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IIA-CIA-Part3 Business Knowledge for Internal Auditing Questions and Answers

Questions 4

Which of me following rs appfccaWe lo both a job order cost system and a process cost system?

Options:

A.

Total manufacturing costs are determined at the end of each period.

B.

Costs are summarized in a production cost repot for each department

C.

Three manufacturing cost elements are tracked direct materials direct labor and manufacturing overhead.

D.

The unit cost can be calculated by dividing the total manufacturing costs for the period by the units produced during the period

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Questions 5

An organization accomplishes its goal to obtain a 40 percent share of the domestic market, but is unable to get the desired return on investment and output per hour of labor. Based on this information the organization is most likely focused on which of the following?

Options:

A.

Capital investment and not marketing

B.

Marketing and not capital investment.

C.

Efficiency and not input economy.

D.

Effectiveness and not efficiency.

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Questions 6

A restaurant deeded to expand its business to include delivery services rather than relying on third-party food delivery services. Which of the following best describes the restaurant's strategy?

Options:

A.

Diversification

B.

Vertical integration

C.

Risk avoidance

D.

Differentiation

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Questions 7

According to IIA guidance, which of the following is a primary component of a network security strategy?

Options:

A.

Application input controls

B.

Firewall controls.

C.

Transmission encryption controls

D.

Change management controls

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Questions 8

The critical path for any project is the path that exhibits which of the following characteristics?

Options:

A.

Has the longest duration in time.

B.

Costs the most money.

C.

Requires the largest amount of labor

D.

Is deemed most important to the project.

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Questions 9

Which of the following statements is true regarding the "management-by-objectives" method?

Options:

A.

Management by objectives is most helpful in organizations that nave rapid changes.

B.

Management by objectives is most helpful in mechanistic organizations with rigidly defined tasks.

C.

Management by objectives helps organizations to keep employees motivated.

D.

Management by objectives helps organizations to distinguish clearly strategic goals from operational goals

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Questions 10

An organization invests excess snort-term cash in trading securities. When of the following actions should an internal auditor take to test the valuation of those securities?

Options:

A.

Use the equity method to recalculate the investment carrying value

B.

Confirm the securities held by the broker

C.

Perform a calculation of premium or discount amortization.

D.

Compare the carrying value with current market quotations

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Questions 11

Which of the following re a result of implementing an e-commerce system, which relies heavily on electronic data interchange and electronic funds transfer, for purchasing and billing?

Options:

A.

Higher cash flow and treasury balances

B.

Higher inventory balances

C.

Higher accounts receivable

D.

Higher accounts payable

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Questions 12

Which of the following is classified as a product cost using the variable costing method?

1. Direct labor costs

2. Insurance on a factory.

3. Manufacturing supplies.

4. Packaging and shipping costs

Options:

A.

1 and 2

B.

1 and 3

C.

2 and 4

D.

3 and 4

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Questions 13

An organization recently documented its procedures for recovering systems and data after a disaster How are these documented procedures most likely to be used during a disaster simulation exercise'' A. To help property configure mass communication notification tools

B. To help identify training needs across the functional areas required to recover systems and data.

C. To help ensure that the team members who are required to recover systems and data understand their roles.

D. To help validate the contact information of key personnel required to recover systems and data

Options:

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Questions 14

Which of the following is an example of a smart device security control intended to prevent unauthorized users from gaining access to a device's data or applications?

Options:

A.

Anti-malware software.

B.

Authentication.

C.

Spyware.

D.

Rooting.

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Questions 15

Which of the following cybersecurity-related activities is most likely to be performed by the second line of defense?

Options:

A.

Deploy intrusion detection systems and conduct penetration testing

B.

Administer security procedures, training, and testing.

C.

Monitor incidents, key risk indicators, and remediation

D.

implement vulnerability management with internal and external scans.

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Questions 16

An organization is experiencing a high turnover. Which of the following can human resources deploy to effectively detect the root cause of turnover?

Options:

A.

Require regular performance appraisals

B.

Perform exit interviews

C.

Encourage periodic rotation of employee duties.

D.

Ensure mandatory vacations

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Questions 17

An internal auditor is assigned to perform data analytics. Which of the following is the next step the auditor should undertake after she has ascertained the value expected from the review?

Options:

A.

Normalize the data

B.

Obtain the data

C.

identify the risks

D.

Analyze the data

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Questions 18

Which of the following is an example of a phishing attack?

Options:

A.

An employee receives an email that appears to be from the organization's bank, though it is not. The employee replies to the email and sends the requested confidential information.

B.

An organization's website has been hacked. The hacker added political content that is not consistent with the organization's views.

C.

An organization's systems have been compromised by malicious software. The software locks the organization's operating system until d ransom is paid.

D.

