Free Certified Internal Auditor Exam Questions & Practice Test

Question #1

Which is the correct order of the following four steps in the accounting cycle? Step 1 Prepare adjusting journal entriesStep 2 Take a post-closing trial balanceStep 3 Prepare an adjusted trial balanceStep 4 Prepare reversing entries

A. , 3, 2, 4

B. , 1, 3, 2

C. , 1 , 2, 4

D. , 2, 3, 4

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Correct Answer: A

Question #2

When determining the appropriate span of control, the most important consideration is:

A. he set of policies and procedures currently in effect

B. he typical span of control used by other entities

C. he preference of the company's creditors

D. hat all departments will be evaluated, whether or not they will be affected

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Correct Answer: A

Question #3

The ending inventory balance under the first-in. first-outFIFO) method of inventory valuation is

A. S $3, 050

B. S $3, 150

C. S $3, 230D US $3

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Correct Answer: B

Question #4

If an engagement client's operating standards are vague and thus subject to interpretation, the auditor should

A. eek agreement with the client as to the standards to be used to measure operating performance

B. etermine best practices in the area and use them as the standard

C. nterpret the standards in their strictest sense because standards are otherwise only minimum measures of acceptance

D. mit any comments on standards and the client's performance in relationship to those standards, because such an analysis would be meaningless

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Correct Answer: A

Question #5

A company stocks, maintains, and distributes inventory. The company decides to add to the safety stock and expedite delivery for several product lines on a trial basis. For the selected product lines the company will experience

A. n increase in some costs but no change in the service level

B. change in the service level

C. n increase in ordering, carrying, and delivery costs

D. ecrease in ordering, carrying, and delivery costs

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Correct Answer: B

Question #6

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

A. reventive costs

B. ppraisal costs

C. nternal failure costs

D. xternal failure costs

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Correct Answer: B

Question #7

A company, which has many branch stares, has decided to use its best-performing stare as a benchmark organization far the purpose of analyzing the accuracy and reliability of branch stare financial reporting. Which one of the fallowing is the most likely measure to be included in a financial benchmark?

A. igh turnover of employees

B. igh level of employee participation in setting budgets

C. igh amount of bad debt write-offs

D. igh number of suppliers

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Correct Answer: C

Question #8

The management discussion and analysis section of a company's annual report typically contains

A. description of the company's primary business and segments

B. discussion of the company's operating results

C. discussion of the future prospects of the company

D. ll of the answers are correct

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Correct Answer: D

Question #9

The following information and diagram apply to a project:The earliest completion time for the project is

A. 1 days

B. 4 days

C. 5 days

D. 0 days

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Correct Answer: C

Question #10

Which aspect of the audit function would be most impacted by a lack of coordination between an organization's internal and external auditors?

A. esponsiveness

B. imeliness

C. ffectiveness

D. fficiency

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Correct Answer: D

Question #11

What is the incremental cost of placing an order that would be used in the EOO model?

A. S $48

B. S $35

C. S $24

D. S $19

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Correct Answer: D

Question #12

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 #13

What is risk management?

A. dentifying and prioritizing risks

B. easuring risks and determining consequences

C. dentifying threats to the organization and likelihood of occurrence

D. etermining how much risk is acceptable and what action should be taken

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Correct Answer: D

Question #14

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 #15

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 criterion 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: B

Question #16

An auditor receives anonymous information that fraud is occurring in the operation being audited, but no details are given as to the type of fraud or the individuals involved. There are several areas in which fraud could occur. The auditor should

A. dentify the area that has the greatest volume of transactions and design a sampling plan for substantive testing

B. pply analytical procedures to areas that might be impacted by possible fraudulent activities

C. nterview employees to identify areas where the fraud could be occurring

D. lan detailed tests of the areas that have the highest dollar amount of transactions

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Correct Answer: B

Question #17

Which of the following factors would not be considered in determining appropriate followup procedures?

