New IIA-CIA-Part3 Exam Questions For CIA Exam Part Three: Business Knowledge for Internal Auditing

Now you can prepare for your CIA Exam Part Three: Business Knowledge for Internal Auditing exam with PassQuestion IIA-CIA-Part3 Exam Questions. The CIA exam Part 3 includes four domains focused on business acumen, information security, information technology, and financial management. Part 3 is designed to test candidates’ knowledge, skills, and abilities particularly as they relate to these core business concepts. There are 313 questions and answers in PassQuestion IIA-CIA-Part3 Exam Questions to help you pass your exam successfully.

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

Fragmented industries.

Declining industries.

Mature industries.

Emerging industries.

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

Which control activity should not be part of this review?

Develop and test the organization’s disaster recovery plan.

Install and test fire detection and suppression equipment.

Restrict access to tangible IT resources.

Ensure that at least one developer has access to both systems and operations.

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

Performing a system audit.

Making system changes.

Testing policy compliance.

Conducting system monitoring.

4. 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?

50 units.

60 units.

100 units.

120 units.

5. Evaluate whether the procedures for program change management are adequate.

1 only

1 and 3 only

2 and 4 only

1, 3, and 4 only

6. Which of the following stages of group development is associated with accepting team responsibilities?

Forming stage.

Performing stage.

Norming stage.

Storming stage.

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

The average time per customer inquiry should be kept to a minimum.

Customer complaints should be processed promptly.

Employees should maintain a positive attitude when dealing with customers.

All customer inquiries should be answered within seven days of receipt.

8. 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?

Exception report identifying payment anomalies.

Documented policy and procedures.

Periodic account reconciliation of contractor charges.

Monthly management review of all contractor activity.

9. According to the waterfall cycle approach to systems development, which of the following sequence of events is correct?

Program design, system requirements, software design, analysis, coding, testing, operations.

System requirements, software design, analysis, program design, testing, coding, operations.

System requirements, software design, analysis, program design, coding, testing, operations.

System requirements, analysis, coding, software design, program design, testing, operations.

10. Monitoring systems are in place to alert management to unexpected events.

1 and 3.

1 and 4.

2 and 3.

2 and 4.

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

The bargaining power of buyers is forcing a drop in market prices.

There is pressure from the competitor’s substitute products.

Strategic analysis by the organization indicates feasibility of expanding to new market niches.

The competitor announces a new warranty program.

12. Ability to empathize with other people.

1 and 2 only

1 and 3 only

2 and 3 only

1, 2, and 3

13. A small furniture-manufacturing firm with 100 employees is located in a two-story building and does not plan to expand. The furniture manufactured is not special-ordered or custom-made.

The most likely structure for this organization would be:

Functional departmentalization.

Product departmentalization.

Matrix organization.

Divisional organization.

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

The underlying causes of the risk.

The impact of the risk on the organization’s objectives.

The risk levels of current and future events.

The potential for eliminating risk factors.

15. Ensure that performance targets are always achieved.

1 and 3 only

2 and 4 only

1, 2, and 3 only

1, 2, 3, and 4

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

Direct cutover.

Parallel.

Pilot.

Test.

17. According to IIA guidance, which of the following is a typical risk associated with the tender process and contracting stage of an organization’s IT outsourcing life cycle?

The process is not sustained and is not optimized as planned.

There is a lack of alignment to organizational strategies.

The operational quality is less than projected.

There is increased potential for loss of assets.

18. Which of the following best describes the concept of relevant cost?

A future cost that is the same among alternatives.

A future cost that differs among alternatives.

A past cost that is the same among alternatives.

A past cost that differs among alternatives.

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

Control environment.

Control activities.

Information and communication.

Monitoring.

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

Joint ventures.

Licensing.

Exporting.

Overseas production.

21. The audit committee of a global corporation has mandated a change in the organization’s business ethics policy.

Which of the following approaches describes the best way to accomplish the policy’s diffusion worldwide?

Deploy the policy in the corporate headquarters’ language, so everyone gets an unfiltered version simultaneously.