An organization's communication systems have been intercepted. A communication session is controlled by an unauthorized third party.

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Questions 19

Which of the following is the best example of a compliance risk that is likely to arise when adopting a bring-your-own-device (BYOD) policy?

Options:

A.

The risk that users try to bypass controls and do not install required software updates.

B.

The risk that smart devices can be lost or stolen due to their mobile nature.

C.

The risk that an organization intrusively monitors personal information stored on smart devices.

D.

The risk that proprietary information is not deleted from the device when an employee leaves.

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Questions 20

Which of the following types of analytics would be used by an organization to examine metrics by business units and identity the most profitable business units?

Options:

A.

Detailed analytics

B.

Predictive analytics

C.

Diagnostic analytics

D.

Prescriptive analytics

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Questions 21

Which of the following situations best applies to an organization that uses a project rather man a process to accomplish its business activities?

Options:

A.

A clothing company designs makes and sells a new item.

B.

A commercial constructor company is hired to build a warehouse.

C.

A city department sets up a new firefighter training program.

D.

A manufacturing organization acquires component parts from a contracted vendor

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Questions 22

According to IIA guidance, which of the following statements is true regarding analytical procedures?

Options:

A.

Data relationships are assumed to exist and to continue where no known conflicting conditions exist.

B.

Analytical procedures are intended primarily to ensure the accuracy of the information being examined.

C.

Data relationships cannot include comparisons between operational and statistical data

D.

Analytical procedures can be used to identify unexpected differences but cannot be used to identify the absence of differences

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Questions 23

What would be the effect it an organization paid one of its liabilities twice during the year in error?

Options:

A.

Assets liabilities and owners' equity would be understated

B.

Assets net income and owners' equity would be unaffected

C.

Assets and liabilities would be understated

D.

Assets net income and owners' equity would be understated, but liabilities would be overstated

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Questions 24

Which of the following best describes the purpose of disaster recovery planning?

Options:

A.

To reconstitute systems efficiently following a disruptive event.

B.

To define rules on how devices within the system should communicate after a disaster.

C.

To describe how data should move from one system to another system in case of an emergency.

D.

To establish a protected area of network that is accessible to the public after a disaster

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Questions 25

In which of the following plans is an employee most likely to find guidance on action and performance standards?

Options:

A.

Operational plans.

B.

Tactical plans.

C.

Strategic plans.

D.

Mission plans.

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Questions 26

Which of the following data security policies is most likely to be the result of a data privacy law?

Options:

A.

Access to personally identifiable information is limited to those who need it to perform their job.

B.

Confidential data must be backed up and recoverable within a 24-hour period.

C.

Updates to systems containing sensitive data must be approved before being moved to production.

D.

A record of employees with access to insider information must be maintained and those employees may not trade company stock during blackout periods

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Questions 27

An internal auditor is reviewing the organization's performance appraisal process. Which of the following methods would be most effective to identify stereotyping?

Options:

A.

Use a behaviorally anchored rating scale to Break down jobs into their components.

B.

Analyze and compare the ratings for different classes or groupings of employees.

C.

Compare the ratings of selective employees with their previous appraisals.

D.

Analyze the number and percentages of employee appraisals that fall into each rating category

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Questions 28

Which of the following application controls checks the integrity of data entered into a business application?

Options:

A.

Input controls.

B.

Output controls

C.

Processing controls

D.

Integrity controls

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Questions 29

Which of the following options correctly defines a transmission control protocol/Internet protocol (TCP/IP)?

Options:

A.

System software that acts as an interface between a user and a computer.

B.

A standardized set of guidelines that facilitates communication between computers on different networks.

C.

System software that translates hypertext markup language to allow users to view a remote webpage.

D.

A network of servers used to control a variety of mission-critical operations.

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Questions 30

Which of me following application controls is the most dependent on the password owner?

Options:

A.

Password selection

B.

Password aging

C.

Password lockout

D.

Password rotation

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Questions 31

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?

Options:

A.

Process element.

B.

Key principles.

C.

Maturity model.

D.

Assurance.

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Questions 32

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.

Options:

A.

1 and 2 only

B.

2 and 3 only

C.

1, 2, and 3 only

D.

1, 2, 3, and 4

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Questions 33

Which of the following is true regarding the COSO enterprise risk management framework?

Options:

A.

The framework categorizes an organization's objectives to distinct, non overlapping objectives.

B.

Control environment is one of the framework's eight components.

C.

The framework facilitates effective risk management, even if objectives have not been established.

D.

The framework integrates with, but is not dependent upon, the corresponding internal control framework.

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Questions 34

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?

Options:

A.

7 percent simple interest with a 10 percent compensating balance.

B.

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

C.

7 percent discount interest.

D.

7 percent compounding interest.

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Questions 35

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?

Options:

A.

