CIA Challenge Exam Questions Free Download

Question #1

Because of the large number of factors that could affect the demand for its new product, interactions among these factors, and the probabilities associated with different values of these factors, the marketing department would like to develop a computerized model for projecting demand for this product. By using a random-number procedure to generate values for the different factors, it will be able to estimate the distribution of demand for this new product. This method of estimating the distribution of dema

A. onte Carlo simulation

B. inear programming

C. orrelation analysis

D. ifferential analysis

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Correct Answer: A

Question #2

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

A. ntroduction stage

B. rowth stage

C. aturity stage

D. ecline stage

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Correct Answer: C

Question #3

A firm ships its product to a foreign subsidiary and charges a price that may increase import duties but lower the income taxes paid by the subsidiary. The most likely reason for these effects is that the

A. rice is an arm's-length price

B. rice is a cost-plus price

C. ransfer price is too low

D. ransfer price is too high

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Correct Answer: D

Question #4

Which of the following is a major element of the ISO 9000:2008 quality management system standards?

A. he principle that improved employee satisfaction will lead to increased productivity

B. he attitude and actions of the board and management regarding the significance of control within the organization

C. he assessment of the risk that objectives are not achieved

D. requirement for organizations to monitor information on customer satisfaction as a measure of performance

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Correct Answer: D

Question #5

Which of the following would constitute a violation of the IIA Code of Ethics?

A. n internal auditor, who has recently joined the organization, has accepted an assignment to audit the electronics manufacturing division

B. n internal auditor has accepted an assignment to audit the warehousing function six months from now

C. n internal auditor has no ambitions for promotion and has not engaged in training or other professional development activities during the last three years

D. n internal auditor discovered an internal financial fraud during the year, and the financial statements were adjusted to properly reflect the loss associated with the fraud

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Correct Answer: C

Question #6

What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?

A. rend analysis

B. atio analysis

C. egression analysis

D. orizontal analysis

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Correct Answer: C

Question #7

The cost of go is sold for the current year ended December 31 would be

A. S $1

B. S $1, 000, 111

C. S $1

D. S $1

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Correct Answer: A

Question #8

Which of the following would provide the best assessment of an organization's ethical climate?

A. umber of years that directors have been appointed to the board

B. vidence of training provided to the board of directors on ethical issues

C. larity and consistency of consequences imposed by the board of directors for ethical violations

D. requency of fraud reported and results of subsequent investigations

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Correct Answer: C

Question #9

The moving-average method of forecasting

A. s a cross-sectional forecasting method

B. egresses the variable of interest on a related variable to develop a forecast

C. erives final forecasts by adjusting the initial forecast based on the smoothing constant

D. ncludes each new observation in the average as it becomes available and discards the oldest observation

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Correct Answer: D

Question #10

During a fraud investigation, an internal auditor finds that one of the suspects is the senior executive to whom fraudulent activities are to be reported. Would it be appropriate for the internal auditor to report interim findings directly to the audit committee without notifying the senior executive?

A. es, because it is important to maintain confidentiality while obtaining evidence

B. es, because the audit committee should make all decisions regarding fraud investigations

C. o, because the auditor should report the findings directly to law enforcement officials

D. o, because all frauds are to be reported to the senior executive

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Correct Answer: A

Question #11

The dominant firm in a market pursues a market-leader strategy. This strategy may involve

A. olding the market stable to avoid attracting new competitors

B. flank defense to strengthen the firm's brand

C. ending market signals as a mobile defense

D. nnovations as an offensive strategy

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Correct Answer: D

Question #12

In an assurance engagement of treasury operations, an internal auditor is required to consider all of the following issues except

A. he audit committee has requested assurance on the treasury department's compliance with a new policy on the use of financial instruments

B. reasury management has not instituted any risk management policies

C. ue to the recent sale of a division, the amount of cash and marketable securities managed by the treasury department has increased by 350 percent

D. he external auditors have indicated some difficulties in obtaining account confirmations

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Correct Answer: D

Question #13

A transferor entity most likely should continue to recognize a transferred financial asset if the

A. ransferor may reacquire the asset, and the asset is readily obtainable in the market

B. ransferee may sell the full fair value of the asset

C. ransferor has an option to reacquire the asset, and the reacquisition price is fair value

D. ransferor is entitled and obligated to repurchase the asset, and the transferee receives a lender's return

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Correct Answer: D

Question #14

A manager in a government agency supervises a section of clerical employees who review license applications for approval or denial. The clerical jobs are well defined procedurally and are covered by government regulations. In this case, what is the best leadership style for the manager?

