New Updated IIA-CIA-Part3-3P Exam Questions

1. If a bank's activities are categorized under such departments as community banking, institutional banking, and agricultural banking, what kind of departmentalization is being utilized?

2. What must be monitored in order to manage risk of consumer product inventory obsolescence?

1) Inventory balances.

2) Market share forecasts.

3) Sales returns.

4) Sales trends.

3. Maintenance cost at a hospital was observed to increase as activity level increased.

The following data was gathered:

Activity Level -

Maintenance Cost

Month

Patient Days

January

5,600

$7,900

February

7,100

$8,500

March

5,000

$7,400

April

6,500

$8,200

May

7,300

$9,100

June

8,000

$9,800

If the cost of maintenance is expressed in an equation, what is the independent variable for this data?

4. An internal auditor is reviewing physical and environmental controls for an IT organization .

Which control activity should not be part of this review?

5. Preferred stock is less risky for investors than is common stock because:

6. Which of the following are appropriate reasons for internal auditors to document processes as part of an audit engagement?

1) To determine areas of primary concern.

2) To establish a standard format for process mapping.

3) To define areas of responsibility within the organization.

4) To assess the performance of employees.

7. An internal auditor is trying to assess control risk and the effectiveness of an organization's internal controls .

Which of the following audit procedures would not provide assurance to the auditor on this matter?

8. Which of the following statements is true regarding the relationship between an individual’s average tax rate and marginal tax rate?

9. Which of the following is always true regarding the use of encryption algorithms based on public key infrastructure (PKI)?

10. Presented below are partial year-end financial statement data (000 omitted from dollar amounts) for companies A and B:

If company A has a quick ratio of 2:1, then it has an accounts receivable balance of:

11. The market price is the most appropriate transfer price to be charged by one department to another in the same organization for a service provided when:

12. Which of the following is not a potential area of concern when an internal auditor places reliance on spreadsheets developed by users?

13. Which stage of group development is characterized by a decrease in conflict and hostility among group members and an increase in cohesiveness?

14. Which of the following is a role of the board of directors in the governance process?

15. An internal auditor has been asked to conduct an investigation involving allegations of independent contractor fraud .

Which of the following controls would be least effective in detecting any potential fraudulent activity?

16. An organization decided to install a motion detection system in its warehouse to protect against after-hours theft. According to the COSO enterprise risk management framework, which of the following best describes this risk management strategy?

17. Which of the following are the most appropriate measures for evaluating the change in an organization's liquidity position?

18. An organization is considering mirroring the customer data for one regional center at another center. A disadvantage of such an arrangement would be:

19. According to the COSO enterprise risk management (ERM) framework, which of the following is not a typical responsibility of the chief risk officer?

20. A holding company set up a centralized group technology department, using a local area network with a mainframe computer to process accounting information for all companies within the group. An internal auditor would expect to find all of the following controls within the technology department except:

21. 5

Based on this data, which of the following describes the value of Cost X in relation to the value of Output Produced?

22. Which of the following engagement observations would provide the least motivation for management to amend or replace an existing cost accounting system?

23. Which of the following is the most likely reason an organization may decide to undertake a stock split?

24. An organization facing rapid growth decides to employ a third party service provider to manage its customer relationship management function .

Which of the following is true regarding the supporting application software used by that provider compared to an in-house developed system?

1) Updating documentation is always a priority.

2) System availability is usually more reliable.

3) Data security risks are lower.

4) Overall system costs are lower.

25. A capital investment project will have a higher net present value, everything else being equal, if it has:

26. Within an enterprise, IT governance relates to the:

1) Alignment between the enterprise's IT long term plan and the organization's objectives.

2) Organizational structures of the company that are designed to ensure that IT supports the organization's strategies and objectives.

3) Operational plans established to support the IT strategies and objectives.

4) Role of the company's leadership in ensuring IT supports the organization's strategies and objectives.

27. Multinational organizations generally spend more time and effort to identify and evaluate:

28. The economic order quantity for inventory is higher for an organization that has:

29. Which of the following is an element of effective negotiating?

30. Which audit approach should be employed to test the accuracy of information housed in a database on an un-networked computer?

31. According to the International Professional Practices Framework, which of the following statements is true regarding a corporate social responsibility (CSR) program?

1) Every employee generally has a responsibility for ensuring the success of CSR objectives.

2) The board has overall responsibility for the effectiveness of internal control processes associated with CSR.

3) Public reporting on the CSR governance process is expected.

4) Organizations generally have flexibility regarding what is included in a CSR program.

