CIA Part 1 Exam Free Sample Questions with Answers

Question #1

Which of the following observations concerning quality control is most accurate?

A. rocess quality control is used when examining the quality of goads or services that already exist

B. rocess quality control is used to prevent defects, and product quality control is used primarily to identify defects after the fact

C. roduct quality control is designed to balance the marketability of higher quality against the cast of attaining higher quality

D. roduct quality control is more important than process quality control

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Correct Answer: B

Question #2

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

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

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

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

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

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Correct Answer: B

Question #3

The economic order quantity. Q. is the size of the order that minimizes total inventory costs. These costs, which are composed of ordering and holding costs, can be computed using the following expression:If the organization decides to order 4.000 units at a time rather than 2.000 units. by hour much will its total inventory costs change?

A. S $500 increase

B. S $1

C. S $1 , 000 decrease

D. S $900 increase

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Correct Answer: A

Question #4

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

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

B. emoval of the employee names to protect their confidentiality

C. ustification for the sample size

D. isting of the actual documents examined for each employee

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Correct Answer: C

Question #5

The enterprise uses straight-line depreciation for financial reporting purposes, but uses accelerated depreciation for tax purposes. Which of the following account balances would be lower in the financial statements used for tax purposes than it would be in the general purpose financial statements?

A. ccumulated depreciation

B. ash

C. etained earnings

D. ross property, plant, and equipment

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Correct Answer: C

Question #6

Which statement is not true regarding the performance management process?

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

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

C. erformance management is linked to competence and knowledge management

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

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Correct Answer: A

Question #7

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

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

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

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

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

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Correct Answer: C

Question #8

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 #9

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

A. only

B. and II only

C. I and III only

D. I, III, and IV only

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Correct Answer: B

Question #10

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

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Correct Answer: D

Question #11

Which of the following is not an appropriate control related to sales in a manufacturing company?

A. ustomers' orders are recorded promptly

B. oods shipped are matched with valid customer orders

C. oods returned are inspected for damage by the sales department and then entered into inventory

D. redit department approval is required for credit sales transactions

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Correct Answer: C

Question #12

A decrease in inventory order costs will

A. ecrease the economic order quantity

B. ncrease the reorder point

C. ncrease the economic order quantity

D. ecrease the holding cost percentage

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Correct Answer: A

Question #13

The halo effect may diminish the accuracy of the evaluation of employees. Which of the following is an example?

A. manager rates some employees as very good and some as very poor

B. manager's judgment of one positive trait affects his/her rating of other traits

C. he most recent behavior overshadows overall performance

D. ll personnel who work together are rated within the same narrow range

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Correct Answer: B

Question #14

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

A. isk management is ultimately the responsibility of the board

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

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

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

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Correct Answer: D

Question #15

To remove the effect of seasonal variation from a time series, original data should be

A. ncreased by the seasonal factor

B. educed by the seasonal factor

C. ultiplied by the seasonal factor

D. ivided by the seasonal factor

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Correct Answer: D

Question #16

An entity offers its customers credit terms of a 2% discount if paid within 10 days. or the full balance is due within 30 days2/10, n/30). If some customers take advantage of the cash discount and others do not, which of the following accounts will appear on the income statement if the net method of recording receivables is employed? Sales DiscountsSales Discounts Forfeited

A. es Yes

B. es No

C. o No

D. o Yes

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Correct Answer: D

Question #17

A manufacturer uses a materials requirements planning 1RP) system to track inventory, orders, and raw material requirements. A preliminary audit assessment indicates that the organization's inventory is understated. Using audit software, what conditions should the auditor search for in the MRP database to support this hypothesis?I). Item cost set at zero.II). Negative quantities on hand.III). Order quantity exceeding requirements.IV). Inventory lead times exceeding delivery schedule.