A. irective

B. upportive

C. articipative

D. chievement-oriented

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Correct Answer: B

Question #15

Which of the following would have the least impact (either positive or negative) on an assessment of a department's control environment?

A. he department managed long-term investments, including investment in derivatives and other financial instruments, to maximize return

B. he department manager sets a tone of honesty and integrity in all business dealings and this tone is emulated by department personnel

C. any department functions were duplicated or verified by other department employees as part of the department's normal procedures

D. udit tests designed to verify compliance with control procedures detected a general failure to follow standard procedures for transaction authorization

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Correct Answer: A

Question #16

Assume that the construction company recognizes US $2 million of revenue for the long- term contract in Year 1 If the company uses the percentage-of-completion methodcost-to- cost basis), the difference between revenue recognized to date and contract billings at the end of Year 1 will be shown on the December 31, Year 1, balance sheet as a of .

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #17

Which statement most accurately describes risk assessment?

A. t is a tool for determining the relative impact of one process on another

B. t is a model used by analysts to determine organizational exposure

C. t is the quantitative and qualitative evaluation of exposures

D. t is the amount of inherent risk in a separately identifiable business entity or transaction

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Correct Answer: C

Question #18

According to Bruce Henderson, competitive equilibrium is most likely to be stable when:

A. ne competitor has twice the market share of a second competitor

B. ompetitors are almost identical

C. ne major factor is the critical factor

D. he product is undifferentiated

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Correct Answer: A

Question #19

Violation of which assumption underlying regression analysis is prevalent in time series analysis?

A. ariance of error term is constant

B. rror terms are independent

C. istribution of error terms is normal

D. xpected value of error term equals zero

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Correct Answer: B

Question #20

A production team has been together for several years and has worked well together.However, severe arguments have recently occurred between two members of the group, and other members have begun to take sides. This problem has had a negative effect on production performance. The best leadership style for the manager in this situation is:

A. irective

B. upportive

C. articipative

D. chievement-oriented

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Correct Answer: A

Question #21

The management of ABC Corporation is analyzing the financial statements of XYZ Corporation because ABC is strongly considering purchasing a block of XYZ ordinary shares that would give ABC significant influence over XYZ. Which financial statement should ABC primarily use to assess the amounts, timing, and certainty of future cash flows of XYZ Company?

A. ncome statement

B. tatement of changes in equity

C. tatement of cash flows

D. alance sheet

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Correct Answer: C

Question #22

Which approach to understanding leadership focuses on the social skills, judgment, and maturity of the leader?

A. ehavioral styles theory

B. motional intelligence theory

C. he Ohio State model

D. ath-goal theory

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Correct Answer: B

Question #23

A depreciable asset has an estimated 20% residual value. At the end of the asset's estimated useful life. the accumulated depreciation will equal the original cost of the asset under which of the following depreciation methods?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #24

Power is synonymous with leadership. Simply, it is the ability to influence other people. The sources of power are various. For example, the kind of power arising from the strength of the leader's personality is known as:

A. oercive power

B. egitimate power

C. xpert power

D. eferent power

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Correct Answer: D

Question #25

Which of the following must an auditor establish in order to demonstrate that fraud has occurred?

A. onetary damage to the victim

B. he suspect's intent

C. xistence of an internal control deficiency

D. vidence of collusion

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Correct Answer: B

Question #26

A leader who explains decisions and provides opportunity for clarification is described as having which leadership style?

A. elling

B. elling

C. articipating

D. elegating

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Correct Answer: A

Question #27

When using PERT Program Evaluation Review Technique), the expected time for an activity when given an optimistic time A), a pessimistic time B), and a most likely time m) is calculated by which one of the following formulas?

A. \xad a) =2

B. + b) =2

C. + 4m +b) =6

D. abm) =6

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Correct Answer: C

Question #28

A dental insurance provider has implemented an electronic claim submission process and is concerned that dentists are submitting claims for services that were not provided. Which of the following control procedures would be most effective in preventing this type of fraud?

