IIA CIA Part 1 Exam Sample Questions, Free Practice Questions

Question #1

The relationship between the present value of a future sum and the future value of a present sum can be expressed in terms of their respective interest factors. lithe present value of US $200, 000 due at the end of 8 years. at 10%. is US $93, 300. what is the approximate future value of US $200, 000 invested for the same length of time and at the same rate?

A. S $93, 300

B. S $200, 000

C. S $293, 300

D. S $428, 724

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Correct Answer: D

Question #2

While researching a topic during a telecommunications audit, an auditor identified a security vulnerability with the entity's revenue accounting system. The accounting system is outside the scope of the current audit engagement. The auditor should

A. isregard the security vulnerability and address it during the audit of the revenue accounting system

B. nclude the revenue accounting system in the scope of the current audit engagement and address the vulnerability in the report

C. lert management to the identified security vulnerability

D. evelop a solution to the security vulnerability and then inform management

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Correct Answer: C

Question #3

A recent survey indicated that residents of a small town take the train to a nearby city eight times per month, on average. The same survey showed that the number of train trips that a resident takes per month (y) is determined by the number of days per month that the resident works in the nearby city (x), according to the equation y = 2 + 2x. A person who never works in the nearby city is expected to take the train

A. ero times per month

B. wo times per month

C. our times per month

D. ight times per month

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Correct Answer: B

Question #4

A company has several departments that conduct technical studies and prepare reports for clients. Recently, there have been long delays in having these reports copied at the company's centralized copy center because of the dramatic increase in business. !Management is considering decentralizing copy services to reduce the turnaround and provide clients with timely reports. An appropriate technique for minimizing turnaround time and the cost of providing copy services is

A. ueuing theory

B. inear programming

C. egression analysis

D. ame theory

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Correct Answer: A

Question #5

Which of the following is correct with respect to interim communication during an audit engagement?I). Unsubstantiated information that warrants management's attention can be communicated, provided that its nature is disclosed.II). Audit recommendations should be reserved for the final audit report.III). Significant findings should be communicated immediately rather than waiting until completion of the engagement.

A. only

B. and III only

C. I and III only

D. , II, and III only

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Correct Answer: B

Question #6

Which of the following lists these audit steps in the correct chronological order?I). Create the engagement work program.II). Conduct the exit conference.III). Perform fieldwork.IV). Schedule the audit engagement.V). Issue a summary report of audit findings.

A. , IV, III, II, V

B. , IV, II, III, V

C. V, I, III, II, V

D. V, III, I, V, II

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Correct Answer: C

Question #7

At the inception of a finance lease, how should the lessee account for guaranteed residual value?

A. s part of minimum lease payments at present value

B. s part of minimum lease payments at future value

C. s part of minimum lease payments at future value of an annuity due

D. s not a part of the lease contract

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Correct Answer: A

Question #8

Which of the following hiring procedures provides the most control over the accuracy of information submitted on an employment application?

A. pplicants are required to submit unofficial copies of their transcripts along with the application as verification of their educational credentials

B. he hiring organization calls the last place of employment for each finalist to verify the employment length and position held

C. etters of recommendation that attest to the applicants character must be mailed directly to the hiring organization rather than being submitted by the applicant

D. pplicants are required to sign a statement that the information on the application is true and correct as a confirmation of its truth

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Correct Answer: B

Question #9

The problem just described is beast approved by use of which quantitative method?

A. ntegrated autoregressive-moving average ARIMA) modeling

B. xponential smoothing, multiple parameters

C. ueuing theory

D. inear programming

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Correct Answer: C

Question #10

Quality control programs employ many tools for problem definition and analysis. A scatter diagram is one of these tools. The objective of a scatter diagram is to

A. isplay a population of items for analysis

B. how frequency distribution in graphic form

C. ivide a universe of data into homogeneous groups

D. how the vital trend and separate trivial items

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Correct Answer: A

Question #11

Which adjusting entry should be used at year-end to account for interest expense on the long-term debt?