A. and II only

B. and I only

C. I and I only

D. II and I only

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Correct Answer: A

Question #18

Which of the following would an internal auditor consider when developing engagement objectives?I). Estimated time to complete the engagement.II). Probability of significant errors.III). Risks, controls, and governance processes.IV). Budgeted cost and resource requirements.

A. I only

B. and IV only

C. and III only

D. , III, and IV only

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Correct Answer: C

Question #19

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 #20

What is the percentage of the total variance that can be explained by the regression

A. 9

B. 9

C. 0

D. 9

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Correct Answer: A

Question #21

Buyer-based pricing involves

A. dding a standard markup to the cost of the product

B. etermining the price at which the product will earn a target profit

C. asing prices on the product's perceived value

D. asing prices on competitors' prices

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Correct Answer: C

Question #22

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

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #23

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

A. ompetitive benchmarking

B. trategic benchmarking

C. nternal benchmarking

D. rocess benchmarking

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Correct Answer: D

Question #24

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

A. udit risk has been reduced

B. ontrol risk has been assessed at a lower level

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

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

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Correct Answer: B

Question #25

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

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

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

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

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

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Correct Answer: D

Question #26

In recording transactions, which of the following best describes the relation between expenses and losses?

A. osses are extraordinary charges to income, whereas expenses are ordinary charges to income

B. osses are material items, whereas expenses are immaterial items

C. osses are expenses that may or may not arise in the course of ordinary activities

D. xpenses can always be prevented, whereas losses can never be prevented

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Correct Answer: C

Question #27

Of the following reasons for employees to resist a major change in organizational processes, which is least likely?

A. hreat of job loss

B. equired attendance at training classes

C. reakup of existing work groups

D. mposition of new processes by senior management without prior discussion

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Correct Answer: B

Question #28

On January 31. Year 3, a company prepaid the US $72, 000 rental fee for a parking lot it leases. The rental fee covered a 3-year period beginning February 1. Year 3. What is the effect of this transaction on the December 31 Year 3, financial statements for each of the following?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: B

Question #29

The correlation coefficient that indicates the weakest linear association between two variables is

A. 0

B. 0

C.

D.

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Correct Answer: B

Question #30

A manufacturing company is attempting to implement a just-in-time JIT) purchase policy system by negotiating with its primary suppliers to accept long-term purchase orders which result in more frequent deliveries of smaller quantities of raw materials. If the JIT purchase policy is successful in reducing the total inventory costs of the manufacturing company, which of the following combinations of cost changes would be most likely to occur?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #31

A post office serves customers in a single line at one service window. During peals periods, the rate of arrivals has a Poisson distribution with an average of 100 customers per hour and service times that are exponentially distributed with an average of 0 seconds per customer.From this, one can conclude that the

A. ueue will expand to infinity

B. erver' will be idle one-sixth of the time

C. verage rate is 100 customers per hour

D. verage customer waiting time is minutes

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Correct Answer: A

Question #32

If a manufacturer has established a limit on the number of defects that are tolerable in the final assembly of its product, which of the following quality control procedures should be employed?I). Inspect completed goods for compliance with established tolerances.II). Review sales returns for defects not detected during the final inspection process.III). Compare materials and machinery specifications with original product designs.IV). Establish a quality circle that includes management and subordinates to d

A. , III, and I

B. I and III only

C. , II, and III

D. II and IV only

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Correct Answer: C

Question #33

The carrying amountcost minus accumulated depreciation) of property. plant, and equipment disposed of in Year 2 was

A. S $7, 000

B. S $17, 000

C. S $20, 000

D. S $32, 000

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Correct Answer: A

Question #34

To keep costs at a minimum and decrease the completion time by 1-1/2 days, Networks, Inc.should crash activity i es)

A. D and AB

B. E

C. D

D. B and CE

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Correct Answer: A

Question #35

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

A. S $1, :

B. S $1, '

C. S

D. S $1

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Correct Answer: D

Question #36

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 #37

In which order should an environmental auditor audit the following manufacturing plants?Factor Hazard rating Prior audit results Plant population Plant 1 Medium Average SmallPlant 2 High Poor MediumPlant 3 Low Good Large

A. , 2, 3

B. , 3, 2

C. , 1, 3

D. , 3, 1

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Correct Answer: C

Question #38

Which of the following factors should internal auditors consider when planning an audit engagement?I). The extent of documentation required to complete the engagement.II). Objectives of the area to be reviewed and how activities are controlled.III). Significant risks, resources, and operations.IV). Scope and degree of testing required to achieve the engagement's objectives.

