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Free CIA Part 1 Exam Questions and Answers PDF​ 2024 | SPOTO

The CIA Part 1 exam, officially titled "Internal Audit Basics," is the first step toward becoming a Certified Internal Auditor (CIA). It assesses foundational knowledge related to internal auditing, including topics such as governance, risk management, control frameworks, and the professional standards that guide the audit process. Aspiring auditors can use resources like the "Free CIA Part 1 Exam Questions and Answers PDF" to improve their understanding of the exam content. This PDF, available for free download, provides practice questions that closely mimic the actual exam, allowing you to familiarize yourself with the format and test your knowledge. It is an essential study tool for anyone aiming to pass the CIA Part 1 exam on their first attempt.
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Question #1
Quality costing is similar in service and manufacturing organizations. Nevertheless, the differences between these organizations have certain implications for quality management.Thus,
A. irect labor costs are usually a higher percentage of total costs in manufacturing organizations
B. xternal failure costs are relatively greater in service organizations
C. uality improvements resulting in more efficient use of labor time are more likely to be accepted by employees in service organizations
D. oor service is less likely to result in loss of customers than a faulty product
View answer
Correct Answer: B

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Question #2
Dale has 20 days to complete production of an order for an important customer. The customer wants 96 units of product that may be painted either red or white. The red units can be produced at a rate of 4 per day. The white units, because of a different quality of paint, can be produced at a rate of 7 per day. The materials for the red units cost US $80 each, while the white units cost US $120 each. Dale wants to keep costs at a minimum. What is the constraint that expresses the number of units to be produce
A. R + 7W = 20
B. 4) + W = 7) <20
C. + W = 20
D. R + 7W = 96
View answer
Correct Answer: B
Question #3
An organization must manage its flows of raw materials, components, finished goods, services, or information through intermediaries to ultimate consumers. These flows may occur across the functions in an organization's
A. upply chain
B. alue chain
C. ogistic chain
D. ntegrated chain
View answer
Correct Answer: B
Question #4
An audit of the quality control department is being planned. Which of the following would least likely be used in the preparation of a preliminary survey questionnaire?
A. n analysis of quality control documents
B. he permanent audit file
C. he prior audit report
D. anagement's charter for the quality control department
View answer
Correct Answer: A
Question #5
A plumbing company, a wholesale distributor, supplies plumbing contractors and retailers throughout the Northeast on a next-day delivery. basis. The company has a centrally located warehouse to accept receipts of plumbing supplies. The warehouse has a single dock to accept and unload railroad freight cars during the night. It takes 5 hours to unload each freight car. The company's prior records indicate that the number of freight cars that arrive in the course of a night range from zero to five or mare, wit
A. nteger programming
B. inear programming
C. onte Carlo simulation
D. egression analysis
View answer
Correct Answer: C
Question #6
A manufacturer produces a quality product for which it charges a little more than some competing items but gives its consumers a more liberal warranty policy. The product carries a 5-year warranty that covers both labor and materials charges. Which of the following defines the appropriate method of accounting for the warranty?
A. ash basis
B. ecognition of a provision
C. ales warranty
D. ax basis
View answer
Correct Answer: B
Question #7
Which of the following would provide the best evidence of compliance with an airline's standard of having aircraft refueled and cleaned within a specified time of arrival at an airport?
A. endor fuel invoices that have been reconciled to inventory records
B. ime cards completed by aircraft cleaning and fueling crews
C. bservation of selected aircraft while they are being refueled and cleaned
D. omparison of the standard hourly labor costs for cleaning and fueling personnel with actual labor charges
View answer
Correct Answer: C
Question #8
An organization has a policy requiring two signatures on all checks written for amounts in excess of $10, 000. When evaluating controls over disbursements, an auditor would conclude that a greater risk exists if
A. he auditor located two checks for $9, 000 each that contained one authorized signature
B. he $10, 000 was an immaterial amount to the organization and very few cash disbursements required an amount in excess of $10, 000
C. he director of accounting was not one of the authorized signers
D. here were several instances in which successively numbered checks for amounts between $5, 000 and $10, 000 were made payable to the same vendor
View answer
Correct Answer: D
Question #9
Nonderivative financial instruments that have1) fixed or determinable payments, 2) a fixed maturity, and3) are held by the investing entity with a positive intent and ability to hold until maturity are what category of financial instruments?
