CIA Exam Free Sample Questions with Answers

Question #1

Which of the following factors is least essential to a successful control self assessment workshop?

A. oting technology

B. acilitation training

C. rior planning

D. roup dynamics

View answer

Correct Answer: A

Question #2

Dual reporting is most characteristic of which method of departmentation?

A. erritorial

B. unctional

C. roduct

D. atrix

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Correct Answer: D

Question #3

The primary purpose for the chief audit executive's communication of the internal audit activity's plans and resource requirements to senior management and the board is to

A. dentify internal audit engagement scope limitations

B. ndicate future internal audit staffing needs

C. ighlight the internal audit activity's view of significant risk areas

D. nsure that the work of the internal audit activity supports the organization's objectives

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Correct Answer: D

Question #4

Which of the following issues could be identified through observation without corroborative evidence?I). Indicators of security or safety violations.II). Significant production output differences during the previous year.III). A backlog indicated by large amounts of unprocessed paperwork.IV). Workflow procedures that are not logical and may unnecessarily add work to the process.

A. only

B. and III only

C. , III, and IV only

D. I, III, and IV only

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Correct Answer: B

Question #5

In order to save time, an audit manager no longer required that a standard internal control questionnaire be completed for each audit engagement. Does this represent a violation of the Standards?

A. es, because internal control should be evaluated on every engagement and the internal control questionnaire is the mandated approach to evaluate controls

B. es, because internal control should be evaluated on every engagement and the internal control questionnaire is the most efficient method to do so

C. o, because auditors may omit necessary procedures if there is a time constraint, based on audit judgment

D. o, because auditors are not required to complete internal control questionnaires on every engagement

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Correct Answer: D

Question #6

Which of the following is most likely to be a disadvantage of decentralization?

A. ower-level employees will develop less rapidly than in a centralized organization

B. op management will have less time available to devote to unique problems

C. ower-level managers may make conflicting decisions

D. ower-level managers may lose motivation

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Correct Answer: C

Question #7

Which of the following is an advantage of nonstatistical sampling over statistical sampling?

A. onstatistical sampling provides a measure of the sufficiency of the evidence gathered

B. onstatistical sampling provides a more defensible expression of the test results

C. onstatistical sampling is simple to use with software

D. onstatistical sampling allows the auditor to apply subjective judgment

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Correct Answer: D

Question #8

A manufacturer produces a quality product for which it charges a little more than some competing items but gives its consumers a more liberal warranty policy. The product carries a 5-year warranty that covers both labor and materials charges. Which of the following defines the appropriate method of accounting for the warranty?

A. ash basis

B. ecognition of a provision

C. ales warranty

D. ax basis

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Correct Answer: B

Question #9

A newly acquired plant asset is to be depreciated over its useful life. The rationale for this process is the

A. conomic entity assumption

B. onetary unit assumption

C. ateriality assumption

D. oing concern assumption

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Correct Answer: D

Question #10

When developing the annual audit plan and reviewing risk assessment priorities, a chief audit executive should always identify the

A. otential recommendations for each auditable activity

B. ersons to whom engagement reports will be communicated

C. ngagement procedures to be used during the engagements

D. nternal audit resources required to achieve the audit plan

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Correct Answer: D

Question #11

Which of the following risk assessment tools would best facilitate the matching of controls to risks?

A. ontrol matrix

B. nternal control questionnaire

C. ontrol flowchart

D. rogram evaluation and review technique (PERT) analysis

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Correct Answer: A

Question #12

Which of the following conclusions would be appropriate for a beginning auditor performing an audit of a payroll department?

A. mployee taxes have been deducted at the correct rates, and the taxes have been forwarded to the appropriate government agency

B. lthough there is insufficient segregation of duties, the impact is mitigated by compensating controls

C. he payroll computer system should be replaced

D. he payroll department staff has the appropriate level of skills

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Correct Answer: A

Question #13

Which of the follov5ring is used in determining the economic order quantity ECQ)?

