Latest CIA-I Exam Questions & Answers, Free Practice Questions

Question #1

Listed below are selected line items from the cost-of-quality report for Company B forWhat is Company B's total prevention and appraisal cost for last month?

A. S $786

B. S $1, 154

C. S $1, 940

D. S $2, 665

View answer

Correct Answer: C

Question #2

In addition to data protection, which of the following is a control that is typically used by companies to safeguard the privacy rights of their customers?I). End-user computing.II). Encryption of data.III). Spyware.IV). Intrusion detection.

A. I only

B. and III only

C. I and IV only

D. , II, and IV only

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Correct Answer: C

Question #3

The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?I). Financial measuresII). Internal business process measuresIII). Client satisfaction measuresIV). Innovation and learning measures

A. only

B. I and IV only

C. II and IV only

D. I, III, and IV only

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Correct Answer: D

Question #4

The bullwhip, or whiplash, effect on inventories begins when retailers face uncertain demand from consumers caused by randomness in buying habits. It can be avoided by

A. he need to purchase or manufacture goods in cost-efficient batches

B. hanges in price that may encourage purchases in anticipation of future increases

C. hortages that may lead to rationing by suppliers or manufacturers and hoarding by manufacturers or retailers

D. haring of information and coordination among the organizations in the supply chain

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Correct Answer: D

Question #5

The amount of gross profit to be recognized in Year 1 on Year 1 installment sales is

A. S $800

B. S $2, 000

C. S $3, 200

D. S $4, 000

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Correct Answer: A

Question #6

If receivables transferred with recourse qualify for derecognition, the proceeds from the transfer are

A. ccounted for as a collateralized borrowing

B. ecorded at fair value for the assets obtained and liabilities incur, d

C. ecorded at the historical cost of the assets obtained

D. educed by the fair value of the recourse obligation

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Correct Answer: D

Question #7

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

A. istorical cost

B. urrent cost

C. et realizable value

D. resent value of future cash flows

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Correct Answer: D

Question #8

At the conclusion of an audit of an organization's treasury department, a report was issued to the treasurer, chief financial officer, president, and board. Because of the sensitivity of some findings, a followup review was performed. The auditor should provide the report of followup findings to theI). Treasurer.II). Chief financial officer.III). President.IV). Board.

A. and II only

B. II and IV only

C. , II, and III only

D. , II, III, and IV

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Correct Answer: D

Question #9

Which one of the graphs depicts the demand curve for prestige goods?

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: C

Question #10

Which of the following would provide a chief audit executive with the most useful information on how the internal auditors interact with management during audit activities?

A. ustomer surveys

B. nterviews with auditors

C. esponses to the audit report

D. orkpaper narratives

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Correct Answer: A

Question #11

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

A. S $3, 050

B. S $3, 150

C. S $3, 230D US $3

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Correct Answer: B

Question #12

Which of the following is an advantage of nonstatistical sampling over statistical sampling?

A. onstatistical sampling provides a measure of the sufficiency of the evidence gathered

B. onstatistical sampling provides a more defensible expression of the test results

C. onstatistical sampling is simple to use with software

D. onstatistical sampling allows the auditor to apply subjective judgment

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Correct Answer: D

Question #13

Which of the following statements regarding an internal auditor's responsibility for detecting fraud is not correct?

A. he auditor should detect fraud if red flags are present

B. he auditor should have sufficient knowledge to correctly identify indicators that fraud may have been committed

C. he auditor should identify control weaknesses which could allow fraud to occur

D. he auditor should evaluate the indicators of fraud sufficiently to determine if a fraud investigation should take place

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Correct Answer: A

Question #14

An organization has a compensation system for its managers based on a management-by- objectives MBO) approach. The essential premise of MBO is that

A. ompensation should be based on qualitative factors

B. mployees should be concerned with routine matters, and managers should attend to exceptions

C. mployees should participate in setting objectives

D. anagers should establish objectives for their employees

View answer

Correct Answer: C

Question #15

The chief audit executive (CAE) routinely provides activity reports to the board during quarterly board meetings. Senior management has asked to review the CAE's board presentation before each board meeting so that any issues or questions can be discussed beforehand. The CAE should

A. rovide the activity reports to senior management as requested and discuss any issues that may require action to be taken

B. ot provide activity reports to senior management because such matters are the sole province of the board

C. isclose only those matters in the activity reports that pertain to expenditures and financial budgets of the internal audit activity

D. rovide information to senior management that pertains only to completed audit engagements and observations available in published engagement final communications

View answer

Correct Answer: A

Question #16

Which statement beet describes the emphasis of total quality management TQM)?