A. eld-to-maturity investments
B. vailable-for-sale financial assets
C. inancial assets or liabilities held for trading
D. air value hedges
View answer
Correct Answer: A
Question #10
A distribution channel moves goods from producers to customers. Suppose a channel has four producers, each serving the same four customers, and no middlemen. If a distributor is introduced, the number of contacts among producers, customers, and the distributor) in the channel will
A. e unaffected
B. ecrease from 8 to 4
C. ncrease from 8 to 16
D. ecrease from 16 to 8
View answer
Correct Answer: D
Question #11
Which of the following is the correct ratio to use in calculating the dollar value of the population if the auditor is using ratio estimation? Number of ItemsAudited ValueCarrying AmountSample$500, 000$480, 000Population3, 000$5, 000, 000
A.
B.
C.
D. 0
View answer
Correct Answer: C
Question #12
An internal auditor downloaded all database records pertaining to payables, purchases, production, inventory, and receivables, and wrote a program to verify that All payables had an authorizing purchase order.All production materials were legitimate inventory items.All receivables derived from production.What is the internal auditor testing?
A. eferential integrity
B. odeling consistency
C. ata redundancy
D. oncurrency control
View answer
Correct Answer: A
Question #13
According to the Standards, which of the following best describes the concept of due professional care?
A. nternal auditors must apply the diligence and skill expected of a reasonably prudent and competent internal auditor
B. nternal auditors must possess the knowledge, skills, and other competencies needed to perform their audit responsibilities
C. nternal auditors must have sufficient knowledge to identify fraud
D. nternal auditors must refrain from participating in an engagement when they lack sufficient knowledge, skills, and competencies to assess the audit area fully
View answer
Correct Answer: A
Question #14
One drawback of business process reengineering BPR), sometimes referred to as business process analysis, is
A. mproved efficiency in the business processes analyzed
B. xcess of cast over the benefit
C. eduction of operational efficiency
D. mployee resistance to change
View answer
Correct Answer: D
Question #15
In promoting quality assurance and improvement of the internal audit activity, which of the following would be considered a component of ongoing assessment?I). Supervision.II). Feedback from audit customers.III). Analysis of performance measures.IV). Comparison of budgeted to actual audit hours.
A. and III only
B. I and IV only
C. , III, and IV only
D. , II, III, and IV
View answer
Correct Answer: D
Question #16
Which of the following methods of employee evaluation is best used when employees are heavily involved in teamwork?
A. 60-degree performance appraisal
B. ttribution method
C. ritical incident technique
D. ehaviorally anchored rating scales BARS)
View answer
Correct Answer: A
Question #17
The measurement date in accounting for shares issued to employees in share option plans accounted for in accordance with the fair value method prescribed by !FRS 2 is
A. he date on which options are granted to specified employees
B. he earliest date on which both the number of shares to be issued and the option price are known
C. he date on which the options are exercised by the employees
D. he date the entity forgoes alternative use of the shares to be sold under option
View answer
Correct Answer: A
Question #18
In the statement of cash flows, the payment of cash dividends appears in the
A. ption A
B. ption B
C. ption C
D. ption D
View answer
Correct Answer: B
Question #19
Which of the following does not describe a skill or knowledge necessary to supervise a particular audit engagement?
A. he ability to review and analyze an engagement program to determine if the proposed audit procedures will result in evidence relevant to the engagement objectives
B. he ability to use risk assessment and other judgmental processes to develop an engagement plan and schedule for the department, and present the plan to the audit committee
C. he ability to assure that an engagement final communication is supported and accurate relative to the evidence documented in the engagement working papers
D. he ability to determine that staff auditors have completed the audit procedures and that engagement objectives have been met
View answer
Correct Answer: B
Question #20
Which of the following is a recognized scheme for procurement fraud?I) Change-order abuse.II) Collusive bidding by contractors.III) Collateral financing.
