IIA CIA-I Exam Materials, Certified Internal Auditor Practice Questions

Question #1

A transportation department maintains its vehicle inventory and maintenance records in a database. Which of the following audit procedures is most appropriate for evaluating the accuracy of the database information?

A. erify a sample of the records extracted from the database with supporting documentation

B. ubmit batches of test transactions through the current system and verify with expected results

C. imulate normal processing by using test programs

D. se program tracing to show how, and in what sequence, program instructions are processed in the system

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Correct Answer: A

Question #2

A deferred tax asset is recognized for

A. oodwill if its amortization is nondeductible for tax purposes

B. he initial recognition of an asset that is not part of a business combination and does not affect accounting profit or taxable profit at the date of the transaction

C. deductible temporary difference if the future availability of taxable profit is probable

D. egative goodwill treated as deferred income

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Correct Answer: C

Question #3

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

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Correct Answer: A

Question #4

Which of the following is not true about simulation models?

A. hey are deterministic in nature

B. he may involve sampling

C. hey mathematically estimate what actual performance would be

D. hey emulate stochastic systems

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Correct Answer: A

Question #5

An audit of an organization's claims department determined that a large number of duplicate payments had been issued due to problems in the claims processing system. During the exit conference, the vice president of the claims department informed the auditors that attempts to recover the duplicate payments would be initiated immediately and that the claims processing system would be enhanced within six months to correct the problems. Based on this response, the chief audit executive should

A. djust the scope of the next regularly scheduled audit to assess controls within the claims processing system

B. iscuss the findings with the audit committee and ask the committee to determine the appropriate followup action

C. chedule a followup engagement within six months to assess the status of corrective action

D. onitor the status of corrective action and schedule a followup engagement when appropriate

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Correct Answer: D

Question #6

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 #7

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

A. conomic entity assumption

B. onetary unit assumption

C. ateriality assumption

D. oing concern assumption

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Correct Answer: D

Question #8

Which of the following would be the most appropriate starting point in a compliance evaluation of software licensing requirements for an organization with more than 15, 000 computer workstations?

A. etermine if software installation is controlled centrally or distributed throughout the organization

B. etermine what software packages have been installed on the organization's computers and the number of each package installed

C. etermine how many copies of each software package have been purchased by the organization

D. etermine what mechanisms have been installed for monitoring software usage

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Correct Answer: A

Question #9

Which of the following represents the most effective governance structure? Operating Executive Internal Management Management AuditingI). Responsibility for risk Oversight role Advisory role II). Oversight role Responsibility for risk Advisory role III). Responsibility for risk Advisory role Oversight role IV). Oversight role Advisory role Responsibility for risk

A.

B. I

C. II

D. V

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Correct Answer: A

Question #10

When making a cost-time trade-off in PERT analysis, the first activity that should be crashed is the activity

A. ith the largest amount of slack

B. ith the lowest unit crash cost

C. n the critical path with the maximum possible time reduction

D. n the critical path with the lowest unit crash cost

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Correct Answer: D

Question #11

The scope of a business process review primarily involves

A. ppraising the environment and comparing against established criteria

B. ssessing the organization's system of internal controls

C. eviewing routine financial information and assessing the appropriateness of various accounting treatments

D. valuating organizational and departmental structures, including assessments of transaction flows

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Correct Answer: D

Question #12

All of the following are objectives of pricing except

A. mage oriented objectives

B. rofit maximization

C. tabilization

D. roduction maximization

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Correct Answer: D

Question #13

Internal auditors can benefit from a strong relationship with the external auditors because external auditors can

A. rovide internal auditors with an independent and knowledgeable viewpoint

B. oncur with the internal auditors' reports and thus improve the quality of assurance provided to management

C. ncrease the effectiveness of internal control sampling techniques

D. ssist the internal auditor by providing information obtained from similar audits with other clients

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Correct Answer: A

Question #14

Which of the following would be a violation of the IIA Code of Ethics?