A. evelop a program that identifies procedures performed on an individual which are either in excess of expectations based on the age of the insured or are similar to other procedures recently performed on the individual

B. equire all submitted claims to be followed by a signed statement by the dentist testifying to the fact that the claimed procedures were performed

C. end confirmations to the dentists requesting them to confirm the exact nature of the claims submitted to the insurance provider

D. evelop an integrated test facility and submit false claims to verify that the system is detecting such claims on a consistent basis

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Correct Answer: A

Question #29

A strategic business unit (SBU) has a relative market share (RMS) of 2.0 and a market growth rate (MGR) of 9.5%. According to the portfolio model for competitive analysis created by the Boston Consulting Group, such an SBU is considered a

A. tar

B. uestion mark

C. ash cow

D. og

View answer

Correct Answer: C

Question #30

The auditor wishes to determine if the change in investment income during the current year was due to a) changes in investment strategy, b) changes in portfolio mix, or c) other factors. Which of the following analytical review procedures should the auditor use?

A. imple linear regression that compares investment income changes over the past 5 years to determine the nature of the changes

B. atio analysis that compares changes in the investment portfolio on a monthly basis

C. rend analysis that compares the changes in investment income as a percentage of total assets and of investment assets over the past 5 years

D. ultiple regression analysis that includes independent variables related to the nature of the investment portfolio and market conditions

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Correct Answer: D

Question #31

Which of the following procedures would provide the best evidence of the effectiveness of a credit-granting function?

A. bserve the process

B. eview the trend in receivables write-offs

C. sk the credit manager about the effectiveness of the function

D. heck for evidence of credit approval on a sample of customer orders

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Correct Answer: B

Question #32

An organization sells a product for which demand is uncertain. Management would like to ensure that there is sufficient inventory on hand during periods of high demand so that it does not lose sales and customers). To do so, the organization should

A. eep a safety stock

B. se a just-in-time inventory system

C. mploy a materials requirements planning system

D. eep a master production schedule

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Correct Answer: A

Question #33

At the inception of a finance lease, how should the lessee account for guaranteed residual value?

A. s part of minimum lease payments at present value

B. s part of minimum lease payments at future value

C. s part of minimum lease payments at future value of an annuity due

D. s not a part of the lease contract

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Correct Answer: A

Question #34

According to the Standards, which of the following should be addressed as a planning consideration?

A. afeguarding of assets in the activity being audited

B. ompliance of operations with policies, plans, procedures, laws, and regulations

C. ccomplishment of established objectives and goals for operations and programs

D. bjectives of the activity being audited

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Correct Answer: D

Question #35

Quality cost indices are often used to measure and analyze the cost of maintaining a given level of quality. One example of a quality cost index, which uses a direct labor base, is computed asBased upon these costs data, the quality cost index

A. ecreased four points from May to June

B. as unchanged from May to June

C. ncreased 10 points from May to June

D. ecreased 10 points from May to June

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Correct Answer: A

Question #36

In PERT, slack is the

A. ncertainty associated with time estimates

B. ifference between the latest starting time and earliest finishing time

C. ath that has the largest amount of time associated with it

D. umber of days an activity can be delayed without forcing a delay for the entire project

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Correct Answer: D

Question #37

The operating condition that car-or-mot be identified by using a queuing model is the

A. verage percentage of time that a service facility is idle

B. robability of a specified number of units in the queue

C. ctual amount of time each unit spends in the queue

D. verage number of units in the system and the mean length of the queue

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Correct Answer: C

Question #38

Heniser Pet Foods manufactures two products, X. and Y. The unit contribution margins for Products X. and Y are US $30 and US $50, respectively. Each product uses Materials A and A. Product uses 6 pounds of Material A and 12 pounds of Material B. Product Y uses 12 pounds of Material A and 8 pounds of Material B. The company can purchase only 1, 200 pounds of Material A and 1, 760 pounds of Material B. The optimal mix of products to manufacture is

A. 46 units of and 0 units of Y

B. units of X and 100 units of Y

C. 20 units of and 40 units of Y

D. 0 units of X

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Correct Answer: C

Question #39

Using the cost-recovery method of revenue re: :jniti on, profit on an installment sale is recognized