A. he significance of the audit finding

B. he effort and cost needed to correct the reported condition

C. he availability of funds in the audited department's budget to correct the reported condition

D. he potential consequences if the corrective action fails

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Correct Answer: C

Question #18

An entity sells a piece of machinery, for cash, prior to the end of its estimated useful life. The sale price is less than the carrying amount of the asset on the date of sale. The entry that the entity uses to record the sale is

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: A

Question #19

What operations strategy is most likely to be adopted when the product sold by an organization is a commodity and the market is very large?

A. lexibility strategy

B. uality strategy

C. ervice strategy

D. ost strategy

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Correct Answer: D

Question #20

Value engineering is

A. policy of seeking continuous improvement in all phases of company{ activities

B. method of determining prices based on a cost determination

C. n element of a marketing mix strategy

D. systematic approach to assessing all aspects of cost buildup for a product

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Correct Answer: D

Question #21

The practice of recording advanced payments from customers as liabilities is an application of the

A. oing concern assumption

B. onetary unit assumption

C. istoric cost principle

D. evenue recognition principle

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Correct Answer: D

Question #22

An entity issued a noninterest bearing note payable due in 1 year in exchange for land. The fair value of the land is not reliably determinable. Which of the following statements is true concerning the accounting for the transaction?

A. he land should be recorded at the future value of the note, and interest should be imputed at the prevailing rate on similar notes

B. o interest should be recognized on the note, and the land should be recorded at the present value of the note

C. nterest on the note should be imputed at the prime rate, and the land should be recorded at the discounted value of the note

D. nterest on the note should be imputed at the prevailing rate for similar notes, and the land should be recorded at the present value of the note

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Correct Answer: D

Question #23

The retail petroleum industry consists of a few large firms that sell a standardized product.Which of the following best describes this industry?

A. onopoly

B. ligopoly

C. onopolistic competition

D. ure competition

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Correct Answer: B

Question #24

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 #25

In selecting assurance engagements that are consistent with an organization's goals, the chief audit executive would most likely give highest priority to

A. esults of prior audits in potential engagement areas

B. pportunities to achieve operating benefits

C. equests by senior management

D. ssessments of risk and effectiveness of risk management

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Correct Answer: D

Question #26

There has been an increased emphasis on group decision making in organizations. Which of the following statements has been found to hold true in studies of individual decision making as compared to group decision making? Individual decision making tends to:

A. e more conservative

B. valuate more complete information

C. enerate more alternatives

D. ncrease the perceived legitimacy of the decision

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Correct Answer: A

Question #27

If bonds payable with a carrying amount equal to par value are refunded by use of a call provision, the call premium of the refunded issue should be

A. mortized over the remaining original life of the extinguished issue

B. mortized over the life of the new issue

C. ecognized currently in profit or loss as an extraordinary item_

D. ecognized currently in profit or loss

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Correct Answer: D

Question #28

Formal groups are work groups within the organization assembled to perform a productive activity. How is a formal group similar to an informal group?

A. embership in both informal and formal groups tends to be permanent

B. nformal and formal groups develop their own leaders to fill the needs of the group

C. nformal and formal groups usually provide social satisfaction that supplements job satisfaction

D. nformal and formal groups are based on the organization's purpose and needs

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Correct Answer: C

Question #29

An organization has adopted the robust quality approach. According to this view of quality,

A. he minimum point on the total quality cost curve occurs when conformance cost per unit equals nonconformance cost per unit

B. mproving quality requires tradeoffs among categories of quality costs

C. eyond some point, incurrence of prevention and appraisal costs is not cost beneficial

D. osts in all categories of quality costs may be reduced while improving quality

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Correct Answer: D

Question #30

ABC Manufacturing Company ships merchandise U s $40.000 on consignment to XYZ Stores. ABC pays US $3, 000 of freight costs to a transport company, and XYZ pays US $2, 000 for local advertising costs that are reimbursable from ABC. By the end of the period the three, fourths of the consigned merchandise has been sold for US $50, 000 cash. XYZ notifies ABC of the sales, retains a 10% commission and the paid advertising costs and remits the cash due ABC. Select the journal entry that appropriately records the