Introduce the policy region by region, using any lessons learned to change the subsequent version of the policy for the next area.

Consult with legal and operational management in each affected country to ensure the final version can be implemented globally, following audit committee approval.

Send the board-approved version of the policy to each country’s senior leadership, and
empower them to tailor the policy to the local language and culture.

22. 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?

Avoidance.

Reduction.

Elimination.

Sharing.

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

Established strategy of players.

Low number of new firms.

High unit costs.

Technical expertise.

24. 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?

Political.

Financial.

Social.

Tariff.

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

Recognize that organizations use different techniques for managing risk.

Seek assurance that the key objectives of the risk management processes are being met.

Determine and accept the level of risk for the organization.

Treat the evaluation of risk management processes differently from the risk analysis used to plan audit engagements.

26. The organization makes exclusive arrangements with the channels.

1 and 3 only

1 and 4 only

2 and 3 only

2 and 4 only

27. To assess the performance of employees.

1 and 2 only

1 and 3 only

2 and 3 only

2 and 4 only

28. The activity that involves a trial run of a product in a typical segment of the market before proceeding to a national launch is referred to as:

Test marketing

Experimentation

Segmentation

Positioning

29. 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?

The cost of goods sold for the period will be understated.

The cost of goods sold for the period will be overstated.

The net income for the period will be understated.

There will be no effect on the cost of goods sold or the net income for the period.

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

It is expected that there will be slow retaliation from incumbents.

The acquiring organization has information that the selling organization is weak.

The number of bidders to acquire the organization for sale is low.

The condition of the economy is poor.

31. In mergers and acquisitions, which of the following is an example of a horizontal combination?

Dairy manufacturing company taking over a large dairy farm.

A movie producer acquires movie theaters.

A petroleum processing company acquires an agro-processing firm.

A baker taking over a competitor.

32. An organization needs to borrow a large amount of cash to fund its expansion plan.

Which of the following annual interest rates is least expensive?

7 percent simple interest with a 10 percent compensating balance.

7 percent simple interest paid at the end of each year.

7 percent discount interest.

7 percent compounding interest.

33. A milestone requires resource allocation and needs time to be completed.

1 and 4 only

2 and 3 only

1, 2, and 3 only

1, 2, 3, and 4

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

1 and 3 only

2 and 4 only

1, 2, and 4 only

1, 2, 3, and 4

35. 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?

The total liabilities and total stockholder equity both increased.

The total liabilities and total stockholder equity both decreased.

The total liabilities decreased, and the total stockholder equity increased.

The total liabilities increased, and the total stockholder equity decreased.

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

A zero-based budget provides estimates of costs that would be incurred under different levels of activity.

A zero-based budget maintains focus on the budgeting process.

A zero-based budget is prepared each year and requires each item of expenditure to be justified.

A zero-based budget uses input from lower-level and middle-level managers to formulate budget plans.

37. Organizations use matrix management to accomplish which of the following?

To improve the chain of command.

To strengthen corporate headquarters.

To focus better on a single market.

To increase lateral communication.

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

The board has overall responsibility for the internal control processes associated with the CSR program.

Management has overall responsibility for the effectiveness of governance, risk management, and internal control processes associated with the CSR program.

The internal audit activity is responsible for ensuring that CSR principles are integrated into the organization’s policies and procedures.

Every employee has a responsibility for ensuring the success of the organization’s CSR objectives.

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

Conform with all other parts of The IIA’s Standards and provide appropriate disclosures.

Conform with all other parts of The IIA’s Standards; there is no need to provide appropriate disclosures.

Continue the engagement without conforming with the other parts of The IIA’s Standards.

Withdraw from the engagement.

40. Senior management has decided to implement the Three Lines of Defense model for risk management.

Which of the following best describes senior management’s duties with regard to this model?

Ensure compliance with the model.

Identify management functions.

Identify emerging issues.

Set goals for implementation.

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

Cutbacks in preventive maintenance.

An inadequately trained and supervised labor force.

A large number of rush orders.

Production of more units than planned for in the master budget.