A. n the date of the installment sale

B. n proportion to the cash collections

C. fter cash collections equal to the cost of goods sold have been received

D. n the date the final cash collection is received

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Correct Answer: C

Question #40

A limitation of using ratio analysis in an audit engagement is that it

A. ften uses financial information provided by management which has not been reviewed for reliability and validity

B. s an expensive method of testing

C. equires computer software in order to develop meaningful interpretations of data

D. s useful only when comparisons can be made across other industries

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Correct Answer: A

Question #41

The estimated demand for pretzels at the next home football game using an expected value approach is

A. , 000 pretzels

B. , 400 pretzels

C. , 000 pretzels

D. , 000 pretzels

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Correct Answer: B

Question #42

Paul Hersey and Ken Blanchard developed a situational leadership model with two dimensions:task and relationship behaviors. In this model, the delegating leadership style is appropriate when followers have:

A. ow maturity

B. ow to moderate maturity

C. oderate to high maturity

D. igh maturity

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Correct Answer: D

Question #43

How is the letter x in the standard regression equation best described?

A. ndependent Variable

B. ependent Variable

C. onstant coefficient

D. oefficient of determination

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Correct Answer: A

Question #44

Distribution channels ensure that goods in international trade are transferred successfully to end users. Where are intermediaries, such as trading companies, most likely selected?

A. hannels within nations

B. xport department of the seller

C. nternational division of the seller

D. hannels between nations

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Correct Answer: D

Question #45

The cost of statistical quality control in a product quality cost system is categorized as a n)

A. nternal failure cost

B. raining cost

C. xternal failure cost

D. ppraisal cost

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Correct Answer: D

Question #46

An entity has US $100 of current assets, US $100 of fixed assets, US $100 of debt, and US $100 of equity. If it then leases a US $75 asset in a(n) , List A, lease agreement, the debt-to-assets ratio of the entity will be

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #47

In a product's life cycle, the first symptom of the decline stage is a decline in the

A. irm's inventory levels

B. roduct's sales

C. roduct's production cost

D. roduct's prices

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Correct Answer: B

Question #48

Which of the following is a reason that a manager may be reluctant to delegate?

A. he manager fears being held accountable for the subordinate's performance

B. he manager fears failing because of some lack of knowledge

C. he manager did not monitor the subordinate's work

D. he manager fears unknown goals

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Correct Answer: A

Question #49

In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be audited. What is the most likely result of that procedure?

A. t creates apprehension about the audit engagement

B. t involves the engagement client's supervisory personnel in the audit

C. t is an uneconomical approach to obtaining information

D. t is only useful for audits of distant locations

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Correct Answer: B

Question #50

An internal auditor audited a department store's cash function. Which of the following actions would indicate a lack of due professional care by the auditor?

A. ased on a well-designed system of internal controls over the cash function, the audit report assured senior management that no irregularities existed

B. flowchart of the entire cash function was developed but only samples of transactions were tested

C. he audit report included a well-supported recommendation for a reduction in staff even though such a reduction might adversely impact morale

D. he auditor informed appropriate authorities within the organization about suspected wrongdoing but did not inform external authorities

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Correct Answer: A

Question #51

Which of the following price adjustment strategies is designed to smooth production for the selling firm?

A. ash discounts

B. uantity discounts

C. unctional discounts

D. easonal discounts

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Correct Answer: D

Question #52

Which of the following is a regional free-trade zone currently limited to South American nations?

A. PEC

B. ercosul

C. he Triad Market

D. AFTA

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Correct Answer: B

Question #53

A firm expands into international markets to

A. e in foreign markets

B. liminate foreign competition

C. ursue new, higher-profit opportunities

D. reclude piracy of the firm's products

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Correct Answer: C

Question #54

In which of the following situations should internal auditors report fraud to senior management and the board?

A. rregular transactions have been identified and are under investigation

B. uspicious activities have been reported to the internal auditors

C. ignificant fraud has been established to a reasonable certainty

D. eview of all suspected fraud related transactions is complete

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Correct Answer: C

Question #55

Which of the following is generally true regarding a manager's span of control?