A. eporting information that could be damaging to the organization, at the request of a court of law

B. ncluding an issue in the final audit report after management has resolved the issue

C. articipating in an audit engagement for which the auditor does not have the necessary experience or training

D. ccepting a gift that is a commercial advertisement available to the public

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Correct Answer: C

Question #15

A dental insurance provider has implemented an electronic claim submission process and is concerned that dentists are submitting claims for services that were not provided. Which of the following control procedures would be most effective in preventing this type of fraud?

A. evelop a program that identifies procedures performed on an individual which are either in excess of expectations based on the age of the insured or are similar to other procedures recently performed on the individual

B. equire all submitted claims to be followed by a signed statement by the dentist testifying to the fact that the claimed procedures were performed

C. end confirmations to the dentists requesting them to confirm the exact nature of the claims submitted to the insurance provider

D. evelop an integrated test facility and submit false claims to verify that the system is detecting such claims on a consistent basis

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Correct Answer: A

Question #16

On the first day of the current fiscal year, an entity issued 1.000 bonds. each of which is convertible into 199 ordinary shares of the issuer. The face amount of each bond is US $1.000. the nominal annual interest rates: i 7%. and the market annual interest rate for similar nonconvertible debt is 9%. Interest is payable at the end of each year of the bonds' 5-year term. The present values of 1 for 5 periods at 7% and 9% are .71 3 and respectively. The present values of an ordinary annuity of 1 for 5 period

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: B

Question #17

Bandit Co. will recognize revenue from the December sale of the maintenance contracts in the , List A, year if it selects basis reporting.

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: A

Question #18

In Year 2, the entity had cash provided by operations of

A. S $219, 000

B. S $244, 000

C. S $344, 000

D. S $469, 000

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Correct Answer: A

Question #19

Which of the following performance criteria would be most useful when measuring the performance of a customer service desk?

A. he number of customer inquiries recorded per day

B. he percentage of customer issues resolved within 24 hours

C. he number of customer complaints recorded per day

D. he percentage of total customers served per day

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Correct Answer: B

Question #20

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

A. and III only

B. I and IV only

C. , II, and III only

D. , III, and IV only

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Correct Answer: D

Question #21

An entity often factors its accounts receivable. The finance company requires an 8% reserve and charges a 1.5% commission on the amount of the receivable. The remaining amount to be advanced is further reduced by an annual interest charge of 16%. What proceedsrounded to the nearest dollar) will the entity receive from the finance company at the time a US $110, 000 account that is due in 60 days is turned over to the finance company?

A. S $81, 950

B. S $83, 630

C. S $96, 895

D. S $99, 550

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Correct Answer: C

Question #22

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

A. o ensure that client concerns are appropriately addressed

B. o confirm proper format, grammar, and punctuation

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

D. o validate that report findings are substantiated

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Correct Answer: D

Question #23

In evaluating threats to an organization's network communication system, which of the following transmission media would an auditor recommend as most reliable and effective in thwarting intruders?

A. ptical fiber cable

B. atellite microwave

C. adio frequency

D. nfrared

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Correct Answer: A

Question #24

Which of the following procedures would provide the best evidence of the effectiveness of a credit-granting function?

A. bserve the process

B. eview the trend in receivables write-offs

C. sk the credit manager about the effectiveness of the function

D. heck for evidence of credit approval on a sample of customer orders

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Correct Answer: B

Question #25

The following information relates to the activity of the defined postemployment benefit plan of Twain Publishers, Ltd.:Twain's expense recognized in the income statement is

A. S $120, 000

B. S $135, 000

C. S $140, 000

D. S $145, 000

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Correct Answer: D

Question #26

An internal audit activity is participating in the due diligence work for an acquisition that a company is considering. One engagement objective is to determine if the acquisition's accounts payable contain all outstanding liabilities. Which of the following audit procedures would not be relevant for this objective?