A. ash US $40, 000Advertising expense 2, 000Commission expense 5, 000Freight expense 3, 000Revenue from consignment sales US $50, 000

B. ash US $43, 000Advertising expense 2, 000Commission expense 5, 000Revenue from consignment sales US $50, 000

C. ash US $40, 000Revenue from consignment sales US $50, 000

D. ash US $40, 000Commission expense 5, 000Revenue from consignment sales US $50, 000

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Correct Answer: B

Question #31

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

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Correct Answer: B

Question #32

A company has established its environmental audit activity as part of its legal department rather than part of its internal audit activity, which reports to the audit committee. The board has requested that the chief audit executive (CAE) provide an annual opinion on whether environmental risks are being properly addressed. In these circumstances, the CAE should recommend to the audit committee that the internal audit activity

A. eview the recommendations in all environmental audit reports

B. iscuss with the environmental auditors the results of their reviews

C. eriodically carry out a quality assessment of the environmental audit activity

D. nclude a review of environmental issues in some internal audit engagements

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Correct Answer: C

Question #33

During the growthstage of a product's life cycle:

A. he quality of products is poor

B. ew product models and features are introduced

C. here is little difference between competing products

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

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Correct Answer: B

Question #34

A manufacturing company produces plastic utensils for a particular segment at the lowest possible cost. The company is pursuing a cost

A. eadership strategy

B. ocus strategy

C. ifferentiation strategy

D. ontainment strategy

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Correct Answer: B

Question #35

A physical inventory count showed an entity had inventory costing US $1.000.000 on hand at December 31 Year 1 Excluded from this amount were the following:· Goods costing US $82, 000. shipped to a customer free on boardFOB) shipping point on December 28. Year 1 They were expected to be received by the customer on January 4.Year 2.· Goods costing US $122.000. shipped to a customer free on boardF B) 1. ;ti nation December 30, Year 1 They were expected to be received by the customer on January 5, Year 2.Comput

A. S $1, 000, 000

B. S $1, 082, 000

C. S $1, 122, 000

D. S $1, 204, 000

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Correct Answer: C

Question #36

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 #37

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

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Correct Answer: C

Question #38

A disadvantage of separating performance evaluations from compensation-increase decisions is that

A. ot enough emphasis is placed on short-run performance

B. inancial rewards may lose their motivational effect

C. mployees may not be motivated by good appraisals

D. he employee's performance evaluation does not consider the financial status of the company overall

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Correct Answer: C

Question #39

Which of the following is not an appropriate time series forecasting technique?

A. east squares

B. xponential smoothing

C. he Delphi technique

D. oving averages

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Correct Answer: C

Question #40

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 #41

In a statement of cash flowsindirect method), depreciation expense should be presented as

A. n inflow of cash

B. n outflow of cash

C. n addition to profit in converting profit or loss to net cash flows from operating activities

D. deduction from profit in converting profit or loss to net cash flows from operating activities

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Correct Answer: C

Question #42

Which of the following is an example of a corrective control?

A. ank accounts are reconciled monthly

B. xception reports are investigated and resolved

C. mployees are directed to obtain additional training each year

D. nvoices are reconciled to receiving reports before payments are authorized

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Correct Answer: B

Question #43

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 #44

A retail store uses a computerized perpetual inventory system with annual physical counts. The best approach for determining whether item counts in the perpetual inventory records are accurate at interim dates is to use generalized audit software to

A. enerate stratified random samples of items for manual counting and compare counts to perpetual inventory records

B. ompare beginning and ending perpetual inventory counts after adjustment for sales and replenishments

C. ompute revised item count values by adjusting existing counts for spoilage and shrinkage

D. imulate inventory transactions between physical inventory counts taken annually

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Correct Answer: A

Question #45

Coping with fragmentation requires strategic positioning. Which strategic position is a focus strategy that enhances bargaining power with suppliers and increases differentiation?