A. egression analysis

B. alculus

C. arkov process

D. ueuing theory

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Correct Answer: B

Question #14

To promote a positive image within an organization, a chief audit executive (CAE) adjusted the audit plan to focus on assurance engagements that highlighted potential costs to be saved. Negative observations were to be omitted from engagement final communications. Which action taken by the CAE would be considered a violation of the Standards?I). The focus of the audit function was changed without modifying the audit charter or notifying the audit committee.II). Negative observations were omitted from the en

A. I only

B. and II only

C. and III only

D. , II, and III

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Correct Answer: B

Question #15

Using the internal audit department to coordinate regulatory examiners' efforts is beneficial to the organization because internal auditors can

A. nfluence regulatory interpretation of law to better match corporate practice

B. ecommend changes to the scope of the regulatory examiners' review

C. erform fieldwork for the regulatory examiners and thus shorten the regulatory examiners' review

D. upply evidence of adequate compliance testing through internal audit workpapers and reports

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Correct Answer: D

Question #16

Which line segment represents the length of time to consume the total quantity of materials ordered?

A. E

B. C

C. C

D. E

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Correct Answer: C

Question #17

Firm A mostly does business in markets in the southern part of the country. Firm B mostly does business in markets in the western part of the country. However, Firm A has recently moved to compete with Firm B in the western part of the country by introducing its existing products there. Accordingly, Firm B has entered Firm As primary markets. What kind of market signal did Firm B send?

A. cross-parry

B. bluff

C. n introduction of a fighting brand

D. direct response

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Correct Answer: A

Question #18

In regression analysis, which of the following correlation coefficients represents the strongest relationship between the independent and dependent variables?

A.

B.

C.

D.

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Correct Answer: C

Question #19

During a review of data center physical security and environmental controls, an auditor should ensure thatI). Visitors are accompanied by authorized personnel at all times II). Only developers and operators have access to the data center III). Fire suppression equipment is tested periodically IV). Fire and water detectors have been installed

A. and III only

B. I and IV only

C. , III, and IV only

D. I, III, and IV only

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Correct Answer: C

Question #20

An entity had 1.000 units of opening inventory that cost US $10 per unit On May 1. 1 .000 units were purchased at a cost of US $11 each. and on September 1 another 1.000 units were purchased at a cost of US $12 each. If 2.000 units were sold during the year. the company will report cost of goods sold of List A if the List B method of inventory valuation is used.

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: C

Question #21

In a declining industry with a favorable structure, a firm may have the ability to recover additional investment or to earn above-average returns in the remaining pockets of demand. Such a firm is most likely to follow a:

A. uick divestment strategy

B. arvest strategy or quick divestment strategy

C. eadership strategy or harvest strategy

D. eadership strategy or niche strategy

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Correct Answer: D

Question #22

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 #23

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

A. nternal auditing standards

B. he audit engagement team

C. he engagement client

D. he internal audit activity's charter

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Correct Answer: C

Question #24

In publicly held companies, management often requires the internal audit activity's involvement with quarterly financial statements that are made public and used internally. Which of the following is generally not a reason for such involvement?

A. anagement may be concerned about its reputation in the financial markets

B. anagement may be concerned about potential penalties that could occur if quarterly financial statements are misstated

C. he Standards state that internal auditors should be involved with reviewing quarterly financial statements

D. anagement may perceive that having quarterly financial information examined by the internal auditors enhances its value for internal decision making

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Correct Answer: C

Question #25

Which of the following are reasons to involve employees in the control self assessment process?I). Employees become more motivated to do their jobs correctly.II). Employees are objective about their jobs.III). Employees can provide an independent assessment of internal controls.IV). Employees provide management with valuable information.

A. and II only

B. and IV only

C. I and III only

D. II and IV only

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Correct Answer: B

Question #26

During the preliminary survey phase of an audit of the purchasing function, an auditor determines that the procurement policy requires either quotes or formal bids, depending on the amount of the purchase. Which procedure should be performed to determine if fieldwork for policy compliance is necessary?