A. xamine supporting documentation of subsequent (after period) cash disbursements and verify period of liability

B. end confirmations, including zero balance accounts, to vendors with whom the company normally does business

C. elect a sample of accounts payable from the accounts payable list and verify the supporting receiving reports, purchase orders, and invoices

D. race receiving reports issued before the period end to the related vendor invoices and accounts payable list

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Correct Answer: C

Question #27

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

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

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

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

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

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Correct Answer: B

Question #28

In selecting an instructional strategy for developing internal audit staff, a chief audit executive should first review the

A. epartment's budget constraints

B. nternal auditors' personal development needs

C. ontent of potential training courses

D. rganization's objectives

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Correct Answer: D

Question #29

According to the Standards, which of the following must an internal auditor take into consideration when performing an assurance engagement of treasury operations?I). The audit committee has requested assurance of the treasury department's compliance with a new policy on the use of financial instruments.II). Treasury management has not instituted any risk management policies.III). Due to the recent sale of a division, the amount of cash and marketable securities managed by the treasury department has increa

A. and II only

B. and IV only

C. , II, and III only

D. I, III, and IV only

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Correct Answer: C

Question #30

A project is expected to result in the following adjustments over the next year:· Cash sales increase by US $400, 000.· Expensesexcept depreciation) increase by US $180, 000 · Depreciation increases by US $80, 000.Assume the corporate tax rate is 34%. The total relevant net cash flows during that year are

A. S $92, 400

B. S $140, 000

C. S $172, 400

D. S $220, 000

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Correct Answer: C

Question #31

Which of the following procedures would be most helpful in providing additional evidence when an auditor suspects that an unidentified employee is submitting and approving invoices for payment?

A. se generalized audit software to identify invoices from vendors with post office box numbers or other unusual features

B. elect a sample of payments made during the year and investigate each one for approval

C. elect a sample of receiving reports representative of the period under investigation and trace to approved payment

D. elect a sample of invoices paid during the past month and trace them to appropriate vendor accounts

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Correct Answer: A

Question #32

Coordinating internal and external audit efforts can help reduce the amount of time that the external auditors are on site at an organization because the external auditors can

A. opy audit findings from internal audit reports to create the external audit report

B. ely on work performed by the internal audit activity

C. se risk and control analysis provided by the internal audit activity to guide testing for the external audit staff

D. ocus on high-risk areas only, as long as an internal audit function exists

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Correct Answer: B

Question #33

As of week 8, the Gantt chart shows that the project is

A. omplete

B. head of schedule

C. n schedule

D. ehind schedule

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Correct Answer: B

Question #34

DEF is the consignee for 1.000 units of product X for ABC Company. ABC should recognize the revenue from these 1, 000 units when

A. he agreement between DEF and ABC is signed

B. BC ships the goods to DEF

C. EF receives the goods from AB

D. EF sells the goods and informs ABC of the sale

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Correct Answer: D

Question #35

Which of the following is true regarding the internal audit activity's management of a third- party consulting engagement?

A. he consultant should be empowered to lead the engagement as deemed necessary to meet the audit objectives

B. he internal auditor should understand the work of the consultant and ensure that audit objectives are being met

C. he consultant should issue the final audit report if the auditor does not have the technical expertise to discuss the issues

D. he auditor may provide advice but has no responsibility for the final audit report issued by the consultant

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Correct Answer: B

Question #36

A quantitative risk assessment model has all of the following advantages except

A. ccommodating a large number of risk factors in the assessment

B. roviding documentation for the chief audit executive, who must defend the long- range audit plan

C. roviding a systematic method of applying weightings to risks and priorities

D. emoving the need for judgment on the part of the chief audit executive

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Correct Answer: D

Question #37

Which of the following statements regarding organizational governance is not correct?

