CIA Exam Part 2 Practice of Internal Auditing IIA-CIA-Part2 Dumps Questions

1. An internal auditor provided the following statement about division A's performance during the month: "Because supplies of raw material X were scarce, division A's profits declined by 15 percent."

Which of the following can be validly concluded from the auditor's statement?

I. Division A's production level declined by 15 percent.

II. Division A could have sold more products than it produced.

III. Division A usually sells all of the products that it produces.

2. An internal auditor is reviewing a new automated human resources system. The system contains a table of pay rates which are matched to the employee job classifications.

The best control to ensure that the table is updated correctly for only valid pay changes would be to:

3. Given the scarcity of internal audit resources, a chief audit executive (CAE) decided not to schedule a follow-up of audit recommendations when developing engagement work schedules.

Does the CAE’s decision violate the Standards?

4. Monetary-unit sampling is most useful when the internal auditor:

5. If an auditor expects to find numerous discrepancies between recorded values and audited values of sample selections, which sampling technique would be most appropriate?

6. 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.

7. Which of the following factors would increase the confidence level in a variables sampling plan?

I. A larger sample size.

II. A stratified sample.

III. A larger standard deviation.

8. Which of the following might alert an auditor to the possibility of fraud in a division?

I. The division is not scheduled for an external audit this year.

II. Sales have increased by 10 percent.

III. A significant portion of management's compensation is directly tied to reported net income of the division.

9. An organization's internal auditors are reviewing production costs at a gas-powered electrical generating plant. They identify a serious problem with the accuracy of carbon dioxide emissions reported to the environmental regulatory agency, due to computer errors.

The auditors should immediately report the concern to:

10. The following is an excerpt from an audit engagement workpaper:

✑ A Company

✑ Accounts Receivable

✑ Date

Objective. To determine if the computer system is correctly recording all accounts receivable transactions.

Procedures: Judgmental selection of a sample of all accounts receivable balances greater than $50,000 for positive confirmation of balances.

Conclusion: Based on the results of testing wherein all but three confirmations were returned, the accounts receivable balance is fairly presented in all material respects.

Which of the following is true regarding the workpaper?

11. A governmental auditor was assigned to determine reasons why the students in one region scored significantly higher on education evaluation tests than did the students in another region. Previous research showed that there is a direct correlation between public financial support and student results.

Which of the following is most likely to explain the difference in the regional results?

12. Which of the following is true of engagement recommendations?

I. Specific suggestions for implementation must be included.

II. The internal auditor's observations and conclusions may serve as the basis.

III. Actions to correct existing conditions or improve operations may be included.

IV. Approaches to correcting or enhancing performance may be suggested.

13. An audit department has received anonymous information that an employee has allegedly been able to steal and cash checks sent to the organization by customers.

What is the most efficient way for an auditor to determine how this type of fraud could occur and who might be the perpetrator?

14. When assessing the risk associated with an activity, an internal auditor should:

15. Which of the following processes real-transaction data through auditor-developed test programs?

16. Which of the following would provide the greatest assurance of the accuracy of a computer program's computation of freight charges for catalog sales?

17. 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?

18. The chief audit executive (CAE) determined that based on management's oral response, the action taken regarding an audit observation was sufficient when weighted against the relative importance of the audit recommendation.

Which of the following is the most appropriate step for the internal auditor to take next?

19. In forming a team to investigate an organization's potential adoption of an activity-based costing system, the best reason to include an internal auditor on the team would be the auditor's knowledge of:

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

21. Insurance companies often receive electronic hospitalization claims directly from hospitals.

Which of the following control procedures would be most effective in detecting fraud in such an environment?

22. A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically.

If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation. All of the applicable documents are electronically marked, cross-referenced, and retained in open files. Both an integrated test facility and a systems control audit review file (SCARF) have been included in the system.

An auditor wants to determine the extent to which items are not matched at year end and to investigate the potential causes of the unmatched items.

Which of the following audit procedures would be most effective in determining the items to investigate?

23. Which of the following data collection strategies systematically tests the effects of various factors on an outcome?

24. 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?

25. In which of the following situations would it be most appropriate to employ the services of a forensic specialist?

26. Which of the following would be an appropriate improvement to controls over large quantities of consumable material that are charged to expense when placed in bins which are accessible to production workers?

27. Which of the following situations might allow an employee to steal checks sent to an organization and subsequently cash them?

28. Company A has a formal comprehensive corporate code of ethics while company B does not.

Which of the following statements regarding the existence of the code of ethics in company A can be logically inferred?

I. Company A exhibits a higher standard of ethical behavior than does company B.

II. Company A has established objective criteria by which an employee's actions can be evaluated.

III. The absence of a formal corporate code of ethics in company B would prevent a successful audit of ethical behavior in that company.

29. Many questionnaires are made up of a series of different questions that use the same response categories (for example: strongly agree, agree, neither, disagree, strongly disagree). Some designs will have different groups of respondents answer alternate versions of the questionnaire that present the questions in different orders and reverse the orientation of the endpoints of the scale (for example: agree on the right and disagree on the left).