A. evelop a five-year trend analysis of the purchasing department's expenses

B. etermine the volume of purchase orders processed for the audit period

C. etermine the volume of contracts awarded for the audit period

D. hart the purchases made for the audit period by type and dollar amount

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Correct Answer: D

Question #27

The three major factors favoring globalization are

A. ultural, commercial, and technical

B. lexibility, proximity, and adaptability

C. olitical, technological, and social

D. mbition, positioning, and organization

View answer

Correct Answer: C

Question #28

A plumbing company, a wholesale distributor, supplies plumbing contractors and retailers throughout the Northeast on a next-day delivery. basis. The company has a centrally located warehouse to accept receipts of plumbing supplies. The warehouse has a single dock to accept and unload railroad freight cars during the night. It takes 5 hours to unload each freight car. The company's prior records indicate that the number of freight cars that arrive in the course of a night range from zero to five or mare, wit

A. nteger programming

B. inear programming

C. onte Carlo simulation

D. egression analysis

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Correct Answer: C

Question #29

A team is a group whose members work together to achieve a specific common goal. Which of the following is true with respect to teams?

A. ll groups are teams, but not all teams are groups

B. eams improve organizational performance because teams are easy to form

C. team is similar to a group because team leadership often rotates and members are accountable to each other

D. maller teams are recommended

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Correct Answer: D

Question #30

Observation is most effective in addressing which of the following management assertions?

A. aluation

B. xistence

C. ompleteness

D. ccuracy

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Correct Answer: B

Question #31

An entity is subject to warranty claims. A reliable estimate is that between US $1 million and US $3 million will probably be paid out. No estimate of loss within this range is more likely than any other. The entity should

A. ake no journal entry at this time

B. isclose only a possible loss

C. efer a provision of US $1 million to US $3 million depending on the applicable national accounting standards

D. ecognize a provision of US $1 million to US $3 million depending on the applicable national accounting standards

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Correct Answer: D

Question #32

In developing an appropriate work program for an audit engagement, the most important factor for an audit supervisor to consider is the

A. vailability of records and data

B. otential impact of risks

C. apabilities of audit personnel

D. ime required to complete the engagement

View answer

Correct Answer: B

Question #33

In order to exercise due professional care as defined in the International Professional Practices Framework, an internal auditor shouldI). Consider the probability of significant noncompliance in each audit engagement.II). Perform assurance procedures with sufficient care to ensure that all risks are identified.III). Weigh the cost of assurance against the benefits.

A. and II only

B. and III only

C. I and III only

D. , II, and III

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Correct Answer: B

Question #34

Questions used to interrogate individuals suspected of fraud should

A. dhere to a predetermined order

B. over more than one subject or topic

C. ove from general to specific

D. irect the individual to a desired answer

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Correct Answer: C

Question #35

When an entity reports deferred tax assets and liabilities, deferred tax expense or income reflects

A. change in deferred tax assets

B. he changes in deferred tax assets and deferred tax liabilities

C. change in deferred tax liabilities

D. mount of the total tax liability

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Correct Answer: B

Question #36

Which of the following is an appropriate management strategy for supporting an organization's code of conduct?I). Offering training opportunities for all employees on ethics topics.II). Surveying employees, suppliers, and customers regarding compliance.III). Using case studies and examples of appropriate and inappropriate behaviors.IV). Establishing clear delineation of responsibilities throughout the organization.

A. I and IV only

B. , II, and III only

C. , III, and IV only

D. , II, III, and IV

View answer

Correct Answer: D

Question #37

The most common motivation for management fraud is the existence of

A. ices, such as a gambling habit

B. ob dissatisfaction

C. inancial pressures on the organization

D. he challenge of committing the perfect crime

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Correct Answer: C

Question #38

Which of the following is an example of an efficiency measure?

A. he rate of absenteeism

B. he goal of becoming a leading manufacturer

C. he number of insurance claims processed per day

D. he goal of increasing market share

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Correct Answer: C

Question #39

Which of the following activities would be performed during a benchmarking consulting engagement?I). Collect data relevant to the benchmarking process.II). Review all business processes.III). Define critical success factors.IV). Identify performance gaps.

A. and III only

B. I and IV only

C. , II, and III only

D. , III, and IV only

View answer

Correct Answer: D

Question #40

A code of ethics within the internal auditing profession is necessary in order to

A. educe the likelihood that members of the profession will be sued for substandard work

B. nsure that all members of the profession perform at approximately the same level of competence

C. rovide guidance to internal auditors in their service to others

D. equire members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization

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Correct Answer: C

Question #41

Which of the following is not an advantage of face to face interviews over mail surveys?

