiry to the audit committee or the board of directors

C. rovide information "off the record" so that the article does not state who provided the information

D. espond that the investigation is not complete

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Correct Answer: B

Question #30

In obtaining accounts receivable confirmations, an auditor would most likely use generalized audit software to

A. est the results of calculations

B. ompare data from other audit procedures

C. elect and print accounts to be confirmed

D. etermine the accuracy of individual accounts

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Correct Answer: C

Question #31

An entity has a 50% gross margin, general and administrative expenses of US $50, interest expense of US $20, and profit of US $10 for the year just ended_ If the corporate tax rate is 50%, the level of sales for the year just ended was

A. S $90

B. S $135

C. S $150

D. S $180

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Correct Answer: D

Question #32

Which of the following is true with regard to norms?

A. orms are similar from culture to culture

B. orms reinforce the group's values and common identity

C. orms cannot be enforced by ridicule or criticism

D. orms are often written in an organization's policy manual

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Correct Answer: B

Question #33

The comparative balance sheet for an enterprise that had profit of US $150, 000 for the year ended December 31, Year 2, and paid US $125, 000 of dividends during Year 2 is as follows:If dividends paid are treated as a cost of obtaining financial resources, the amount of net cash from operating activities during Year 2 was

A. S $70, 000

B. S $90, 000

C. S $150, 000

D. S $210, 000

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Correct Answer: B

Question #34

If the bank uses the rnaxirna criterion for selecting the location of the branch, it will select

A. 1

B. 2

C. 3

D. 4

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Correct Answer: D

Question #35

A service entity keeps its accounting records on a cash basis. During the recent year. the entity collected US $600, 000 from customers. The following information is also available:What was the amount of service revenue for the year on an accrual basis?

A. S $525

B. S $555, 000

C. S $645

D. S $675

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Correct Answer: C

Question #36

Performance appraisal systems might use any of three different approaches: 1) who did the job, 2) how the job was done, or 3) what was accomplished. Which approach is used by a system that places the focus on how the job was done?

A. ehavior-oriented

B. oal-oriented

C. rait-oriented

D. mployee-oriented

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Correct Answer: A

Question #37

Which of the following represents appropriate evidence of supervisory review of engagement workpapers?I). A supervisor's initials on each workpaper.II). An engagement workpaper review checklist.III). A memorandum specifying the nature, extent, and results of the supervisory review of workpapers.IV). Performance appraisals that assess the quality of workpapers prepared by auditors.

A. I and IV only

B. , II, and III only

C. , III, and IV only

D. , II, III, and IV

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Correct Answer: B

Question #38

During a meeting of an internal audit team, two members of the team disagree, and one accuses the other of trying to advance personal interests over the interests of the audit.The audit manager should

A. iscipline both auditors after the meeting for their lack of professional conduct

B. ontinue the meeting but speak to the accusing auditor later regarding the inappropriate conduct

C. eet with both auditors after the meeting to resolve the conflict and the inappropriate behavior

D. top the meeting and refer the matter to the entire team for discussion

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Correct Answer: C

Question #39

A chief audit executive (CAE) has learned that a system currently being installed in the CAE's organization is identical to one that suffered a catastrophic failure in another organization. The CAE should

A. isregard the issue because there has been no audit work undertaken or any type of reliable information provided

B. otify senior management and request that the installation be halted

C. dd the issue to the annual audit plan and schedule an engagement when time is available

D. nvestigate the issue further even though there is no provision in the audit plan for this work

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Correct Answer: D

Question #40

Which of the following is a responsibility of the internal auditor once a fraud investigation has been concluded?

A. scertain the extent to which fraud has been perpetrated

B. otify the appropriate regulatory authorities regarding the outcome of the investigation

C. etermine if controls need to be implemented or strengthened to reduce future vulnerability

D. mplement controls to prevent future occurrences

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Correct Answer: C

Question #41

Focusing on customers, promoting innovation, learning new philosophies, driving out fear, and providing extensive training are all elements of a major change in organizations. These elements are aimed primarily at

A. opying leading organizations to better compete with them

B. ocusing on the total quality of products and services

C. eing efficient and effective at the same time, in order to indirectly affect profits

D. anaging costs of products and services better, in order to become the low-cost provider

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Correct Answer: B

Question #42

Which of the following internal controls is likely to prevent pollution from waste disposal before it occurs, rather than detect it after it occurs?