A. ackward integration

B. ightly managed decentralization

C. pecialization by product type or segment

D. eveloping formula facilities

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Correct Answer: C

Question #46

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 #47

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

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Correct Answer: B

Question #48

Which of the following should be the primary objective of an audit of an entity's business continuity plan?

A. ost of testing and updating the plan

B. elegation of responsibilities for the plan

C. elationship of the plan to risk exposures

D. fficiency of the planning procedures

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Correct Answer: C

Question #49

Which of the following quality costs are nonconformance costs?

A. ystems development costs

B. osts of inspecting in-process items

C. nvironmental costs

D. osts of quality circles

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Correct Answer: C

Question #50

.Debtor Bank on a 10-year, 15% note in the amount of US $100, 000, plus US $30, 000 accrued interest_ Because·-if financial difficulty. Debtor has been unable to make annual interest payments for the past 2 years. and the n-ate is due today. Accordingly. Bank legally agreed to restructure Debtor's debt as follows:· The US $30.000 of accrued interest was forgiven. · Debtor was given 3 more years to pay off the debt at 8% interest. Payments are to be made annually at year-end. The present value of the payment

A. loss of US $30

B. gain of US $30

C. gain of US $45, 982

D. o gain or loss because no extinguishments occurred

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Correct Answer: C

Question #51

When the economic order quantity EOQ) decision model is employed, the List A are being offset or balanced

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: A

Question #52

Which of the following is true with regard to the contingency approach to solving problems within an organization?

A. he organization's environment plays the largest role in finding situational determined answers

B. he organization may be less adaptive when the environment is more uncertain

C. he organization should search fora design format that can be used in all cases

D. he contingency approach focuses on a closed systems thinking

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Correct Answer: A

Question #53

Which of the following is a definition of predatory pricing?

A. ricing products below cost to destroy competitors

B. ricing products at different prices for different customers

C. onspiring to restrict output and set artificially high prices

D. elling below cost in other countries

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Correct Answer: A

Question #54

Management should be included in the development of the audit plan in order to

A. rovide assurance that past audit recommendations have been properly implemented

B. elect the audit tests that will be used for each engagement

C. erify that the highest risks are included in the risk-based audit plan

D. uarantee access to the organization's sites and records for audit work

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Correct Answer: C

Question #55

According to research on path-goal leadership styles done in many countries, which styles are neither the most nor the least accepted internationally?I). DirectiveII). SupportiveIII). ParticipativeIV). Achievement-oriented

A. and II)

B. and Ill

C. I and IV)

D. ll and IV)

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Correct Answer: C

Question #56

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 #57

During an audit, an internal auditor notes that the following situations exist Unusual profitability compared to other companies in the same industry. Highly complex transactions close to the end of the period. Significant sales to entities whose substance and ownership are not known. Unusual growth in the number of days sales in receivables.These situations indicate what type of fraud?

A. mployee collusion with customer firms

B. ictitious revenues

C. mproper asset valuation

D. nventory theft

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Correct Answer: B

Question #58

The Plan-Do-Check-Act PDC}A) cycle is a quality tool devised by\ALE. Denning. How is PDC A best described

A. "management by fact" approach to continuous improvement

B. n ongoing evaluation of the practices of best-in-class organizations

C. he translation of customer requirements into design requirements

D. he responsibility of every employee, work group, department, or supplier to inspect the work

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Correct Answer: A

Question #59

The use of standard operating procedure questionnaires in audit fieldwork can be beneficial because

A. hese questionnaires can both identify discrepancies and educate clients

B. tandard operating procedures are essential to the effectiveness and efficiency of operations

C. hese questionnaires are more comprehensive than are other types of techniques for gathering data during fieldwork

D. hese questionnaires do not normally require prior clearance with management of the audited area

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Correct Answer: A

Question #60

If Bandit Co. uses the approach to estimate bad debt expense, the estimated bad debt expense will be