A. he response rate is typically higher

B. nterviewers can increase a respondent's comprehension of questions

C. urvey designers can use a wider variety of question types

D. hey are less expensive since mailing costs are avoided

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Correct Answer: D

Question #42

Which of the following characteristics do both informal and formal groups share?

A. oth groups are structured similarly

B. ommitment to both groups depends on the group's attractiveness and cohesiveness

C. embership in both groups is usually the same

D. oth groups exist within the community to perform a productive activity

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Correct Answer: B

Question #43

Which of the following is an example of sharing risk?

A. n organization redesigned a business process to change the risk pattern

B. n organization outsourced a portion of its services to a third-party service provider

C. n organization sold an unprofitable business unit to its competitor

D. n order to spread total risk, an organization used multiple vendors for critical materials

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Correct Answer: B

Question #44

The techniques used in analyzing the problem is best described as

A. imultaneously theory

B. ntegrated autogressive-moving average ARIMA) modeling

C. inear programming

D. ifferential calculus

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Correct Answer: A

Question #45

Which sampling plan requires no additional sampling once the first error is found?

A. tratified sampling

B. ttributes sampling

C. top or go sampling

D. iscovery sampling

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Correct Answer: D

Question #46

An investment portfolio manager has the authority to use financial derivatives to hedge transactions but is not supposed to take speculative positions. However, the manager launches a scheme which includes(1) taking a position larger than required by the hedge; (2) putting the speculative gains in a suspense account; and (3) transferring the funds to a nonexistent broker and from there to a personal account. Which of the following audit procedures would be least effective in detecting this fraud?

A. elect a sample of individual trades and examine to determine whether the trades violate the authorization limit for the manager

B. elect a sample of individual trades and determine the exact matching of the hedge

C. elect a sample of all debits to the suspense account and examine their disposition

D. elect a sample of fund transfers to brokers and determine if the brokers are on the authorized list for company transactions

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Correct Answer: A

Question #47

A global industry is one that:

A. ontains competitors that are multinationals

B. as secured a competitive advantage based on economies of scale in centralized production

C. as a strategic advantage by establishing coordinated competition in many national markets

D. as made large direct investments abroad

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Correct Answer: C

Question #48

Which of the following should an internal audit activity take into consideration when evaluating an organization's privacy framework?I). Types of information gathered by the organization.II). Methods used to collect and store information.III). Location and custody of key information.IV). Intended use of information that is collected and stored.

A. and III only

B. , II, and IV only

C. I, III, and IV only

D. , II, III, and IV

View answer

Correct Answer: D

Question #49

Which of the following is not required when ISO 9000 standards are adopted?

A. rganization of a quality management system

B. reation of an internal audit system

C. onsistent high quality products

D. n-site inspections by a registrar

View answer

Correct Answer: C

Question #50

An auditor selected a random sample of 100 items from a population of 2, 000 items. The total dollars in the sample were $10, 000, and the standard deviation was $10. If the achieved precision based on this sample was plus or minus $4, 000, the minimum acceptable value of the population would be

A. 196, 000

B. 199, 000

C. 199, 800

D. 204, 000

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Correct Answer: A

Question #51

The percentage of orders that are rush orders and the percentage of returns to total orders are examples of which of the following types of control activities?

A. uality control monitoring

B. irect functional management

C. enchmarking

D. erformance indicators

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Correct Answer: D

Question #52

Which of the following corporate travel policies is least likely to be cost-effective?

A. egotiating corporate agreements with hotels, airlines, and car rental firms

B. racking credits for canceled airline reservations

C. electing the least expensive airline travel available, without regard to total travel time and distance

D. raveling to facilities in tourist areas during the off-season when possible

View answer

Correct Answer: C

Question #53

As a result of a recent discovery of false information on employment applications, an internal auditor has reviewed hiring procedures. Which of the following represents a weakness in the control system?I). Applicants are not required to have their signed applications legally authenticated.II). Applicants' educational information is not validated with the educational institution before employment is offered.III). Information related to applicants' long term work history is not validated before employment is

A. II only

B. and II only

C. I and III only

D. , II, and III

View answer

Correct Answer: C

Question #54

Assessments of the independence of an organization's external auditors shouldI). Be carried out only when the external auditor is appointed.II). Be carried out when the external auditor is appointed and regularly thereafter.III). Not include any participation by the internal audit activity.IV). Include participation by the internal audit activity.