Prior to testing the new application.

B.

During testing of the new application.

C.

During implementation of the new application.

D.

During maintenance of the new application.

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Questions 36

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.

Options:

A.

1, 2, and 3

B.

1, 2, and 4

C.

1, 3, and 4

D.

2, 3, and 4

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Questions 37

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

Options:

A.

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

B.

A large volume of custom purchases.

C.

A variable volume sensitive to material cost.

D.

A currently inefficient purchasing process.

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Questions 38

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

Incurred

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?

Options:

A.

Fixed cost.

B.

Variable cost.

C.

Total maintenance cost.

D.

Patient days.

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Questions 39

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

Options:

A.

Dairy manufacturing company taking over a large dairy farm.

B.

A movie producer acquires movie theaters.

C.

A petroleum processing company acquires an agro-processing firm.

D.

A baker taking over a competitor.

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Questions 40

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?

Options:

A.

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

B.

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

C.

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

D.

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

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Questions 41

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?

Options:

A.

50 units.

B.

60 units.

C.

100 units.

D.

120 units.

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Questions 42

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.

Options:

A.

1 and 3 only

B.

1 and 4 only

C.

2 and 3 only

D.

2 and 4 only

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Questions 43

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

Options:

A.

Draws positive attention to the writing style.

B.

Treats all receivers with respect.

C.

Suits the method of presentation and delivery.

D.

Develops ideas without overstatement.

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Questions 44

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

Options:

A.

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

B.

Defining ERM roles and responsibilities.

C.

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

D.

Guiding integration of ERM with other management activities.

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Questions 45

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

Options:

A.

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

B.

Each party adopts one initial position from which to start.

C.

Each negotiator minimizes the information provided to the other party.

D.

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

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Questions 46

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?

Options:

A.

$350,000

B.

$500,000

C.

$850,000

D.

$1,200,000

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Questions 47

Which of the following budgets must be prepared first?

Options:

A.

Cash budget.

B.

Production budget.

C.

Sales budget.

D.

Selling and administrative expenses budget.

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Questions 48

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.

Options:

A.

1 and 3 only

B.

2 and 4 only

C.

1, 2, and 4 only

D.

1, 2, 3, and 4

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Questions 49

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

Options:

A.

The underlying causes of the risk.

B.

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

C.

The risk levels of current and future events.

D.

The potential for eliminating risk factors.

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Questions 50

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?

Options:

A.

Political.

B.

Financial.

C.

Social.

D.

Tariff.

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Questions 51

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

Options:

A.

The distorted unit cost of a service is 50 percent lower than the true cost, while the true cost is 50 percent higher than the competition's cost.

B.

The organization is losing $1,000,000 annually because it incorrectly outsourced an operation based on information from its current system.

C.

The cost of rework, hidden by the current system, is 50 percent of the total cost of all services.

D.

50 percent of total organizational cost has been allocated on a volume basis.

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Questions 52

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

Options:

A.

Established strategy of players.

B.

Low number of new firms.

C.

High unit costs.

D.

Technical expertise.

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Questions 53

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?

Options:

A.

Interviewing the organization's employees.

B.

Observing the organization's operations.

C.

Reading the board's minutes.

D.

Inspecting manuals and documents.

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Questions 54

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.

Options:

A.

1 and 3.

B.

1 and 4.

C.

2 and 3.

D.

2 and 4.

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Questions 55

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

Options:

A.

A higher initial investment level.

B.

A higher discount rate.

C.

Cash inflows that are larger in the later years of the life of the project.

D.

Cash inflows that are larger in the earlier years of the life of the project.

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Questions 56

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

Options:

A.

Cutbacks in preventive maintenance.

B.

An inadequately trained and supervised labor force.

C.

A large number of rush orders.

D.

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

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Questions 57

Which of the following borrowing options is an unsecured loan?

Options:

A.

Second-mortgage financing from a bank.

B.

An issue of commercial paper.

C.

Pledged accounts receivable.

D.

Asset-based financing.

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Questions 58

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.

Options:

A.

1 and 2 only

B.

1 and 4 only

C.

2 and 3 only

D.

3 and 4 only

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Questions 59

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

Options:

A.

Lack of flexibility.

B.

Incompatibility with client/server technology.

C.

Employee resistance to change.

D.

Inadequate technical support.

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Questions 60

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

Options:

A.

Specific guidance must be followed when interacting with nongovernmental organizations.

B.

Disclosure laws tend to be consistent from one jurisdiction to another.

C.

There are several internationally recognized standards for dealing with financial donors.

D.

Legal representation should be consulted before releasing internal audit information to other assurance providers.

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Exam Code: IIA-CIA-Part3
Exam Name: Business Knowledge for Internal Auditing
Last Update: Jan 21, 2022
Questions: 412

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