A. educing the cast of inspection

B. mplementing better statistical quality control techniques

C. oing each job right the first time

D. ncouraging crass-functional teamwork

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Correct Answer: C

Question #17

An internal auditor performs an analytical procedure to compare the gross margins of various divisional operations with those of other divisions and with the individual division's performance in previous years. The internal auditor notes a significant increase in the gross margin at one division_ The internal auditor does some preliminary investigation and also notes that there were no changes in products, production methods, or divisional management during the year. The most likely cause of the increase in

A. n increase in the number of competitors selling similar products

B. decrease in the number of suppliers of the material used in manufacturing the product

C. n overstatement of year-end inventory

D. n understatement of year-end accounts receivable

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Correct Answer: C

Question #18

Which one of the following items is not directly reflected in the basic economic order quantity EOQ) model?

A. nterest on invested capital

B. nventory obsolescence

C. ublic warehouse rental charges

D. uantity discounts lost on inventory purchases

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Correct Answer: D

Question #19

Senior management at a financial institution has received allegations of fraud at its derivatives trading desk and has asked the internal audit activity to investigate and issue a report concerning the allegations. The internal audit activity has not yet developed sufficient proficiency regarding derivatives trading to conduct a thorough fraud investigation in this area. Which of the following courses of action should the chief audit executive (CAE) take to comply with the Standards?

A. ngage the former head of the institution's derivatives trading desk to perform the investigation and submit a report with supporting documentation to the CAE

B. equest that senior management allow a delay of the fraud investigation until the internal audit activity's on-staff certified fraud examiner is able to obtain the appropriate training regarding the analysis of derivatives trading

C. equest that senior management exclude the internal audit activity from the investigation completely and instead contract with an external certified fraud examiner with derivatives experience to perform all aspects of the investigation and subsequent reporting

D. ontract with an external certified fraud examiner with derivatives experience to perform the investigation and subsequent reporting, with the chief audit executive approving the scope of the investigation and evaluating the adequacy of the work performed

View answer

Correct Answer: D

Question #20

A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing engagement and there is pressure to complete the current engagement. The auditor notes the problem and forwards the information to the chief audit executive but performs no further followup. The auditor's actions wouldI). Be in violation of the IIA Code of Ethics for withholding meaningful information.II). Be in violation of the

A. only

B. I only

C. II only

D. and II only

View answer

Correct Answer: C

Question #21

An entity started in Year 1 with 200 scent. 1 3ndles on hand at a cost of US $3.50 each. These candles sell Lich. The following schedule represents the purchases and sales of candles during Year 1:If the entity uses periodic FIFO inventory pricing, the gross profit for Year 1 would be

A. S $2, 755

B. S $2, 805

C. S $2, 854

D. S $2, 920

View answer

Correct Answer: B

Question #22

A production manager for a moderate sized manufacturing company began ordering excessive raw materials and had them delivered to a wholesale company that the manager was running as a separate business. The manager falsified receiving documents and approved the invoices for payment. Which of the following audit procedures would most likely detect this fraud?

A. elect a sample of cash disbursements and compare to purchase orders, receiving reports, invoices, and check copies

B. elect a sample of cash disbursements and confirm the amount purchased, purchase price, and date of shipment with the vendors

C. bserve the receiving dock and count materials received; compare the counts to receiving reports completed by receiving personnel

D. erform analytical tests, comparing production, materials purchased, and raw materials inventory levels; investigate any differences

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Correct Answer: D

Question #23

KW Ltd. leased equipment under a 4-year. noncancelable lease properly classified as a finance lean-, The lease does not transfer ownership or contain a bargain purchase option. The equipment had an estimated economic life of 5 years and an estimated residual value of US $20.000. Terms of the lease included a guarantees:] residua value of US $50, 000. KW initially recorded the leased equipment at US $240, 000. and its depreciation polity for owned assets is to use the straight-line method. Thus, the amount o

A. S $55, 000B

B. S $47, 500

C. S $44, 000

D. S $38, 000

View answer

Correct Answer: B

Question #24

Which of the following project scheduling techniques is commonly used in total quality management for simplifying work processes?

A. antt charts

B. lowcharting

C. rogram evaluation and review technique

D. ritical path method

View answer

Correct Answer: B

Question #25

A major corporation is considering significant organizational changes. Which of the following groups would not be responsible for implementing these changes?

A. mployees

B. enior management

C. ommon stockholders

D. utside consultants

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Correct Answer: C

Question #26

Bandit Co. will report a value of , List A, for the parking and storage facility if it prepares financial reports consistent with the , List B, principle.

A. ption A

B. ption B

C. ption C

D. ption D

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Correct Answer: B

Question #27

Which of the following internal control weaknesses would an auditor most likely detect while reviewing a flowchart that depicts the purchasing function of an organization?

