CIA Exam Questions Part 1, Free Certified Internal Auditor Practice Questions

Question #1

Total quality management in a manufacturing environment is best exemplified by

A. dentifying and reworking production defects before sale

B. esigning the product to minimize defects

C. erforming inspections to isolate defects as early as possible

D. aking machine adjustments periodically to reduce defects

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Correct Answer: B

Question #2

Under a total quality management TOM) approach,

A. easurement occurs throughout the process, and errors are caught and corrected at the source

B. uality control is performed by highly trained inspectors at the end of the production process

C. pper management assumes the primary responsibility for the quality of the products and services

D. large number of suppliers are used in order to obtain the lowest possible prices

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Correct Answer: A

Question #3

Increasing the desired precision from $1, 000 to $2, 000 would have what effect on the required size of a sample?

A. t would increase the sample size

B. t would decrease the sample size

C. t would have no effect on the sample size

D. he effect on the sample size is not determinable

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Correct Answer: B

Question #4

When conducting research, which of the following is most important?

A. sing computer databases or the Internet to find all relevant sources

B. roviding documentation of the reference sources

C. resenting only those facts that support the conclusion

D. resenting all contrary views to balance the opinion

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Correct Answer: B

Question #5

In order to reduce the costs of processing and paying for small purchases, an organization issued credit cards for use by selected employees to purchase small amounts of expendable goods and services. An internal auditor tested controls over the use of the credit cards and documented the findings in the audit observation. Which of the following statements represents the cause of the audit observation?

A. our of the 30 tested transactions appeared to represent a single purchase of a personal computer, which in total exceeded $1, 950

B. ompany policy limits card use to $500 per transaction

C. n interview with the card provider's customer representative indicated that an automated control feature designed to identify and report on split purchase transactions had not been activated for the organization's credit card system

D. he personal computer purchased via the split purchase was not placed into the organization's capital equipment management system because it had not been acquired through the regular capital asset purchasing system

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Correct Answer: C

Question #6

Regarding an organization's decision to retain an external audit firm, the chief audit executive (CAE) should

A. ork with the organization's chief financial officer to evaluate the external auditor's performance and together make the decision

B. ot be involved in this decision process as it would compromise the CAE's objectivity

C. valuate the external auditor's performance and retain the external auditor if quality and cost criteria are met

D. ssist the audit committee by facilitating the development of an appropriate evaluation process

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Correct Answer: D

Question #7

The value of retaining employees is determined by

A. uman asset accounting

B. inancial accounting

C. ost accounting

D. uman resource planning

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Correct Answer: A

Question #8

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 #9

All of the following would normally be involved in preparing for and carrying out the internal audit activity's annual plan except

A. stablishing policies and procedures for workpapers and referencing

B. roviding periodic activity reports to the audit committee on audit engagements in progress

C. ssessing the amount of risk in major departments

D. raining audit staff on appropriate audit methodologies for addressing any newly identified risks

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Correct Answer: A

Question #10

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 #11

An audit of a company's accounts payable found that the individuals responsible for maintaining the vendor master file could also enter vendor invoices into the accounts payable system. During the exit conference, management agreed to correct this problem. When performing a follow-up engagement of accounts payable, the auditor should expect to find that management has

A. ransferred the individuals who maintained the vendor master file to another department to ensure that responsibilities are appropriately segregated

B. ompared the vendor and employee master files to determine if any unauthorized vendors have been added to the vendor master file

C. hanged the access control system to prevent employees from both entering invoices and approving payments

D. odified the accounts payable system to prevent individuals who maintain the vendor master file from entering invoices

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Correct Answer: D

Question #12

The cost of scrap, rework, and tooling changes in a product quality cost system is categorized as a n)

A. raining cost

B. xternal failure cost

C. nternal failure cost

D. revention cost

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Correct Answer: C

Question #13

Which statement best describes total quality management TOM)?

A. OM emphasizes reducing the cast of inspection

B. OM emphasizes better statistical quality control techniques

C. OM emphasizes doing each job right the first time

D. OM emphasizes encouraging crass-functional teamwork

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Correct Answer: C

Question #14

The purpose of an entry that contains a debit to prepaid property taxes and a credit to property tax expense is to recognize a(n)

A. repaid expense

B. ccrued expense

C. repaid income

D. xpired cost

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Correct Answer: A

Question #15

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

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

B. articipate in negotiations for a corporate acquisition

C. ssess financing alternatives for a new generator

D. erform an evaluation of management's planning process

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Correct Answer: C

Question #16

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

A. S $110, 000

B. S $100, 000

C. S $72

D. S $90

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Correct Answer: A

Question #17

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 #18

Which of the following is an appropriate role for the board in governance?

