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Q31. Which of the following is a preventive control for fraud?
A. Determining if the number of manually prepared disbursement checks is high.
B. Reconciling the purchase orders with the requisitions.
C. Verifying that new vendors appear on the vendor pre-approved list.
D. Conducting an inventory count of the warehouse.
Answer: C
Q32. 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.
Answer: A
Q33. The chief risk officer (CRO) of a large manufacturing organization decided to facilitate a workshop
for process managers and staff to identify opportunities for improving productivity and reducing
defects. Which of the following is the most likely reason the CRO chose the workshop approach?
A. It minimizes the amount of time spent and cost incurred to gather the necessary information.
B. Responses can be confidential, thus encouraging participants to be candid expressing their
concerns.
C. Workshops do not require extensive facilitation skills and are therefore ideal for nonauditors.
D. Workshop participants have an opportunity to learn while contributing ideas toward the
objectives.
Answer: D
Q34. Which of the following events would most likely cause the chief audit executive to consider
changing the current year's audit plan?
The government announced that new regulatory requirements will be introduced in the coming
years which may significantly impact the organization's primary product.
A major competitor unexpectedly introduced a new model at a lower price point to compete with the organization's market leading product.
The organization announced a new joint venture with a long time corporate partner to introduce a new product with development costs and sales beginning next fiscal year.
An equal joint venture partner filed a lawsuit against the organization and requested that the court issue an immediate suspension of future product shipments.
A. 1 and 2 only
B. 1 and 3 only
C. 2 and 4 only
D. 3 and 4 only
Answer: C
Q35. 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. The auditor's actions woulD.
I.
Be in violation of the IIA Code of Ethics for withholding meaningful information.
II.
Be in violation of the Standards because the auditor did not properly follow up on a red flag that might indicate the existence of fraud.
III.
Not be in violation of either the IIA Code of Ethics or Standards.
A. I only
B. II only
C. III only
D. I and II only
Answer: C
206. An internal auditor has completed an audit of an organization's activities and is ready to issue a report. However, the client disagrees with the internal auditor's conclusions. The auditor should:
A. Withhold the issuance of the audit report until agreement on the issues is obtained.
B. Issue the audit report and state both the auditor and client positions and the reasons for the disagreement.
C. Issue the audit report and omit the client's conclusion as it is not the opinion of the internal auditor.
D. Perform additional work, with the client's concurrence, to resolve the areas of disagreement and delay the issuance of the report until agreement is reached.
Answer: B
Q36. Inadequate risk assessment would have the strongest negative impact in which of the following phases of an audit engagement?
A. Determining the scope.
B. Reviewing internal controls.
C. Testing.
D. Evaluating findings.
Answer: A
Q37. A bakery chain has a statistical model that can be used to predict daily sales at individual stores based on a direct relationship to the cost of ingredients used and an inverse relationship to rainy days. What conditions would an internal auditor look for as an indicator of employee theft of food from a specific store?
A. On a rainy day, total sales are greater than expected when compared to the cost of ingredients used.
B. On a sunny day, total sales are less than expected when compared to the cost of ingredients
used.
C. Both total sales and cost of ingredients used are greater than expected.
D. Both total sales and cost of ingredients used are less than expected.
Answer: B
Q38. What type of analysis is performed when an auditor tests for unusual variations in information by comparing the number of employees working at a factory site with the direct cost of production each month over a period of one year?
A. Trend analysis.
B. Ratio analysis.
C. Regression analysis.
D. Horizontal analysis.
Answer: C
Q39. Which of the following is the best approach for obtaining feedback from engagement clients regarding the quality of internal audit work?
A. Ask questions during the exit interviews and send copies of the documented responses to the clients.
B. Call engagement clients after the exit interviews and send copies of the documented responses to the clients.
C. Distribute questionnaires to selected engagement clients shortly before preparing the internal
audit annual activity report.
D. Provide questionnaires to engagement clients at the beginning of each engagement and request that the clients complete and return them after the engagements.
Answer: D
Q40. When setting the scope for the identification and assessment of key risks and controls in a process, which of the following would be the least appropriate approach?
A. Develop the scope of the audit based on a bottom-up perspective to ensure that all business objectives are considered.
B. Develop the scope of the audit to include controls that are necessary to manage risk associated with a critical business objective.
C. Specify that the auditors need to assess only key controls, but may include an assessment of non-key controls if there is value to the business in providing such assurance.
D. Ensure the audit includes an assessment of manual and automated controls to determine whether business risks are effectively managed.
Answer: A
Q41. A manufacturing process could create hazardous waste at several production stages, from raw materials handling to finished goods storage. If the objective of a pollution prevention audit engagement is to identify opportunities for minimizing waste, in what order should the following opportunities be considered?
I. Recycling and reuse.
II. Elimination at the source.
III. Energy conservation.
IV.
Recovery as a usable product Treatment.
A.
V, II, IV, I, III.
B.
IV, II, I, III, V.
C.
I, III, IV, II, V.
D.
III, IV, II, V, I.
Answer: B
11. An organization's internal auditors are reviewing production costs at a gas-powered electrical generating plant. They identify a serious problem with the accuracy of carbon dioxide emissions reported to the environmental regulatory agency, due to computer errors. The auditors should immediately report the concern to:
A. The regulatory agency.
B. Plant management.
C. A plant health and safety officer.
D. The risk management function.
Answer: B
Q42. During an assurance engagement, an internal auditor noted that the time staff spent accessing customer information in large Excel spreadsheets could be reduced significantly through the use of macros. The auditor would like to train staff on how to use the macros. Which of the following is the most appropriate course of action for the internal auditor to take?
A. The auditor must not perform the training, because any task to improve the business process could impact audit independence.
B. The auditor must create a new, separate consulting engagement with the business process owner prior to performing the improvement task.
C. The auditor should get permission to extend the current engagement, and with the process owner's approval, perform the improvement task.
D. The auditor may proceed with the improvement task without obtaining formal approval, because the task is voluntary and not time-intensive.
Answer: C
Q43. What is the most important risk in determining the validity of construction delay claims?
A. Contractor claims may be submitted prior to completion of the work.
B. Contractor claims may include costs considered in the fixed-price portion of the work.
C. Contractor claims may include subcontractor estimates of balances due to the subcontractor.
D. Contractor claims may be understated.
Answer: B
Q44. Which of the following statements is false regarding audit criteria?
A. Audit criteria should be consistent across audit assignments.
B. Audit criteria should represent reasonable standards against which to assess existing conditions.
C. Audit criteria should provide flexibility but allow identification of nonadherence.
D. Audit criteria should equate to good or acceptable management practices.
Answer: A
Q45. According to the Standards, which of the following would least likely be considered a red flag when evaluating the risk for fraud?
A. Cash receipts appear to be lower than expected from an employee's cash drawer.
B. Health benefits are detected to be claimed for a deceased employee.
C. An employee did not approve an internal report detailing expenses for the month.
D. It is alleged that an employee is receiving vendor kickbacks.
Answer: C