42. The recession.

1 and 3 only

1 and 4 only

2 and 3 only

2 and 4 only

43. 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?

Intranet.

Extranet.

Digital subscriber line.

Broadband.

44. Which of the following would not impair the objectivity of internal auditor?

Management assurance on risks.

Implementing risk responses on behalf of management.

Providing assurance that risks assessed are correctly evaluated.

Setting the risk appetite.

45. Refer to the exhibit.

A company’s financial balance sheet is presented below:

The company has net working capital of:

$160

$210

$350

$490

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

Relatively fast market entry.

Improved cash flow of the acquiring organization.

Increased diversity of corporate culture.

Opportunity to influence local government policy.

47. International marketing activities often begin with:

Standardization.

Global marketing.

Limited exporting.

Domestic marketing.

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

Inform, direct, manage, and monitor.

Identify, assess, manage, and control.

Organize, assign, authorize, and implement.

Add value, improve, assure, and conform.

49. Which of the following is an example of a risk avoidance response?

Buying an insurance policy to protect against loss events.

Hedging against natural gas price fluctuations.

Selling a non-strategic business unit.

Outsourcing a high risk process to a third party.

50. Which of the following activities most significantly increases the risk that a bank will make poor-quality loans to its customers?

Borrowers may not sign all required mortgage loan documentation.

Fees paid by the borrower at the time of the loan may not be deposited in a timely manner.

The bank’s loan documentation may not meet the government’s disclosure requirements.

Loan officers may override the lending criteria established by senior management.

51. When writing a business memorandum, the writer should choose a writing style that achieves all of the following except:

Draws positive attention to the writing style.

Treats all receivers with respect.

Suits the method of presentation and delivery.

Develops ideas without overstatement.

52. According to IIA guidance, which of the following would be a primary reason for an internal auditor to test the organization’s IT contingency plan?

To ensure that adequate controls exist to prevent any significant business interruptions.

To identify and address potential security weaknesses within the system.

To ensure that tests contribute to improvement of the program.

To ensure that deficiencies identified by the audit are promptly addressed.

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

Tax deductions, exemptions, and tax filings.

Tax deductions, exemptions, and tax brackets.

Tax brackets, tax deductions, and tax payments.

Tax brackets, exemptions, and nominal tax receipts.

54. According to Porter, which of the following is associated with fragmented industries?

Weak entrance barriers.

Significant scale economies.

Steep experience curve.

Strong negotiation power with suppliers.

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

A sense of achievement.

Promotion.

Recognition.

An incremental increase in salary.

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

Star network.

Bus network.

Token ring network.

Mesh network.

57. 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?

Interviewing the organization’s employees.

Observing the organization’s operations.

Reading the board’s minutes.

Inspecting manuals and documents.

58. Which of the following describes a typical desktop workstation used by most employees in their daily work?

Workstation contains software that prevents unauthorized transmission of information into and out of the organization’s network.

Workstation contains software that controls information flow between the organization’s network and the Internet.

Workstation contains software that enables the processing of transactions and is not shared among users of the organization’s network.

Workstation contains software that manages user’s access and processing of stored data on the organization’s network.

59. 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?

High degree of masculinity.

Low uncertainty avoidance.

High collectivism.

Low long-term orientation.

60. In creating a risk-based plan, which of the following best describes a top-down approach to understanding business processes?

Identifying the processes at the activity level.

Analyzing the organization’s strategic plan where the business processes are defined.

Analyzing the organization’s objectives and identifying the processes needed to achieve the objectives.

Identifying the risks affecting the organization, the objectives, and then the processes concerned.

61. 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?

The auditor should focus on the audit client as a person and understand him, rather than just concentrating on the problem.

The auditor should make recommendations based on objective criteria, rather than based on a subjective assessment.

The auditor should explore alternative solutions to address the audit problem, so the audit client has options.

The auditor should take a flexible position on the recommendations and focus on resolving the issue by addressing the interests of the people concerned.

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

Ensuring that the other party has a personal stake in the agreement.

Focusing on interests rather than on obtaining a winning position.