A. reparing written organizational policies that relate to compliance with laws, regulations, ethics, and conflicts of interest

B. nsuring that financial statements are understandable, transparent, and reliable

C. ssisting the internal audit activity in performing annual reviews of governance

D. orking with the organization's attorneys to develop a strategy regarding current litigation, pending litigation, or regulatory proceedings governance

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Correct Answer: B

Question #19

Responsibility for the coordination of internal audit and external audit efforts should be documented in the

A. ngagement work schedule

B. nternal audit charter

C. nternal assessment report

D. nternal audit activity's strategic plan

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Correct Answer: B

Question #20

The four categories of costs associated with product quality costs are

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

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

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

D. arranty, product liability, training, and appraisal

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Correct Answer: B

Question #21

During an information security audit, an auditor discovers that the current disaster recovery plan was developed three years ago but never tested. There have been significant changes to information systems since the plan was developed. The auditor should

A. sk management to test the recovery plan immediately

B. ecommend that management and users update and test the recovery plan

C. pdate the recovery plan for management as part of the review

D. eview the recovery plan and report weaknesses to management

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Correct Answer: B

Question #22

Which of the following is true with respect to the risk assessment process?

A. he ethical climate should not be included since this factor cannot be measured quantitatively

B. ore than one risk factor may have to be used to ensure that the risk assessment is comprehensive

C. ach risk factor should be given equal weighting in order to reduce the opportunity for bias

D. he risk assessment process should be conducted at least every three years

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Correct Answer: B

Question #23

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

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

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

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

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

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Correct Answer: A

Question #24

During the past few gears, Wilder Company has experienced the following average number of power outages:Each power outage results in out-of-pocket costs of U $300. For U $1, 000 per month, At US $800 can lease generator to provide power during outages. If Wilder leases a generator in the coming year, the estimated savings or additional expense) for the year will be

A. $ 15, 200)

B. S $ 1, 267)

C. $3, 200

D. $7, 200

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Correct Answer: C

Question #25

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

A. y-product pricing

B. ptional-product pricing

C. aptive-product pricing

D. roduct-bundle pricing

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Correct Answer: A

Question #26

An enterprise decided to sell a separate major line of its business. The assets were sold for US $100, 000 and had a net carrying amount US $70, 000. The applicable tax rate was 20%. The result of this transaction may appear on the

A. alance sheet as a fundamental error

B. ncome statement as an extraordinary item

C. ncome statement as a single amount for a discontinued operation

D. ncome statement as a change in accounting policy

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Correct Answer: C

Question #27

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

A. xpensive sales promotion

B. igh competition

C. mass market

D. vailable alternatives

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Correct Answer: A

Question #28

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

A. isk assessment

B. alue-at-risk technique

C. alue-for-money approach

D. ontrol standards

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Correct Answer: A

Question #29

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 #30

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

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Correct Answer: C

Question #31

An internal auditor is assigned to conduct an audit of security for a local area network (LAN) in the finance department of the organization. Investment decisions, including the use of hedging strategies and financial derivatives, use data and financial models which run on the LAN. The LAN is also used to download data from the mainframe to assist in decisions. Which of the following should be considered outside the scope of this security audit engagement?

A. nvestigation of the physical security over access to the components of the LAN

B. he ability of the LAN application to identify data items at the field or record level and implement user access security at that level

C. nterviews with users to determine their assessment of the level of security in the system and the vulnerability of the system to compromise

D. he level of security of other LANs in the company which also utilize sensitive data

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Correct Answer: D

Question #32

Which of the following lists the audit activities in the order in which they would generally be completed during a preliminary survey?I). Write detailed audit procedures.II). Identify client objectives, goals, and standards.III). Identify risks and controls intended to prevent associated losses.IV). Determine relevant engagement objectives.

A. I, I, IV, III

B. I, III, IV, I

C. II, IV, II, I

D. I, IV, I, III

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Correct Answer: B

Question #33

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 #34

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 #35

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

A. y-product pricing

B. ptional product pricing

C. aptive product pricing

D. roduct bundle pricing

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Correct Answer: C

Question #36

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

A. bolish its hire-from-within policy

B. mprove its fringe benefit package

C. nitiate job simplification programs

D. et a mandatory retirement age

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Correct Answer: B

Question #37

A company allows each of its departments to develop its own system for evaluating performance. How should the personnel director communicate appraisal information to a new employee?