The purpose of such questionnaire variations is to:

30. During an interview with a manager in a company's claims department, an auditor noted that the manager became nervous and changed the subject whenever the auditor raised questions about certain types of claims. The manager's answers were consistent with company policies and procedures.

When documenting the interview, the auditor should:

31. An internal auditor would most likely use attributes sampling when testing which of the following?

32. An audit of management's quality program includes testing the accuracy of the cost-of-quality reports provided to management.

Which of the following internal control objectives is the focus of this testing?

33. An auditor is scheduled to audit payroll controls for a company which has recently outsourced its processing to an information service bureau.

What action should the auditor take, considering the outsourcing decision?

34. Which of the following describes an internal auditor's responsibilities to include audit procedures to detect fraud in audits of a multinational organization?

35. Which of the following would provide the best evidence of compliance with an airline's standard of having aircraft refueled and cleaned within a specified time of arrival at an airport?

36. Which of the following is a weakness that is inherent in the use of the test data method to test internal controls in a computer-based accounting system?

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

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

39. When internal auditors provide consulting services, the scope of the engagement is primarily determined by:

40. During an audit of executive travel, an auditor noted that the president's travel expense reimbursements were approved by an executive secretary who reported to the president. The organization's reimbursement policy requires all travel expense reimbursements to be approved by the traveler's supervisor, but it does not address the president's reimbursements.

Which of the following represents the auditor's best recommendation in this situation?

41. Which of the following audit steps would be most effective to review proper recording of and accountability over physical assets?

I. Physically inspect all assets on the organization's property.

II. Select a sample department and physically inspect assets in the department.

III. Select a sample from the organization's records of physical assets and physically locate each asset.

IV. Identify assets at a sample of locations and trace to the organization's records.

42. An auditor analyzed a payroll system's data files for unusual activity, such as excessive overtime hours, unusual fluctuations in pay rates, and excessive vacation time.

The application controls being verified by this analysis are:

43. What would be used to determine the collectability of accounts receivable balances?

44. An internal auditor is discussing an audit problem with an engagement client.

While listening to the client, the internal auditor should:

45. If an auditor used nonstatistical sampling instead of statistical sampling to estimate the value of inventory, which of the following would be true?

46. The most effective way for internal auditors to enhance the reliability of computerized financial and operating information is by:

47. When conducting research, which of the following is most important?

48. Which of the following is used to identify and prioritize critical business applications to determine those that must be restored and the order of restoration in the event that a disaster impairs information systems processing?

49. An internal auditor is assigned to conduct an audit of security for a local area network

(LAN) in the finance department of the organization. Investment decisions, including the use of hedging strategies and financial derivatives, use data and financial models which run on the LAN. The LAN is also used to download data from the mainframe to assist in decisions.

Which of the following should be considered outside the scope of this security audit engagement?

50. 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:

51. The efficiency of internal audit operations is best enhanced if workpaper standards:

52. Direct staff as a percentage of total staff is an example of which of the following types of efficiency measures?

53. Which of the following will be an appropriate course of action when an auditor disagrees with a client about a well-documented audit finding?

54. Which of the following would be most helpful to a governmental auditor searching for the existence of multiple welfare claims that were filed under different names but used the same address?

55. Which sampling plan requires no additional sampling once the first error is found?

56. Which of the following files, when compared with billing records, would provide the best source of information for determining if all goods shipped are billed to customers?

57. A manufacturing process could create hazardous waste at several production stages, from raw materials handling to finished goods storage.

If the objective of a pollution prevention audit engagement is to identify opportunities for minimizing waste, in what order should the following opportunities be considered?

I. Recycling and reuse.

II. Elimination at the source.

III. Energy conservation.

IV. Recovery as a usable product Treatment.

58. Which of the following audit techniques provides for continuous monitoring and analysis of computer transactions for detailed auditing?

59. An internal audit activity is participating in the due diligence work for an acquisition that a company is considering. One engagement objective is to determine if the acquisition's accounts payable contain all outstanding liabilities.

Which of the following audit procedures would not be relevant for this objective?

60. Which of the following would constitute a violation of the IIA Code of Ethics?

61. An auditor prepared a workpaper that consisted of a list of employee names and identification numbers as well as the following statement:

“A statistical sample of 40 employee personnel files was selected to verify that they contain all documents required by company policy 501 (copy attached). No exceptions were noted.”

The auditor did not place any audit verification symbols on this workpaper.

Which of the following changes would most improve the auditor's workpaper?

62. Which of the following, if observed, would not indicate the need to extend the search for other indicators of fraud in a purchasing department?

63. A company has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly accounting for costs related to contract change orders.

Which of the following procedures would be appropriate for testing this suspicion?

I. Verify that the contractor has not charged change orders with costs that have already been billed to the original contract.