A. only
B. and II only
C. I and III only
D. , II, and III
View answer
Correct Answer: B
Question #21
Two individuals are being considered for an audit team that is to perform a highly technical review. Which of the following situations would preclude selection of the individual for the audit due to an objectivity concern?I). Person A is a member of the internal audit staff and has the required technical skills.Person A participated in a controls review of the system to be audited when it was being developed.II). Person B is a technical specialist who understands the audit area but is not a member of the in
A. only
B. I only
C. oth I and II
D. either I nor II
View answer
Correct Answer: D
Question #22
Which of the following is an example of sampling risk?
A. verlooking material errors
B. ailing to analyze results properly
C. hecking invoices that are not representative of the population
D. sing audit procedures that are not appropriate for the given audit objective
View answer
Correct Answer: C
Question #23
Which of the following examples of audit evidence is the most persuasive?
A. eal estate deeds, which were properly recorded with a government agency
B. anceled checks written by the treasurer and returned from a bank
C. ime cards for employees, which are stored by a manager
D. endor invoices filed by the accounting department
View answer
Correct Answer: A
Question #24
IFPS 2, Share-Based payment, normally requires entities to a account for their share- based employee compensation plans in accordance with which of the following methods?
A. ption A
B. ption B
C. ption C
D. ption D
View answer
Correct Answer: B
Question #25
A merchandising company had the following inventory related transactions in its first year of operations:If the company uses the first-in-first-outFIFO) method of inventory valuation, its ending inventory balancerounded) will be
A. S $62, 000
B. S $70, 759
C. S $78, 750
D. S $84, 000
View answer
Correct Answer: C
Question #26
Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?
A. ntegrated test facility
B. arallel simulation
C. est data
D. mbedded audit routines
View answer
Correct Answer: D
Question #27
Under the balanced scorecard concept, employee satisfaction and retention are measures used under which of the following perspectives?
A. ustomer
B. nternal business
C. earning and growth
D. inancial
View answer
Correct Answer: C
Question #28
When a manager generalizes from the evaluation of one or a few traits to the employee's total performance, s)he has made
A. judgmental evaluation
B. n evaluation subject to the halo effect
C. projection
D. n objective evaluation
View answer
Correct Answer: B
Question #29
.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
View answer
Correct Answer: C
Question #30
According to IIA guidance, which of the following statements describes one of the similaritiesbetween assurance and consulting services?
A. hen planning assurance and consulting engagements, internal auditors must consider the strategies and objectives of the activity being reviewed
B. nternal auditors determine the engagement objectives, scope, and work program for both assurance and consulting services
C. nternal auditors must not provide assurance or consulting services for an activity for which they had responsibility within the previous year
D. oth assurance and consulting services generally involve the internal auditor, the area under review, senior management, and the board
View answer
Correct Answer: A
Question #31
Which of the following reasons best justifies the time spent coordinating the work of the internal and external auditors?I). Coordination improves overall audit coverage.II). Coordination assures the quality of internal audit work.III). Coordination encourages compliance with the Standards.IV). Coordination minimizes duplication of audit effort.
A. and II only
B. and IV only
C. I and III only
D. II and IV only
View answer
Correct Answer: B
Question #32
Intensive distribution is most likely to be used for
A. hopping goods
B. pecialty goods
C. onvenience goods
D. nsought goods
View answer
Correct Answer: C
Question #33
An auditor plans to query a vendor database to locate evidence of a fictitious vendor scheme. Which of the following would be likely to detect this type of fraud?I). Vendors that lack a phone number or an addressII). Vendors that have a post office box as an address III). Vendors that have multiple addresses
A. only
B. II only
C. and II only
D. , II, and III
View answer
Correct Answer: C
Question #34
Futures and option contracts are examples of what type of financial instruments?
A. onderivatives
B. nderlyings
C. erivatives
D. quity instruments
View answer
Correct Answer: C
Question #35
As an audit technique, observation isI). Limited because individuals may react differently when being observed.II). More persuasive for the completeness assertion than it is for the existence assertion when testing financial statement balances.III). Effective in providing evidence on how the company's processes differ from those specified by written policies.
A. only
B. I only
C. and III only
D. , II, and III only
View answer
Correct Answer: C
Question #36
ABC operates a catering service that specializes in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Conceptually. ABC should recognize revenue from its catering services at the date when a
A. ustomer places an order
B. uncheon is served
C. illing is mailed
D. ustomer's payment is received
View answer
Correct Answer: B
Question #37
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 #38
In order to save time, an audit manager no longer required that a standard internal control questionnaire be completed for each audit engagement. Does this represent a violation of the Standards?