A. and IV only

B. , II, and III only

C. I, III, and IV only

D. , II, III, and IV

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Correct Answer: C

Question #39

If sales are accounted for using the installment method, which of the following is(are) only recognized in proportion to the cash collected on the sales during the period?

A. ales

B. ales and cost of sales

C. ales and cost of sales and selling expenses

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Correct Answer: B

Question #40

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 #41

Which of the following should be included in the internal audit activity's annual plan?

A. egree of testing that will be required to achieve the plan's objectives

B. cope of internal audit work and any limitations placed on that scope

C. etails of preliminary surveys to be carried out before each engagement

D. rocedures that will be used to conduct each planned engagement

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Correct Answer: B

Question #42

When a specified level of safety stock is carried for an item in inventory, the average inventory level for that item

A. ecreases by the amount of the safety stock

B. s one-half the level of the safety stock

C. ncreases by one-half the amount of the safety stock

D. ncreases by the amount of the safety stock

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Correct Answer: D

Question #43

At the beginning of Year 1. a company began work on a 3-year construction contract. This contract is accounted for by the percentage-of-completion method for financial accounting purposes and the completed-contract method for tax purposes. Dun l fig "(par 1, the company reported US $800, UUU of in from this contract. However, because of cost overruns incurred in Year 2. the company reported a US $500, 000 loss from this contract. What should the company's Year 2 balance sheet include?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: D

Question #44

The time that car 4 will have to wait to be

A. -2 minutes

B. minutes

C. minutes

D. + minutes

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Correct Answer: C

Question #45

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

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Correct Answer: A

Question #46

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

A. rend analysis

B. atio analysis

C. egression analysis

D. orizontal analysis

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Correct Answer: C

Question #47

An entity has a US $100, 000 liability on the books. In 12 months, US $110.000 will be due. including 10% interest. The entity negotiates settlement of the debt today by exchanging customer receivables with a carrying amount of US $90, 000. What is the journal entry today?

A. iability US $110

B. iability US $100

C. iability US $110

D. iability US $100, 000Receivables US $90, 000Gain 10

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Correct Answer: D

Question #48

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

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Correct Answer: D

Question #49

Reportable audit findings must beI). Documented by factsII). Supported by relevant evidence.III). Agreed to by management of the audited area.IV). Convincing enough to compel corrective action.

A. and IV only

B. I and III only

C. , II, and IV only

D. , II, III, and IV

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Correct Answer: C

Question #50

Which of the following is not a factor to be considered in discovery sampling?

A. opulation size

B. rror rate

C. ost per sample observation

D. onfidence level

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Correct Answer: C

Question #51

The primary role of the internal audit activity in regard to an organization's ethical climate is to

A. articipate as chief ethics officer

B. eriodically assess the ethical climate

C. tilize surveys to evaluate employee ethics

D. emonstrate ethical behavior

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Correct Answer: B

Question #52

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

A. 46 units of and 0 units of Y

B. units of X and 100 units of Y

C. 20 units of and 40 units of Y

D. 0 units of X

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Correct Answer: C

Question #53

Which of the following methods would an auditor most likely use to document a complex sales order process?