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: C

Question #61

Productivity statistics are provided quarterly to a company's board of directors. An auditor checked the ratios and other statistics in the four most recent reports. The auditor used scratch paper and copies of the board reports to verify the accuracy of computations and compared the data used in the computations with supporting documents. The auditor wrote a note describing this work for the workpapers and then discarded the scratch paper and report copies. The auditor's note stated .The ratios and other s

A. our quarters is not a large enough sample on which to base a conclusion

B. he auditor's workpapers are not sufficient to facilitate an efficient review of the auditor's work

C. he auditor should have included the scratch paper in the workpapers

D. he auditor should have considered whether the information in the board report was compiled efficiently

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Correct Answer: B

Question #62

The publisher of a popular magazine offers a special discounted price for a 3-year subscription. At the balance sheet date. the amount that has already been collected but pertains to future periods is best referred to as

A. ccrued subscriptions revenuean asset account)

B. eferred subscriptions revenuea liability account)

C. arned subscriptions revenuea revenue account)

D. recollected subscriptions receivablea deferred asset account)

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Correct Answer: B

Question #63

Which of the following procedures is not a step that an auditor would perform when planning an audit of an organization?

A. btaining detailed knowledge about the organization

B. btaining a management representation letter

C. ssessing the audit risk of the organization

D. aving discussions with the organization's management team

View answer

Correct Answer: B

Question #64

Modern management theory devotes considerable attention to employee empowerment.Done appropriately, employee empowerment:

A. ncreases managerial power

B. eans lack of control

C. s independent of compensation

D. oes not require full employee participation in decision making

View answer

Correct Answer: A

Question #65

A company purchased US $50, 000 worth of office supplies on January 1st and had US $15, 000 of office supplies still on hand at year-end. If the initial purchase of supplies entry on January 1st was to debit office supplies expense and to credit cash for US $50, 000. the adjusting entry on December 31 will be

A. ffice supplies US $15, 000Office supplies dividends US $15, 000

B. ffice supplies dividends US $15, 000Office supplies US $15, 000

C. ffice supplies US $35, 000Office supplies dividends US $35, 000

D. ffice supplies expense US $35, 000Office supplies US $35, 000

View answer

Correct Answer: A

Question #66

As an organization increases the number of employees, its structure becomes more complex. Rules become more formalized and more supervisors are hired to direct the increased numbers of subordinates. What is the nature of the size-structure relationship?

A. he size-structure relationship is linear

B. he structure becomes fixed once an organization attains a level of about 200 employees

C. he size-structure relationship is concave

D. one of the answers are correct

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Correct Answer: D

Question #67

Overall audit efficiency is enhanced between the internal and external audit functions when

A. nternal audit coverage is reduced to avoid potential conflicts of interest

B. udits of the same department are conducted at different times

C. he internal audit department reviews functions or departments prior to the external audit

D. xternal audit scope is reduced based on the internal audit department's activities

View answer

Correct Answer: D

Question #68

Which of the following should be incorporated in a risk management policy?I). Boundaries and limit structures.II). Requirements for reporting risk.III). Risk authorities.

A. and II only

B. and III only

C. I and III only

D. , II, and III

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Correct Answer: D

Question #69

If a supervisor uses a supportive management approach, evidenced by positive feelings and concern for subordinates, a problem might result because:

A. n approach based on pure power makes it difficult to motivate staff

B. his approach depends on material rewards for the worker

C. his approach depends on people who want to work, grow, and achieve

D. he manager must believe in the teamwork approach

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Correct Answer: C

Question #70

An auditor, assigned to review a complex computer system that had undergone a few system changes, obtained the prior flowchart used. Which of the following would be the most efficient way to document the changes?