A. resenting anything that is pertinent to the listener's situation

B. roviding an overview of all systems within the company

C. escribing how her own performance is evaluated

D. iscussing each department's evaluation system in detail

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Correct Answer: A

Question #38

A shortest-route algorithm is used in network models to

A. dentify bottlenecks in a network and hence identify the longest path

B. inimize total travel time from one site to each of the other sites in a transportation system

C. aximize throughput in networks with distinct entry source node) and exit sink node) points

D. dentify the set of connecting branches having the shortest combined length

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Correct Answer: B

Question #39

Which of the following situations allows for the most objectivity on the part of an internal auditor?

A. ssessing testing procedures in a new computer system

B. erforming a risk assessment of a new financial instrument

C. rawing conclusions from a sample of financial transactions

D. omparing current environmental activities against legislation

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Correct Answer: D

Question #40

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

A. S $145, 000

B. S $165, 000

C. S $175, 000

D. S $185, 000

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Correct Answer: D

Question #41

One method for dealing with the uncertainty of demand forecasts used in linear programming is to extend the model solution to include

A. ensitivity analysis

B. oal seeking

C. ranch and bound solutions

D. onlinear programming

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Correct Answer: A

Question #42

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 #43

Which of the following statements regarding the review of workpapers is correct?

A. ngagement workpapers should be approved by the client after completion

B. orkpapers that pertain to legal issues should be reviewed to ensure that all audit opinions and details are recorded

C. orkpaper review notes should be retained for all engagements

D. orkpapers should be initialed and dated by the reviewer as evidence of supervisory review

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Correct Answer: D

Question #44

A traditional quality control process in manufacturing consists of mass inspection of goods only at the end of a production process. A major deficiency of the traditional control process is that

A. t is expensive to do the inspections at the end of the process

B. t is not possible to rework defective items

C. t is not 100% effective

D. t does not focus on improving the entire production process

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Correct Answer: D

Question #45

Using the information collected, the organization should focus on

A. he total number of personal computer complaints that occurred

B. he number of computer complaints associated with CD-ROM problems and new software usage

C. he number of computer complaints associated with the lack of user knowledge and hardware problems

D. he cost to alleviate all computer complaints

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Correct Answer: C

Question #46

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 #47

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

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

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

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

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

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Correct Answer: B

Question #48

How will profit or loss be affected by the amortization of a premium on bonds payable?

A. nterest expense is decreased, so profit or loss is increased

B. nterest expense is increased, so profit or loss is decreased

C. nterest income is increased, so profit or loss is increased

D. nterest income is decreased, so profit or loss is decreased

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Correct Answer: A

Question #49

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

A. roduct-bundle pricing

B. y-product pricing

C. alue pricing

D. ollusive pricing

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Correct Answer: A

Question #50

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 #51

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

A. low growth or unusually low profitability

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

C. ubstantial increase in receivables turnover

D. ignificant transactions with related parties

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Correct Answer: D

Question #52

If cost estimates in an economic order quantity (EOQ) model are varied to determine how much the changes affect the optimal EOQ, such analysis would be called a

A. orecasting model

B. ensitivity analysis

C. ritical path analysis

D. ecision analysis

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Correct Answer: B

Question #53

An entity is depreciating an asset with a 5-year useful life. It cost US $100, 000 and has no residual value. If the -List A - method is used, depreciation in the second year will be - List B>

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #54

A firm is attempting to estimate the reserves for doubtful accounts. The probabilities of these doubtful accounts follow a transition process over time. They evolve from their starting value to a changed value. As such, the most effective technique to analyze the problem is

A. arkov chain analysis

B. conometric theory

C. onte Carlo analysis

D. ynamic programming

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Correct Answer: A

Question #55

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 #56

Which of the following actions taken by management would most likely improve an organization's moral climate?

A. aking changes in organizational policies

B. romoting changes in employee attitudes

C. valuating the organization's moral climate

D. odeling appropriate behavior in the workplace

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Correct Answer: D

Question #57

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

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

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

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

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

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Correct Answer: C

Question #58

Which of the following is an objective of internal control?