A. and III only

B. and IV only

C. I and III only

D. I and IV only

View answer

Correct Answer: D

Question #55

The time that car 4 will have to wait to be

A. -2 minutes

B. minutes

C. minutes

D. + minutes

View answer

Correct Answer: C

Question #56

Which of the following analysis techniques would be most useful to an internal auditor in determining the priority of adverse conditions to be addressed?

A. ishbone diagram

B. lowcharting

C. istogram

D. areto chart

View answer

Correct Answer: D

Question #57

Which of the following is not relevant when developing recommendations for inclusion in audit reports?

A. easibility

B. ost of implementation

C. nderlying causes

D. iming of followup

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Correct Answer: D

Question #58

What is the primary reason for having audit management approve audit engagement reports?

A. o ensure that client concerns are appropriately addressed

B. o confirm proper format, grammar, and punctuation

C. o verify that senior management supports the report's conclusions

D. o validate that report findings are substantiated

View answer

Correct Answer: D

Question #59

An internal auditor is discussing an audit problem with an engagement client. While listening to the client, the internal auditor should

A. repare a response to the client

B. ake mental notes on the speaker's nonverbal communication, as it is more important than what is being said

C. ake sure that all details, as well as the main ideas of the client, are remembered

D. ntegrate the incoming information from the client with information that is already known

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Correct Answer: D

Question #60

According to Michael E Porter, evolutionary processes involving both internal and external factors operate to move an industry from its initial structure to its potential structure. A likely structural effect of the major evolutionary processes is that:

A. xpansion of industry scale will discourage entry by large firms

B. ellers' industries tend to become less concentrated as customers' industries become more concentrated

C. earning by buyers who become more sophisticated increases product differentiation

D. iffusion of proprietary knowledge will tend to reduce entry barriers

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Correct Answer: D

Question #61

According to the International Professional Practices Framework, a review team must express an opinion on which of the following when performing an external assessment of an internal audit activity?I). Conformance with the Standards and Code of Ethics.II). Effectiveness of continuous improvement activities.III). Feedback from internal audit customers and other stakeholder groups.IV). Efficiency and effectiveness of the internal audit activity's administration processes.

A. only

B. II only

C. and II only

D. I and IV only

View answer

Correct Answer: A

Question #62

Which of the following is false regarding transformational leadership?

A. ransformational leadership emphasizes vision, development of the individual, empowerment of the worker, and the challenging of traditional assumptions

B. ransformational leaders use traditional thinking to monitor employees so that the employees adhere to standards

C. ransformational leaders have charisma and provide intellectual stimulation to the workers

D. ransformational leaders expect employees to achieve more than the employees thought was possible

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Correct Answer: B

Question #63

Which of the following statements about group decision making is most likely false?

A. here is a lack of responsibility for group decisions

B. roup decision making is almost always less efficient than individual decision making

C. he desire by individual members to be accepted by the group often restrains open disagreement

D. roup decision making tends to be less creative than individual decision making

View answer

Correct Answer: D

Question #64

Which of the following are acceptable resources for a chief audit executive to use when developing a staffing plan?I). Co-sourcing arrangements.II). Employees from other areas of the organization.III). The organization's external auditors.IV). The organization's audit committee members.

A. only

B. and II only

C. I and IV only

D. , II, and IV only

View answer

Correct Answer: B

Question #65

According to the Standards, results of the internal audit activity's internal and external quality program assessments must be communicated to the board or governing body in order to

A. rovide accountability and transparency in the management and supervision of internal audit work

B. nsure that action is taken by internal audit staff to correct all quality non- conformances in internal audit work

C. otivate internal audit staff to conform with all quality systems used in their internal audit work

D. emonstrate that all internal audit staff have been instructed in the importance of quality in internal audit work

View answer

Correct Answer: A

Question #66

In November of the current year, the vice-president of a local bank reviews the bank's mortgage portfolio prior to the December 31 year-end. The bank's largest client has mortgages on buildings in three cities. The client has incurred net losses for the past 3 years and is now experiencing serious cash flow problems. For the past 6 months, no payments have been made on any of the three mortgages. The vice-president reluctantly concludes that it is probable that the full amount of principal and interest will

A. o accounting or disclosure of a possible loss in value is necessary

B. ontingency note disclosure of a possible impairment is required

C. he carrying amount of the mortgages should be reduced, with a charge directly to retained earnings

D. he carrying amount of the mortgages should be reduced, with a charge to the income statement

View answer

Correct Answer: D

Question #67

Which of the following statements regarding virtual teams is false?