A. n effective internal audit function is one of the four cornerstones of good governance

B. hose performing governance activities are accountable to the customer

C. ccountability is one of the key elements of organizational governance

D. overnance principles and the need for an internal audit function are applicable to governmental and not-for-profit activities

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Correct Answer: B

Question #38

One of the best ways for the board of an organization to deter fraudulent financial reporting is to

A. equire board members to have current training and experience in financial accounting standards

B. nly appoint audit committee members with an understanding of financial accounting and reporting

C. ublish and monitor a code of conduct that creates a culture of honesty and high ethical values at all levels

D. equest that the external auditors review and report on the possibility of this type of fraud at each of their audits

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Correct Answer: C

Question #39

In a manufacturing organization, all sales prices are determined centrally and are electronically sent to the distribution centers to update their sales price tables. Any pricing deviations must be approved by central headquarters. To determine how this process is functioning, an internal auditor should

A. ocument the flow of sales price information, and determine how the table is accessed and updated

B. evelop a flowchart of the sales order process to determine how orders are taken and priced

C. dentify who approves the shipment of goods and how the goods are priced

D. btain a copy of the existing flowchart for the computer program to determine how price data are accessed

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Correct Answer: A

Question #40

In a sampling application, the group of items about which the auditor wants to estimate some characteristic is called the

A. opulation

B. ttribute of interest

C. ample

D. ampling unit

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Correct Answer: A

Question #41

Which of the following must an auditor establish in order to demonstrate that fraud has occurred?

A. onetary damage to the victim

B. he suspect's intent

C. xistence of an internal control deficiency

D. vidence of collusion

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Correct Answer: B

Question #42

During an audit of a branch bank, an internal auditor learned that a series of system failures had resulted in a four day delay in processing customers' scheduled payroll direct deposits. The first failure was that of a disk drive, followed by software and other minor failures. Which of the following controls should the auditor recommend to avoid similar delays in processing?

A. ontingency planning

B. edundancy checks

C. rocess monitoring

D. reventive maintenance

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Correct Answer: A

Question #43

The chart displays the

A. rithmetic mean of each computer complaint

B. elative frequency of each computer complaint

C. edian of each computer complaint

D. bsolute frequency of each computer complaint

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Correct Answer: D

Question #44

An internal auditor is concerned that a division's management may have shipped poor quality merchandise in order to inflate sales and thereby boost the division manager's bonus. Furthermore, the auditor suspects that returned goods are being shipped to other customers as new products before defects are fully corrected. Which of the following audit procedures would be least effective in determining whether such shipments took place?

A. xamine credit memos issued after year end for goods shipped before year end

B. hysically observe the shipping and receiving area for evidence of returned goods

C. nterview customer service representatives regarding unusual numbers of customer complaints

D. equire the division to take a complete physical inventory at year end, and observe the taking of the inventory

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Correct Answer: D

Question #45

An auditor for a major retail company suspects that inventory fraud is occurring at three stores which have high costs of goods sold. Which of the following audit activities would provide the most persuasive evidence that fraud is occurring?

A. se an integrated test facility (ITF) to compare individual sales transactions with test transactions submitted through the ITF and investigate all differences

B. nterview the three individual store managers to determine if their explanations about the observed differences are the same, and then compare their explanations to that of the section manager

C. chedule a surprise inventory audit to include a physical inventory and investigate areas of inventory shrinkage

D. elect a sample of individual store prices and compare them with the sales entered on the cash register for the same items

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Correct Answer: C

Question #46

An auditor has been assigned to audit the computerized inventory records as part of an audit of production activities. It would be most appropriate to use a generalized audit software package to

A. ssess the processing accuracy of the update program in posting transactions to the inventory master file

B. valuate the adequacy of internal controls embedded in the computer program

C. ubstantiate the data entries from terminals located in the production department

D. erify the accuracy of the extensions and summations of inventory balances

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Correct Answer: D

Question #47

As part of a preliminary survey of the purchasing function, an auditor read the department's policies and procedures manual. The auditor concluded that the manual described the processing steps well and contained an appropriate internal control design. The next engagement objective was to determine the operating effectiveness of internal controls. Which procedure would be most appropriate in meeting this objective?

