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Q121. A payroll clerk enters payroll transactions into the general ledger. The staff accountant reconciles the payroll ledgers. The payroll manager issues the manual payroll checks. The checks are maintained in a locked cabinet. The chief financial officer secures the keys to the cabinet. The payroll clerk distributes the manual checks.
The payroll manager reconciles the bank statements monthly. Which of the following audit steps best addresses the risk of fraud in the payroll process?
A. Examine whether the payroll manager approves the reconciliations of ledgers.
B. Determine whether an approved list of voided checks exists.
C. Determine whether the cabinet keys are secured properly.
D. Vouch a sample of items on bank reconciliations to supporting documentation.
Answer: D
Q122. Which of the following is the primary purpose of financial statement audit engagements?
A. To assess the efficiency and effectiveness of the accounting department.
B. To evaluate organizational and departmental structures, including assessments of process
flows related to financial matters.
C. To provide a review of routine financial reports, including analyses of selected accounts for
compliance with generally accepted accounting principles.
D. To provide an analysis of business process controls in the accounting department, including
tests of compliance with internal policies and procedures.
Answer: C
Q123. Which of the following are key characteristics of enterprise risk management?
1.
It considers risk in the formulation of strategy.
2.
It applies risk management in some units of an entity.
3.
It takes a portfolio view of risks throughout the enterprise.
4.
It restricts the organization's ability to seize opportunities inherent in future events.
A. 2 and 3 only
B. 1 and 3 only
C. 2 and 4 only
D. 1 and 4 only
Answer: B
Q124. A large investment organization hired a chief risk officer (CRO) to be responsible for the
organization's risk management processes. Which of the following people should prioritize risks to
be used for the audit plan?
A. Operational management, because they are responsible for the day-to-day management of the operational risks.
B. The CRO, because he is responsible for coordinating and project managing risk activities
based on his specialized skills and knowledge.
C. The chief audit executive, although he is not accountable for risk management in the
organization.
D. The CEO, because he has ultimate responsibility for ensuring that risks are managed within the agreed tolerance limits set by the board.
Answer: C
Q125. Which of the following is a red flag associated with fictitious revenues?
A. Slow growth or unusually low profitability.
B. Unusual decrease in the number of days' sales in receivables.
C. Substantial increase in receivables turnover.
D. Significant transactions with related parties.
Answer: D
Q126. A manufacturing organization is considering a merger with a similar firm, and requests that the chief audit executive (CAE) perform a due diligence audit. During the preliminary survey, the CAE notes that inventory management is a high risk area. In consultation with the external auditors and legal advisors, the CAE learns that they share those concerns. Which of the following is the CAE's best course of action?
A. Perform an independent audit of the merging firm's inventory management practices to verify the concerns and to provide relevant and reliable results to management for their consideration and action.
B. Advise management that internal audit, external audit, and legal advisors all have concerns about inventory management and, given the high materiality of inventory, management should not proceed with the merger.
C. Coordinate a review of inventory management with external auditors and legal advisors and ensure each group focuses on their area of expertise to ascertain the extent of the problems, if any.
D. Coordinate with the merging firm's internal audit department to better understand the inventory management function and whether the concerns are well-founded.
Answer: C
Q127. According to the International Professional Practices Framework, which of the following statements is correct regarding the communication of audit results?
I. Summary reports may be issued separately from or in conjunction with the final report.
II. Interim reports may be written or oral.
III. Detailed reports should always be issued to the audit committee.
IV.
Interim reports should be used to communicate information which requires immediate attention.
A.
I and III only
B.
II and IV only
C.
I, II, and IV only
D.
I, II, III, and IV.
Answer: C
46. The chief audit executive (CAE) determined that based on management's oral response, the action taken regarding an audit observation was sufficient when weighted against the relative importance of the audit recommendation. Which of the following is the most appropriate step for the internal auditor to take next?
A. Initiate a follow-up audit to ensure that action has really been taken.
B. Follow-up with management until a written response is obtained.
C. Escalate the issue to the board and get their position on the issue.
D. Note in the permanent file that follow-up needs to be performed as part of the next engagement.
Answer: D
Q128. Which of the following is the primary reason the chief audit executive should consider the organization's strategic plans when developing the annual audit plan?