32. A software that translates hypertext markup language (HTML) documents and allows a user to view a remote web page is called:

33. Which of the following is the most appropriate test to assess the privacy risks associated with an organization's workstations?

34. Which of the following is a disadvantage of selecting a commercial software package rather than developing an application internally?

35. Which of the following statements accurately describes the responsibility of the internal audit activity (IAA) regarding IT governance?

1) The IAA does not have any responsibility because IT governance is the responsibility of the board and senior management of the organization.

2) The IAA must assess whether the IT governance of the organization supports the organization’s strategies and objectives.

3) The IAA may assess whether the IT governance of the organization supports the organization’s strategies and objectives.

4) The IAA may accept requests from management to perform advisory services regarding how the IT governance of the organization supports the organizationâ™s strategies and objectives.

36. Which of the following best describes a market signal?

37. Which of the following statements about COBIT is not true?

38. During which phase of disaster recovery planning should an organization identify the business units, assets, and systems that are critical to continuing an acceptable level of operations?

39. Which of the following conflict resolution methods should be applied when the intention of the parties is to solve the problem by clarifying differences and attaining everyone's objectives?

40. The economic order quantity can be calculated using the following formula:

Which of the following describes how the optimal order size will change if the annual demand increases by 36 percent?

41. Which of the following is true regarding an organization's relationship with external stakeholders?

42. According to the Standards, which of the following is based on the assertion that the quality of an organization's risk management process should improve with time?

43. Which of the following local area network physical layouts is subject to the greatest risk of failure if one device fails?

44. Which of the following statements is in accordance with COBIT?

1) Pervasive controls are general while detailed controls are specific.

2) Application controls are a subset of pervasive controls.

3) Implementation of software is a type of pervasive control.

4) Disaster recovery planning is a type of detailed control.

45. The percentage of sales method, rather than the percentage of receivables method, would be used to estimate uncollectible accounts if an organization seeks to:

46. In terms of international business strategy, which of the following is true regarding a multi-domestic strategy?

47. Which is the least effective form of risk management?

48. All of the following are possible explanations for a significant unfavorable material efficiency variance except:

49. Which of the following is useful for forecasting the required level of inventory?

1) Statistical modeling.

2) Information about seasonal variations in demand.

3) Knowledge of the behavior of different business cycles.

4) Pricing models linked to seasonal demand.

50. They are helpful but limited in value in a rapidly changing environment.

51. Which of the following is not a common feature of cumulative preferred stock?

52. Which of the following borrowing options is an unsecured loan?

53. What are the objectives of governance as defined by the Standards?

54. Which of the following is a characteristic of an emerging industry?

55. For an engineering department with a total quality management program, important elements of quality management include all of the following except:

56. Organizational activities that complement each other and create a competitive advantage are called a:

57. Which of the following is a limiting factor for capacity expansion?

58. Which of the following statements accurately describes one of the characteristics that distinguishes a multinational company from a domestic company?

59. Which of the following costs would be incurred in an inventory stockout?

60. Which of the following is a key characteristic of a zero-based budget?

61. Which of the following is a type of network in which an organization permits specific users (such as existing customers) to have access to its internal network through the Internet by building a virtual private network?

62. Which of the following is not a barrier to effective communication?

63. Which of the following does not provide operational assurance that a computer system is operating properly?

64. According to IIA guidance, which of the following corporate social responsibility (CSR) activities is appropriate for the internal audit activity to perform?

65. Which of the following statements about matrix organizations is false?

66. A company's financial balance sheet is presented below:

The company has net working capital of:

67. An organization produces two products, X and Y. The materials used for the production of both products are limited to 500 kilograms (kg) per month.

All other resources are unlimited and their costs are fixed. Individual product details are as follows:

Product X

Product Y

Selling price per unit

$10

$13

Materials per unit (at $1/kg)

2 kg

6 kg

Monthly demand

100 units

120 units

In order to maximize profit, how much of product Y should the organization produce each month?

68. Which of the following must be adjusted to index a progressive tax system to inflation?

69. Which of the following are appropriate functions for an IT steering committee?

1) Assess the technical adequacy of standards for systems design and programming.

2) Continually monitor of the adequacy and accuracy of software and hardware in use.

3) Assess the effects of new technology on the organization`s IT operations.

4) Provide broad oversight of implementation, training, and operation of new systems.

70. Import quotas that limit the quantities of goods that a domestic subsidiary can buy from its foreign parent company represent which type of barrier to the parent company?

71. Which of the following statements is true regarding outsourced business processes?

72. Which of the following is the best approach to overcome entry barriers into a new business?

73. Which of the following methods, if used in conjunction with electronic data interchange (EDI), will improve the organization's cash management program, reduce transaction data input time and errors, and allow the organization to negotiate discounts with EDI vendors based on prompt payment?