A. es, because internal control should be evaluated on every engagement and the internal control questionnaire is the mandated approach to evaluate controls
B. es, because internal control should be evaluated on every engagement and the internal control questionnaire is the most efficient method to do so
C. o, because auditors may omit necessary procedures if there is a time constraint, based on audit judgment
D. o, because auditors are not required to complete internal control questionnaires on every engagement
View answer
Correct Answer: D
Question #39
A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results. Which of the following is most likely to explain the difference in the regional results?
A. he more successful region spends 30 percent more money on education than does the other region
B. higher percentage of the general tax fund is spent on education in the more successful region than in the other region
C. he more successful region spends more money per student on education than does the other region
D. he more successful region has increased educational spending by an average of 10 percent each year for the last three years, whereas the other region's increase averaged only three percent
View answer
Correct Answer: C
Question #40
Internal auditors who are concerned with potential risks due to the mishandling of records or transactions should take into consideration
A. he type and nature of the activities to be examined
B. hether employees in key positions of trust are bonded
C. he history of losses suffered by the company
D. he results of prior risk assessments
View answer
Correct Answer: A
Question #41
At the end of September, a entity has outstanding accounts receivable of US $350 on third-quarter credit sales, composed as follows.The percentage of receivables in the 31-to-5O-day age group at the end of September is
A. 2
B. 8
C. 8
D. 1
View answer
Correct Answer: C
Question #42
An inventory planning method that minimizes inventories by arranging to have raw materials and subcomponents arrive immediately preceding their use is called
A. safety stock planning system
B. n economic order quantity model
C. just-in-time inventory system
D. master budgeting system
View answer
Correct Answer: C
Question #43
Insurance companies often receive electronic hospitalization claims directly from hospitals. Which of the following control procedures would be most effective in detecting fraud in such an environment?
A. se integrated test facilities to test the accuracy of processing in a manner that is transparent to data processing
B. evelop monitoring programs to identify unusual types of claims or an unusual number of claims by demographic class for investigation by the claims department
C. se generalized audit software to match the claimant identification number with a master list of valid policyholders
D. evelop batch controls over all items received from a particular hospital and process those claims in batches
View answer
Correct Answer: B
Question #44
According to the Standards, which of the following should be defined in the internal audit charter?I). The internal audit activity's position within the organization.II). The audit activities to be performed during the upcoming year.III). The scope of internal audit activities.IV). Management and the board of directors' agreement regarding the roles and responsibilities of the internal audit activity.
A. and IV only
B. I and III only
C. , III, and IV only
D. , II, III, and IV
View answer
Correct Answer: C
Question #45
During the growth stage 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
View answer
Correct Answer: B
Question #46
The amortization of intangible assets with finite useful lives is justified by the
A. conomic entity assumption
B. oing concern assumption
C. onetary unit assumption
D. istorical cost assumption
View answer
Correct Answer: B
Question #47
An internal auditor is examining a large population of data and suspects that some of the data may be fraudulent. Which of the following sampling techniques would be most appropriate for the internal auditor to use?
A. andom number sampling
B. nterval sampling
C. top and go sampling
D. iscovery sampling
View answer
Correct Answer: D
Question #48
Which of the following factors is least essential to a successful control self assessment workshop?
