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Q16. New credit policies have been implemented in an automated order-entry system to improve the collection of receivables. Sales management has compiled several examples that show decreased sales and delayed order entry, and contends that these examples are a direct result of the new credit-policy constraints. Sales management's data and information provide:
A. Feedback control data.
B. Irrelevant and argumentative information.
C. Evidence that the new credit policies do not meet the stated corporate objective to improve collections.
D. A statistically valid conclusion about the impact of the new credit policies on customer goodwill.
Q17. A staff auditor, nearly finished with an audit engagement, discovers that the director of marketing has a gambling habit. The gambling issue is not directly related to the existing engagement, and there is pressure to complete the current engagement. The auditor notes the problem and forwards the information to the chief audit executive, but performs no further follow-up.
Which of the following statements is true about the auditor's actions?
A. They are in violation of the IIA Code of Ethics because the auditor withheld meaningful information.
B. They are in violation of the Standards because the auditor did not properly follow up on a red flag that might indicate the existence of fraud.
C. They are in violation of neither the IIA Code of Ethics nor the Standards.
D. They are not in violation of the Standards but are in violation of the IIA Code of Ethics.
Q18. A company's chief audit executive determines that the internal audit staff does not have the requisite skills to conduct an audit of the financial derivatives area. Which of the following actions would be the least acceptable?
A. Notify the audit committee of the problem and consult with them regarding outsourcing the audit engagement to a qualified external auditing firm.
B. Determine the requisite knowledge needed and obtain the proper training for auditors if such training is available within the appropriate time framework outlined by the audit committee.
C. Notify the audit committee of the problem and assign the most competent auditors to perform the audit engagement.
D. Employ the skills of a financial derivatives expert to consult on the project,and supplement the consulting with a local seminar on financial derivatives.
Q19. An accounts receivable clerk receives cash payments, posts the payments to customer accounts, and prepares the daily cash deposit.
The clerk has been stealing some cash and manipulating the customer payments to hide the theft.
This fraud could be detected with which of the following controls?
A. Monthly bank reconciliations are performed by the clerk on a timely basis.
B. Total cash deposits for the month are reconciled to the cash receipts journal.
C. Names,amounts,and dates on remittance advices are reconciled with the names,amounts,and dates recorded in the cash receipts journal.
D. Total cash deposits are compared with the bank reconciliation.
Q20. When using a risk assessment model to develop audit plans, it is essential that the chief audit
executive take into account the:
A. Results of the last audit.
B. Planned visits by the external auditors during the upcoming year.
C. Recent or expected changes in management direction and objectives.
D. Dates of future board meetings.
Q21. An organization receives the most value from an internal audit activity's enterprise-wide risk assessment when the auditor:
A. Focuses primarily on enterprise-level risks.
B. Considers activities at all levels of the organization.
C. Reviews special projects and new initiatives.
D. Validates supporting financial and operational data.
Q22. An internal auditor is testing, on a sample basis, whether invoices paid between January 1 and December 31 are supported by appropriately approved purchase orders. Over 25, 000 invoices were paid during the fiscal year, which runs from the first of April to the end of March. The auditor sets the acceptable risk of assessing control risk too low at 5% and the tolerable deviation rate at 5%. The internal auditor consults the previous audit and sets the expected population deviation rate at 1%. Sample size (77) is selected from a table and rounded up to 80. No sample deviations were found. The upper deviation limit was 3.7%.
Which of the following statements represents a valid conclusion regarding this information?
A. I am 95% confident that the true,but unknown,population deviation rate is less than or equal to 3.7%. Results indicated that the sample size was too small,as no sample deviations were found.
B. I am 95% confident that the actual population deviation rate is 3.7%. Since this is less than the tolerable deviation rate,quantitative attribute testing results indicate that the control is effective.
C. I am 95% confident that the true,but unknown,population deviation rate is less than or equal to 3.7%. The quantitative attribute testing results indicate that the control is effective.
D. I am 95% confident that the true,but unknown,population deviation rate is less than or equal to 3.7%. The quantitative attribute testing results indicate that the control is not effective.
Q23. Which of the following would not be a red flag for fraud?
A. Several recent,large expenditures to a new vendor have not been documented.
B. A manager has bragged about multiple extravagant vacations taken within the last year,which are excessive relative to the manager's salary.
C. A weak control environment has been accepted by management to encourage creativity.
D. New employees occasionally fail to meet established project deadlines due to staffing shortages.
Q24. Which of the following statements is true regarding assurance services provided to clients outside of the organization?
A. Assurance services for outside clients are not covered under the internal audit charter.
B. Assurance services for outside clients must be approved on a case-by-case basis by the board of directors.
C. The nature of assurance services for outside clients should be defined in the internal audit charter.
D. The nature of assurance services for outside clients is the same as for internal clients.
Q25. Which of the following internal control weaknesses would an internal auditor most likely detect while reviewing a flowchart that depicts the purchasing function of an organization?
A. Purchasing policies have not been updated.
B. The organization is not taking advantage of quantity discounts available from its suppliers.
C. Payments for goods received have not been authorized at the appropriate level.
D. Payments to suppliers are made before goods are received.
Q26. Management should be included in the development of the audit plan in order to:
A. Provide assurance that past audit recommendations have been properly implemented.
B. Select the audit tests that will be used for each engagement.
C. Verify that the highest risks are included in the risk-based audit plan.
D. Guarantee access to the organization's sites and records for audit work.
Q27. Which of the following is not true with regard to the internal audit charter?
A. It defines the authorities and responsibilities of the internal audit activity.
B. It specifies the minimum resources needed for the internal audit activity.
C. It provides a basis for evaluating the internal audit activity.
D. It should be approved by senior management and the board.
Q28. A government agency's policy states that board members' travel and hospitality expenses must be audited annually. Which of following people or groups is most appropriate to perform this audit?
A. The government's independent auditor.
B. The external auditors from an accounting firm.
C. The internal audit activity.
D. The agency's chief compliance officer.
Q29. In selecting a team to perform an internal audit of a purchasing operation, which of the following characteristics would not preclude an auditor from being selected?
The auditor's spouse is employed by the clerical section of the purchasing records unit.
The auditor had been a purchasing agent five years earlier.
The auditor's family owns a business that regularly sells goods to the organization.
The auditor has received a desk calendar as a promotional gift from a vendor.
A. 1 and 3 only
B. 1 and 4 only
C. 2 and 3 only
D. 2 and 4 only
Q30. Which of the following is an appropriate consideration by the auditor when preparing an engagement program for a human resource audit?
A. State the work steps in the form of questions.
B. Use standard audit program for HR from previous years.
C. Include in the audit program certain audit tests requested by audit client.
D. Defer preparation of the audit program after the field work.