A. evelop a horizontal flowchart, with supporting documentation for key control points

B. reate a critical path method chart, noting the processes involved for each step

C. erform a process review, assigning time and cost to each step of the process to develop a hierarchy flowchart

D. tilize a systems narrative, which can be updated during subsequent audits

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Correct Answer: A

Question #54

Which statement most accurately describes how criteria are established for use by internal auditors in determining whether goals and objectives have been accomplished?

A. anagement is responsible for establishing the criteria

B. nternal auditors should use professional standards or government regulations to establish the criteria

C. he industry in which a company operates establishes criteria for each member company through benchmarks and best practices for that industry

D. ppropriate accounting or auditing standards, including international standards, should be used as the criteria

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Correct Answer: A

Question #55

A chief audit executive (CAE) of a major retailer has engaged an independent firm of information security specialists to perform specialized internal audit activities. The CAE can rely on the specialists' work only if it is

A. erformed in accordance with the terms of the contract

B. arried out in accordance with the Standards

C. erformed under the supervision of the information technology department

D. arried out using standard review procedures for retailers

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Correct Answer: B

Question #56

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

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

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

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

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

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Correct Answer: C

Question #57

Physical distribution is the moving of finished products to

A. etail outlets

B. hipping point

C. onsumers

D. arehouses

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Correct Answer: C

Question #58

An entity most likely may derecoginize a financial liability if it

A. ransfers amounts to a trust to be used to repay the obligation

B. xchanges debt instruments with the lender with substantially similar terms

C. xchanges debt instruments with the lender with substantially different terms

D. ransfers amounts in a transaction that meets the requirements of an in-substance defeasance

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Correct Answer: C

Question #59

Which of the following elements is important for an internal auditor to consider when performing a privacy risk assessment of an organization?I). Areas where personal information is collected, used, stored, and disseminated.II). Inherent risk.III). Privacy practices of competitors.IV). Third-party recipients of information.

A. II only

B. and II only

C. , II, and IV only

D. , II, III, and IV

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Correct Answer: C

Question #60

A company uses the percentage-of-completion method and reports the foil wing:The contract price is US $1.000. What is the profit recognized in Year 2?

A. S $150

B. S $400

C. S $550

D. S $800

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Correct Answer: C

Question #61

If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?

A. he confidence level could not be quantified

B. he precision would be larger

C. he projected value of inventory would be less reliable

D. he risk of incorrect acceptance would be higher

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Correct Answer: A

Question #62

Which of the following is not a factor, with respect to pending litigation, that must be considered in determining whether a provision should be recognized?

A. he time period in which the underlying cause of action occurred

B. he probability of an unfavorable outcome

C. he ability to make a reliable estimate of the amount of loss

D. he number of parties involved in the litigation

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Correct Answer: D

Question #63

An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau. What action should the auditor take, considering the outsourcing decision?

A. eview the controls over payroll in both the company and the service bureau

B. eview only the company's controls over data sent to and received from the service bureau

C. eview only the controls over payments to the service bureau based on the contract

D. ancel the engagement because the processing is being performed outside of the organization

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Correct Answer: A

Question #64

An auditor for a large wholesaler is evaluating the controls over the approval and oversight of credit sales. Which of the following procedures would be a control weakness?

A. he credit department is responsible for approving shipments to all customers

B. he finance committee of the board of directors periodically reviews credit standards

C. ustomers who fail to meet credit requirements must pay cash for shipments upon delivery

D. he sales department is responsible for determining the credit ratings of customers

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Correct Answer: D

Question #65

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 #66

Which of the following management actions would be most effective in order to strengthen ethical awareness within an organization?

A. equire employees to certify that they have read and understand the organization's code of conduct

B. nsure that all employees pass a criminal background check prior to being hired

C. andate that employees follow documented departmental procedures and processes

D. equest that the internal audit activity test departments with a higher risk of employee fraud

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Correct Answer: A

Question #67

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

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: A

Question #68

Which of the following is the least appropriate action for an internal auditor to take in support of an organization's ethical culture?