A. oting technology
B. acilitation training
C. rior planning
D. roup dynamics
View answer
Correct Answer: A
Question #49
Company J produces two components: A-1 and A-2. The unit throughput contribution margins for A-1 and A-2 are US $150 and US $300, respectively. Each component must proceed through two processes: Operation 1 and Operation 2. The capacity of Operation 1 is 180 machine hours, with A-1 and A-2 requiring 1 hour and 3 hours, respectively. Furthermore, Company J can sell only 45 units of A-1 and 100 units of A-2. However, Company J is considering expanding Operation 1's capacity by 90 machine hours at a cost of US
A. ption A
B. ption B
C. ption C
D. ption D
View answer
Correct Answer: C
Question #50
Which of the following is a risk factor that a chief audit executive should consider when prioritizing audit work schedules?I). Quality of internal controlII). Management competenceIII). Time of last audit engagementIV). Degree of change or organizational stability
A. and III only
B. , II, and IV only
C. I, III, and IV only
D. , II, III, and IV
View answer
Correct Answer: D
Question #51
In order to ensure that the internal auditors have the objectivity required by the Standards, the chief audit executive should
A. emonstrate willingness to include in engagement final communications all matters believed to be important
B. equire all auditors to sign statements attesting to their independent mental attitudes and honest belief in their work product
C. arefully assign personnel to individual audit engagements and require auditors to disclose all conflicts of interest
D. ppraise each auditor's performance on each audit assignment
View answer
Correct Answer: C
Question #52
A medium-sized municipality provides 8.5 billion gallons of water per year for 31, 000 customers. The water meters are replaced at least every five years to ensure accurate billing. The department recently issued the following activity report ActivityMonth OneMonth TwoMonth ThreeActual 1st Quarter1st Quarter GoalMeters replaced1, 2351, 425Leaks reportedLeaks repaired100%Based on the activity reported for leaks repaired during the first quarter, an internal auditor would conclude that
A. he leak-repair program is adequately staffed
B. he operating standard should be changed
C. eviations from the goal should be analyzed and corrected
D. stablished operating standards are understood and are being met
View answer
Correct Answer: D
Question #53
An organization's chief audit executive (CAE) has been asked to monitor and report on any violations of the organization's code of conduct. The CAE should
A. eview and adjudicate all complaints
B. ead the committee responsible for the oversight of the code
C. evelop specific procedures to ensure that the code is clearly communicated to all employees
D. articipate in an advisory capacity on the committee that adjudicates any violations
View answer
Correct Answer: D
Question #54
An audit of customer accounts receivable found that outstanding receivables as a percentage of revenue had increased significantly during the past two years. The increase was attributed to the extension of credit, at the urging of the marketing department, to a number of companies that were not creditworthy. Which of the following would be least useful in monitoring the disposition of this finding?
A. esponses from the manager of accounts receivable regarding collection of outstanding receivables
B. eriodic updates from the controller regarding the status of corrective actions
C. nformation from the credit and marketing personnel assigned the responsibility for reevaluating credit policies
D. pdates from the information technology division regarding implementation of a new accounts receivable system
View answer
Correct Answer: D
Question #55
One of the audit objectives for a manufacturing company is to verify that all rework is reviewed by the production engineer. Which of the following audit procedures would provide the best evidence for meeting this objective?
A. race a sample of entries in the rework log to remedial action taken
B. race a sample of rework orders to entries in the rework log
C. race a sample of entries in the review log to rework orders
D. race a sample of rework orders to entries in the review log
View answer
Correct Answer: D
Question #56
The sampling method that is most appropriate to use when one deviation is considered critical is
A. equential sampling
B. ean per unit sampling
C. atio estimation sampling
D. iscovery sampling
View answer
Correct Answer: D
Question #57
Only two companies manufacture Product A. The finished product is identical regardless of which company manufactures it. The cost to manufacture Product A is US $1, and the selling price is US $2. One company considers reducing the price to achieve 100c'% market share but fears the other company will respond by further reducing the price. Such a scenario would involve a
A. o-win strategy
B. ual-win strategy
C. ne win-one lose strategy
D. eutral strategy
View answer
Correct Answer: A
Question #58
Quality control circles are now used all over the world. The circles typically consist of a group of five to ten employees who meet regularly. The primary goal of these circles is
A. o improve the quality of leadership in the organization
B. o tap the creative problem-solving potential of every employee
C. o improve communications between employees and managers by providing a formal communication channel
D. o allow for the emergence of team leaders who can be targeted for further leadership development
View answer
Correct Answer: B
Question #59
An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time. The application controls being verified by this analysis are
A. dit and validation controls
B. ejected and suspense item controls
C. ontrols over update access to the database
D. rogrammed balancing controls
View answer
Correct Answer: A
Question #60
During the 10-year life of the asset, the entity will report as deferred tax an amount that
A. ncreases steadily for the 10 years
B. s constant
C. ncreases and then decreases
D. ecreases and then increases
View answer
Correct Answer: C
Question #61
On December 1. Year 1, a company using the installment sales method sold goods that cost US $1.000 for US $1.500. The buyer paid US $100 down. Monthly payments start January 1. Year 2. Interest accrues at 1% per month on the unpaid balance. To the nearest dollar, the effect on profit for Year 1 is
A. S $33 increase
B. S $47 increase
C. S $67 increase
D. S $114 increase
View answer
Correct Answer: B
Question #62
Which of the following steps in the accounting cycle is completed later than the others?