A. irtual teams may be able to work faster than a traditional team

B. n-person interaction and team-building exercises are unnecessary

C. oles and objectives must be clearly communicated

D. eam leaders should meet members in person before the members are chosen for participation in the group

View answer

Correct Answer: B

Question #68

What is the most important risk in determining the validity of construction delay claims?

A. ontractor claims may be submitted prior to completion of the work

B. ontractor claims may include costs considered in the fixed price portion of the work

C. ontractor claims may include subcontractor estimates of balances due to the subcontractor

D. ontractor claims may be understated

View answer

Correct Answer: B

Question #69

Which strategy in a global industry is most likely to be facilitated by a transnational coalition?

A. protected niche strategy

B. national focus strategy

C. national segment strategy

D. road line global competition

View answer

Correct Answer: D

Question #70

In which of the following organizational structures does total quality management TOM) work best?

A. ierarchal

B. eams of people from the same specialty

C. eams of people from different specialties

D. pecialists working individually

View answer

Correct Answer: C

Question #71

Each stockout of a product sold by Company I-: costs US $I, 750 per occurrence. The carrying cost per unit of inventory is US $5 per year, and the company orders 1, 500 units of product 24 times a year at a cost of US $100 per order. The probability of a stockout at various levels of safety stock isWhat is the optimal safety stock level for the company?

A. units

B. 00 units

C. 00 units

D. 00 units

View answer

Correct Answer: D

Question #72

The unit selling price of a new entity's product is US $10, 000_ The buyers are provided with a 2-year warranty that is expected to cost the entity US $250 per unit in the year of the sale and US $750 per unit in the year following the sale. The entity sold 80 units in the first year of operation and 100 units in the second year. Actual payments for warranty claims were US $10, 000 and US $65, 000 in years one and two, respectively. The amount charged to warranty expense during the second year of operation

A. S $25, 000

B. S $65, 000

C. S $85, 000

D. S $100, 000

View answer

Correct Answer: D

Question #73

At December 31, Year 2, an entity had the following obligations that were expected to be refinanced:The 17% note payable was issued on October 1, Year 1, and matures on July 1, Year 3. No loan agreement existing at the balance sheet date provides for refinancing. The 15% note payable was issued on May 1, Year 1. and matures on May 1, Year 3. On February 1, Year 3, the entire US $140, 000 balance of the 17% note payable was refinanced by issuance of a long-term debt instrument. On February 7, Year 3, the ent

A. S $0

B. S $140, 000

C. S $200, 000

D. S $340, 000

View answer

Correct Answer: A

Question #74

Which of the following techniques would be most effective in managing emotional issues that emerge during a control self assessment workshop?

A. llow the group to vent their emotions until they are ready to return to the agenda

B. cknowledge underlying emotions and then continue with the workshop

C. espectfully remind the group of the agenda that they agreed to pursue and continue with the workshop

D. acilitate the discussion so that the emotions can be channeled into appropriate action plans

View answer

Correct Answer: D

Question #75

When performing a followup review of an organization's billing function, which of the following would be appropriate?I). Consider followup measures performed by managers in the organization.II). Investigate payables problems that have emerged since completion of the audit.III). Assess the adequacy of corrective measures taken by management

A. and II only

B. and III only

C. I and III only

D. , II, and III

View answer

Correct Answer: B

Question #76

Centralization and decentralization are defined according to the relative delegation ofdecision-makingauthority by top management. Many managers believe that decentralized organizations have significant advantages over centralized organizations. A major advantage of a decentralized organization is that:

A. ecentralized organizations are easier to control

B. ecentralized structures streamline organizations and eliminate duplication of resources

C. ecentralized organizations have fewer managers than centralized organizations

D. ecentralized organizations encourage increased initiative among employees

View answer

Correct Answer: D

Question #77

A chief audit executive has noticed that staff auditors are presenting more oral reports to supplement written reports. The best reason for the increased use of oral reports is that they