A. dentification of large budget variances in disposal costs for hazardous chemicals

B. estricted access to environmental department files

C. ormal on-the-job training program conducted by the environmental staff

D. amples of water and solid waste taken daily with the results recorded in a log

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Correct Answer: C

Question #43

During the year. an entity's balance sheet accounts increased by the following amounts:Profit for the year was US $42, 000. The only other change in retained earnings was for the declaration of cash dividends. The amount of dividends declared was

A. S $2, 000

B. S $17, 000

C. S $33, 000D US $67, 000

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Correct Answer: B

Question #44

In promoting quality assurance and improvement of the internal audit activity, which of the following would be considered a component of ongoing assessment?I). Supervision.II). Feedback from audit customers.III). Analysis of performance measures.IV). Comparison of budgeted to actual audit hours.

A. and III only

B. I and IV only

C. , III, and IV only

D. , II, III, and IV

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Correct Answer: D

Question #45

Which of the following is the leadership style in which the leader and the followers make decisions on the basis of consensus?

A. utocratic

B. enevolent authoritative

C. onsultative

D. articipative

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Correct Answer: D

Question #46

An entity issues bonds payable at a premium. You are analyzing the effects of using the effective interest rateconstant yield) method in accounting for the bonds over their 10- year life_ Which of the following trends related to the reported amounts for1) interest expense and2) carrying amount of the bonds would you expect to find?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: C

Question #47

If the entity's raw materials inventory as of r.~. 'ITiber 31 of the current yearending inventory) was miscounted and the true figure was higher than US $ one effect on the year-end financial statements would be that

A. rofit is overstated

B. ost of goods said is overstated

C. orking capital is overstated

D. ost of goods produced is understated

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Correct Answer: B

Question #48

Which of the following tactics may employees use when feeling that employees' individual power is insignificant?

A. mployees may engage in posturing by taking credit for the work of a coworker

B. mployees may engage in destructive competition by spreading false rumors

C. mployees may engage in creating power and loyalty cliques with other coworkers

D. mployees may attempt to conceal errors made by a supervisor in order to aid theemployees' own future advancement within the corporation

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Correct Answer: C

Question #49

A company has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly accounting for costs related to contract change orders. Which of the following procedures would be appropriate for testing this suspicion?I). Verify that the contractor has not charged change orders with costs that have already been billed to the original contract.II). Determine if the contractor has billed for original contract work

A. only

B. II only

C. and II only

D. and III only

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Correct Answer: C

Question #50

Leadership styles differ depending upon the personality type of the individual leader. A risk averse leader will generally:

A. ake decisions more slowly

B. equire less information than a risk taker

C. aintain status differences between with others

D. ork well in participative efforts where joint responsibility is assumed by several people

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Correct Answer: A

Question #51

A fast food company is developing a computer simulation involving arrival time at a drive through restaurant. The distribution for arrival times isTime Between Arrivals Probability Single Digit Random Number Assigned 1 minute 0.1 02 minute 0.2 1, 23 minute 0.3 3, 4, 54 minute 0.4 6, 7, 8, 9Six random numbers are selected to represent the arrival of six cars 1, 6, 9, 0, 5, 6. The mean time between arrivals for these cars, in this run of the simulation model, is

A. minute

B. minute

C. minute

D. minute

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Correct Answer: C

Question #52

To calculate net sales. List Ac must be , List Be cash receipts from customers.

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: A

Question #53

In the annual audit of the financial statements of a company with high inherent risk and a very strong control system, the external auditor may be able to allow detection risk to rise because

A. udit risk has been reduced

B. ontrol risk has been assessed at a lower level

C. he company's operations are very susceptible to misstatements

D. henever inherent risk is high, control risk is disregarded

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Correct Answer: B

Question #54

All of the following are generally included in a cost-of-quality report except

A. arranty claims

B. esign engineering

C. upplier evaluations

D. ost contribution margin

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Correct Answer: D

Question #55

The CEO of a rapidly growing high-technology firm has exercised centralized authority over all corporate functions. Because the company now operates in four geographically dispersed locations, the CEO is considering the advisability of decentralizing operational control over production and sales. Which of the following conditions probably will result from and be a valid reason for decentralizing?