A. repare a flowchart

B. repare a system narrative

C. erform a test of controls

D. erform a substantive test

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Correct Answer: C

Question #48

Risoner Company plans to purchase a machine with the following conditions:· Purchase price = US $300, 000· The down payment = 10% of purchase price with remainder financed at an annual interest rate of 16%. The financing period is 8 years with equal annual payments made every year.· The present value of an annuity of US $1 per year for 8 years at 16% is 4.3436. · The present value of US $1 due at the end of 8 years at 16% is 3050 The annual paymentrounded) is

A. S $39, 150

B. S $43, 200

C. S $62, 160

D. S $82

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Correct Answer: C

Question #49

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

A. ontrol matrix

B. nternal control questionnaire

C. ontrol flowchart

D. rogram evaluation and review technique (PERT) analysis

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Correct Answer: A

Question #50

The first stage in the development of a crisis management program is to

A. ormulate contingency plans

B. onduct a risk analysis

C. reate a crisis management team

D. ractice the response to a crisis

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Correct Answer: B

Question #51

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 #52

The major distinction between the function-of-expense format for the income statement and the "condensed" format recognized under U.S. GAAP is the separation of

A. perating and nonoperating data

B. ncome tax expense and administrative expenses

C. ost of goods sold expense and administrative expenses

D. he effect on income taxes of extraordinary items and the effect on income taxes of profit or loss from ordinary activities

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Correct Answer: A

Question #53

Company F applies a target pricing and costing approach. The following information about costs and revenues of Company F's product are available for the year just ended:Company F plans to increase unit sales to 80, 000 by reducing the product's unit price to US $320. If Company F desires a unit target operating income of 12%, by what amount must it reduce the full cost per unit?

A. S $32

B. S $38

C. S $70

D. S $80

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Correct Answer: C

Question #54

The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit. assuming all other variables remain constant?

A. ast-in, first-outLIFO)

B. irst-in, first-outFIFO)

C. eighted average

D. pecific identification

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Correct Answer: B

Question #55

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

A. 5%

B. 5%

C. 7

D. 51

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Correct Answer: C

Question #56

Which of the following situations would best support the decision of a chief audit executive (CAE) to defer followup activity at a branch office until the next audit engagement?

A. n audit of the branch office is routinely scheduled every three years

B. n site followup of a remote branch may not be feasible due to travel costs

C. ranch office management states that correction of the audit issue may take longer than expected

D. he CAE and management agree that the corrective action taken to date is sufficient

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Correct Answer: D

Question #57

Whenever an entity must use net realizable value rather than cost to value an inventory item, the inventory account is reduced and the account "expense due to decline of inventory to net realizable value" is increased. The balance of this account is reflected as a separate item on the

A. alance sheet as a deduction from inventory

B. ncome statement as an extraordinary loss

C. ncome statement as a deduction from gross profit on sales

D. ncome statement as an operating expense

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Correct Answer: C

Question #58

Company P, which produces computers, uses a target pricing and costing approach. The following is Company P's costs and revenues for the year just ended:Company P plans to increase sales of computers to 15, 000 in the next year by reducing the unit price to US $1, 250. If Company P wishes to achieve a unit target operating income of 10%, by what amount must it reduce the full cost per unit?

A. S $100

B. S $125

C. S $225

D. S $250

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Correct Answer: C

Question #59

An auditor conducts a consulting engagement that involves analysis and measurement of key outputs against those of best organizations as well as identification of key actions that contribute to the performance differences. What type of engagement does this represent?

A. ssurance

B. ompliance

C. ue diligence

D. otal quality management

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Correct Answer: D

Question #60

The techniques used in analyzing the problem is best described as

A. imultaneously theory

B. ntegrated autogressive-moving average ARIMA) modeling

C. inear programming

D. ifferential calculus

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Correct Answer: A

Question #61

If the entity's raw materials inventory as of r.~. 'ITiber 31 of the current yearending inventory) was miscounted and the true figure was higher than US $ one effect on the year-end financial statements would be that

A. rofit is overstated

B. ost of goods said is overstated

C. orking capital is overstated

D. ost of goods produced is understated

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Correct Answer: B

Question #62

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

A. dentify internal audit engagement scope limitations

B. ndicate future internal audit staffing needs

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

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

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Correct Answer: D

Question #63

A financial statement includes all of the following items: profit. depreciation, operating activities, and financing activities. What financial statement is this?