74. Refer to the exhibit.

The figure below shows the network diagram for the activities of a large project .

What is the shortest number of days in which the project can be completed?

75. An organization is considering the outsourcing of its business processes related to payroll and information technology functions .

Which of the following is the most significant area of concern for management regarding this proposed agreement?

76. A key advantage of developing a computer application by using the prototyping approach is that it:

77. According to IIA guidance, which of the following steps are most important for an internal auditor to perform when evaluating an organization's social and environmental impact on the local community?

1) Determine whether previous incidents have been reported, managed, and resolved.

2) Determine whether a business contingency plan exists.

3) Determine the extent of transparency in reporting.

4) Determine whether a cost/benefit analysis was performed for all related projects.

78. At what point during the systems development process should an internal auditor verify that the new application's connectivity to the organization's other systems has been established correctly?

79. Which of the following techniques would be least effective in resolving the conflict created by an internal audit client's perception of the audit report as a personal attack on his management performance?

80. In an organization where enterprise risk management practices are mature, which of the following is a core internal audit role?

81. A global business organization is selecting managers to post to various international (expatriate) assignments.

In the screening process, which of the following traits would be required to make a manager a successful expatriate?

1) Superior technical competence.

2) Willingness to attempt to communicate in a foreign language.

3) Ability to empathize with other people.

82. Which of the following standards would be most useful in evaluating the performance of a customer-service group?

83. Technological uncertainty, subsidy, and spin-offs are usually characteristics of:

84. Which of the following statements best describes the frameworks set forth by the International Standards Organization?

85. Which of the following distinguishes the added-value negotiation method from traditional negotiating methods?

86. When developing an effective risk-based plan to determine audit priorities, an internal audit activity should start by:

87. Which of the following best describes an objective for an audit of an environmental management system?

88. An internal auditor performed a review of IT outsourcing and found that the service provider was failing to meet the terms of the service level agreement .

Which of the following approaches is most appropriate to address this concern?

89. Which of the following describes the result if an organization records merchandise as a purchase, but fails to include it in the closing inventory count?

90. If legal or regulatory standards prohibit conformance with certain parts of The IIA's Standards, the auditor should do which of the following?

91. The decision to implement enhanced failure detection and back-up systems to improve data integrity is an example of which risk response?

92. Which of the following is the best reason for considering the acquisition of a nondomestic organization?

93. According to the ISO 14001 standard, which of the following is not included in the requirements for a quality management system?

94. According to IIA guidance on IT auditing, which of the following would not be an area examined by the internal audit activity?

95. For a multinational organization, which of the following is a disadvantage of an ethnocentric staffing policy?

1) It significantly raises compensation and staffing costs.

2) It produces resentment among the organization's employees in host countries.

3) It limits career mobility for parent-country nationals.

4) It can lead to cultural myopia.

96. In order to provide useful information for an organization's risk management decisions, which of the following factors is least important to assess?

97. Which of the following strategies would most likely prevent an organization from adjusting to evolving industry market conditions?

98. Which of the following budgets must be prepared first?

99. Which of the following statements is false regarding the internal audit approach when a set of standards other than The IIA's Standards is applicable to a specific engagement?

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

101. According to the Standards, the internal audit activity must evaluate risk exposures relating to which of the following when examining an organization's risk management process?

1) Organizational governance.

2) Organizational operations.

3) Organizational information systems.

4) Organizational structure.

102. An internationally recognized brand name is an entrance barrier to new competitors because new competitors would:

103. Which of the following statements is true regarding the roles and responsibilities associated with a corporate social responsibility (CSR) program?

104. A department purchased one copy of a software program for internal use. The manager of the department installed the program on an office computer and then made two complete copies of the original software.

Copy 1 was solely for backup purposes.

Copy 2 was for use by another member of the department.

In terms of software licenses and copyright law, which of the following is correct?

105. Which of the following phases of a business cycle are marked by an underuse of resources?

1) The trough.

2) The peak.

3) The recovery.

4) The recession.

106. Which of the following conditions could lead an organization to enter into a new business through internal development rather than through acquisition?

107. In which type of business environment are price cutting strategies and franchising strategies most appropriate?

108. Which of the following statements regarding database management systems is not correct?

109. Which of the following techniques is the most relevant when an internal auditor conducts a valuation of an organization's physical assets?

110. A chief audit executive (CAE) was asked to participate in the selection of an external auditor .

Which of the following would not be a typical responsibility for the CAE?