II. Determine if the contractor has billed for original contract work that was canceled as a result of change orders.

III. Verify that the change orders were properly approved by management.

64. Which of the following would be a red flag that indicates the possibility of inventory fraud?

I. The controller has assumed responsibility for approving all payments to certain vendors.

II. The controller has continuously delayed installation of a new accounts payable system, despite a corporate directive to implement it.

III. Sales commissions are not consistent with the organization's increased levels of sales.

IV. Payments to certain vendors are supported by copies of receiving memos, rather than originals.

65. Access control software on an organization's mainframe computer records detailed information concerning both successful and unsuccessful log-on attempts to applications.

Which of the following audit tools would be best suited to review the access information that has been recorded?

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

The auditor should:

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

68. The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?

I. Financial measures.

II. Internal business process measures.

III. Client satisfaction measures.

IV. Innovation and learning measures.

69. 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.

70. The most common motivation for management fraud is the existence of:

71. If an organization's chief audit executive wants to implement continuous auditing, what is the appropriate order in which key steps should be undertaken?

I. Identify business applications that require access.

II. Implement steps to continuously assess risks and controls.

III. Define objectives of continuous auditing.

IV. Manage and report results.

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

73. What does the following scatter gram suggest?

74. If an auditor is sampling to test compliance with a particular company policy, which of the following factors should not affect the allowable level of sampling risk?

75. An internal audit activity implemented an integrated test facility to test payroll processing. The auditors identified the key controls and processing steps built into the computer program and developed test data to test them. The auditors submitted test transactions throughout the year and did not find any differences in their test results.

The auditors can conclude that:

76. Which of the following trends found on financial reports would most likely indicate a possible problem?

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

78. Which of the following would be an appropriate and effective control self-assessment approach in an organization with an authoritative culture?

I. Facilitated meeting

II. Survey

III. Management-produced analysis

79. During an audit of a branch bank, an internal auditor learned that a series of system failures had resulted in a four-day delay in processing customers' scheduled payroll direct deposits. The first failure was that of a disk drive, followed by software and other minor failures.

Which of the following controls should the auditor recommend to avoid similar delays in processing?

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

81. An auditor is using an internal control questionnaire as part of a preliminary survey.

Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?

82. If management expects 100 percent compliance with a procedure, which of the following sampling approaches would be most appropriate?

83. During a routine audit of a customer service hotline, an internal auditor noticed that an unusually high number of customer complaints pertained to payments not being applied to the customers' accounts.

Which of the following would most likely be the reason for the high volume of complaints?

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

“The ratios and other statistics in the quarterly board reports were checked for the last four quarters, and appropriate supporting documents were examined. All amounts appear to be appropriate.”

In this situation:

85. Which of the following is the best problem-solving technique to use when analyzing performance and cost?

86. An auditor decides to perform an inventory turnover analysis for both raw materials inventory and finished goods inventory.

The analysis would be potentially useful in:

I. Identifying products for which management has not been attuned to changes in market demand.

II. Identifying potential problems in purchasing activities.

III. Identifying obsolete inventory.

87. Which of the following audit procedures is most suitable for verifying that all sales transactions have been recorded?

88. After partially completing an internal control review of the accounts payable department, an auditor suspects that some type of fraud has occurred. To ascertain whether the fraud is present, the best sampling approach would be to use.

89. Which of the following does not represent a difficulty in using red flags as fraud indicators?

90. An auditor for a major retail company suspects that inventory fraud is occurring at three stores which have high costs of goods sold.

Which of the following audit activities would provide the most persuasive evidence that fraud is occurring?

91. During the development of a purchasing system, an auditor reviewed the payment authorization program.

Which of the following actions should the auditor recommend for a situation in which the quantity invoiced is greater than the quantity received?

92. An auditor used a questionnaire during an interview to gather information about the nature of credit sales processing. The questionnaire did not cover some pertinent information offered by the person being interviewed, and the auditor did not document the potential problems for further investigation.

The primary deficiency with the above process is that:

93. What is the most important risk in determining the validity of construction delay claims?

94. In order to effectively elicit sensitive information from an employee during an audit engagement, an auditor should:

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

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

97. A film company determined that income level impacts the number of films that people watch per month, as shown by the graph below:

The graph indicates that:

98. As part of an operational audit of the shipping department, an auditor selected a sample of 45 daily shipping logs from the department's files. On 44 of the days, the log contained a sufficient number of shipments to meet the department's daily quota. Based on this test, the auditor concluded that the shipping department was effective at meeting its quotas.

Which of the following is true about the auditor's conclusion?

99. An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated.

Which of the following statistical sampling methods would be most appropriate for this test?

100. During an audit of a retail organization, an internal auditor found a scheme in which the warehouse director and the purchasing agent diverted approximately $500,000 of goods to their own warehouse, then sold the goods to third parties. The fraud was not found earlier since the warehouse director updated the perpetual inventory records and then forwarded receiving reports to the accounts payable department for processing.

Which of the following procedures would have most likely led to the discovery of the missing materials and the fraud?