A. urchasing policies have not been updated

B. he organization is not taking advantage of quantity discounts available from its suppliers

C. ayments for goods received have not been authorized at the appropriate level

D. ayments to suppliers are made before goods are received

View answer

Correct Answer: D

Question #28

A fast food company is developing a computer simulation involving arrival time at a drive through restaurant. The distribution for arrival times isTime Between Arrivals Probability Single Digit Random Number Assigned 1 minute 0.1 02 minute 0.2 1, 23 minute 0.3 3, 4, 54 minute 0.4 6, 7, 8, 9Six random numbers are selected to represent the arrival of six cars 1, 6, 9, 0, 5, 6. The mean time between arrivals for these cars, in this run of the simulation model, is

A. minute

B. minute

C. minute

D. minute

View answer

Correct Answer: C

Question #29

Which of the following is a unique reporting problem associated with the determination of the results of operations for an interim period?

A. dvertising and similar costs expensed in one interim period may benefit other interim periods in the same annual period

B. ost of goods sold for an interim period reflects only the amount of product cost applicable to sales revenue recognized in the interim period

C. epreciation for an interim period represents an estimate

D. n extraordinary loss occurring in the second quarter must be prorated over the last three interim periods of the year

View answer

Correct Answer: A

Question #30

An internal audit activity has just completed a fraud investigation involving the company's president. Before the audit report is issued, a front page article appears in a major newspaper alleging that the president has been using the organization's funds for personal purposes. The chief audit executive (CAE), who has enough information to confirm the allegations, is contacted by the newspaper to confirm the facts. Which of the following would be the best response by the CAE?

A. espond truthfully and fully since the CAE is in a position to confirm the facts

B. irect the inquiry to the audit committee or the board of directors

C. rovide information "off the record" so that the article does not state who provided the information

D. espond that the investigation is not complete

View answer

Correct Answer: B

Question #31

The economic order quantity is the size of the order that minimizes total inventory costs which include ordering and holding carrying) costs. It can be calculated using the formulaIf Q = order size in units, D = annual demand in units, p = cost per purchase order, s = carrying cost per year for one unit of inventory. If the annual demand decreases by 369/o the optimal order size will

A. ecrease by 20%

B. ncrease by 20°!a

C. ncrease by 6%

D. ecrease by 6%

View answer

Correct Answer: A

Question #32

The average labor cost per unit for the first batch produced by a new process is US $120. The cumulative average labor cost after the second batch is US $72 per product. Using a batch size of 100 and assuming the learning curve continues, the total labor cost of four batches will be

A. S $4, 320

B. S $10, 368

C. S $2, 592

D. S $17, 280

View answer

Correct Answer: D

Question #33

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

A. ccrued subscriptions revenuean asset account)

B. eferred subscriptions revenuea liability account)

C. arned subscriptions revenuea revenue account)

D. recollected subscriptions receivablea deferred asset account)

View answer

Correct Answer: B

Question #34

Management asked the internal audit activity to evaluate the appropriateness of self- insuring against casualty losses and health care for the organization's employees. Should the chief audit executive engage an actuarial consultant to assist in the audit engagement if these skills do not exist on staff?

A. o, because the internal audit activity is skilled in assessing controls and the insurance control concepts are not distinctly different from other control concepts

B. o, because it is a normal audit function to assess risk; this audit engagement is therefore not unique

C. es, because an actuarial consultant is essential to determine whether the health-care costs are reasonable

D. es, because an actuarial consultant has skills, not usually found in the internal audit activity, to identify and quantify self-insurance risks

View answer

Correct Answer: D

Question #35

How is the letter x in the standard regression equation best described?

A. ndependent Variable

B. ependent Variable

C. onstant coefficient

D. oefficient of determination

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Correct Answer: A

Question #36

Checklists used to assess audit risk have been criticized for all of the following reasons except

A. roviding a false sense of security that all relevant factors are addressed

B. nappropriately implying equal weight to each item on the checklist

C. ecreasing the uniformity of data acquisition

D. eing incapable of translating the experience or sound reasoning intended to be captured by each item on the checklist

View answer

Correct Answer: C

Question #37

By using an appropriate method of selecting sample items from the population, an auditor

A. educes sampling risk

B. educes nonsampling risk

C. ncreases the sample size

D. educes the sample size

View answer

Correct Answer: A

Question #38

A company uses a target pricing and costing approach. The following is its costs and revenues for the current year:The company intends to increase unit sales to 120, 000 in the next year by reducing the unit price to US $8. If the company is to achieve a unit target operating income of 15%, by what amount must it reduce the full cost per unit?