A. econciliation

B. ccuracy

C. egregation of duties

D. uthorization

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Correct Answer: B

Question #59

Plantation should treat Lease B as a(n)

A. inance lease with an initial asset amount of US $10, 960

B. inance lease with an initial asset value of US $10, 200

C. perating lease

D. inance lease with an initial asset value of US $9, 590

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Correct Answer: D

Question #60

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 #61

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

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Correct Answer: D

Question #62

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

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Correct Answer: D

Question #63

In forming a team to investigate an organization's potential adoption of an activity based costing system, the best reason to include an internal auditor on the team would be the auditor's knowledge of

A. ctivities and cost drivers

B. nformation processing procedures

C. urrent product cost structures

D. nternal control alternatives

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Correct Answer: D

Question #64

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

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

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

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

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

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Correct Answer: B

Question #65

One of the main reasons total quality management TOM) can be used as a strategic weapon is that

A. he cumulative improvement from a company's 'QM efforts cannot readily be copied by competitors

B. ntroducing new products can lure customers away from competitors

C. educed costs associated with better quality can support higher shareholder dividends

D. QM provides a comprehensive planning process for a business

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Correct Answer: A

Question #66

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

A. only

B. I only

C. , II, and III

D. one of the above

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Correct Answer: D

Question #67

An entity has been sued for US $100 million for producing and selling an unsafe product. Attorneys for the entity cannot reliably predict the outcome of the litigation. In its financial statements, the entity should

A. ake the following journal entry, and disclose the existence of the lawsuit in a note

B. isclose the existence of the lawsuit in a note without making a journal entry

C. either make a journal entry nor disclose the lawsuits in a note because bad publicity will hurt the entity

D. ake the following journal entry, and disclose the existence of the lawsuit in a note

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Correct Answer: B

Question #68

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 #69

What is the number of production runs per year of computer chairs that would minimize the sum of carrying and setup costs for the coming year?

A.

B.

C.

D.

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Correct Answer: D

Question #70

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

A. ecision analysis

B. imulation

C. ensitivity analysis

D. ariance analysis

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Correct Answer: C

Question #71

Setting the introductory price of a new product relatively high is

A. arket-based pricing

B. rice skimming

C. enetration pricing

D. ricing by intermediaries

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Correct Answer: B

Question #72

Which of the following would not be characteristic of control self assessment implemented by an audit department?

A. n auditor usually facilitates the discussion during the workshop phase while another records comments for subsequent use

B. uditors and business unit employees work as a team

C. uditors perform traditional audit tests to identify control weaknesses

D. articipants discuss the control weaknesses that hinder the achievement of objectives

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Correct Answer: C

Question #73

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 #74

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

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Correct Answer: D

Question #75

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

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

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

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

D. andate the workpaper retention period

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Correct Answer: A

Question #76

If a department outside of the internal audit activity is responsible for reviewing a function or process, the internal auditors should

A. onsider the work of the other department when assessing the function or process

B. ot consider the work of the other department and proceed with an independent audit

C. educe the scope of any audit of the function or process because a review has already been performed by the other department

D. elegate the responsibility for assessing the function or process to the other department

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Correct Answer: A

Question #77

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

A. imulation

B. east squares

C. ueuing theory

D. xponential smoothing

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Correct Answer: A

Question #78

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

A. conomy of controls

B. ompliance with controls

C. dequacy of controls

D. fficiency of controls

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Correct Answer: C

Question #79

The costs of quality that are incurred in detecting units of product that do not conform to product specifications are referred to as

A. revention costs

B. ppraisal costs

C. ework costs

D. ailure costs

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Correct Answer: B

Question #80

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

A. ake a proactive role that supplements traditional assurance activities

B. dentify and mitigate risks to the organization

C. ssume responsibility for the management of identified risks

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

View answer

Correct Answer: A

Question #81

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

View answer

Correct Answer: A

Question #82

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

A. -2 minutes

B. minutes

C. minutes

D. + minutes

View answer

Correct Answer: C

Question #83

The most important component of quality control is

A. nsuring goods and services conform to the design specifications

B. atisfying upper management

C. onforming with ISO-9000 specifications

D. etermining the appropriate timing of inspections

View answer

Correct Answer: A

Question #84

Once an audit report is drafted, the auditor's supervisor should review it primarily to ensure that all

A. tatements are supported and can be authenticated

B. ecommendations for corrective action are clear

C. rocesses within the audited area were reviewed

D. ample sizes appear appropriate for any issues found

View answer

Correct Answer: A

Question #85

An entity allows customers to redeem 20 coupons for a toycost US $3.00). Estimates are that 40% of coupons distributed will result in redemption. Since beginning the promotion this year, 4 million coupons were distributed and 1 million coupons redeemed. The adjusting entry to accrue for unredeemed coupons at year-end is