A. alance sheet

B. ncome statement

C. tatement of cash flows

D. tatement of changes in equity

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Correct Answer: C

Question #64

In a critical path analysis, if slack time in an activity exists, the activity

A. s not essential to the overall project

B. s a backup activity to replace a main activity should it fail

C. ould be delayed without delaying the overall project

D. nvolves essentially no time to complete

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Correct Answer: C

Question #65

The present value of future benefits payable as a result of work done before the introduction of, or amendment to, postemployment benefits is the

A. dditional minimum liability

B. air value of plan assets

C. efined benefit obligation

D. ast service e cost

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Correct Answer: D

Question #66

Which of the following internal controls is likely to prevent pollution from waste disposal before it occurs, rather than detect it after it occurs?

A. dentification of large budget variances in disposal costs for hazardous chemicals

B. estricted access to environmental department files

C. ormal on-the-job training program conducted by the environmental staff

D. amples of water and solid waste taken daily with the results recorded in a log

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Correct Answer: C

Question #67

A fire destroyed a large portion of an organization's inventory. Should management be permitted to use the internal auditors' workpapers to file an insurance claim as a result of the fire?

A. o

B. es

C. o

D. es

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Correct Answer: B

Question #68

Which of the following factors should an internal auditor consider when planning an audit of an activity?

A. he objectives of the activity, the number of employees involved, and the control system

B. he qualifications of management, the significant risks, and the control system

C. he objectives of the activity, the significant risks, and the control system

D. he number of employees involved, the control system, and the recommendations of external auditors

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Correct Answer: C

Question #69

An advantage of using bar codes rather than other means of identification of parts used by a manufacturer is that

A. he movement of all parts is controlled

B. he movement of parts is easily and quickly recorded

C. endors can use the same part numbers

D. endors use the same identification methods

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Correct Answer: B

Question #70

On a balanced scorecard, which of the following is not a customer measure?

A. arket share

B. conomic value added

C. ervice response time

D. arranty expense

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Correct Answer: B

Question #71

A seller's price is below an appropriate measure of casts. Moreover, the seller has a reasonable prospect of recovering the resulting loss in the future through higher prices or a greater market share. Accordingly, the seller has engaged in

A. ollusive pricing

B. umping

C. redatory pricing

D. rice discrimination

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Correct Answer: C

Question #72

During a routine audit of a customer service hotline, an internal auditor noticed that an unusually high number of customer complaints pertained to payments not being applied to the customers' accounts. Which of the following would most likely be the reason for the high volume of complaints?

A. n ineffective customer service department

B. oor controls in the invoice approval processes

C. heck tampering by an employee

D. ubmission of fraudulent expense reports

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Correct Answer: C

Question #73

The moving-average method of forecasting

A. s a cross-sectional forecasting method

B. egresses the variable of interest on a related variable to develop a forecast

C. erives final forecasts by adjusting the initial forecast based on the smoothing constant

D. ncludes each new observation in the average as it becomes available and discards the oldest observation

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Correct Answer: D

Question #74

A chief audit executive (CAE) decides to implement a quality assurance and improvement program for the internal audit department but encounters some resistance from internal audit staff concerning how the program should be monitored. Internal audit staff would prefer that all monitoring be performed through supervision during an audit engagement. The CAE needs to include in the monitoring program periodic quality assessments by staff independent from the audit engagement. How should the CAE promote the qual

A. ncourage all internal audit staff to see the independent quality assessments as part of a process to continuously improve the internal audit department's performance

B. xplain that independent quality assessments will identify those staff whose performance does not meet the requirements of the internal audit department

C. rrange for internal audit staff to be given appropriate training in all audit engagement procedures

D. ell internal audit staff that the only purpose of the independent quality assessments is to ensure that errors are corrected quickly before reports are issued

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Correct Answer: A

Question #75

A warehouse manager for a supply company stated that products are shipped on a timely basis. During a preliminary walk through, an internal auditor observes some instances of delayed shipping. What can the auditor logically conclude from this contradictory information?