A. nterest expense US $100, 000Interest payable US $100, 000

B. nterest expense US $50, 000Cash US $50, 000

C. nterest payable US $100, 000Interest expense US $100, 000

D. nterest expense US $50, 000Interest payable US $50, 000

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Correct Answer: D

Question #12

Which of the following is not true about the advantages of adopting ISO 9000 standards?

A. doption of ISO 9000 standards may allow the company to sell products in foreign markets

B. SO registration makes customers more comfortable with the supplier's products and services

C. SO 9000 allows companies to understand who internal customers and users are without sharing private information

D. SO registration may help companies discover internal process and quality improvements

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Correct Answer: C

Question #13

A chief audit executive used risk assessment to prepare the audit work schedule. Which of the following would be the least appropriate reason to modify the schedule?

A. eed for coordination of audit activities with the external auditors

B. equest for postponement since the audit would be too complicated

C. hange in the relative risk of auditable activities during the year

D. udget constraints or expansions

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Correct Answer: B

Question #14

When reviewing a report prepared by an internal auditor who has a personal friend employed in the area being audited, a chief audit executive's primary focus would be to ensure that the report

A. s fair, impartial, and unbiased

B. s easily understood and findings are presented in a logical manner

C. s clearly worded and avoids unnecessary detail, redundancy, and wordiness

D. s free from errors and misstatements

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Correct Answer: A

Question #15

In a well-developed management environment, the internal audit activity would

A. eport the results of audit engagements to line management as well as to senior management

B. onduct regularly scheduled audits of existing systems and initial audits of new computer systems after they have begun operating

C. nterface primarily with senior management, minimizing interactions with line managers who are the subjects of internal audit work

D. ocus on the maintenance of accounting controls (such as segregation of the duties of authorization, recording, and custody) and report results to the audit committee

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Correct Answer: A

Question #16

Which of the following is an example of a contingent liability?

A. retail store in a shopping mall pays the lessor a minimum monthly rent plus an agreed-upon percentage of sales

B. company is refusing to pay the invoice for the annual audit because it seems higher than the amount agreed upon with the public accounting entity's partner

C. company accrues income tax payable in its interim financial statements

D. lessee agrees to reimburse a lessor for a shortfall in the residual value of an asset under lease

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Correct Answer: D

Question #17

A reader of a statement of cash flows wishes to analyze the major classes of gross cash receipts and gross cash payments from operating activities. Which methods of reporting cash flows from operating activities will supply that information?

A. oth the direct and indirect methods_

B. nly the direct method

C. nly the indirect method

D. either method

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Correct Answer: B

Question #18

A company provides fertilization, insect control, and disease control services for a variety of trees, plants, and shrubs on contract basis. For US $50 per month, the company will visit the subscriber's premises and apply appropriate. If the subscriber has any problem between the regularity scheduled application dates, the company's personal will promptly make additional service calls to correct the situation. Some subscribers elect to pay for an entire year because the company offers an annual price of 115

A. hen the cash is collected

B. venly over the year as the services are performed

C. t the end of the contract year after all of the services have been performed

D. t the end of the fiscal year

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Correct Answer: B

Question #19

The most important reason for the chief audit executive to ensure that the internal audit department has adequate and sufficient resources is to

A. nsure that the function is adequately protected from outsourcing

B. emonstrate sufficient capability to meet the audit plan requirements

C. stablish credibility with the audit committee and management

D. ulfill the need for effective succession planning

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Correct Answer: B

Question #20

At December 31, Year 2, an entity had the following obligations that were expected to be refinanced:The 17% note payable was issued on October 1, Year 1, and matures on July 1, Year 3. No loan agreement existing at the balance sheet date provides for refinancing. The 15% note payable was issued on May 1, Year 1. and matures on May 1, Year 3. On February 1, Year 3, the entire US $140, 000 balance of the 17% note payable was refinanced by issuance of a long-term debt instrument. On February 7, Year 3, the ent

A. S $0

B. S $140, 000

C. S $200, 000

D. S $340, 000

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Correct Answer: A

Question #21

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

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

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

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

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

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Correct Answer: A

Question #22

Which line segment represents the reorder lead time?