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: A

Question #86

During an interview with a manager in a company's claims department, an auditor noted that the manager became nervous and changed the subject whenever the auditor raised questions about certain types of claims. The manager's answers were consistent with company policies and procedures. When documenting the interview, the auditor should

A. ocument the manager's answers, noting the nature of the nonverbal communication

B. ocument the manager's answers but not the nonverbal communication because it is subjective and is not corroborated

C. onclude that the nonverbal communication is persuasive and that sufficient evidence exists to begin a fraud investigation

D. isregard the interview entirely because the verbal and nonverbal communications were contradictory

View answer

Correct Answer: A

Question #87

To assure that the technical proficiency of internal auditors is appropriate for the audit engagements to be performed, a chief audit executive should

A. onsider the scope of work and level of responsibility when establishing criteria for education and experience in filling internal auditing positions

B. nsure that each newly hired auditor is qualified in all of the disciplines needed to accomplish the department's audit mission

C. versee a training program that matches the actual training provided with the interests of individual auditors

D. equire all of the audit staff to pursue a minimum number of Continuing Professional Education hours each year

View answer

Correct Answer: A

Question #88

The chief audit executive (CAE) has assigned an internal auditor to an upcoming engagement. Whichof the following requirements would most likely indicate that the internal auditor was assigned to anassurance engagement?

A. he assigned internal auditor must determine the objectives, scope, and techniques of the engagement

B. he CAE must personally obtain the needed skills, knowledge, or other competencies if the internal auditor does not have them

C. he assigned internal auditor must not assume management responsibilities while performing the engagement

D. he assigned internal auditor must maintain objectivity while performing the engagement

View answer

Correct Answer: A

Question #89

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

A. and II only

B. and III only

C. I and III only

D. , II, and III

View answer

Correct Answer: B

Question #90

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

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

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

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

D. educe costs by identifying opportunities to improve efficiencies

View answer

Correct Answer: C

Question #91

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

A. xclude all such obligations from the current liabilities classification

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

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

View answer

Correct Answer: B

Question #92

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

View answer

Correct Answer: D

Question #93

Prices vary directly with capacity usage under

A. ollusive pricing

B. eak-load pricing

C. arket-based pricing

D. ost-based pricing

View answer

Correct Answer: B

Question #94

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

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #95

When the internal audit activity lacks the expertise to perform a specific engagement, the chief audit executive (CAE) should

A. egotiate with management to remove from the scope any portion of the audit that the staff is unable to perform

B. se external resources with sufficient expertise to accomplish the engagement

C. ostpone the engagement until the CAE can hire a new internal auditor with the relevant skills

D. ontinue with the engagement but rely on management's self-assessment in the areas where the audit staff lacks expertise

View answer

Correct Answer: B

Question #96

The expected payoff if the vendor has perfect information is

A. S $3, 900

B. S $2, 200

C. S $1, 360

D. S $1, 960

View answer

Correct Answer: B

Question #97

According to the International Professional Practices Framework, the most complete definition of controls is

A. rocesses and procedures that are designed to ensure that all transactions are properly authorized and accounted for

B. olicies and practices designed to ensure that assets are properly protected and that operating and financial records have integrity

C. ctions taken by management to manage risk and increase the likelihood that established objectives and goals will be met

D. management-designed accounting system and related procedures

View answer

Correct Answer: C

Question #98

A trucking company contracted a third party to construct a new vehicle maintenance facility. One of the trucking company's auditors was assigned to look for contractor overcharges. After reviewing the contract, the auditor recommended that an audit of the construction contract not be performed. What is the most likely reason for the auditor's recommendation?

A. he contract did not include a right to audit clause

B. he contractor was engaged on a fixed price basis

C. he contractor's billing system included comprehensive edit routines to detect overbilling

D. he trucking company's accounts payable system compared amounts billed with contract terms to detect potential overcharges

View answer

Correct Answer: B

Question #99

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 #100

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

A. hief audit executive

B. nternal auditor

C. rganization

D. udit committee

View answer

Correct Answer: C

Question #101

Which of the following best describes the internal audit activity's role in supporting the board in enterprise-wide risk assessment?

A. nsure that sound risk management processes are in place and functioning

B. versee risk management processes to determine if they are adequate and effective

C. xamine, evaluate, report on, and recommend improvements on the adequacy and effectiveness of risk processes

D. mplement risk management methodologies and controls to address risks identified

View answer

Correct Answer: C

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