A. Strategic plans reflect the organization's business objectives and overall attitude toward risk.
B. Strategic plans are helpful to identify major areas of activity, which may direct the allocation of internal audit activity resources.
C. Strategic plans are likely to show areas of weak financial controls.
D. The strategic plan is a relatively stable document on which to base audit planning.
Answer: A
Q129. The chief audit executive (CAE) decided that based on management's oral response, the action taken on an audit observation for a minor improvement in the client's process is sufficient and no further follow-up is necessary. Which of the following would be the best statement regarding the action of the CAE?
A. The CAE action is not acceptable, as a follow-up audit is needed to ensure that action is really taken by management.
B. The CAE action is not acceptable, as follow-up on the issue is critical until a written response is obtained from management.
C. The CAE action is acceptable as long as the follow-up is sufficient when weighed against the relative importance of the recommendation.
D. The CAE action is acceptable as long as the issue has been escalated to the board to get their position on the issue.
Answer: C
Q130. An auditor is using an internal control questionnaire as part of a preliminary survey. Which of the following is the best reason for the auditor to interview management regarding the questionnaire responses?
A. Interviews provide the opportunity to insert questions to probe promising areas.
B. Interviews are the most efficient way to upgrade the information to the level of objective evidence.
C. Interviewing is the least costly audit technique when a large amount of information is involved.
D. Interviewing is the only audit procedure which does not require confirmation of the information that is obtained.
Answer: A
Q131. A chief audit executive has noticed that staff auditors are presenting more oral reports to supplement written reports. The best reason for the increased use of oral reports is that they:
A. Reduce the amount of testing required to support audit findings.
B. Can be delivered in an informal manner without preparation.
C. Can be prepared using a flexible format and reduce the information included in the written report.
D. Permit auditors to counter arguments and provide additional information that the audience may require.
Answer: D
180. Which of the following is a responsibility of the internal auditor once a fraud investigation has been concluded?
A. Ascertain the extent to which fraud has been perpetrated.
B. Notify the appropriate regulatory authorities regarding the outcome of the investigation.
C. Determine if controls need to be implemented or strengthened to reduce future vulnerability.
D. Implement controls to prevent future occurrences.
Answer: C
Q132. According to IIA guidance, which of the following is least likely to be a key financial control in an organization's accounts payable process?
A. Require the approval of additions and changes to the vendor master listing, where the inherent risk of false vendors is high.
B. Monitor amounts paid each period and compare them to the budget to identify potential issues.
C. Compare employee addresses to vendor addresses to identify potential employee fraud.
D. Monitor customer quality complaints compared to the prior period to identify vendor issues.
Answer: D
Q133. The internal auditor of a bank has developed a multiple regression model which has been used for a number of years to estimate the amount of interest income from commercial loans. During the current year, the auditor applies the model and discovers that the R2 value has decreased dramatically, but that the model otherwise seems to be working correctly. Which of the following conclusions is justified by the change?
A. Changing to a cross-sectional regression analysis should cause the R2 to increase.
B. Regression analysis is no longer an appropriate technique to estimate interest income.
C. Some new factors, not included in the model, are causing interest income to change.
D. A linear regression analysis would increase the model's reliability.
Answer: C
Q134. If observed during fieldwork by an internal auditor, which of the following activities is least important to communicate formally to the chief audit executive?
A. Acts that may endanger the health or safety of individuals.
B. Acts that favor one party to the detriment of another.
C. Acts that damage or have an adverse effect on the environment.
D. Acts that conceal inappropriate activities in the organization.
Answer: B
Q135. The chief audit executive (CAE) of a new organization is in the process of determining the manner in which audit reports will be distributed and to whom. According to the Standards, which of the following is the most appropriate course of action for the CAE to take to develop this distribution process?
A. The process should be determined in meetings with the external auditor and senior management to ensure alignment with external reporting.
B. The CAE should meet with senior management for their input, but finalize the distribution of all reports with the board.
C. The CAE should independently implement the report distribution, using best judgment to ensure that all relevant stakeholders are informed.
D. The CAE should request that senior management and the board meet to determine the most appropriate reporting method.
Answer: B