Considering a few select choices during the settlement phase.

Basing the agreement on negotiating power and positioning leverage.

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

Increasing complexity over time.

Interface with corporate systems.

Ability to meet user needs.

Hidden data columns or worksheets.

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

Cash discounts.

Quantity discounts.

Functional discounts.

Seasonal discounts.

65. Which of the following would best prevent unauthorized external changes to an

organization’s data?

Antivirus software, firewall, data encryption.

Firewall, data encryption, backup procedures.

Antivirus software, firewall, backup procedures.

Antivirus software, data encryption, change logs.

66. Which of the following purchasing scenarios would gain the greatest benefit from implementing electronic data interchange?

A time-sensitive just-in-time purchase environment.

A large volume of custom purchases.

A variable volume sensitive to material cost.

A currently inefficient purchasing process.

67. 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?

The organization should review the skill requirements and ensure that the service provider is maintaining sufficient expertise and retaining skilled resources.

The organization should proactively monitor the performance of the service provider, escalate concerns, and use penalty clauses in the contract where necessary.

The organization should ensure that there is a clear management communication strategy and path for evaluating and reporting on all outsourced services concerns.

The organization should work with the service provider to review the current agreement and expectations relating to objectives, processes, and overall performance.

68. A supervisor receives a complaint from an employee who is frustrated about having to learn a new software program. The supervisor responds that the new software will enable the employee to work more efficiently and with greater accuracy.

This response is an example of:

Empathetic listening.

Reframing.

Reflective listening.

Dialogue.

69. It can lead to cultural myopia.

1 and 4 only

2 and 3 only

1, 2, and 3 only

1, 2, and 4 only

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

Second-mortgage financing from a bank.

An issue of commercial paper.

Pledged accounts receivable.

Asset-based financing.

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

A multinational company has stockholders in other countries.

A multinational company exports its products to other countries.

A multinational company operates outside of its country of origin.

A multinational company uses raw materials and components from more than one country.

72. An organization has recorded the following profit and expenses:

Profit before interest and tax

$200,000

Sales

$2,300,000

Purchases of materials

$700,000

Interest expenses

$30,000

If the value-added tax (VAT) rate is 20 percent and the corporate tax rate is 30 percent, which of the following is the amount of VAT that the organization has to pay?

$34,000

$51,000

$60,000

$320,000

73. 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?

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

✑ Determine whether a business contingency plan exists. ✑ Determine the extent of transparency in reporting.

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

1 and 3.

1 and 4.

2 and 3.

2 and 4.

74. An organization is projecting sales of 100,000 units, at a unit price of $12. Unit variable costs are $7.

If fixed costs are $350,000, what is the projected total contribution margin?

$350,000

$500,000

$850,000

$1,200,000

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

Reasonableness check.

Transaction log.

Input error correction.

Authorization for access.

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

Each party’s negotiator presents a menu of options to the other party.

Each party adopts one initial position from which to start.

Each negotiator minimizes the information provided to the other party.

Each negotiator starts with an offer, which is optimal from the negotiator’s perspective.

77. Capacity overbuilding is most likely to occur when management is focused on which of the following?

Marketing.

Finance.

Production.

Diversification.

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

1 and 2 only

1 and 4 only

2 and 3 only

3 and 4 only

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

In a regressive personal tax system, an individual’s marginal tax rate is normally greater than his average tax rate.

In a regressive personal tax system, an individual’s marginal tax rate is normally equal to his average tax rate.

In a progressive personal tax system, an individual’s marginal tax rate is normally equal to his average tax rate.

In a progressive personal tax system, an individual’s marginal tax rate is normally greater than his average tax rate.

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

1, 2, and 3 only

1, 2, and 4 only

1, 3, and 4 only

2, 3, and 4 only

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

The strategy is favored when unit costs fall with the increase in units produced.

The strategy is favored when buyers are relatively insensitive to price increases.

The strategy is favored when there is insufficient market capacity and competitors cannot increase market capacity.

The strategy is favored when high price is perceived as high quality.