A. djustments
B. ournalization
C. osting
D. dentification and measurement of transactions
View answer
Correct Answer: A
Question #63
An internal quality assessment of the internal audit activity should provide the chief audit executive with
A. ecommendations for improvement
B. bjectives for internal audit engagements
C. onfirmation of action on past audit recommendations
D. ppraisals of internal audit staff performance
View answer
Correct Answer: A
Question #64
Violation of which assumption underlying regression analysis is prevalent in time series analysis?
A. ariance of error term is constant
B. rror terms are independent
C. istribution of error terms is normal
D. xpected value of error term equals zero
View answer
Correct Answer: B
Question #65
Several surveys paint out that most managers use full product casts, including unit fixed casts and unit variable costs, in developing cast-based pricing. Which one of the following is least associated with cost-based pricing?
A. rice stability
B. rice justification
C. arget pricing
D. ixed-cost recovery
View answer
Correct Answer: C
Question #66
The best reason for separating the cash-receiving function from the related record- keeping function is to
A. egregate cash payments from cash receipts
B. rovide accountability for cash received
C. inimize misappropriations in cash receipts
D. mprove physical security over the cash-receiving function
View answer
Correct Answer: C
Question #67
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
View answer
Correct Answer: B
Question #68
The defined post employment benefit obligation of an entity includes benefit obligations to employees at salary levels. List A List B
A. ption A
B. ption B
C. ption C
D. ption D
View answer
Correct Answer: D
Question #69
An appropriate technique for planning and controlling manufacturing inventories, such as raw materials, components, and subassemblies whose demand depends on the level of production is
A. aterials requirements planning
B. egression analysis
C. apital budgeting
D. inear programming
View answer
Correct Answer: A
Question #70
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
View answer
Correct Answer: A
Question #71
To promote a positive image within an organization, a chief audit executive (CAE) adjusted the audit plan to focus on assurance engagements that highlighted potential costs to be saved. Negative observations were to be omitted from engagement final communications. Which action taken by the CAE would be considered a violation of the Standards?I). The focus of the audit function was changed without modifying the audit charter or notifying the audit committee.II). Negative observations were omitted from the en
A. I only
B. and II only
C. and III only
D. , II, and III
View answer
Correct Answer: B
Question #72
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 opportunity for cost reductions would be greatest in which stage of the life cycle?
A. ntroduction stage
B. rowth stage
C. aturity stage
D. ecline stage
View answer
Correct Answer: B
Question #73
In reconciling profit on an accrual basis to net cash from operating activities, what adjustment is needed to profit because of1) an increase during the period in prepaid expenses and2) the periodic amortization of premium on bonds payable?