A. arrow spans of control are typically found in flat organizations, those with few hierarchical levels

B. n organization with narrow spans of control needs more managers than those with wide spans

C. ider spans of control mean higher administrative expense and less self-management

D. ider spans of control help ensure good internal controls and policy compliance throughout an organization

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Correct Answer: B

Question #56

A firm in a fragmented industry must position itself by adopting a competitive strategy appropriate to the industry. 1hich of the following is most clearly a focus strategy?

A. pecialization by product type

B. ackward integration

C. n emphasis on low overhead and low payroll

D. evelopment of formula facilities

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Correct Answer: A

Question #57

An entity issues 10-year bonds with a face amount of US $1 million, dated January 1, Year 1, and bearing interest at an annual rate of 12% payable semiannually on January 1 and July 1 The full interest amount will be paid each due date. The market rate of interest on bonds of similar risk and maturity, with the same schedule of interest payments, is also 12%. If the bonds are issued on February 1, Year 1, the amount the issuing entity receives from the buyers of the bonds on that date is

A. S $990, 000

B. S $1, 000, 000

C. S $1, 010, 000

D. S $1, 020, 000

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Correct Answer: C

Question #58

The practice of recording advance payments from customers as a liability is an example of applying the

A. oing concern assumption

B. onetary unit assumption

C. istorical cost principle

D. evenue recognition principle

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Correct Answer: D

Question #59

What decision-making approach should a facilitator initiate if a group addresses an unfamiliar situation during a control self-assessment session?

A. pontaneous agreement

B. onsensus building

C. ajority voting

D. ompromise

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Correct Answer: B

Question #60

Risk assessments can vary in format, but generally includeI). A description of identified risks.II). Tests of audit controlsIII). A system of rating risksIV). Sample size identification

A. and II only

B. and III only

C. , III, and IV only

D. I, III, and IV only

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Correct Answer: B

Question #61

The following is an excerpt from an audit engagement workpaper A Company Accounts Receivable Date Objective To determine if the computer system is correctly recording all accounts receivable transactions. Procedures Judgmental selection of a sample of all accounts receivable balances greater than $50, 000 for positive confirmation of balances. Conclusion Based on the results of testing wherein all but three confirmations were returned, the accounts receivable balance is fairly presented in all material resp

A. t is not appropriate to judgmentally select a sample when testing accounts receivable

B. conclusion should be reached only for the results of overall testing, not for individual procedures

C. he audit procedures used are not consistent with the audit objective

D. he format of the workpaper does not conform to the standard format for workpapers

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Correct Answer: C

Question #62

When determining cash flows accruing to the entity, using financial statements prepared for tax purposes will result in

A. o effect on cash flow amounts

B. n overstatement of cash flows throughout the economic life of the asset

C. n understatement of cash flows throughout the economic life of the asset

D. n overstatement of cash flows in the early years and then an understatement of cash flows in the later years of the economic life of the asset

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Correct Answer: A

Question #63

A manager discovers by chance that a newly hired employee has strong beliefs that are very different from the manager's and from those of most of the other employees. The manager's best course of action would be to

A. acilitate the reassignment of the new hire as quickly as possible before this situation becomes disruptive

B. sk the rest of the team for their reaction and act according to the group consensus

C. ake no action unless the new hire's behavior is likely to cause harm to the organization

D. ry to counsel the new hire into more reasonable beliefs

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Correct Answer: C

Question #64

Monitoring is an important component of internal control. Which of the following is not an example of monitoring?

A. anagement regularly compares divisional performance with budgets for the division

B. ata processing management regularly generates exception reports for unusual transactions or volumes of transactions and follows up with investigation as to causes

C. ata processing management regularly reconciles batch control totals for items processed with batch controls for items submitted

D. anagement has asked internal auditing to perform regular audits of the controls over cash processing

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Correct Answer: C

Question #65

If an auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk?

A. he experience and knowledge of the auditor

B. he adverse consequences of noncompliance

C. he acceptable level of risk of making an incorrect audit conclusion

D. he cost of performing auditing procedures on sample selections

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Correct Answer: A

Question #66

According to the International Professional Practices Framework, which of the following statements is correct regarding the communication of audit results?I). Summary reports may be issued separately from or in conjunction with the final report.II). Interim reports may be written or oral.III). Detailed reports should always be issued to the audit committee.IV). Interim reports should be used to communicate information which requires immediate attention.