82. Which of the following roles would be least appropriate for the internal audit activity to undertake with regard to an organization’s corporate social responsibility (CSR) program?

Consult on project design and implementation of the CSR program.

Serve as an advisor on internal controls related to CS

Identify and prioritize the CSR issues that are important to the organization.

Evaluate the effectiveness of the organization’s CSR efforts.

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

It uses the same products in all countries.

It centralizes control with little decision-making authority given to the local level.

It is an effective strategy when large differences exist between countries.

It provides cost advantages, improves coordinated activities, and speeds product development.

84. Disaster recovery planning is a type of detailed control.

1 and 4 only

2 and 3 only

2, 3, and 4 only

1, 2, and 4 only

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

Decentralized organizations are more focused on organizational goals.

Decentralized organizations streamline organizational structure.

Decentralized organizations tend to be less expensive to operate.

Decentralized organizations tend to be more responsive to market changes.

86. Sales trends.

1 only

4 only

1 and 4 only

1, 2, and 3 only

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

Formulate contingency plans.

Conduct a risk analysis.

Create a crisis management team.

Practice the response to a crisis.

88. A retail organization is considering acquiring a composite textile company. The retailer’s due diligence team determined the value of the textile company to be $50 million. The financial experts forecasted net present value of future cash flows to be $60 million.

Experts at the textile company determined their company’s market value to be $55 million if purchased by another entity. However, the textile company could earn more than $70 million from the retail organization due to synergies. Therefore, the textile company is motivated to make the negotiation successful.

Which of the following approaches is most likely to result in a successful negotiation?

Develop a bargaining zone that lies between $50 million and $70 million and create sets of outcomes between $50 million and $70 million.

Adopt an added-value negotiating strategy, develop a bargaining zone between $50 million and $70 million, and create sets of outcomes between $50 million and $70 million.

Involve a mediator as a neutral party who can work with the textile company’s management to determine a bargaining zone.

Develop a bargaining zone that lies between $55 million and $60 million and create sets of outcomes between $55 million and $60 million.

89. 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:

There is an external market for that service.

The selling department operates at 50 percent of its capacity.

The purchasing department has more negotiating power than the selling department.

There is no external market for that service.

90. 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?

Electronic funds transfer.

Knowledge-based systems.

Biometrics.

Standardized graphical user interface.

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

1 only

4 only

2 and 4

3 and 4

92. Under a value-added taxing system:

Businesses must pay a tax only if they make a profit.

The consumer ultimately bears the cost of the tax through higher prices.

Consumer savings are discouraged.

The amount of value added is the difference between an organization’s sales and its cost of goods sold.

93. Which of the following strategies is most appropriate for an industry that is in decline?

Invest in marketing.

Invest in research and development.

Control costs.

Shift toward mass production.

94. 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?

Process element.

Key principles.

Maturity model.

Assurance.

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

PKI uses an independent administrator to manage the public key.

The public key is authenticated against reliable third-party identification.

PKI’s public accessibility allows it to be used readily for e-commerce.

The private key uniquely authenticates each party to a transaction.

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

Giving assurance that risks are evaluated correctly.

Developing the risk management strategy for the board’s approval.

Facilitating the identification and evaluation of risks.

Coaching management in responding to risk.

97. All of the following are true with regard to the first-in, first-out inventory valuation method except:

It values inventory close to current replacement cost.

It generates the highest profit when prices are rising.

It approximates the physical flow of goods.

It minimizes current-period income taxes.

98. When granting third parties temporary access to an entity’s computer systems, which of the following is the most effective control?

Access is approved by the supervising manager.

User accounts specify expiration dates and are based on services provided.

Administrator access is provided for a limited period.

User accounts are deleted when the work is completed.

99. Which stage in the industry life cycle is characterized by many different product variations?

Introduction.

Growth.

Maturity.

Decline.

100. Which of the following actions is most likely to gain support for process change?

Set clear objectives.

Engage the various communities of practice within the organization.

Demonstrate support from senior management.

Establish key competencies.

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

We are a people-and-goods mover.