111. According to IIA guidance, which of the following corporate social responsibility (CSR) evaluation activities may be performed by the internal audit activity?

1) Consult on CSR program design and implementation.

2) Serve as an advisor on CSR governance and risk management.

3) Review third parties for contractual compliance with CSR terms.

4) Identify and mitigate risks to help meet the CSR program objectives.

112. Which of the following factors would reduce dissatisfaction for a management trainee but would not particularly motivate the trainee?

113. A manager has difficulty motivating staff to improve productivity, despite establishing a lucrative individual reward system .

Which of the following is most likely the cause of the difficulty?

114. In an analysis of alternative credit-management policies, which of the following components will cause the net present value of receivables on credit sales to increase, if everything else remains constant?

115. An organization engages in questionable financial reporting practices due to pressure to meet unrealistic performance targets .

Which internal control component is most negatively affected?

116. Which of the following statements is correct regarding corporate compensation systems and related bonuses?

1) 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.

2) Compensation systems are not part of an organization's control system and should not be reported as such.

3) An audit of an organization's compensation system should be performed independently of an audit of the control system over other functions that impact corporate bonuses.

117. Which of the following is a product-oriented definition of a business rather than a market-oriented definition of a business?

118. Which of the following are typical audit considerations for a review of authentication?

1) Authentication policies and evaluation of controls transactions.

2) Management of passwords, independent reconciliation, and audit trail.

3) Control self-assessment tools used by management.

4) Independent verification of data integrity and accuracy.

119. Which of the following are likely indicators of ineffective change management?

1) IT management is unable to predict how a change will impact interdependent systems or business processes.

2) There have been significant increases in trouble calls or in support hours logged by programmers.

3) There is a lack of turnover in the systems support and business analyst development groups.

4) Emergency changes that bypass the normal control process frequently are deemed necessary.

120. Which of the following statements pertaining to a market skimming pricing strategy is not true?

121. Which of the following are typical responsibilities for operational management within a risk management program?

1) Implementing corrective actions to address process deficiencies.

2) Identifying shifts in the organization's risk management environment.

3) Providing guidance and training on risk management processes.

4) Assessing the impact of mitigation strategies and activities.

122. Which of the following statements about market signaling is correct?

1) The organization releases information about a new product generation.

2) The organization limits a challenger's access to the best source of raw materials or labor.

3) The organization announces that it is fighting a new process technology.

4) The organization makes exclusive arrangements with the channels.

123. Which of the following is not a method for implementing a new application system?

124. When applied to international economics, the theory of comparative advantage proposes that total worldwide output will be greatest when:

125. The main reason to establish internal controls in an organization is to:

126. Which of the following COSO internal control framework components encompasses establishing structures, reporting lines, authorities, and responsibilities?

127. Refer to the exhibit.

If the profit margin of an organization decreases, and all else remains equal, which of the following describes how the "Funds Needed" line in the graph below will shift?

128. Which of the following IT strategies is most effective for responding to competitive pressures created by the marketplace?

129. Which of the following application-based controls is an example of a programmed edit check?

130. Providing knowledge, motivating organizational members, controlling and coordinating individual efforts, and expressing feelings and emotions are all functions of:

131. The cost to enter a foreign market would be highest in which of the following methods of global expansion?

132. According to Porter's model of competitive strategy, which of the following is a generic strategy?

1 Differentiation.

2) Competitive advantage.

3) Focused differentiation.

4) Cost focus.

133. Listening effectiveness is best increased by:

134. An internal auditor discovered that several unauthorized modifications were made to the production version of an organization's accounting application .

Which of the following best describes this deficiency?

135. Which of the following price adjustment strategies encourages prompt payment?

136. According to the International Professional Practices Framework, internal auditors who are assessing the adequacy of organizational risk management processes should not:

137. Which of the following are included in ISO 31000 risk principles and guidelines?

138. Which of the following is a major advantage of decentralized organizations, compared to centralized organizations?

139. A brand manager in a consumer food products organization suspected that several days of the point-of-sale data on the spreadsheet from one grocery chain were missing.

The best approach for detecting missing rows in spreadsheet data would be to:

140. An organization's balance sheet indicates that the total asset amount and the total capital stock amount remained unchanged from one year to the next, and no dividends were declared or paid. However, the organization reported a loss of $200,000 .

Which of the following describes the most likely year-over-year change to the organization's total liabilities and total stockholder equity?

141. Which of the following would best prevent unauthorized external changes to an organization's data?

142. Which of the following factors is considered a disadvantage of vertical integration?

143. Which of the following is a characteristic of just-in-time inventory management systems?