A. B

B. E

C. F

D. C

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Correct Answer: D

Question #23

Which of the following factors related to an organization's performance management system would not contribute to the organization's success?

A. erformance management is linked to competence and knowledge management

B. ubordinates and superiors have shared responsibility for the performance management process

C. taff members own the performance management process, thereby ensuring implementation and accountability

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

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Correct Answer: C

Question #24

The use of pre-employment background checks is what type of control?

A. reventive

B. etective

C. orrective

D. irective

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Correct Answer: A

Question #25

A tax consultancy agency retains sensitive personal information regarding its clients. Which of the following is a violation of acceptable privacy practices?

A. opies of printed client information not used by the agency are shredded

B. mployees share client information with coworkers with the permission of the client

C. he agency only releases client information with management's approval

D. he agency advises clients of their privacy rights before they commence business with the agency

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Correct Answer: C

Question #26

Confirmation would be most effective in addressing the existence assertion for

A. he addition of a milling machine to a machine shop

B. ales of merchandise during the regular course of business

C. nventory held on consignment

D. he granting of a patent for a special process developed by the organization

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Correct Answer: C

Question #27

Suppose that an entity has paid one of its liabilities t ice during the year. in error The effects of this mistake would be

A. ssets

B. ssets, net income, and equity are unaffected

C. ssets and liabilities are understated

D. ssets and profit and equity} are understated, and liabilities are overstated

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Correct Answer: C

Question #28

To ensure that due professional care has been taken during an audit engagement, an internal auditor should always

A. nsure that all financial information related to the engagement is included in the audit plan and examined for irregularities

B. ocument all audit tests completely

C. onsider the possibility of noncompliance or irregularities at all times during an engagement

D. otify the audit committee of any noncompliance or irregularity discovered during an engagement

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Correct Answer: C

Question #29

A bakery chain has a statistical model that can be used to predict daily sales at individual stores based on a direct relationship to the cost of ingredients used and an inverse relationship to rainy days. What conditions would an auditor look for as an indicator of employee theft of food from a specific store?

A. n a rainy day, total sales are greater than expected when compared to the cost of ingredients used

B. n a sunny day, total sales are less than expected when compared to the cost of ingredients used

C. oth total sales and cost of ingredients used are greater than expected

D. oth total sales and cost of ingredients used are less than expected

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Correct Answer: B

Question #30

A major difference between enterprise risk management and traditional risk management lies in the narrow focus of traditional risk management onI). Property and liability risks.II). Risks with insurance solutions.III). Risks impacting organizational objectives.

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 #31

The cost of materials has risen steadily over the year. The entity uses its newest materials first when removing items from inventory. Which of the following methods of estimating the ending balance of the materials inventory account will result in the highest profit, all other variables held 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 #32

An organization's sales professionals are potentially abusing the use of cellular phones, resulting in an alarming increase in telephone expenses. Which of the following controlsis least likely to curb this abuse?

A. eveloping periodic reports to management that show type, length, and number of calls per sales professional, with related totals and comparisons

B. equiring sales professionals to pay monthly cellular phone bills and subsequently submit only business calls for reimbursement using an expense report process

C. equiring sales managers to approve monthly bills prior to payment, explain budget variances, and explain increases from previous periods

D. equiring authorization of the cellular phone bill payment by the manager of the telecommunications department

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Correct Answer: D

Question #33

Which of the following is the primary concern of an internal auditor in a comprehensive audit of an organization?

A. ccuracy of reports on the source and use of funds

B. xtent of achievement of the organization's mission

C. onfirmation of compliance with policies and procedures

D. ppropriateness of procedures related to the budgeting process

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Correct Answer: B

Question #34

A chief audit executive (CAE) is obtaining information required by a regulatory oversight body and discovers a situation that requires management to take immediate corrective action. What is the best course of action for the CAE to take?