A. reater local control over compliance with governmental regulations

B. ore efficient use of headquarters staff officials and specialists

C. ess overall operating costs

D. uicker and better operating decisions

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Correct Answer: D

Question #56

A network organizational structure is one in which:

A. n employee reports to two bosses

B. uthority and responsibility are concentrated at the top of the organization

C. abor is specialized

D. ajor business functions are subcontracted to third-party providers

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Correct Answer: D

Question #57

An anonymous party contacted an organization's fraud hotline and reported that the chief executive officer (CEO) and chief financial officer (CFO) were manipulating financial reserve accounts in order to achieve publicly disclosed earnings targets. All reports to the fraud hotline go directly to the entity's chief audit executive (CAE). Based on a preliminary evaluation of the report, the CAE concluded that the allegations were credible. Which of the following is the most appropriate course of action for th

A. ontact the audit committee chairperson and request that an investigation be initiated by an outside party

B. iscuss the allegations with the entity's chief legal officer to determine if criminal charges should be filed against the CEO and CFO

C. iscuss the situation with the CEO and CFO because they are within the CAE's normal chain of command

D. otify outside regulatory authorities that oversee financial reporting matters

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Correct Answer: A

Question #58

For a finance lease, the gross investment, lease payments receivable, recorded by the lessor is equal to the

A. resent value of the minimum lease payments minus the unguaranteed residual value accruing to the lessor at the end of the lease term

B. ower of 90% of the present value of the minimum lease payments or the fair value of the leased asset

C. inimum lease payments plus the unguaranteed residual value accruing to the lessor at the end of the lease term

D. ifference between the present value of the minimum lease payments and the unearned finance income

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Correct Answer: C

Question #59

Departmentation is the grouping of organizational subsystems. The greatest advantage of functional Departmentation is that it:

A. rovides the benefits of specialization

B. acilitates communication between primary functions

C. elps to focus on achievement of organizational goals

D. s appropriate for geographically dispersed companies

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Correct Answer: A

Question #60

A company provides fertilization, insect control, and disease control services for a variety of trees, plants, and shrubs on contract basis. For US $50 per month, the company will visit the subscriber's premises and apply appropriate. If the subscriber has any problem between the regularity scheduled application dates, the company's personal will promptly make additional service calls to correct the situation. Some subscribers elect to pay for an entire year because the company offers an annual price of 115

A. hen the cash is collected

B. venly over the year as the services are performed

C. t the end of the contract year after all of the services have been performed

D. t the end of the fiscal year

View answer

Correct Answer: B

Question #61

Lawson Ltd. has the opportunity to increase annual sales US $100, 000 by selling to a new, riskier group of customers. Based on sales, the uncollectible expense this increase to be 15%, and collection costs will be 5%. Manufacturing and selling expenses are 70% of sales, and the effective tax rate is 40%. If Lawson accepts this opportunity, the after-tax profit will increase by

A. S $4, 000

B. S $6, 000

C. S $10, 000

D. S $9, 000

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Correct Answer: B

Question #62

Which strategy for a global marketing organization is based on a portfolio of national markets?

A. eaction of a division to manage international marketing

B. multinational strategy

C. global strategy

D. reation of an export department

View answer

Correct Answer: B

Question #63

In reconciling profit on an accrual basis to net cash from operating activities, what adjustment is needed to profit because of1) an increase during the period in prepaid expenses and2) the periodic amortization of premium on bonds payable?

A. dd Add

B. dd Deduct

C. educt Add

D. educt Deduct

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Correct Answer: D

Question #64

Which of the following is a control weakness that allows for the greatest probability of fraud?

A. he log-on accounts for the computerized information management system are not immediately canceled for terminated employees

B. cheduled physical counts to verify the perpetual inventory system are frequently delayed because of staff shortages and conflicting priorities

C. n employee is responsible for entering identifying information into the inventory database whenever supplies are delivered

D. he employee who handles all cash sales has responsibility for balancing the cash register and making bank deposits

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Correct Answer: D

Question #65

It would be appropriate for an internal audit activity to use consultants with expertise in health-care benefits when the internal audit activity isI). Conducting an audit of the organization's estimate of its liability for post retirement benefits, which include health care benefits.II). Comparing the cost of the organization's health care program with that of other programs offered in the industry.III). Training its staff to conduct an audit of health care costs in a major division of the organization.

A. only

B. and III only

C. I and III only

D. , II, and III

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Correct Answer: D

Question #66

An employee's right to obtain postemployment benefits regardless of whethers)he remains employed is known as his/her.

A. ervice cost

B. efined benefit plan

C. ested benefits

D. dditional minimum liability

View answer

Correct Answer: C

Question #67

An auditor prepared a workpaper that consisted of a list of employee names and identification numbers as well as the following statement . A statistical sample of 40 employee personnel files was selected to verify that they contain all documents required by company policy 501 (copy attached). No exceptions were noted. The auditor did not place any audit verification symbols on this workpaper. Which of the following changes would most improve the auditor's workpaper?