A. and III only

B. I and IV only

C. , II, and IV only

D. , II, III, and IV

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Correct Answer: C

Question #67

Assuming all of the following involve material amounts, which is most likely to be classified as an extraordinary item in the income statement?

A. loss because of an expropriation of assets by a foreign government

B. loss because of adjustments of accruals on long-term contracts

C. gain because of the disposal of assets associated with a discontinuing operation of a business

D. one of the above

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Correct Answer: D

Question #68

Which of the following steps is necessary to provide a summary level description of a complex new computer system?

A. repare a control flowchart

B. erform program code checking and flowchart verification

C. repare a system flowchart

D. repare a detailed narrative

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Correct Answer: C

Question #69

Cash collections from customers in Year 2 were

A. S $341

B. S $338, 000

C. S $344, 000

D. S $335, 000

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Correct Answer: A

Question #70

An evaluator is rating 100 employees on a bell curve. She is instructed to label five employees "extraordinary" and five employees "unsatisfactory." The evaluator also is instructed to label 10 employees "above average" and 10 employees "below average." All of the other employees will be in the "average" category. Which of the following is the major drawback of using this method?

A. he process of using the method is too time consuming

B. n employee's evaluation will depend on who the evaluator is

C. ifferent evaluators have different standards

D. he evaluator must place some employees in the lowest and highest tails of a bell-shaped curve

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Correct Answer: D

Question #71

Which of the following statements is not true regarding ISO 9000 standards?

A. ompliance with the standards is voluntary

B. he ISO 9000 standards are revised every 5 years to account for technological and market developments

C. he objective of ISO 9000 standards is to ensure high quality products and services

D. SO 9000 is a set of generic standards for establishing and maintaining a quality system within a company

View answer

Correct Answer: C

Question #72

Which of the following is not true with regard to informal groups?

A. embers of the group are susceptible to group pressure

B. he groups develop primarily to satisfy esteem needs

C. lmost all employees and managers are members of an informal group

D. nformal groups tend to be small and have simple relationships

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Correct Answer: D

Question #73

According to the Standards, internal audit reports should be distributed to those members of the organization who are able to ensure that audit results are given due consideration. For senior members of the organization, this requirement can usually be satisfied using

A. ummary reports

B. nterim reports

C. ral reports

D. inal written reports only

View answer

Correct Answer: A

Question #74

Which of the following is not a component of physical distribution?

A. ransportation

B. ricing

C. ocation of retail outlets

D. arehousing

View answer

Correct Answer: B

Question #75

An audit of the quality control department is being planned. Which of the following would least likely be used in the preparation of a preliminary survey questionnaire?

A. n analysis of quality control documents

B. he permanent audit file

C. he prior audit report

D. anagement's charter for the quality control department

View answer

Correct Answer: A

Question #76

An auditor has been assigned to audit the computerized inventory records as part of an audit of production activities. It would be most appropriate to use a generalized audit software package to

A. ssess the processing accuracy of the update program in posting transactions to the inventory master file

B. valuate the adequacy of internal controls embedded in the computer program

C. ubstantiate the data entries from terminals located in the production department

D. erify the accuracy of the extensions and summations of inventory balances

View answer

Correct Answer: D

Question #77

A strategic business unit (SBU) has a low relative market share (RMS) and a high market growth rate (MGR). According to the portfolio model for competitive analysis (thegrowth sharematrix) created by the Boston Consulting Group, the SBU is considered a

A. tar

B. uestion mark

C. ash cow

D. og

View answer

Correct Answer: B

Question #78

An entity purchased US $1 .000 gross amount of inventory on account with terms of 2 f discount if paid within 10 days. The seller was responsible for delivery to the shipping point, with freight of US $30 prepaid by the seller. The entity records purchases at the net amount The journal entry to record payment 8 days after the invoice date is

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: A

Question #79

A fire destroyed a large portion of an organization's inventory. Should management be permitted to use the internal auditors' workpapers to file an insurance claim as a result of the fire?

A. o

B. es

C. o

D. es

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Correct Answer: B

Question #80

As an audit technique, observation isI). Limited because individuals may react differently when being observed.II). More persuasive for the completeness assertion than it is for the existence assertion when testing financial statement balances.III). Effective in providing evidence on how the company's processes differ from those specified by written policies.