A. ait until all of the information has been gathered and reported to the oversight body before reporting the situation to management

B. heck with legal counsel to determine whether the situation can be reported to management before all information has been submitted to the oversight body

C. eport the situation to management immediately

D. chedule an engagement to explore the situation in depth, before reporting to either management or the oversight body

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Correct Answer: C

Question #35

A balanced scorecard is primarily concerned with

A. taff

B. tructure

C. trategy

D. ystems

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Correct Answer: C

Question #36

The gross profit amount from Year 3 sales to be deferred to future years would be

A. S $2, 000

B. S $3

C. S $8, 000

D. S $10, 000

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Correct Answer: C

Question #37

Which of the following steps is necessary to provide a summary level description of a complex new computer system?

A. repare a control flowchart

B. erform program code checking and flowchart verification

C. repare a system flowchart

D. repare a detailed narrative

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Correct Answer: C

Question #38

A company has entered into a $20, 000, 000 fixed-price contract with a general contractor for the construction of a new retail outlet. For this contract, which of the following would represent the greatest risk?

A. xcessive labor charged to the project

B. oor physical protection of materials and equipment

C. ailure to complete the project within budget

D. ubstitution of inferior materials

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Correct Answer: D

Question #39

The present value of US $100, 000 due at the end of eight years. at 10%. is US $46.650. What is the approximate value of US $100.000 invested for the same length of time and at the same rate?

A. S $46

B. S $100, 000

C. S $114

D. S $214, 360

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Correct Answer: D

Question #40

A manager of one of a retailer's several retail outlets is stealing cash from cash sales, recording the sales as accounts receivable, and subsequently writing off the fictitious accounts receivable as bad debts. Which of the following comparisons would be most effective in signaling the possibility of such a fraud?

A. ad debt expense as a percentage of sales, compared to that of the other outlets

B. ad debt expense as a percentage of sales, compared to that of previous years

C. ercentage of past due accounts receivable, compared to that of the other outlets

D. ercentage of past due accounts receivable, compared to that of previous years

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Correct Answer: A

Question #41

The effect of just-in-time production approaches

A. educes the dependency on suppliers

B. educes the cost of implementing strategies

C. ecreases production facility flexibility

D. ncreases the need for a dependable workforce

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Correct Answer: B

Question #42

When interrogating an individual who is suspected of fraud, it is appropriate to

A. ell the individual that any information disclosed in the interrogation will not be disclosed outside of the company

B. tart the interview with questions to which the interviewer already knows the answer

C. iscontinue questioning once the individual has confessed to the fraud

D. repare a list of questions prior to the interrogation and strictly adhere to the list

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Correct Answer: B

Question #43

While auditing a marketing department, the internal auditor discovered that the product life cycle model was used to structure the marketing mix. The manager has asked the auditor for advice about increasing advertising of various products. During which stage of the life cycle would it be appropriate to advertise that the company's product is the lowest price and best quality of all competitors?

A. ntroduction stage

B. rowth stage

C. aturity stage

D. ecline stage

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Correct Answer: C

Question #44

In order to effectively handle conflict between audit team members, an audit team leader should

A. void addressing the conflict until the leader is sure that there is a problem

B. e assertive and keep the team members focused on a resolution

C. sk one of the team members to resolve the issue by being more conciliatory

D. ransfer one of the team members to another assignment

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Correct Answer: B

Question #45

An auditor evaluating excessive product rejection rates should investigateI). Communication between sales and production departments on sales returns.II). Volume of product sales year to date in comparison to prior year to date.III). Changes in credit ratings of customers versus sales to those customers.IV). Detailed product scrap accounts and accumulations.

A. and III only

B. and IV only

C. I, III, and IV only

D. , II, III, and IV

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Correct Answer: B

Question #46

RLF Corporation had profit before taxes of US $60, 000 for the year. Included in this amount were depreciation of US $5, 000. a charge of US $6, 000 for the amortization of bond discounts, and US $4, 000 for interest expense. The estimated cash flow for the period is

A. S $60, 000

B. S $66, 000

C. S $49, 000

D. S $71, 000

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Correct Answer: D

Question #47

What should the company focus on to achieve quality more economically?