A. educe the amount of testing required to support audit findings

B. an be delivered in an informal manner without preparation

C. an be prepared using a flexible format and reduce the information included in the written report

D. ermit auditors to counter arguments and provide additional information that the audience may require

View answer

Correct Answer: D

Question #78

Managerial performance may be measured in many ways. For example, an internal nonfinancial measure is

A. arket share

B. elivery performance

C. ustomer satisfaction

D. anufacturing lead time

View answer

Correct Answer: D

Question #79

The US dollar amount of the costs of quality classified as preventive costs for the manufacturing firm would be

A. S $643, 000

B. S $701, 000

C. S $736, 000

D. S $768, 000

View answer

Correct Answer: B

Question #80

Which of the following would provide the best audit evidence regarding the effectiveness of an applied research department?

A. evelop a cost per product analysis for products developed over the past five years

B. evelop a report on revenue generated by or cost savings directly attributable to newly developed products

C. ompare research as a percentage of revenue between this company and all major competitors in the same industry

D. ompare the number of this year's new product developments to the number of new product developments for the past five years

View answer

Correct Answer: B

Question #81

A bank has changed from a system in which lines are formed in front of each teller - to a one- line, multiple-server system. When a teller is free, the person at the head of the line goes to that teller. Implementing the new system will

A. ecrease the bank's wage expenses because the new system uses fewer tellers

B. ecrease time customers spend in the line

C. ncrease accuracy in teller reconciliations at the end of the day because fewer customers are served by each teller

D. mprove on-the-job training for tellers because each will perform different duties

View answer

Correct Answer: B

Question #82

Which of the following statements about a finance lease is false?

A. he lessor capitalizes the net investment in the lease

B. he lessor records the leased item as an asset

C. he lessee records depreciation or finance cost allowance on the leased asset

D. he lease arrangement represents a form of financing

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Correct Answer: B

Question #83

A firm that sells in foreign markets should consider all aspects of how products move from the firm to ultimate users. Where in the whole channel are marketing mix decisions most likely made?

A. xport department of the seller firm

B. mport department of the buyer firm

C. hannels within nations

D. hannels between nations

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Correct Answer: A

Question #84

A firm wishing to sell its well-known brand of men's clothing in a certain foreign country redesigned the products because of the greater average size of consumers in that country. However, the firm retained the same basic advertising campaign. According to Keegan's model of adaptation strategies, this firm has adopted a strategy of

A. traight extension

B. roduct adaptation

C. orward invention

D. ackward invention

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Correct Answer: B

Question #85

A major corporation is considering significant organizational changes. Which of the following groups would not be responsible for implementing these changes?

A. mployees

B. enior management

C. ommon stockholders

D. utside consultants

View answer

Correct Answer: C

Question #86

Groupthink is defined as:

A. he tendency to conform and ignore relevant individual Input that is at variance with the majority opinion

B. he guidance of groups based upon self-set standards of performance and behavior

C. he members of a group developing a solution to a problem after all the relevant information has been considered

D. way of brainstorming ideas to address an issue presented to a group by management

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Correct Answer: A

Question #87

An employer sponsors a defined postemployment benefit plan. If the given amount of the present value el the defined benefit obligation exceeds the given amount of the fair value of plan assets, the defined benefit liability to be recognized in the balance sheet is greatest when the employer has

A. et unrecognized actuarial gains and no past service cost

B. et unrecognized actuarial losses and no past service cost

C. et unrecognized actuarial losses and unrecognized past service cost

D. o unrecognized actuarial gains or losses and unrecognized past service cost

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Correct Answer: A

Question #88

A chief audit executive (CAE) suspects that several employees have used desktop computers for personal gain. In conducting an investigation, the primary reason that the CAE would choose to engage a forensic information systems auditor rather than using the organization's information systems auditor is that a forensic information systems auditor would possess

A. nowledge of the computing system that would enable a more comprehensive assessment of the computer use and abuse

B. nowledge of what constitutes evidence acceptable in a court of law

C. uperior analytical skills that would facilitate the identification of computer abuse

D. uperior documentation and organization skills that would facilitate in the presentation of findings to senior management and the board

View answer

Correct Answer: B

Question #89

What is a primary reason for planning?