A. S $0

B. S $1

C. S $I

D. S $1

View answer

Correct Answer: D

Question #39

Which line segment identifies the quantity of safety stock maintained?

A. B

B. E

C. C

D. C

View answer

Correct Answer: B

Question #40

On December 31, Year 1, Health entities reported a US $150, 000 warranty expense in its income statement. The expense was based on actual warranty cost of US$30, 000 in Year 1 and expected warrant costs of US $35, 000 in Year 2, US $40, 000 in Year 3, and US $45, 000 in Year 4. For tax purposes, warrant costs are not deductible until paid. At December 31, Year 1, deferred taxes should be based on a

A. S $ 120, 000 deductible temporary difference

B. S $ 150, 000 deductible temporary difference

C. S $ 120, 000 taxable temporary difference

D. S $ 150, 000 taxable temporary difference

View answer

Correct Answer: A

Question #41

During the initial audit of a new billing system for a large telephone company, the internal auditors considered downloading several days' worth of transactions to a file for analysis using generalized audit software. The major deficiency of this approach is that

A. here may not be enough data to detect problems that occur infrequently

B. udit software is not designed to work effectively on this much data

C. he required audit techniques would be unfamiliar to the auditors

D. erforming the selection of transactions may interrupt processing too severely

View answer

Correct Answer: A

Question #42

Under a difined contribution pension plan is reported on the balance sheet only if the amount organization has contributed to the pention trust is the amount required.

A. ption A

B. ption B

C. ption C

D. ption D

View answer

Correct Answer: B

Question #43

Which of the following issues could be identified through observation without corroborative evidence?I). Indicators of security or safety violations.II). Significant production output differences during the previous year.III). A backlog indicated by large amounts of unprocessed paperwork.IV). Workflow procedures that are not logical and may unnecessarily add work to the process.

A. only

B. and III only

C. , III, and IV only

D. I, III, and IV only

View answer

Correct Answer: B

Question #44

Why have many European Union countries not adopted ISO 14000 standards?

A. dhering to ISO 14000 standards will not reduce monitoring and inspection by regulatory agencies

B. ndividual European Union countries' standards are typically more strict than ISO 14000 standards

C. egulators are permitted to use voluntary audits as a basis for punitive action

D. SO 14000 standards will not make it easier to do business across borders

View answer

Correct Answer: B

Question #45

According to the Standards, internal audit reports should be distributed to those members of the organization who are able to ensure that audit results are given due consideration. For senior members of the organization, this requirement can usually be satisfied using

A. ummary reports

B. nterim reports

C. ral reports

D. inal written reports only

View answer

Correct Answer: A

Question #46

New credit policies have been implemented in an automated order entry system to improve the collection of receivables. Sales management has compiled several examples that show decreased sales and delayed order entry, and contends that these examples are a direct result of the new credit policy constraints. Sales management's data and information provide

A. eedback control data

B. rrelevant and argumentative information

C. vidence that the new credit policies do not meet the stated corporate objective to improve collections

D. statistically valid conclusion about the impact of the new credit policies on customer goodwill

View answer

Correct Answer: A

Question #47

Which of the following conditions is the strongest indicator of possible fraud?

A. n assistant treasurer who refuses to take vacations

B. ndependent reconciliations of subsidiary to general ledgers that are not always completed on a timely basis

C. condition of excess manufacturing waste material

D. manager who is often over budget at the end of a reporting period

View answer

Correct Answer: A

Question #48

In reviewing the appropriateness of the minimum quantity level of inventory established by a department, an auditor would be least likely to consider

A. tockout costs, including lost customers

B. easonal variations in forecasting inventory demand

C. ptimal order sizes determined by an economic order quantity model

D. he potential for obsolescence of inventory items

View answer

Correct Answer: C

Question #49

The estimated demand for pretzels at the next home football game using a deterministic approach based on the most likely outcome is

A. , 000 pretzels

B. , 400 pretzels

C. , 000 pretzels

D. , 000 pretzels

View answer

Correct Answer: C

Question #50

A perpetual inventory system uses a minimum quantity on hand to initiate purchase ordering procedures for restocking. In reviewing the appropriateness of the minimum quantity level established by the stores department, the internal auditor is least likely to consider

A. tockout costs, including lost customers

B. easonal variations in forecasting inventory demand

C. ptimal order sizes determined by the economic order quantities model

D. vailable storage space and potential obsolescence

View answer

Correct Answer: C

Question #51

Which one of the following statements best describes the asset-liability method of accounting for deferred income taxes?