A. only

B. I only

C. and III only

D. , II, and III only

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Correct Answer: C

Question #81

In which of the following situations would a narrower span of control be more appropriate?

A. anagers do not spend a great deal of time on planning or strategic management

B. anagers must spend a great deal of time coordinating with other managers

C. ubordinates work in the same area rather than being geographically dispersed

D. ork performed by subordinates is substantially identical

View answer

Correct Answer: B

Question #82

At the beginning of fieldwork in an audit of investments, an internal auditor noted that the interest rate had declined significantly since the engagement work program was created. The auditor should

A. roceed with the existing program since this was the original scope of work that was approved

B. odify the audit program and proceed with the engagement

C. onsult with management to verify the interest rate change and proceed with the engagement

D. etermine the effect of the interest rate change and whether the program should be modified

View answer

Correct Answer: D

Question #83

Because of a defect discovered in its seat belts in December Year 1, an automobile manufacturer believes it is probable that it will be required to recall its products. The final decision on the recall is expected to be made in March Year 2. The cost of the recall is reliably estimated to be US $2.5 million. How should this information be reported in the December 31, Year 1, financial statements?

A. s a loss of US $2

B. s an adjustment of the opening balance of retained earnings equal to US $25 million

C. s an appropriation of retained earnings of US $25 million

D. t should not be disclosed because it has not yet happened

View answer

Correct Answer: A

Question #84

Sales representatives for a manufacturing company are reimbursed for 100 percent of their cellular telephone bills. Cellular telephone costs vary significantly from representative to representative and from month to month, complicating the budgeting and forecasting processes. Management has requested that the internal auditors develop a method for controlling these costs. Which of the following would most appropriately be included in the scope of the consulting project?

A. ontrol self-assessment involving sales representatives

B. enchmarking with other cellular telephone users

C. usiness process review of procurement and payables routines

D. erformance measurement and design of the budgeting and forecasting processes

View answer

Correct Answer: C

Question #85

Which one of the following is not a characteristic of an innovative manufacturing company?

A. mphasis on continuous improvement

B. esponsiveness to the changing manufacturing environment

C. mphasis on existing products

D. mproved customer satisfaction through product quality

View answer

Correct Answer: C

Question #86

The cost of goods sold under the specific identification method of inventory valuation is

A. S $1, :

B. S $1, '

C. S

D. S $1

View answer

Correct Answer: D

Question #87

A firm considering entry into a fragmented industry may be able to eliminate the factors preventing concentration in which ways?I). Recognizing that the industry is "stuck" for noneconomic reasons.II). Adding value to products that cannot be significantly differentiated.III). Specialization by customer type.IV). Acquisitions of local firms.

A. and II only

B. and IV only

C. I, III, and IV only

D. , II, Ill, and IV)

View answer

Correct Answer: B

Question #88

General Electric (GE) portfolio model for competitive analysis of strategic business units (SBUs) is presented in a matrix format. This matrix

A. as four quadrants

B. hows SBUs as circles directly proportional to their business strength

C. lassifies its cells into nine zones

D. lassifies each variable in one of three categories

View answer

Correct Answer: D

Question #89

A manager of one of a retailer's several retail outlets is stealing cash from cash sales, recording the sales as accounts receivable, and subsequently writing off the fictitious accounts receivable as bad debts. Which of the following comparisons would be most effective in signaling the possibility of such a fraud?

A. ad debt expense as a percentage of sales, compared to that of the other outlets

B. ad debt expense as a percentage of sales, compared to that of previous years

C. ercentage of past due accounts receivable, compared to that of the other outlets

D. ercentage of past due accounts receivable, compared to that of previous years

View answer

Correct Answer: A

Question #90

Inadequate risk assessment would have the strongest negative impact in which of the following phases of an audit engagement?

A. etermining the scope

B. eviewing internal controls

C. esting

D. valuating findings

View answer

Correct Answer: A

Question #91

Which of the following examples of audit evidence is the most persuasive?