A. dd Add
B. dd Deduct
C. educt Add
D. educt Deduct
View answer
Correct Answer: D
Question #74
At the start of its current fiscal year, Emper Corporation amended its defined postemployment benefit plan. resulting in an increase in the present value of the defined benefit obligationDBO). The benefits become vested after 6 years of service. Past service cost arising from the plan amendment includes US $400, 000 of benefits that are already vested and US $200, 000 of nonvested benefits. If the average period until vesting is 4 years. the minimum past service cost to be recognized in the first year is
A. S $50, 000
B. S $200, 000
C. S $450, 000
D. S $600, 000
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Correct Answer: C
Question #75
If bonds are sold at a discount and the effective interest method of amortization is used, interest expense will
A. ncrease from one period to another
B. emain constant from one period to another
C. qual the cash interest payment each period
D. e less than the cash interest payment each period
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Correct Answer: A
Question #76
IAS 34, interim Financial Reporting, provides guidelines for interim reporting stating that enterprises
A. ay use estimates based on sales margins for interim inventory valuation although a different method is used for annual reporting
B. ust determine income tax expense by applying progressive tax rates to income on a quarterly basis
C. ay prorate extraordinary items over four quarters
D. eed not disclose basic and diluted earnings per share each quarter
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Correct Answer: A
Question #77
After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use
A. imple random sampling to select a sample of vouchers processed by the department during the past year
B. robability proportional to size sampling to select a sample of vouchers processed by the department during the past year
C. iscovery sampling to select a sample of vouchers processed by the department during the past year
D. udgmental sampling to select a sample of vouchers processed by clerks who were identified by the department manager as acting suspiciously
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Correct Answer: C
Question #78
Which of the following factors would increase the confidence level in a variables sampling plan?I). A larger sample sizeII). A stratified sampleIII). A larger standard deviation
A. and II only
B. and III only
C. I and III only
D. , II, and III
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Correct Answer: A
Question #79
When interviewing an individual suspected of a fraud, the interviewer should
A. nsure the suspect's supervisor is present during the interview
B. ock the door to deter interruptions
C. ay attention to the wording choices of the suspect
D. sk if the suspect committed the fraud
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Correct Answer: C
Question #80
The use of probability proportional to size (PPS) sampling is not efficient if
A. ank accounts are being audited
B. ach item is of equal importance
C. he number of sampling units is large
D. tatistical inferences are to be made
View answer
Correct Answer: B
Question #81
If, in addition to the estimated profits, management of the bank assesses the probabilities of high, medium, and low demands to be 0.3, 0.4, and 0.3 respectively, what is the expected opportunity loss from selecting location of L4?
A.
B.
C.
D.
View answer
Correct Answer: A
Question #82
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 #83
An internal auditor found that the cost of some material installed on capital projects had been transferred to the inventory account because the capital budget had been exceeded. Which of the following would be an appropriate technique for the auditor to use to determine the extent of the problem?
A. dentify variances between amounts capitalized each month and the capital budget
B. nalyze a sample of capital transactions each quarter to detect instances in which installed material was transferred to inventory
C. eview all journal entries that transferred costs from capital to inventory accounts
D. ompare inventory receipts with debits to the inventory account and investigate discrepancies
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Correct Answer: C
Question #84
Which of the following would be most helpful to a governmental auditor searching for the existence of multiple welfare claims that were filed under different names but used the same address?
A. agging and tracing
B. eneralized audit software
C. ntegrated test facility
D. preadsheet analysis
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Correct Answer: B
Question #85
The expected time of the critical path is
A. 2
B. 3
C. 1
D. 1
View answer
Correct Answer: B
Question #86
Upon joining the internal audit activity, each new auditor receives a copy of the audit handbook.Which of the following handbook policies has the greatest risk of compromising audit objectivity?
A. nternal auditors should obtain 80 hours of continuing professional education every two years, 20 of which should be audit-related, and the remainder may be operations-related
B. nternal auditors should rotate to other areas of the organization for nonaudit assignments to gain an understanding of the organization's operations
C. nternal auditors should have direct and unrestricted access to personnel and information throughout the organization and the governing board
D. nternal auditors should undergo annual performance appraisals conducted by the chief audit executive, who reports administratively to the chief financial officer
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Correct Answer: B
Question #87
Because of inexact estimates of the service life and the residual value of a plant asset, a fully depreciated asset was sold in the current year at a material gain. This gain most likely should be reported
A. n the other revenues and gains section of the current income statement
B. s part of sales revenue on the current income statement
C. n the extraordinary item section of the current income statement
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Correct Answer: A
Question #88
Based on the Year 2 year-end balance of accounts receivable and the Year 2 income statement, the company had an average collection period for Year 2 of
A. 9 days
B. 2 days
C. 3 days
D. 8 days
View answer
Correct Answer: C
Question #89
The internal auditor of a bank has developed a multiple regression model which has been used for a number of gears to estimate the amount of interest income from commercial loans. During the current year, the auditor applies the model and discovers that the r2 value has decreased dramatically, but the model otherwise seems tc be working okay. Which of the following conclusions is justified by the change?