A. ssess the state of the ethical climate

B. rovide guidance to employees regarding ethical dilemmas

C. valuate the effectiveness of the organization's code of conduct

D. etermine the appropriateness of expected ethical attitudes and behaviors

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Correct Answer: B

Question #69

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

A. S $3, 000, 000

B. S $4, 705, 882

C. S $5, 000, 000

D. S $6, 000, 000

View answer

Correct Answer: B

Question #70

Which of the following is a common element of any risk framework?

A. rganizational objectives

B. nticipated product losses

C. oard of directors' policies

D. elegation of authority

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Correct Answer: A

Question #71

Which of the following measurements could an auditor use in an audit of the efficiency of a motor vehicle inspection facility?

A. he total number of cars approved

B. he ratio of cars rejected to total cars inspected

C. he number of cars inspected per inspection agent

D. he average amount of fees collected per cashier

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Correct Answer: C

Question #72

An internal auditor for a financial institution has just completed an audit of loan processing. Of the 81 loans approved by the loan committee, the auditor found seven loans which exceeded the approved amount. Which of the following actions would be inappropriate on the part of the auditor?

A. xamine the seven loans to determine if there is a pattern

B. eport the amounts to the loan committee and leave it up to them to correct

C. ollow up with the appropriate vice president and include the vice president's acknowledgment of the situation in the engagement final communication

D. etermine the amount of the differences and make an assessment as to whether the dollar differences are material

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Correct Answer: B

Question #73

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

A. nterest expense in the earlier periods will be less than interest expense in the later periods

B. nterest expense in the earlier periods will be greater than interest expense in the later periods

C. nterest expense will equal the cash interest payment each period

D. nterest expense will be less than the cash interest payment each period

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Correct Answer: A

Question #74

The required adjusting entry at December 31 related to salaries and wages is

A. alaries & wages expense US $1, 700Income summary US $1, 700

B. alaries & wages payable US $1, 700Salaries & wages expense US $1, 700

C. alaries & wages expense US $1, 700Salaries & wages payable US $1, 700

D. ncome summary US $1, 700Salaries & wages payable US $1, 700

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Correct Answer: C

Question #75

A company's product has an expected 4-year life cycle from research, development, and design through its withdrawal from the market. Budgeted costs areThe company plans to produce 200, 000 units and price the product at 125°!a of the whole- life unit cost. Thus, the budgeted unit selling price is

A. S $15

B. S $31

C. S $36

D. S $45

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Correct Answer: D

Question #76

Client satisfaction surveys provide the engagement client with an opportunity to

A. rovide further information on the issues identified during the engagement

B. espond to the internal audit report findings

C. uggest ways to improve the audit process

D. erform a self assessment to supplement the internal audit report findings

View answer

Correct Answer: C

Question #77

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

A. afeguarding of assets in the activity being audited

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

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

D. bjectives of the activity being audited

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Correct Answer: D

Question #78

Which of the following actions by a chief audit executive would be most effective in preventing fraud?

A. nsure that the board is aware of all fraud that has been identified or reported

B. rain the internal audit staff in identifying fraud indicators

C. eview the adequacy of all policies that describe prohibited activities

D. ubmit an annual report to the board on all fraud that has been detected

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Correct Answer: C

Question #79

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

A. n the date of the installment sale

B. n proportion to the cash collections

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

D. n the date the final cash collection is received

View answer

Correct Answer: C

Question #80

An entity has made all necessary adjusting entries and is now closing its accounts for the period. Dividends of US 1 ...x!.000 were declared and distributed during the year. The entry to close the dividends account would be

A. etained earnings US $30, 000Dividends US $30, 000

B. ividends US $30, 000Retained earnings US $30, 000

C. ncome Summary US $30, 000Dividends US $30, 000

D. ividends US $30, 000Income Summary US $30, 000

View answer

Correct Answer: A

Question #81

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

A. only

B. II only

C. and II only

D. and III only

View answer

Correct Answer: C

Question #82

Assume that C Company offers to perform the operation 2 function on 1, 000 units at a unit price of US $40, excluding direct materials cast. Also assume that Y Company offers to perform the Operation 1 function an 1, 000 units at a unit price of US $7, excluding direct materials cost. Which of these mutually exclusive offers is acceptable?