A. eal estate deeds, which were properly recorded with a government agency

B. anceled checks written by the treasurer and returned from a bank

C. ime cards for employees, which are stored by a manager

D. endor invoices filed by the accounting department

View answer

Correct Answer: A

Question #92

An organization's external auditor has prepared a list of risks and issues and has recommended to senior management that the internal audit activity focus on these items. Senior management has forwarded the list to the chief audit executive (CAE). The CAE should

A. ncorporate the external auditor's requirements into the internal audit plan

B. gnore the external auditor's requirements because they are outside of the internal audit activity's planned scope of work

C. onsider the issues raised by the external auditor for possible inclusion in the planned scope of work

D. eport the risks and issues to the audit committee for possible future attention

View answer

Correct Answer: C

Question #93

All of the following statements regarding the responsibility for risk management in an organization are true except

A. isk management is ultimately the responsibility of the board

B. isk management is enhanced through periodic assessment by line management

C. isk management includes the acceptance of residual risk by executive management

D. isk management requires the involvement of the internal audit activity in order to be accepted by the board

View answer

Correct Answer: D

Question #94

Which of the following is not a cost of decentralization?

A. ysfunctional decision making owing to disagreements of managers regarding overall goals and sub goals of the individual decision makers

B. decreased understanding of the overall goals of the organization

C. ncreased costs for developing the information system

D. ncreased costs of corporate-level staff services and management talent

View answer

Correct Answer: D

Question #95

According to research on the international contingency model of leadership, which path- goal leadership style is most likely to be accepted around the world as culturally appropriate?

A. irective

B. articipative

C. upportive

D. chievement-oriented

View answer

Correct Answer: B

Question #96

During an audit of a manufacturing facility, an internal auditor noted violations of regulations related to the disposal of hazardous chemicals. The most appropriate action for the auditor to take would be to

A. ssue a written report to the committee that oversees regulatory compliance issues

B. mit the finding in the written audit report, but orally request that facility management change procedures to appropriately dispose of the chemicals

C. nonymously report the finding via the organization's compliance hot line

D. onsult with legal counsel regarding an appropriate course of action before reporting the finding

View answer

Correct Answer: D

Question #97

Which of the following methods of employee evaluation is best used when employees are heavily involved in teamwork?

A. 60-degree performance appraisal

B. ttribution method

C. ritical incident technique

D. ehaviorally anchored rating scales BARS)

View answer

Correct Answer: A

Question #98

Which one of the following items is not directly reflected in the basic economic order quantity EOQ) model?

A. nterest on invested capital

B. nventory obsolescence

C. ublic warehouse rental charges

D. uantity discounts lost on inventory purchases

View answer

Correct Answer: D

Question #99

As of week 8, the Gantt chart shows that the project is

A. omplete

B. head of schedule

C. n schedule

D. ehind schedule

View answer

Correct Answer: B

Question #100

The internal audit activity's role in the risk assessment and management processes of an organization is determined by the

A. oard of directors

B. hief audit executive

C. isk management department

D. xternal auditors

View answer

Correct Answer: A

Question #101

Which of the following would be the best example of a monitoring control for a chain of restaurants?

A. ach restaurant manager reconciles the cash received with the food orders recorded on the computer

B. ll food orders must be entered through the computer, and there is segregation of duties between the food servers and the cooks

C. orporate management prepares a detailed analysis of gross margin per restaurant and investigates those showing a significantly lower gross margin

D. roof of bank deposit is transmitted to corporate headquarters on a daily basis

View answer

Correct Answer: C

Question #102

The EOQ economic order quantity) model calculates the cost-minimizing quantity of a product to order, based an a constant annual demand, carrying costs per unit per annum, and cost per order. For example, the EOQ is approximately 447 units if the annual demand is 10, 000 units, carrying costs are US $1 per item per annum, and the cost of placing an order is US $10. What will the EOQ be if the demand falls to 5, 000 units per annum and the carrying and ordering costs remain at US $1 and US $10, respectively?

A. 16

B. 47

C. 83

D. 00

View answer

Correct Answer: A

Question #103

During an audit of a branch bank, an internal auditor learned that a series of system failures had resulted in a four day delay in processing customers' scheduled payroll direct deposits. The first failure was that of a disk drive, followed by software and other minor failures. Which of the following controls should the auditor recommend to avoid similar delays in processing?

A. ontingency planning

B. edundancy checks

C. rocess monitoring

D. reventive maintenance

View answer

Correct Answer: A

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