A. he amount of deferred tax is based on tax rates in effect when temporary differences originate

B. he amount of deferred tax is based on the tax rates expected to be in effect during the periods in which the deferred tax liabilityDTL) is settled or the deferrer tax assetDTA) is realized

C. he tax effects of temporary differences are not reported separately but are reported as adjustments to the amounts of specific assets and liabilities and the related revenues and expenses

D. he appropriate tax rate to be reported on the income statement is the tax actually levied in that year, meaning no deferred taxes would be reported

View answer

Correct Answer: B

Question #52

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

A. btaining detailed knowledge about the organization

B. btaining a management representation letter

C. ssessing the audit risk of the organization

D. aving discussions with the organization's management team

View answer

Correct Answer: B

Question #53

A company's policy requires that all customers be treated in a fair and consistent manner. Which of the following audit procedures would provide the most persuasive evidence that the policy was followed?

A. ompare the aging of outstanding receivables due from each customer

B. ompare credit reports with annual sales for a sample of customers

C. ompare the ratio of outstanding receivables to the authorized credit limit for each customer

D. ompare the sales discounts offered to each customer

View answer

Correct Answer: D

Question #54

Which component is the foundation of the COSO internal control framework?

A. isk assessment

B. ontrol environment

C. ontrol activities

D. onitoring

View answer

Correct Answer: B

Question #55

A company began work on a long-term construction contract in Year 1. The contract price was US $3, 000, 000. Year-end information related to the contract is as followsIf the company uses the percentage-of-completion method of accounting for this contract, the profit to be recognized in Year 1 is

A. S $(100, 000)

B. S $(100, 000)

C. S $(200, 000)

D. S $(350, 000)

View answer

Correct Answer: D

Question #56

Which of the following statements is correct regarding corporate compensation systems and related bonuses?I). A bonus system should be considered part of the control environment of an organization and should be considered in formulating a report on internal control.II). Compensation systems are not part of an organization's control system and should not be reported as suchIII). An audit of an organization's compensation system should be performed independently of an audit of the control system over other fu

A. only

B. I only

C. II only

D. I and III only

View answer

Correct Answer: A

Question #57

To enhance the independence of both the internal and external audit functions, audit committees should be composed of

A. rotating subcommittee of the board of directors or its equivalent

B. combination of external members of the board of directors and company officers

C. embers from all important constituencies, specifically including representatives from banking, labor, regulatory agencies, shareholders, and officers

D. nly external members of the board of directors or other similar oversight committees

View answer

Correct Answer: D

Question #58

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

A. t takes place primarily during the preliminary survey stage

B. t focuses on causes, effects, or conditions

C. t involves systematic gathering of information

D. t is used to substantiate information provided during interviews

View answer

Correct Answer: A

Question #59

Which of the following is the most important limitation on the effectiveness of audit committees?

A. udit committees may be composed of independent directors; however, those directors may have close personal and professional friendships with management

B. udit committee members are compensated by the organization and thus favor a stockholder view

C. udit committees devote most of their efforts to external audit concerns and do not pay much attention to internal auditing and the overall control environment

D. udit committee members do not normally have degrees in the accounting or auditing fields

View answer

Correct Answer: A

Question #60

In an economic order quantity EOQ) model, both the costs per order and the holding costs are estimates. If those estimates are varied to determine how much the changes affect the optimal EOQ, such an analysis would be called a

A. orecasting model

B. ensitivity analysis

C. ritical path method analysis

D. ecision analysis

View answer

Correct Answer: B

Question #61

A high-volume retailer of consumer goods has used point-of-sale data to record sales and update inventory records for several years. When price changes are scheduled, corporate headquarters downloads a price change file to a computer server system at each store. Each store's assistant manager is responsible for checking the server for downloads and running the program that updates the store's price file at the authorized price update time. In comparison with having headquarters initiate the price update cen

A. ecrease the risk that customers will be undercharged consistently for sales items

B. ecrease the risk that item prices will sometimes be inaccurate

C. ncrease the risk that customers will be undercharged consistently for sales items

D. ncrease the risk that item prices will sometimes be inaccurate

View answer

Correct Answer: D

Question #62

According to the International Professional Practices Framework, which of the following statements is correct regarding the communication of audit results?I). Summary reports may be issued separately from or in conjunction with the final report.II). Interim reports may be written or oral.III). Detailed reports should always be issued to the audit committee.IV). Interim reports should be used to communicate information which requires immediate attention.