A. ppraisal costs

B. revention costs

C. nternal failure costs

D. xternal failure costs

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Correct Answer: B

Question #48

Which of the following analysis techniques would be most useful in identifying the causes of adverse conditions?

A. ishbone diagrams

B. antt charts

C. areto diagrams

D. ystem flowcharts

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Correct Answer: A

Question #49

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

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

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

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

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

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Correct Answer: D

Question #50

An account executive has just designed a Monte Carlo model to estimate the costs of a particular type of project. Validating the model could include all except

A. hecking for errors in the computer programming

B. hecking that assumed probability distributions are reasonable

C. omparing test results with previously validated models

D. pplying the model

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Correct Answer: D

Question #51

In which of the following organizational structures does total quality management TOM) work best?

A. ierarchal

B. eams of people from the same specialty

C. eams of people from different specialties

D. pecialists working individually

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Correct Answer: C

Question #52

Which of the following tests must an internal auditor perform in order to ensure that inbound electronic data interchange (EDI) transactions are received and translated accurately?I). Computerized tests to assess transaction reasonableness and validity.II). Review of log books to ensure that transactions are logged upon receipt.III). Edit checks to identify unusual transactions.IV). Verification of limitations on the authority of users to initiate specific EDI transactions.

A. and IV only

B. I and III only

C. , II, and III only

D. , II, III, and IV

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Correct Answer: C

Question #53

What is the most effective and efficient control to prevent the diversion of office supplies to an employee's residence by entering an alternate delivery location in an electronic data interchange system?

A. ompare the total number of items ordered with the total number of items received at all mail rooms, and investigate shortages

B. enerate a periodic report that lists any orders with delivery destinations other than company mail rooms, and trace to shipping documents

C. llow only valid mail room location fields to be used, and require changes to the table of valid locations to be approved on-line

D. nstruct the vendor to deliver only to the mail room for the largest location, and have company personnel send supplies to other locations as needed

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Correct Answer: C

Question #54

According to the Standards, results of the internal audit activity's internal and external quality program assessments must be communicated to the board or governing body in order to

A. rovide accountability and transparency in the management and supervision of internal audit work

B. nsure that action is taken by internal audit staff to correct all quality non- conformances in internal audit work

C. otivate internal audit staff to conform with all quality systems used in their internal audit work

D. emonstrate that all internal audit staff have been instructed in the importance of quality in internal audit work

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Correct Answer: A

Question #55

A widely used approach that managers use to recognize uncertainty about individual items and to obtain an immediate financial estimate of the consequences of possible prediction errors is

A. xpected value analysis

B. earning curve analysis

C. ensitivity analysis

D. egression analysis

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Correct Answer: C

Question #56

All of the following would be part of a control system to prevent release of waste water that does not meet discharge standards except

A. erforming chemical analysis of the water, prior to discharge, for components specified in the permit

B. pecifying (by policy, training, and advisory signs) which substances may be disposed of via sinks and floor drains within the facility

C. eriodically flushing sinks and floor drains with a large volume of clean water to ensure that pollutants are sufficiently diluted

D. stablishing a preventive maintenance program for the pretreatment system

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Correct Answer: C

Question #57

An entity has publicly announced a detailed, formal plan to dispose in its entirety of a component of the entity that represents a separate major line of business that is distinct operationally and financially. Which of the following is the proper treatment of the disclosures that should be made after the announcement?

A. s part of continuing operations

B. s a discontinued operation

C. s an extraordinary item

D. s a prior-period item

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Correct Answer: B

Question #58

A bank has changed from a system in which lines are formed in front of each teller - to a one- line, multiple-server system. When a teller is free, the person at the head of the line goes to that teller. Implementing the new system will

A. ecrease the bank's wage expenses because the new system uses fewer tellers

B. ecrease time customers spend in the line

C. ncrease accuracy in teller reconciliations at the end of the day because fewer customers are served by each teller

D. mprove on-the-job training for tellers because each will perform different duties

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Correct Answer: B

Question #59

If RCF does not maintain a safety stock, the estimated total carrying costs for the computer chairs for the coming year based on their current schedule is

A. S $4, 000

B. S $5, 000

C. S $6, 250

D. S $12, 500

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Correct Answer: C

Question #60

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

A. 1 days

B. 4 days

C. 5 days

D. 0 days

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Correct Answer: C

Question #61

Which of the following methods of data collection would be most appropriate to use in identifying hypotheses that can be tested on a larger scale?