A. se of audit verification symbols to show that each file was examined

B. emoval of the employee names to protect their confidentiality

C. ustification for the sample size

D. isting of the actual documents examined for each employee

View answer

Correct Answer: C

Question #68

Which of the following management orientations is characterized by an organization's efforts to adapt the product and marketing program to each local environment?

A. thnocentric

B. olycentric

C. eocentric

D. egiocentric

View answer

Correct Answer: B

Question #69

Which of the following characteristics is a strength of group decision making?

A. roup decision making is quicker than individual decision making

B. ore information can be processed by the group than by an individual

C. t is less costly to have decisions made by groups than by an individual

D. roup decision making leads to the selection of the most appropriate alternative

View answer

Correct Answer: B

Question #70

The cost of materials has risen steadily over the year. The entity uses its newest materials first when removing items from inventory. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit, all other variables held constant?

A. ast-in-first-outLIFO)

B. irst-in-first-outFIFO)

C. eighted average

D. pecific identification

View answer

Correct Answer: B

Question #71

When a manager generalizes from the evaluation of one or a few traits to the employee's total performance, s)he has made

A. judgmental evaluation

B. n evaluation subject to the halo effect

C. projection

D. n objective evaluation

View answer

Correct Answer: B

Question #72

The internal audit activity has undertaken an audit of the shipping and receiving department of a department stOrE chain. The best engagement tool for this purpose most likely is

A. ompetitive benchmarking

B. trategic benchmarking

C. nternal benchmarking

D. rocess benchmarking

View answer

Correct Answer: D

Question #73

Queuing models are concerned with balancing the cost of waiting in the queue with the

A. ost of providing service

B. umber of customers in the queue

C. verage waiting time in the queue

D. sage rate for the service being rendered

View answer

Correct Answer: A

Question #74

If bonds are sold at a discount and the effective interest method of amortization is used, interest expense will

A. ncrease from one period to another

B. emain constant from one period to another

C. qual the cash interest payment each period

D. e less than the cash interest payment each period

View answer

Correct Answer: A

Question #75

Assume that the enterprise reports cost of goods sold of US $200, 000 and interest expense of US $10, 000 for the current period. Also assume a 50% tax rate on corporate earnings. The final closing entry required to ensure that current earnings are incorporated into year-end retained earnings is

A. ncome summary US $140, 000Retained earnings US $140

B. etained earnings US $280, 000Income summary US $280

C. ncome summary US $240, 000Retained earnings US $240

D. etained earnings US $240, 000Income summary US $240

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Correct Answer: A

Question #76

A division uses a regression in which monthly advertising expenditures are used to predict monthly product sales both in millions of US dollars). The results show a regression coefficient for the independent variable equal to 0.8. This coefficient value indicates that

A. he average monthly advertising expenditure in the sample is US $800, 000

B. hen monthly advertising is at its average level, product sales will be US $800, 000

C. n average, every additional dollar of advertising results in US $

D. dvertising is not a good predictor of sales because the coefficient is so small

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Correct Answer: C

Question #77

Cost of goods sold in Year 2 was

A. S $147, 000

B. S $160, 000

C. S $167, 000

D. S $180, 000

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Correct Answer: A

Question #78

An auditor plans to query a vendor database to locate evidence of a fictitious vendor scheme. Which of the following would be likely to detect this type of fraud?I). Vendors that lack a phone number or an addressII). Vendors that have a post office box as an address III). Vendors that have multiple addresses

A. only

B. II only

C. and II only

D. , II, and III

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Correct Answer: C

Question #79

The purpose of a walk through of an audit client's processes is for an internal auditor to

A. onfirm the completion of tasks

B. ssess the effectiveness of existing internal controls

C. nderstand existing controls and processes

D. etermine the existence of fraud

View answer

Correct Answer: C

Question #80

Which of the following is an example of the verification of internal documentary evidence?

A. eviewing a carrier's bill of lading

B. econciling a vendor's month end statement

C. ouching a copy of a sales invoice to receivables

D. ecalculating a customer's purchase order

View answer

Correct Answer: C

Question #81

On December 31. Year 1 , XYZ led 5-year bonds with a face amount of US $1 million. The bonds carry a stated interest rate of 10% and were sold at par. Interest is payable annually on December 31 According to the provisions of the bond identure, XYZ was to make annual deposits into a bond sinking fund (beginning December 31, Year 2) to accumulate the funds necessary to retire the bonds at their maturity. On December 31 Year 5, all required interest payments and sinking-fund payments due to date had been made

A. urrent liability

B. ong-term liability

C. ontra to long-term investments

D. eferred credit

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Correct Answer: A

Question #82

For the past several years, many organizations have attempted to reduce administrative costs and respond more rapidly to customer and competitive demands. One method is to eliminate layers of middle management. The element of organizational structure affected by such reductions is:

A. patial differentiation

B. ormalization

C. ertical differentiation

D. ormalization of jobs

View answer

Correct Answer: C

Question #83

Which type of organization is based upon strategic long-term relationships based upon implicit contracts and coordination through adaptation?