A. and III only

B. I and IV only

C. , II, and IV only

D. , II, III, and IV

View answer

Correct Answer: C

Question #63

Five brand managers in a consumer products company met to determine how well certain promotions had performed. The data that they needed to analyze consisted of approximately 50 gigabytes of daily point of sale (POS) data for each month. The brand managers tried to download the POS data from the mainframe and import it into microcomputer spreadsheets for analysis. Their efforts were unsuccessful, most likely because of

A. he complexity of the mainframe data structure and the large volume of data

B. he difficulty of establishing access privileges for each subset of the mainframe data

C. nconsistencies in the mainframe data due to lack of integrity constraints on the data files

D. rror prone transmission links for downloading the data from the mainframe data files

View answer

Correct Answer: A

Question #64

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

A. S $48

B. S $35

C. S $24

D. S $19

View answer

Correct Answer: D

Question #65

Which of the following are intermediaries between sellers and buyers?I). AgentII). BrokerIII). Consignee Consumer

A. and II only

B. and III only

C. , II, and III only

D. , II, III, and Isl

View answer

Correct Answer: C

Question #66

In a review of an electronic data interchange application using a third party service provider, the auditor shouldI). Ensure encryption keys meet International Organization for Standardization (ISO) standards.II). Determine whether an independent review of the service provider's operation has been conducted.III). Verify that only public switched data networks are used by the service provider.IV). Verify that the service provider's contracts include necessary clauses, such as the right to audit.

A. and II only

B. and IV only

C. I and III only

D. I and IV only

View answer

Correct Answer: D

Question #67

Which of the following best defines an engagement conclusion?

A. n auditor's determination of the cause of an engagement observation

B. n auditor's professional judgment of the situation which was reviewed

C. n opinion that must be included in the engagement final communication

D. recommendation for corrective action

View answer

Correct Answer: B

Question #68

The channel structure in which producers, wholesalers, and retailers act as a unified system is a

A. orizontal distribution system

B. ertical distribution system

C. nilateral distribution system

D. ultichannel system

View answer

Correct Answer: B

Question #69

Which of the following would provide the best assessment of an organization's ethical climate?

A. umber of years that directors have been appointed to the board

B. vidence of training provided to the board of directors on ethical issues

C. larity and consistency of consequences imposed by the board of directors for ethical violations

D. requency of fraud reported and results of subsequent investigations

View answer

Correct Answer: C

Question #70

Which of the following is a responsibility of the internal auditor once a fraud investigation has been concluded?

A. scertain the extent to which fraud has been perpetrated

B. otify the appropriate regulatory authorities regarding the outcome of the investigation

C. etermine if controls need to be implemented or strengthened to reduce future vulnerability

D. mplement controls to prevent future occurrences

View answer

Correct Answer: C

Question #71

Lawson Ltd. has the opportunity to increase annual sales US $100, 000 by selling to a new, riskier group of customers. Based on sales, the uncollectible expense this increase to be 15%, and collection costs will be 5%. Manufacturing and selling expenses are 70% of sales, and the effective tax rate is 40%. If Lawson accepts this opportunity, the after-tax profit will increase by

A. S $4, 000

B. S $6, 000

C. S $10, 000

D. S $9, 000

View answer

Correct Answer: B

Question #72

The estimated demand for pretzels at the next home football game using an expected value approach is

A. , 000 pretzels

B. , 400 pretzels

C. , 000 pretzels

D. , 000 pretzels

View answer

Correct Answer: B

Question #73

Which of the following factors should be considered when determining the staff requirements for an audit engagement?I). The internal audit activity's time constraints.II). The nature and complexity of the area to be audited.III). The period of time since the area was last audited.IV). The auditors' preference to audit the area.V). The results of a preliminary risk assessment of the activity under review.

A. and IV only

B. , II, and V only

C. I, III, and V only

D. , II, III, IV, and V

View answer

Correct Answer: B

Question #74

The management at a national consumer goods organization implements a fair work and paypractice as well as a policy to treat employees equitably and consistently. Which commoncharacteristics of fraud will the practice and policy most likely reduce?

A. ressure or incentive

B. pportunity

C. ationalization

D. ommitment

View answer

Correct Answer: A

Question #75

A code of ethics within the internal auditing profession is necessary in order to

A. educe the likelihood that members of the profession will be sued for substandard work

B. nsure that all members of the profession perform at approximately the same level of competence

C. rovide guidance to internal auditors in their service to others

D. equire members of the profession to exhibit loyalty in all matters pertaining to the affairs of their organization

View answer

Correct Answer: C

Question #76

Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean the maintenance costs rounded to the nearest U dollar) would be budgeted at

A. $3, 780

B. $3, 600

C. $3, 790

D. $3, 746

View answer

Correct Answer: D

Question #77

Which of the following must be true when using regression analysis involving three variables?

A. wo of the variables must have some relationship to each other, but the other can be unrelated

B. ne of the variables must include financial information, and the other two must include nonfinancial information

C. ll of the variables must have some relationship to each other

D. wo of the variables must include financial information, and the other must include nonfinancial information

View answer

Correct Answer: C

Question #78

What coefficient of correlation results from the following data?

A.