A. ase study

B. ampling

C. valuation synthesis

D. odeling

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Correct Answer: A

Question #62

Just-in-time JIT) inventory systems have been adopted by large manufacturers to minimize the carrying costs of inventories. Identify the primary vulnerability of JIT systems.

A. omputer resources

B. aterials supply contracts

C. ork stoppages

D. mplementation time

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Correct Answer: C

Question #63

The entity had sales for the period of

A. S $891, 667

B. S $1, 100, 000

C. S $1, 188, 890

D. S $1, 466, 667

View answer

Correct Answer: C

Question #64

All of the following tools are employed to control large scale projects except

A. rogram evaluation and review technique (PERT)

B. ritical path method

C. tatistical process control

D. antt charts

View answer

Correct Answer: C

Question #65

At December 31, SCM Ltd., a calendar-year entity, reported the following accounts for which the carrying amount differed from the tax base:

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: B

Question #66

When performing benchmarking during the planning phase of a performance audit, an internal auditor should

A. etermine the current performance gap

B. roject future performance levels

C. evelop functional action plans

D. dentify comparative organizations

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Correct Answer: D

Question #67

Because of a defect discovered in its seat belts in December Year 1, an automobile manufacturer believes it is probable that it will be required to recall its products. The final decision on the recall is expected to be made in March Year 2. The cost of the recall is reliably estimated to be US $2.5 million. How should this information be reported in the December 31, Year 1, financial statements?

A. s a loss of US $2

B. s an adjustment of the opening balance of retained earnings equal to US $25 million

C. s an appropriation of retained earnings of US $25 million

D. t should not be disclosed because it has not yet happened

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Correct Answer: A

Question #68

A followup review found that a significant internal control weakness had not been corrected. The chief audit executive (CAE) discussed this matter with senior management and was informed of management's willingness to accept the risk. The CAE should

A. o nothing further because management is responsible for deciding the appropriate action to be taken in response to reported audit findings and recommendations

B. nitiate a fraud investigation to determine if employees had taken advantage of the internal control weakness

C. nform senior management that the weakness must be corrected and schedule another followup review

D. ssess the reasons that senior management decided to accept the risk and inform the board of senior management's decision

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Correct Answer: D

Question #69

Which of the following is a noncash item?

A. dministrative expense

B. nterest expense

C. ncome tax expense

D. epreciation expense

View answer

Correct Answer: C

Question #70

Which must be part of any risk model involving inventory valuation?

A. roduct warranty policies

B. endor pricing policies

C. nventory shrinkage expense

D. nnual sales forecasts

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Correct Answer: C

Question #71

Finance and operating leases differ in that the lessor

A. btains use of the asset only under a finance lease

B. s using the lease as a source of financing only under an operating lease

C. akes rent payments that are actually installment payments constituting a payment of both principal and interest only under a finance lease

D. inances the transaction through the leased asset only under a finance lease

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Correct Answer: D

Question #72

The internal auditor found that the purchasing department has a policy of setting all purchasing lead times to the highest number of days experienced within each product subassembly}, even though some subassemblies required 3 or more months to complete. To address the objective of reducing inventory holding costs related to this policy, the internal auditor should focus on

A. eviewing production requirements for a sample of products to determine at which point in the production process materials and subassemblies are needed

B. valuating whether product-line assignments were rotated among the members of the purchasing department

C. dentifying signature approval authority} among members of the purchasing department in relation to any computer system controls

D. esting those products having the highest sales to determine the average number of days that the completed products were held in inventory

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Correct Answer: A

Question #73

When conducting audit followup of a finding related to cash management routines, an internal auditor would expect to find that all of the following changes have occurred except

A. he steps being taken are resolving the condition disclosed by the finding

B. nherent risk has been eliminated as a result of resolution of the condition

C. ontrols have been implemented to deter or detect a recurrence of the finding

D. enefits have accrued to the entity as a result of resolving the condition

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Correct Answer: B

Question #74

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

A. , 3, 2, 4

B. , 1, 3, 2

C. , 1 , 2, 4

D. , 2, 3, 4

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Correct Answer: A

Question #75

The percentage of orders that are rush orders and the percentage of returns to total orders are examples of which of the following types of control activities?