A. ourglass organization

B. luster organization

C. etwork organization

D. irtual organization

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Correct Answer: C

Question #84

The primary objective of risk-based auditing is to assess the

A. conomy of controls

B. ompliance with controls

C. dequacy of controls

D. fficiency of controls

View answer

Correct Answer: C

Question #85

Which of the following is not a characteristic of an effective evaluation system?

A. elevant

B. ignificant

C. nbiased

D. ighly structured

View answer

Correct Answer: D

Question #86

Which of the following is not an appropriat basis for measuring the cost of property, plant, and equipment?

A. he purchase price, freight costs

B. roceeds obtained in the process of readying land for its intended purpose, such as from the sale of cleared timber, should be recognized immediately as income

C. he costs of improvements to equipment incurred after its acquisition should be added to the asset's cost if they increase future service potential

D. ll costs incurred in the construction of a plant building, from excavation to completion, should be considered as part of the asset's cost

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Correct Answer: B

Question #87

Total quality management in a manufacturing environment is best exemplified by

A. dentifying and reworking production defects before sale

B. esigning the product to minimize defects

C. erforming inspections to isolate defects as early as possible

D. aking machine adjustments periodically to reduce defects

View answer

Correct Answer: B

Question #88

The chief audit executive's responsibility regarding control processes includes

A. ssisting senior management and the audit committee in the development of an annual assessment about internal control

B. verseeing the establishment of internal control processes

C. aintaining the organization's governance processes

D. nsuring that the internal audit activity assesses all control processes annually

View answer

Correct Answer: A

Question #89

Prior announcements of moves have value as market signals in part because an announced move need not actually occur. Which of the following is true regarding the effects of prior announcements of moves on the market?I). The effects may preempt competitionII). The effects may express pleasure or displeasure with a competitor's actionIII). The effects may be a means of ending all external debateIV). The effects may test competitor sentiment

A. , II, and Ill only

B. , II, and IV only

C. I, Ill, and IV only

D. , II, Ill, and IV)

View answer

Correct Answer: B

Question #90

Noncompliance with which of the following would cause a control deficiency related to privacy protection practices?I). An organization's internal privacy policiesII). Financial accounting standardsIII). Privacy laws and regulationsIV). The Standards

A. and III only

B. I and IV only

C. I, III, and IV only

D. , II, III, and IV

View answer

Correct Answer: A

Question #91

Which of the following is the most significant reason that domestic governments and international organizations seek to eliminate cartels?

A. he increased sales price reduces the amount of corporate tax revenues payable to the government

B. rue competition keeps prices as low as possible, thus increasing efficiency in the marketplace

C. mall businesses cannot survive or grow without government protection

D. he economic stability of developing countries depends on a global free market

View answer

Correct Answer: B

Question #92

Which of the following inventory items would be the most frequently reviewed in an ABC inventory control system?

A. xpensive, frequently used, high stock-out cost items with short lead times

B. xpensive, frequently used, low stock-out cost items with long lead times

C. nexpensive, frequently used, high stock-out cost items with long lead times

D. xpensive, frequently used, high stock-out cost items with long lead times

View answer

Correct Answer: D

Question #93

The decision to implement enhanced failure detection and back-up systems to improve data integrity is an example of which risk response?

A. isk acceptance

B. isk sharing

C. isk avoidance

D. isk reduction

View answer

Correct Answer: D

Question #94

A new manager of a production department has been asked to assess the effectiveness of that department. The organization needs to satisfy both internal and external constituents and takes a broad approach to effectiveness. To complete the assignment successfully, the manager should:

A. easure the daily productivity of the department

B. o a survey of employee morale, as it is often a major underlying factor in productivity

C. ompare the past year's production against annual goals

D. onsider short-, medium-, and long-term effectiveness

View answer

Correct Answer: D

Question #95

A company regularly invests excess short-term cash in trading securities. A reliable test of the valuation of those securities would be a

A. ecalculation of investment carrying value using the equity method

B. omparison of cost data with current market quotations

C. onfirmation of securities held by the broker

D. alculation of premium or discount amortization

View answer

Correct Answer: B

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