A. reate a new flowchart reflecting the system changes

B. repare a detailed narrative instead of a flowchart to describe the updated system

C. dd a detailed narrative to the prior flowchart to describe the changes to the system

D. ake the necessary adjustments on a copy of the prior flowchart and save as a new version

View answer

Correct Answer: D

Question #71

Regulatory approval is most likely to be hardest to obtain in:

A. ature industries

B. ragmented industries

C. merging industries

D. eclining industries

View answer

Correct Answer: C

Question #72

A firm in a fragmented industry should most likely take what action to avoid a strategic trap?

A. eek dominance to overcome fragmentation

B. ssume that competitors have similar costs

C. void centralization of the organizational structure

D. nvest heavily to respond quickly to new product demand

View answer

Correct Answer: C

Question #73

Which of the following risk factors is generally the most important for an internal auditor to consider when planning an assurance engagement for a department?

A. he quality of the department's internal control system

B. he liquidity of the department's assets

C. he results of previous audit engagements for that division

D. he diversification of risk in the industry

View answer

Correct Answer: A

Question #74

According to the International Professional Practices Framework, which of the following would be considered a scope limitation?I). Divisional management indicates that since the division is in the process of converting a major computer system, the information systems portion of the planned audit will have to be postponed until next year.II). The audit committee reviews the audit plan for the year and deletes an audit that the director thought was important to conduct.III). The sales manager indicates that c

A. only

B. I only

C. and III only

D. I and III only

View answer

Correct Answer: C

Question #75

An audit supervisor returned a workpaper to an auditor with a request to document the tickmarks used in testing. The supervisory review found errors in the area of workpaper

A. alidity

B. fficiency

C. udgment

D. ompleteness

View answer

Correct Answer: D

Question #76

The airlines have been leaders in the use of technology. Customers can make reservations either with an airline or through a travel agency. In this situation, a travel agency is classified as which type of distribution channel?

A. n intermediary

B. jobber

C. distributor

D. facilitating agent

View answer

Correct Answer: A

Question #77

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

View answer

Correct Answer: C

Question #78

A company owns a machine that will produce 100 light switches in four hours. Due to increased demand, a second machine capable of producing 100 light switches in three hours has been added. Approximately how many hours will it take to produce 100 light switches using both machines working together?

A.

B.

C.

D.

View answer

Correct Answer: C

Question #79

Which of the following is true concerning generic influence tactics?

A. onsultation involves appealing to emotions, values, or ordeals

B. ngratiating tactics attempt to raise the other person's self-esteem prior to a request

C. oalition tactics try to convince others by reliance on a detailed plan, supporting evidence, and reason

D. ressure tactics are based on the formal or informal support of higher management

View answer

Correct Answer: B

Question #80

Which of the following statements is not true regarding audit fieldwork?

A. t takes place primarily during the preliminary survey stage

B. t focuses on causes, effects, or conditions

C. t involves systematic gathering of information

D. t is used to substantiate information provided during interviews

View answer

Correct Answer: A

Question #81

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 #82

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

View answer

Correct Answer: D

Question #83

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

View answer

Correct Answer: C

Question #84

During an audit of a major contract, an auditor finds that actual hours and dollars billed are consistently at or near budgeted amounts. This condition is a red flag for which of the following procurement fraud schemes?

A. efective pricing

B. ost mischarging

C. ictitious vendor

D. id rotation

View answer

Correct Answer: B

Question #85

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 #86

Cash interest payments in Year 2 were

A. S $8, 000

B. S $12, 000

C. S $20, 000

D. S $25, 000

View answer

Correct Answer: B

Question #87

An internal auditor has been asked to review the treasury department's compliance with corporate policy related to the use of forward trading to manage currency valuation risk. The auditor finds no related policies in the corporate policy manual but does discover that the department is following a policy developed by the company's bank. The most appropriate response from the auditor would be to

A. ithdraw from the audit engagement because there is nothing to audit due to the lack of a corporate policy

B. erform no further audit work and report the lack of a corporate policy as an audit observation

C. ostpone the audit engagement until a corporate policy can be established

D. se the bank's policy as the audit criteria and determine whether formal adoption should be recommended in the engagement final communication

View answer

Correct Answer: D

Question #88

Faced with 3 years of steadily decreasing profits despite increased sales and a growing economy, which of the following is the healthiest course of action for a chief executive officer to take?