A. uality control monitoring

B. irect functional management

C. enchmarking

D. erformance indicators

View answer

Correct Answer: D

Question #76

Which of the following would be the most useful in developing an annual audit plan?

A. eneral purpose audit software

B. oting software and hardware

C. lowcharting and data capture software

D. isk assessment software

View answer

Correct Answer: D

Question #77

An entity issues bonds payable at a premium. You are analyzing the effects of using the effective interest rateconstant yield) method in accounting for the bonds over their 10- year life_ Which of the following trends related to the reported amounts for1) interest expense and2) carrying amount of the bonds would you expect to find?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: C

Question #78

After several years in the engineering department, an engineer was transferred to the internal audit department. One month later, the new auditor was assigned to an assurance engagement for the engineering department. When the auditor's former engineering supervisor suggested a change in the sample selection method, the auditor consulted with the audit supervisor. They determined that the suggested method would not be as representative and that the original selection method should be used. In this situation

A. aintained an independent mental attitude and is therefore objective

B. as subordinated professional judgment, and objectivity is therefore impaired

C. oes not have objectivity since the auditor recently transferred from the engineering department

D. oes not have independent organizational status since the auditor recently transferred from the engineering department

View answer

Correct Answer: C

Question #79

According to the International Professional Practices Framework, which of the following should be stated in the internal audit charter?I) Authorization for access to records.II) The internal audit activity's position within the organization.III) The relationship between the internal audit activity and the board.IV) The scope of internal audit activities.

A. and IV only

B. I and III only

C. , II, and IV only

D. , II, III, and IV

View answer

Correct Answer: C

Question #80

Internal auditors exercise judgment about the type and amount of information to be collected. The primary purpose of this judgment is to

A. liminate the risk of drawing incorrect conclusions

B. inimize the cost of the audit engagement

C. omply with the Standards

D. rovide a sound basis for audit observations and recommendations

View answer

Correct Answer: D

Question #81

Performance appraisal systems might use any of three different approaches: 1) who did the job, 2) how the job was done, or 3) what was accomplished. Which approach is used by a system that places the focus on how the job was done?

A. ehavior-oriented

B. oal-oriented

C. rait-oriented

D. mployee-oriented

View answer

Correct Answer: A

Question #82

Using the balanced scorecard approach, an organization evaluates managerial performance based on

A. single ultimate measure of operating results, such as residual income

B. ultiple financial and nonfinancial measures

C. ultiple nonfinancial measures only

D. ultiple financial measures only

View answer

Correct Answer: B

Question #83

What are the effects of an adjusting entry used to accrue revenue from credit sales?

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #84

As part of a preliminary survey, a staff auditor has been assigned to flowchart the purchasing process for office supplies. Which source of audit evidence would provide the least value in flowcharting the process?

A. n interview with the purchasing supervisor

B. review of a sample of purchase orders which were completed during the last month

C. review of the purchasing policies and procedures manual

D. walk through of the process with a member of the purchasing staff

View answer

Correct Answer: B

Question #85

As part of a risk analysis, an auditor wishes to forecast the percentage growth in next month's sales for a particular plant using the past 30 months' sales results. Significant changes in the organization affecting sales volumes were made within the last 9 months. The most effective analysis technique to use would be

A. nweighted moving average

B. xponential smoothing

C. ueuing theory

D. inear regression analysis

View answer

Correct Answer: B

Question #86

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

A. S $32

B. S $38

C. S $70

D. S $80

View answer

Correct Answer: C

Question #87

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

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: C

Question #88

The process of adding resources to shorten selected activity times on the critical path in project scheduling is called