A. but not Y

B. but not C

C. or Y

D. either offer should be accepted

View answer

Correct Answer: A

Question #83

As part of an operational audit, an auditor compared records of current inventory with usage during the prior two year period and determined that the spare parts inventory was excessive. What step should the auditor perform first?

A. etermine the effects of a stock-out on the organization's profitability

B. etermine whether a clear policy exists for setting inventory limits

C. etermine who approved the purchase orders for the spare parts

D. etermine whether purchases were properly recorded

View answer

Correct Answer: B

Question #84

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

A. arranty claims

B. esign engineering

C. upplier evaluations

D. ost contribution margin

View answer

Correct Answer: D

Question #85

A recently appointed chief audit executive (CAE) learns that the audit plan for the upcoming year prepared by the CAE's predecessor has only been reviewed by the audit committee. Which of the following would be the most appropriate action for the CAE to take next in order to gain management support for the audit plan?

A. end a copy of the entire audit plan to management of the areas to be audited, with specific assigned dates when the engagements will be conducted

B. eet with management of each area to be audited and explain the purpose and scope of the audit engagement in their area

C. lan for formal entry meetings and engagement letters at the beginning of each engagement and ensure that management understands all work to be undertaken

D. roceed with the audit plan because it is already approved

View answer

Correct Answer: B

Question #86

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

A. reight absorption pricing

B. niform delivered pricing

C. one pricing

D. OB-origin pricing

View answer

Correct Answer: B

Question #87

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 #88

What is the deferred tax asset or liability reported on Lally's balance sheet on December31. Year 2?

A. S $40, 000

B. S $32, 000

C. S $8, 000

D. S $0

View answer

Correct Answer: D

Question #89

Coordination between the internal auditors and the external auditors tends to

A. ncrease risks due to potential communication issues arising from internal auditors' allegiance to the company

B. ecrease risks due to the internal auditors' knowledge of the company and industry

C. ncrease risks due to differing views on the nature and adequacy of internal controls

D. ecrease risks by using internal auditors to perform low-level external audit testing

View answer

Correct Answer: B

Question #90

When performing a quality audit engagement in a factory, an internal auditor should first review

A. omparisons of actual outputs to planned outputs

B. evels of rework and scrap

C. osts of materials purchased

D. ulfillment of production quotas

View answer

Correct Answer: B

Question #91

Plantation should treat Lease A as a(n)

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

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

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

D. perating lease charging US $15

View answer

Correct Answer: D

Question #92

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 #93

Derivatives that are not hedging instruments are always classified in which category of financial instruments?

A. inancial assets or liabilities held for trading

B. eld-to-maturity investments

C. oans and receivables

D. vailable-for-sale financial assets

View answer

Correct Answer: A

Question #94

Which of the following actions would be considered a violation of the Standards?I). Drafts of engagement communications were reviewed with the audit client to obtain input. The client's comments were considered when developing the engagement final communication.II). An auditor participated as part of a development team to review the control procedures to be incorporated into a major computer application under development.III). Given limited resources, the chief audit executive performed a risk analysis to d

A. I only

B. and III only

C. , II, and III

D. one of the above

View answer

Correct Answer: D

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

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

View answer

Correct Answer: C

Question #97

The main reason to establish internal controls in an organization is to

A. ncourage compliance with policies and procedures

B. afeguard the resources of the organization

C. nsure the accuracy, reliability, and timeliness of information

D. rovide reasonable assurance on the achievement of objectives

View answer

Correct Answer: D

Question #98

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

A. opying leading organizations to better compete with them

B. ocusing on the total quality of products and services

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

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

View answer

Correct Answer: B

Question #99

On January 1, an entity issued a 10-year US $500, 000 bond at 96% of its face amount. The bond bears interest at 12%, payable on January 1 and July 1 The entry to record the issuance of the bond on January 1 is