A. he warehouse manager does not understand the operations

B. he auditor's observations were not representative of the population

C. nternal controls over customer orders are weak

D. dditional information is needed before a conclusion can be drawn

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Correct Answer: D

Question #76

A transferor entity most likely should continue to recognize a transferred financial asset if the

A. ransferor may reacquire the asset, and the asset is readily obtainable in the market

B. ransferee may sell the full fair value of the asset

C. ransferor has an option to reacquire the asset, and the reacquisition price is fair value

D. ransferor is entitled and obligated to repurchase the asset, and the transferee receives a lender's return

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Correct Answer: D

Question #77

During the course of a bank audit, an auditor discovers that one loan officer has approved loans to a number of related but separate organizations, in violation of regulatory policies. The loan officer indicated that it was an oversight and would not happen again. However, the auditor believes that the action may have been intentional because the loan officer is a relative of one of the primary owners of the corporate group that controls the related organizations. The auditor should

A. nform management of the conflict of interest and the violation of the regulatory requirements and suggest further investigation

B. eport the violation to the regulatory agency because it constitutes a significant breakdown of the bank's control structure

C. ot report the violation if the loan officer agrees to take corrective action

D. xpand the audit work to determine if there may be fraudulent activity on the part of the loan officer and report the findings to management when the followup investigation is complete

View answer

Correct Answer: A

Question #78

Which of the following terms is not used in project management?

A. ummy activity

B. atest finish

C. ptimistic time

D. umpy demand

View answer

Correct Answer: D

Question #79

Market-skimming pricing strategies could be appropriate when

A. o buyers want the product at a high price

B. he costs of producing a small volume are low

C. ompetitors can easily enter the market

D. he product is of poor quality

View answer

Correct Answer: B

Question #80

The carrying costs associated with inventory management include

A. nsurance costs, shipping costs, storage costs, and obsolescence

B. torage costs, handling costs, capital invested, and obsolescence

C. urchasing costs, shipping costs, setup costs, and quantity discounts lost

D. bsolescence, setup costs, capital invested, and purchasing costs

View answer

Correct Answer: B

Question #81

In advance of a preliminary survey, a chief audit executive sends a memorandum and questionnaire to the supervisors of the department to be audited. What is the most likely result of that procedure?

A. t creates apprehension about the audit engagement

B. t involves the engagement client's supervisory personnel in the audit

C. t is an uneconomical approach to obtaining information

D. t is only useful for audits of distant locations

View answer

Correct Answer: B

Question #82

Which of the following is not an appropriate role of the internal audit activity in governance activities?

A. upport the board in enterprise-wide risk assessment

B. nsure the timely implementation of audit recommendations

C. onitor compliance with the organization's ethics policies

D. iscuss areas of significant risk

View answer

Correct Answer: B

Question #83

Questions used to interrogate individuals suspected of fraud should

A. dhere to a predetermined order

B. over more than one subject or topic

C. ove from general to specific

D. irect the individual to a desired answer

View answer

Correct Answer: C

Question #84

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

A. fter the contract is signed

B. s progress is made toward completion of the contract

C. s cash is received

D. hen the contract is completed

View answer

Correct Answer: B

Question #85

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

A. he rate of absenteeism

B. he goal of becoming a leading manufacturer

C. he number of insurance claims processed per day

D. he goal of increasing market share

View answer

Correct Answer: C

Question #86

What is residual risk?

A. mpact of risk

B. isk that is under control

C. isk that is not managed

D. nderlying risk in the environment

View answer

Correct Answer: C

Question #87

As a matter of policy, the chief audit executive routinely rotates internal audit staff assignments andperiodically interviews the staff to discuss the potential for conflicts of interest. These actions helpfulfill which of the following internal audit mandates?

A. rganizational independence

B. rofessional objectivity

C. ue professional care

D. ndividual proficiency

View answer

Correct Answer: B

Question #88

The following facts are presented for an entity that uses the retail inventory method_What is the forgone sales revenue from inventory shrinkage?

A. S $3

B. S $5

C. S $35

D. S $45

View answer

Correct Answer: B

Question #89

Which of the following is not an appropriate type of coordination between the internal audit activity and regulatory auditors?