A. rashing

B. he Delphi technique

C. BC analysis

D. branch-and-bound solution

View answer

Correct Answer: A

Question #89

Conformance is how well a product and its components meet applicable standards.According to the robust quality concept,

A. certain percentage of defective units is acceptable

B. nits are acceptable if their characteristics lie within an acceptable range of values

C. he goal is for all units to be within specifications

D. very unit should reach a target value

View answer

Correct Answer: D

Question #90

The internal audit activity's role in the risk assessment and management processes of an organization is determined by the

A. oard of directors

B. hief audit executive

C. isk management department

D. xternal auditors

View answer

Correct Answer: A

Question #91

An auditor plans to analyze customer satisfaction, including (1) customer complaints recorded by the customer service department during the last three months; (2) merchandise returned in the last three months; and (3) responses to a survey of customers who made purchases in the last three months. Which of the following statements regarding this audit approach is correct?

A. lthough useful, such an analysis does not address any risk factors

B. he survey would not consider customers who did not make purchases in the last three months

C. teps 1 and 2 of the analysis are not necessary or cost-effective if the customer survey is comprehensive

D. nalysis of three months' activity would not evaluate customer satisfaction

View answer

Correct Answer: B

Question #92

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

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

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

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

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

View answer

Correct Answer: A

Question #93

How do temporary and permanent differences between taxable income and pre-tax financial income differ?

A. emporary differences do not give rise to future taxable or deductible amounts

B. nly permanent differences have deferred tax consequences

C. nly temporary differences have deferred tax consequences

D. emporary differences include items that enter into pre-tay financial income but never into taxable income

View answer

Correct Answer: C

Question #94

Which of the following is the most appropriate step for the chief audit executive to take in order to avoid defamation of character of the principal suspect in a fraud investigation?

A. estrict the use of potentially damaging words to privileged reports or discussions

B. abel all workpapers, reports, and correspondence of the internal audit activity as private

C. estrict discussions of the fraud to members of management who express an interest in the investigation

D. estroy all investigation workpapers and reports if the fraud cannot be proven

View answer

Correct Answer: A

Question #95

During an operational audit of a chain of pizza delivery stores, an auditor determined that cold pizzas were causing customer dissatisfaction. A review of oven calibration records for the last six months revealed that adjustments were made on over 40 percent of the ovens.Based on this, the auditor

A. as enough evidence to conclude that improperly functioning ovens are the cause

B. eeds to conduct further inquiries and reviews to determine the impact of the oven variations on the pizza temperature

C. as enough evidence to recommend the replacement of some of the ovens

D. ust search for another cause since approximately 60 percent of the ovens did not require adjustment

View answer

Correct Answer: B

Question #96

When reviewing the information security in an organization, an internal auditor should always recommend to management the strongest security system that is compatible with the organization's

A. illingness to incur security costs

B. usiness practices and risk factors

C. xisting technical and staff competencies

D. nderstanding of security weaknesses

View answer

Correct Answer: B

Question #97

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

A. esponsiveness

B. imeliness

C. ffectiveness

D. fficiency

View answer

Correct Answer: D

Question #98

The chief audit executive's responsibility regarding control processes includes

A. ssisting senior management and the audit committee in the development of an annual assessment about internal control

B. verseeing the establishment of internal control processes

C. aintaining the organization's governance processes

D. nsuring that the internal audit activity assesses all control processes annually

View answer

Correct Answer: A

Question #99

A transfer of receivables. with recourse, in exchange for cash should

A. ot be recorded until all of the receivables have been collected

B. e recorded as a sale or a borrowing transaction, depending on the provisions of the transfer agreement

C. e recorded as a sale of receivables

D. e recorded as a borrowing transaction

View answer

Correct Answer: B

Question #100

In the determination of cost of goods sold, must be cash payments for goods along with other adjustments.

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: A

Question #101

Which of the following sampling plans should an internal auditor use to estimate the number of units in a certain class of inventory without counting each item?

A. ttributes sampling

B. iscovery sampling

C. ariables sampling

D. top or go sampling

View answer

Correct Answer: C

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