B. xad1

C. 1

D. annot be determined from the data given

View answer

Correct Answer: B

Question #79

An internal auditor needs to recommend a policy element to be included in an organization's code ofethics. Which of the following recommendations would be most effective?

A. thics should vary with local customs in the organization's foreign operations

B. histleblowing should be discouraged because it can cause distrust among employees

C. thical behavior should be incorporated into performance evaluations

D. enior management should be granted specific exemptions to the code of ethics

View answer

Correct Answer: C

Question #80

As a result of a recent discovery of false information on employment applications, an internal auditor has reviewed hiring procedures. Which of the following represents a weakness in the control system?I). Applicants are not required to have their signed applications legally authenticated.II). Applicants' educational information is not validated with the educational institution before employment is offered.III). Information related to applicants' long term work history is not validated before employment is

A. II only

B. and II only

C. I and III only

D. , II, and III

View answer

Correct Answer: C

Question #81

An internal audit activity encounters a scope limitation from senior management that will affect its ability to meet its goals and objectives for a potential engagement client.The nature of the scope limitation should be

A. oted in the audit workpapers, but the engagement should be carried out as scheduled, with any necessary adjustments made based on the scope limitation

B. ommunicated to the external auditors so that they can investigate the area in more detail

C. ommunicated, preferably in writing, to the board

D. ommunicated to management, stating that the limitation will not be accepted because it would impair the audit activity's independence

View answer

Correct Answer: C

Question #82

A major benefit of computer integrated manufacturing CIM) is

A. ncreased amount of scrap available for resale

B. ncreased working capital

C. elivery of customized products with long lead times

D. ncreased flexibility

View answer

Correct Answer: D

Question #83

On January 2, Year 1, Kine Co. granted Morgan, its preside -I t. share options to buy 1.000 shares of Kine's US $10 per ordinary stock. The options call for a price of US$20 per share and are exercisable for 3 years following the grant date. Morgan exercised the options on December 31, Year 1. The market price of the shares was US $50 on January 2, Year 1, and US $70 on the following for December 31. The market price of the shares is followed because the fair value of the option is not reliable measurable,

A. S $ 20, 000

B. S $30, 000

C. S $50, 000

D. S $70, 000

View answer

Correct Answer: A

Question #84

Correlation is a term frequently used in conjunction with regression analysis and is measured by the value of the coefficient of correlation, r. The best explanation of the value r is that it

A. s always positive

B. nterprets variances in terms of the independent variable

C. anges in size from negative infinity to positive infinity

D. s a measure of the relative relationship between two variables

View answer

Correct Answer: D

Question #85

Which of the following is an example of the verification of internal documentary evidence?

A. eviewing a carrier's bill of lading

B. econciling a vendor's month end statement

C. ouching a copy of a sales invoice to receivables

D. ecalculating a customer's purchase order

View answer

Correct Answer: C

Question #86

An internal auditor has been asked to provide a report to an external party for which internal audit services were provided. Which of the following should be considered prior to complying with the request?I). Need for a written agreement concerning the information to be reported.II). Limitations on the distribution or sharing of the information provided.III). Nature of the report, including conclusions, recommendations, and status of findings.IV). Appropriateness of revising or editing the report to make it

A. and III only

B. I and IV only

C. , II, and III only

D. , II, III, and IV

View answer

Correct Answer: D

Question #87

Which of the following describes a control weakness?

A. urchasing procedures are well designed and are followed unless otherwise directed by the purchasing supervisor

B. renumbered blank purchase orders are secured within the purchasing department

C. ormal operational purchases fall in the range from $500 to $1, 000 with two signatures required for purchases over $1, 000

D. he purchasing agent invests in a publicly traded mutual fund that lists the stock of one of the company's suppliers in its portfolio

View answer

Correct Answer: A

Question #88

Which of the following types of fraud includes embezzlement?

A. raudulent statements

B. ribery

C. isappropriation of assets

D. orruption

View answer

Correct Answer: C

Question #89

An extraordinary gain occurs in the second fiscal quarter. How should the gain be accounted for?

A. ecognized in full in the second quarter

B. ecognized equally over the second, third, and fourth quarters

C. ecognized only in the annual financial statements

D. ecognized equally in each quarter, by restating the first quarter

View answer

Correct Answer: A

Question #90

The journal entry required to close the utilities expense account is

A. tilities expense US $1, 400Income summary US $1, 400

B. ncome Summary US $1, 400Utilities expense US $1, 400

C. ental expense US $1, 400Utilities expense US $1, 400

D. tilities expense US $1, 400Retained earnings US $1, 400

View answer

Correct Answer: B

Question #91

The primary difference between PERT and CPM is that

A. PM uses probabilities on the activity times and PERT does not

B. ERT considers activity costs and CPM does not

C. ERT can assign probabilities to activity times and CPM does not

D. PM considers activity costs and PERT does not

View answer

Correct Answer: D

Question #92

While conducting a control self assessment project in an information technology division, an internal auditor asks managers to rate the severity of each identified risk and the strength of each related control. Which of the following represents the most significant disadvantage of this exercise?