A. eacting to employee needs

B. nvironmental uncertainty

C. eacting to competition

D. rganizational policy

View answer

Correct Answer: B

Question #90

Based on its current operating levels. Glucose LLC estimates that its annual level of taxable profit in the foreseeable future will be US $200, 000 annually_ Enacted tax rates for the tax jurisdiction in which Glucose operates are 15% for the first US $50.000 of taxable profit. 25% for the next US $50.000 of taxable profit, and 35% for taxable profit in excess of US $100, 000. Which tax rate should Glucose use to measure a deferred tax liability or asset?

A. 5%

B. 5%

C. 7

D. 51

View answer

Correct Answer: C

Question #91

Which of the following is a characteristic of a mechanistic organization?

A. nowledge by employees tends to be task-specific

B. elf-control is preferred to hierarchical control

C. uperiors usually have an informational and advisory role

D. ommunication is horizontal

View answer

Correct Answer: A

Question #92

Compared with another bond with the same risk and maturity but without a conversion feature, a convertible bond has a

A. igher face amount

B. ower face amount

C. igher coupon rate

D. ower coupon rate

View answer

Correct Answer: D

Question #93

If a lease agreement transfers substantially all of the risks and rewards of ownership to the lessee, the asset amount is recognized on the lessee's records as a(n)

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: A

Question #94

Which of the following would increase understanding of a complex and ambiguous situation confronted by an organization?I). Brainstorming.II). Polling.III). Lateral thinking.

A. only

B. and Ill only

C. I and Ill only

D. , II, and Ill

View answer

Correct Answer: B

Question #95

Which of the following factors should be considered in determining the timing, nature, and extent of followup procedures?I). The significance of the audit observation.II). The time, effort, and cost needed to correct the reported condition.III). The complexity of the corrective action.IV). The potential consequences if the corrective action fails.

A. and IV only

B. I and III only

C. , II, and III only

D. , II, III, and IV

View answer

Correct Answer: D

Question #96

An organization automatically compares the total number of transactions processed and passed from its online order-entry system to the number of transactions received in its billing system and calculates variances. This is an example of which of the following information technology controls?

A. ogic test

B. heck digits

C. ata reasonableness tests

D. alancing control activities

View answer

Correct Answer: D

Question #97

An objective of financial reporting is

A. roviding information useful to investors, creditors, donors, and other users for decision making

B. ssessing the adequacy of internal control

C. valuating management results compared with standards

D. roviding information on compliance with established procedures

View answer

Correct Answer: A

Question #98

Which of the following potential performance measures should an auditor recommend excluding from a performance scorecard?

A. umber of employees

B. arket share

C. umber of customer complaints

D. raining dollars per employee

View answer

Correct Answer: A

Question #99

When uncertainty about an industry's future is greatest and other markets for the firm's assets are favorable, it should most likely follow a:

A. arvest strategy

B. uick divestment strategy

C. eadership strategy

D. iche strategy

View answer

Correct Answer: B

Question #100

A competitive marketing strategy in which a firm specializes in serving customers overlooked or ignored by major competitors is called a

A. arket leader strategy

B. arket challenger strategy

C. ' Market follower strategy

D. arket niche strategy

View answer

Correct Answer: D

Question #101

A building contractor has a fixed-price contract to construct a large building. It is estimated that the building will take 2 years to complete. Progress billings will be sent to the customer at quarterly intervals. Which of the following describes the preferable point for revenue recognition for this contract if the outcome of the contract can be estimated reliably?

A. fter the contract is signed

B. s progress is made toward completion of the contract

C. s cash is received

D. hen the contract is completed

View answer

Correct Answer: B

Question #102

A company has recently implemented an electronic commerce system for purchasing and billing, which relies heavily on electronic data interchange, electronic funds transfer, and just in time manufacturing technology. If the system was properly implemented, an auditor would expect to see all of the following changes except

A. ower accounts receivable balances

B. ower accounts payable balances

C. ncreased cash flow and treasury balances

D. ncreased inventory balances

View answer

Correct Answer: D

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