We supply energy.

We make movies.

We provide climate control in the home.

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

A transmission control protocol/Internet protocol (TCP/IP).

An operating system.

A web browser.

A web server.

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

Times interest earned, return on assets, and inventory turnover.

Accounts receivable turnover, inventory turnover in days, and the current ratio.

Accounts receivable turnover, return on assets, and the current ratio.

Inventory turnover in days, the current ratio, and return on equity.

104. Overall system costs are lower.

1 and 2 only

1 and 3 only

2 and 4 only

3 and 4 only

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

Conduct periodic assessments of the organization’s governance systems.

Obtain assurance concerning the effectiveness of the organization’s governance systems.

Implement an effective system of internal controls to support the organization’s governance systems.

Review and approve operational goals and objectives.

106. The ability to test the effectiveness of the control.

1, 2, and 3

1, 2, and 4

1, 3, and 4

2, 3, and 4

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

Establishing risk category definitions and a common risk language for likelihood and impact measures.

Defining ERM roles and responsibilities.

Providing the board with an independent, objective risk perspective on financial reporting.

Guiding integration of ERM with other management activities.

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

Motivation.

Performance.

Organizational structure.

Communication.

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

To keep stock price constant.

To keep shareholders’ equity constant.

To increase shareholders’ equity.

To enhance the stock liquidity.

110. 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:

Adequate segregation of duties between data processing controls and file security controls.

Documented procedures for remote job entry and for local data file retention.

Emergency and disaster recovery procedures and maintenance agreements in place to ensure continuity of operations.

Established procedures to prevent and detect unauthorized changes to data files.

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

Does not require testing for user acceptance.

Allows applications to be portable across multiple system platforms.

Is less expensive since it is self-documenting.

Better involves users in the design process.

112. Which of the following statements is correct regarding risk analysis?

The extent to which management judgments are required in an area could serve as a risk factor in assisting the auditor in making a comparative risk analysis.

The highest risk assessment should always be assigned to the area with the largest potential loss.

The highest risk assessment should always be assigned to the area with the highest probability of occurrence.

Risk analysis must be reduced to quantitative terms in order to provide meaningful comparisons across an organization.

113. Structured data format.

1 and 2 only

2 and 3 only

3 and 4 only

1, 2, and 3 only

114. Which of the following is the primary benefit of including end users in the system development process?

Improved integrity of programs and processing.

Enhanced ongoing maintenance of the system.

Greater accuracy of the testing phase.

Reduced need for unexpected software changes.

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

Cash budget.

Production budget.

Sales budget.

Selling and administrative expenses budget.

116. 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?

Decrease by about 17 percent.

Decrease by about 7 percent.

Increase by about 7 percent.

Increase by about 17 percent.

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

Government pressure on organizations to increase or maintain employment.

Production orientation of management.

Lack of credible market leader in the industry.

Company diversification.

118. The most important reason to use risk assessment in audit planning is to:

Identify redundant controls.

Improve budgeting accuracy.

Enhance assurance provided to management.

Assist in developing audit programs.

119. 5

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

Cost X is a variable cost.

Cost X is a fixed cost.

Cost X is a semi-fixed cost.

Cost X and the value of Output Produced are unrelated.

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

Risk acceptance.

Risk sharing.

Risk avoidance.

Risk reduction.

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

Lack of flexibility.

Incompatibility with client/server technology.

Employee resistance to change.

Inadequate technical support.

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

Lower annual unit sales.

Higher fixed inventory ordering costs.

Higher annual carrying costs as a percentage of inventory value.

A higher purchase price per unit of inventory.

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

Internal strengths and weaknesses.

Break-even points.

External trends and events.

Internal risk factors.

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

Promote closer linkage between organizational strategy and information.

Provide users with greater online access to information systems.

Enhance the functionality of application systems.

Expand the use of automated controls.

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

Lost sales, lost customers, and backorder.

Lost sales, safety stock, and backorder.

Lost customers, safety stock, and backorder.

Lost sales, lost customers, and safety stock.

Question 1 of 125

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