A. udget hours expended will exceed any tangible benefits

B. ubsequent audits of the division may not be conducted

C. anagement may omit important control weaknesses

D. he internal audit department will be viewed as responsible for controls

View answer

Correct Answer: C

Question #93

A company has recently implemented an electronic commerce system for purchasing and billing, which relies heavily on electronic data interchange, electronic funds transfer, and just in time manufacturing technology. If the system was properly implemented, an auditor would expect to see all of the following changes except

A. ower accounts receivable balances

B. ower accounts payable balances

C. ncreased cash flow and treasury balances

D. ncreased inventory balances

View answer

Correct Answer: D

Question #94

If Bandit Co. reports expenses on an accrual basis, interest expense for the first year of operations is

A. S $5, 000

B. S $7, 500

C. S $10, 000

D. S $12, 500

View answer

Correct Answer: B

Question #95

Activity scheduling information for the installation of a new computer system is given belowThe earliest completion time for the project is

A. -C

B. -E

C. -D-E

D. -D-C

View answer

Correct Answer: C

Question #96

During the preliminary survey phase of an audit of the purchasing function, an auditor determines that the procurement policy requires either quotes or formal bids, depending on the amount of the purchase. Which procedure should be performed to determine if fieldwork for policy compliance is necessary?

A. evelop a five-year trend analysis of the purchasing department's expenses

B. etermine the volume of purchase orders processed for the audit period

C. etermine the volume of contracts awarded for the audit period

D. hart the purchases made for the audit period by type and dollar amount

View answer

Correct Answer: D

Question #97

Which one of the following will usually be accounted for by recognizing a provision?

A. ust prior to the balance sheet date, the board decided b

B. s of the balance sheet date, the board was aware that a new law would require the entity to fit smoke filters to its factories within the next year

C. law requires an airline to overhaul its aircraft once every 3 years

D. remiums offered to customers

View answer

Correct Answer: D

Question #98

If the annual audit plan does not allow for adequate review of compliance with all material regulations affecting the company, the internal audit activity should

A. nsure that the regulations that were not included be reviewed in the subsequent year

B. nclude a memo in the audit planning file listing the reasons for the lack of coverage

C. otify the board of directors and senior management of the limitation

D. ecrease the scope of operational and financial audits to make additional audit time available

View answer

Correct Answer: C

Question #99

When faced with the problem of filling a newly created or recently vacated executive position, organizations must decide whether to promote from within or to hire an outsider. One of the disadvantages of promoting from within is that

A. nternal promotions can have negative motivational effect on the employees of the firm

B. nternal promotions are more expensive to the organization than hiring an outsider

C. t is difficult to identify proven performers among internal candidates

D. iring an insider leads to the possibility of social inbreeding within the firm

View answer

Correct Answer: D

Question #100

When a perpetual inventory system is used and a difference exists between the perpetual inventory amount balance and the physical inventory count. a separate entry is needed to adjust the perpetual inventory amount. Which of the following demonstrates that adjusting entry?

A. nventory over and shortInventory

B. xtraordinary loss due to write-down of inventoryInventory

C. xtraordinary loss due to write-down of inventory Allowance for inventory shortages

D. ost of goods sold Retained earnings appropriated for shortages

View answer

Correct Answer: A

Question #101

Questions about which of the following can legally be asked in recruiting interviews?

A. ge

B. umber of children

C. ind of military discharge

D. riminal record but only for security clearance purposes)

View answer

Correct Answer: D

Question #102

Which of the following is not a component of physical distribution?

A. ransportation

B. ricing

C. ocation of retail outlets

D. arehousing

View answer

Correct Answer: B

Question #103

While conducting a payroll audit, an internal auditor in a large government organization found inadequate segregation in the duties assigned to the assistant director of personnel. When the auditor explained the risk of fraud, the assistant director became upset, terminated the interview, and threatened to sue the organization for defamation of character if the audit engagement was not curtailed. The auditor discussed the situation with the chief audit executive (CAE). The CAE should then

A. urtail the audit engagement to avoid potential legal action

B. rovide a report to senior management recommending a fraud investigation

C. ontinue the original engagement program as planned but include a comment about the assistant director's reaction in the engagement final communication

D. dd additional testing to determine whether other indicators of fraud exist

View answer

Correct Answer: D

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