A. hanging to a cross-sectional regression analysis should cause r- to increase
B. egression analysis is no longer an appropriate technique to estimate interest income
C. ome new factors not included in the model are causing interest income to change
D. linear regression analysis would increase the model's reliability
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Correct Answer: C
Question #90
A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically. If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation. All of the applicable documents are electronically marked, cross referenced, and retained in open files. Both an integrated test facility and a systems control au
A. se generalized audit software to read the electronically marked unmatched items
B. se generalized audit software to read the purchase orders and trace to applicable receiving and vendor invoice files
C. se the SCARF to identify unusual items
D. ubmit test data to identify attributes of unmatched items
View answer
Correct Answer: A
Question #91
On January 1, Year 1, International Entity entered into an equity-settled share-based payment transaction with its senior executives. This award of 1, 000 share options has a 4- year vesting period. The market prices of the options and the related shares on the grant date are US $20 and US $80. respectively. The exercise price is US $85. Assuming that the vesting conditions were not met for 100 of the options because of unexpected events in Year 4, the entry to debit option expense at
A. ecember 31
B. ecember 31
C. ecember 31, Year 2
D. anuary 1, Year 1, is for US $ 20, 000
View answer
Correct Answer: C
Question #92
Companies that adapt just-in-time purchasing systems often experience
A. n increase in carrying costs
B. reduction in the number of suppliers
C. greater need for inspection of goods as the goods arrive
D. ess need for linkage with a vendor's computerized order entry system
View answer
Correct Answer: B
Question #93
A firm must decide the mix of production of Product X and Product Y. There are only two resources used in the two products, resources A and B. Data related to the two products is given in the following table:What is the appropriate objective function to maximize profit?
A. X + 7Y
B. X+Y
C. X + 6Y
D. X + 8Y
View answer
Correct Answer: C
Question #94
A company regularly invests excess short-term cash in trading securities. A reliable test of the valuation of those securities would be a
A. ecalculation of investment carrying value using the equity method
B. omparison of cost data with current market quotations
C. onfirmation of securities held by the broker
D. alculation of premium or discount amortization
View answer
Correct Answer: B
Question #95
Which of the following inventory items would be the most frequently reviewed in an ABC inventory control system?
A. xpensive, frequently used, high stock-out cost items with short lead times
B. xpensive, frequently used, low stock-out cost items with long lead times
C. nexpensive, frequently used, high stock-out cost items with long lead times
D. xpensive, frequently used, high stock-out cost items with long lead times
View answer
Correct Answer: D
Question #96
An airline should recognize revenue from airline tickets in the period when
A. assenger reservations are booked
B. Passenger reservations are confirmed
C. ickets are issued
D. elated flights occur
View answer
Correct Answer: D
Question #97
When a right of return exists, an entity may recognize revenue from a sale of goods at the time of sale only if
A. he amount of future returns can be reliably estimated
B. he seller retains the risks and rewards of ownership
C. he buyer resells the goods
D. he seller believes returns will not be material
View answer
Correct Answer: A
Question #98
Which of the following is the best course of action for an internal auditor to take when new, relevant information is revealed immediately after an exit conference?
A. ocument the situation for future followup and continue with the next assignment
B. equest that management provide additional resources so that the audit can be extended
C. ostpone the next audit assignment and continue to investigate the issue
D. eport the issue immediately to senior management of the internal audit activity
View answer
Correct Answer: D
Question #99
A department store sells gift certificates that may be redeemed for merchandise. Each certificate expires 3 years after issuance. The revenue from the gift certificates should be recognized
A. venly over 3 years from the date of issuance
B. n the period the certificates are sold
C. n the period the certificates expire
D. n the period the certificates are redeemed or in the period they expire if they are allowed to lapse
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Correct Answer: D
Question #100
In Year 2, a manufacturing company instituted a total quality management TQM) program producing the following report:On the basis of this report, which one of the fallowing statements is most likely true?
A. n increase in conformance costs resulted in a higher quality product and therefore resulted in a decrease in nonconformance costs
B. n increase in inspection costs was solely responsible for the decrease in quality costs
C. uality costs, such as scrap and rework, decreased by 48°/O
D. uality costs, such as returns and repairs under warranty, decreased by 40°l°
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Correct Answer: A

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