A. et a turnaround goal of significantly increasing profits within 2 months

B. educe staff by 10% in every unit

C. educe staff in the nonvalue-adding functions by 20%

D. ncourage innovation at all levels and use an early retirement program to reduce staff size

View answer

Correct Answer: D

Question #89

Which of the following is a market-oriented definition of a business versus a product- oriented definition of a business?

A. aking air conditioners and furnaces

B. upplying energy

C. roducing movies

D. elling men's shirts and pants

View answer

Correct Answer: B

Question #90

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

View answer

Correct Answer: A

Question #91

A chief audit executive (CAE) used an electronic spreadsheet to facilitate the risk assessment process for a number of different divisions. The spreadsheet included the following factors Complexity of operations Competence of divisional personnel Dollar amount of accounts where management's judgment can affect the expense. The CAE used a group meeting of audit managers to reach a consensus on the competence of divisional personnel. Other factors were assessed as high, medium, or low risk by either the CAE o

A. he risk analysis would not be appropriate because it mixes both quantitative and qualitative factors

B. ssessing factors at discrete levels, such as high, medium, and low, is inappropriate for the risk assessment process because the ratings are not quantifiable

C. he weighting is subjective and should have been determined through a process such as multiple regression analysis

D. sing a subjective group consensus to assess personnel competence is appropriae

View answer

Correct Answer: D

Question #92

Globalization assists in achieving economies of scale, which is:

A. ost benefit

B. iming benefit

C. earning benefit

D. rbitrage benefit

View answer

Correct Answer: A

Question #93

The measurement basis most often used to report a long-term payable representing a commitment to pay money at a determinable future date is

A. istorical cost

B. urrent cost

C. et realizable value

D. resent value of future cash flows

View answer

Correct Answer: D

Question #94

During an audit of capital assets, an auditor tested the accuracy of recorded depreciation. The best evidence that an asset is still in service would result from a

A. eview of fixed assets records for the asset

B. omparison of the asset's depreciation schedule with its maintenance records

C. omparison of the asset's depreciation schedule with its insurance appraisal

D. eview of depreciation policies and procedures for capital assets

View answer

Correct Answer: B

Question #95

Which of the following would be most relevant regarding the internal control environment?

A. ssessing controls over computerized applications

B. ocumenting the organizational structure

C. omparing and validating internal performance with external benchmarking

D. aintaining and reviewing detailed financial records

View answer

Correct Answer: B

Question #96

A global firm

A. as achieved economies of scale in the firm's domestic market

B. lans, operates, and coordinates business globally

C. elies on indirect export

D. ends to rely more on one product market

View answer

Correct Answer: B

Question #97

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

A. ntroduction stage

B. rowth stage

C. aturity stage

D. ecline stage

View answer

Correct Answer: C

Question #98

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

A. 9

B. 9

C. 0

D. 9

View answer

Correct Answer: A

Question #99

When an order to a supplier for an unusually large number of parts is entered in a company's computerized system, the system prompts the company's senior management to review the transaction. This is an example of which of the following information technology controls?

A. ogic test

B. heck digits

C. ata reasonableness tests

D. alancing control activities

View answer

Correct Answer: C

Question #100

An entity that owns a new professional basketball team sells season tickets to its team's games. The season lasts from November through April. with 10 games played each month. In Year 1. The entity collected US $3 million from season-ticket sales for the Year 1 - Year 2 season. Its fiscal year-end is December 31. Based on this information.The enterprise should

A. eport a liability for unearned income of US $2 million on its December 31, Year 1, balance sheet

B. eport a liability for unearned income of US $3 million on its December 31, Year 1, balance sheet

C. eport income of US $3 million on its Year 1 income statement

D. eport income of US $1 million on its Year 2 income statement

View answer

Correct Answer: A

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