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: C

Question #100

To comply with the matching principle, the cost of labor services of an employee who participates in the manufacturing of a product normally should be charged to the income statement in the period in which the

A. ork is performed

B. mployee is paid

C. roduct is completed

D. roduct is sold

View answer

Correct Answer: D

Question #101

Which of the following describes the activity of trading futures with the objective of reducing or controlling risk?

A. nsuring

B. edging

C. hort-selling

D. actoring

View answer

Correct Answer: B

Question #102

A firm buys like-new computer equipment from bankrupt companies and resells it in foreign markets at prices significantly below those charged by competitors. The firm is

A. ngaged in dumping

B. ngaged in price discrimination

C. perating in a gray market

D. perating in a black market

View answer

Correct Answer: C

Question #103

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

A. S $525

B. S $555, 000

C. S $645

D. S $675

View answer

Correct Answer: C

Question #104

A manufacturer of very expensive precision optical equipment has experienced a significant increase in production costs over the past three months. The plant manager has demanded an immediate audit to identify the cause of the increases. Which of the following is true regarding this request?

A. he chief audit executive (CAE) may accept the request but is not obligated to act upon it

B. he CAE should decline the request because the plant manager is not authorized to make audit requests

C. ccording to the Standards, only audits approved by the audit committee may be performed

D. ccepting the request would jeopardize the integrity of the existing audit plan

View answer

Correct Answer: A

Question #105

An auditor is using an internal control questionnaire as part of a preliminary survey. Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?

A. nterviews provide the opportunity to insert questions to probe promising areas

B. nterviews are the most efficient way to upgrade the information to the level of objective evidence

C. nterviewing is the least costly audit technique when a large amount of information is involved

D. nterviewing is the only audit procedure which does not require confirmation of the information that is obtained

View answer

Correct Answer: A

Question #106

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 #107

In what order should the following actions be taken by an internal auditor when planning to analyze data using computer assisted audit techniques?I). Define the procedures to be undertaken.II). Define the output requirements.III). Set the objectives.IV). Obtain access to appropriate data.

A. II, II, I, IV

B. I, III, IV, I

C. II, IV, I, II

D. V, III, II, I

View answer

Correct Answer: A

Question #108

Philip enterprises, distributor of compact disks(CDS), is developing its budgeted cost of goods sold for 1998.Philip has developed the following range of sales estimates and associated probabilities for the year:Philip's cost of goods sold averages 80% of sales. t hat is the expected value of Philip's 1998 budgeted cost of goods sold?

A. S $85, 000

B. S $84, 000

C. S $68, 000

D. S $67, 200

View answer

Correct Answer: D

Question #109

Total inventory ordering costs per year equal

A. S $1, 250

B. S $2, 400

C. S $2, 880

D. S $3, 600

View answer

Correct Answer: C

Question #110

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

A. oing concern assumption

B. onetary unit assumption

C. istorical cost principle

D. evenue recognition principle

View answer

Correct Answer: D

Question #111

The primary reason for adopting TOM was to achieve

A. reater customer satisfaction

B. educed delivery time

C. educed delivery charges

D. reater employee participation

View answer

Correct Answer: A

Question #112

Quality cost indices are often used to measure and analyze the cost of maintaining or improving the level of quality. Such indices are computed by dividing the total cost of quality over a given period by some measure of activity during that period for example, sales dollars). The following cost data are available for a company for the month of March. The company's quality cost index is calculated using total cost of quality divided by sales dollars.Sales US $400, 000Direct materials cost 100, 000Direct lab

A.

B.

C. 2

D.

View answer

Correct Answer: A

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