A. egulatory auditors share their perspective on risk management, control, and governance with the internal auditors

B. nternal auditors perform fieldwork at the direction of the regulatory auditors

C. nternal auditors review copies of regulatory reports in planning related internal engagements

D. egulatory and internal auditors exchange information about planned activities

View answer

Correct Answer: B

Question #90

Which of the following leases ordinarily should be classified as a finance lease by the lessee?

A. ease A only

B. ease B only

C. eases A, C and D

D. eases C and D only

View answer

Correct Answer: C

Question #91

A bank is developing an integrated customer information system. The type of audit involvement that would most likely help avoid implementation of a system that does not cover all types of accounts would be

A. design review

B. n application control review

C. source code review

D. n access control review

View answer

Correct Answer: A

Question #92

A daily report which lists unsuccessful attempts to log on to a computer system is a

A. orrective control

B. reventive control

C. etective control

D. ompensating control

View answer

Correct Answer: C

Question #93

Assume that the construction company recognizes US $2 million of revenue for the long- term contract in Year 1 If the company uses the percentage-of-completion methodcost-to- cost basis), the difference between revenue recognized to date and contract billings at the end of Year 1 will be shown on the December 31, Year 1, balance sheet as a of .

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: D

Question #94

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

A. egression analysis

B. alculus

C. arkov process

D. ueuing theory

View answer

Correct Answer: B

Question #95

Which of the following is not an appropriat basis for measuring the cost of property, plant, and equipment?

A. he purchase price, freight costs

B. roceeds obtained in the process of readying land for its intended purpose, such as from the sale of cleared timber, should be recognized immediately as income

C. he costs of improvements to equipment incurred after its acquisition should be added to the asset's cost if they increase future service potential

D. ll costs incurred in the construction of a plant building, from excavation to completion, should be considered as part of the asset's cost

View answer

Correct Answer: B

Question #96

A division uses a regression in which monthly advertising expenditures are used to predict monthly product sales both in millions of US dollars). The results show a regression coefficient for the independent variable equal to 0.8. This coefficient value indicates that

A. he average monthly advertising expenditure in the sample is US $800, 000

B. hen monthly advertising is at its average level, product sales will be US $800, 000

C. n average, every additional dollar of advertising results in US $

D. dvertising is not a good predictor of sales because the coefficient is so small

View answer

Correct Answer: C

Question #97

The following data on variables x and y was collected from June to October:The correlation coefficient between variables x and is nearest to

A.

B. 1

C.

D.

View answer

Correct Answer: B

Question #98

Which of the following criteria would be most useful to a sales department manager in evaluating the performance of the manager's customer-service group?

A. he customer is always right

B. ustomer complaints should be processed promptly

C. mployees should maintain a positive attitude when dealing with customers

D. ll customer inquiries should be answered within 7 days of receipt

View answer

Correct Answer: D

Question #99

Which of the following best describes the underlying premise of the COSO enterprise risk management framework?

A. anagement should set objectives before assessing risk

B. very entity exists to provide value for its stakeholders

C. olicies are established to ensure that risk responses are performed effectively

D. nterprise risk management can minimize the impact and likelihood of unanticipated events

View answer

Correct Answer: B

Question #100

During an audit engagement, the internal auditor discussed a risk mitigation recommendation withthe manager of the area under review. The manager disagreed with the risk assessment andrecommendation. The two failed to come up with an alternative solution, and the auditor decided toproceed with including the original recommendation in the engagement report. Which of thefollowing is especially important in dealing with this type of situation?

A. oft skills in communication, negotiation, and collaboration

B. echnical skills in the area under review

C. rofessional qualifications and certification in internal auditing

D. onfidentiality and independence

View answer

Correct Answer: A

Question #101

Which of the following factors could interfere with effective problem solving by an internal auditor?I). Reacting to previous experiences with clientsII). Focusing only on the most likely causeIII). Correcting the symptoms of problems

A. only

B. II only

C. and II only

D. , II, and III

View answer

Correct Answer: D

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