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Q166. The network below describes the interrelationships of several activities necessary to complete a project. The arrows represent the activities. The numbers between the arrows indicate the number of months to complete each activity. 

The shortest time to complete the project is: 

A. 5 months. 

B. 6 months. 

C. 8 months. 

D. 14 months. 



The critical (longest) path through the network from node (A) to node (F) is path A-C-D-F. All other paths are shorter than path A-C-D-F, so the activities along those paths can be completed before the activities along path A-C-D-F. Thus, the shortest time to complete the project is 8 months (3 + 3 + 2). 

Q167. During the past few gears, Wilder Company has experienced the following average number of power outages: 

Each power outage results in out-of-pocket costs of U $300. For U $1,000 per month, At US 

$800 can lease generator to provide power during outages. If Wilder leases a generator in the coming year, the estimated savings or additional expense) for the year will be: 

A. U $ 15,200) 

B. US $ 1,267) 

C. U $3,200 

D. U $7,200 



Each outage costs US $800, but this experience can be avoided by paying US $1,000 per month US $12,000 for the year). The expected-value approach uses the probability distribution derived from past experience to determine the average expected outages per month. 

The company can expect to have, on average, 1.58334 outages per month. At US $800 per outage, the expected costs is US $1,266.67. Thus, paying US $1,000 to avoid an expense of US $1,266.67 saves US $266.67 per month, or US $3,200 per year. 

Q168. In Year 2, a manufacturing company instituted a total quality management (TQM) program producing the following report: 

On the basis of this report, which one of the following statements is most likely true? 

A. An increase in prevention and appraisal costs resulted in a higher quality product and therefore resulted in a decrease in failure costs. 

B. An increase in inspection costs was solely responsible for the decrease in quality costs. 

C. Quality costs, such as scrap and rework, decreased by 48%. 

D. Quality costs, such as returns and repairs under warranty, decreased by 40%. 


Explanation: Answer (A) is correct. Prevention and appraisal costs increased substantially, but internal and external failure costs decreased. Thus, the soundest conclusion is that the increase in prevention and appraisal costs resulted in a higher-quality product. 

Q169. The four components of time series data are secular trend, cyclical variation, seasonality, and random variation. The seasonality in the data can be removed by: 

A. Multiplying the data by a seasonality factor. 

B. Ignoring it. 

C. Taking the weighted average over four time periods. 

D. Subtracting a seasonality factor from the data. 



Time series analysis relies on past experience. Changes in the value of a variable may have several possible components including secular trends, cyclical variation, seasonality, and random variation. Seasonal variations are common in many businesses. A variety of methods exist for including seasonal variations in a forecasting model, but most methods use a seasonal index. Alternatively, seasonal variations can be removed from data by using a weighted average of several time periods instead of data from individual periods. 

Q170. The moving-average method of forecasting: 

A. Is a cross-sectional forecasting method. 

B. Regresses the variable of interest on a related variable to develop a forecast. 

C. Derives final forecasts by adjusting the initial forecast based on the smoothing constant. 

D. Includes each new observation in the average as it becomes available and discards the oldest observation. 



The simple moving-average method is a smoothing technique that uses the experience of the past N periods through time period t) to forecast a value for the next period. Thus, the average includes each new observation and discards the oldest observation. The forecast formula for the next period for time period t+1) is the sum of the last N observations divided by N. 

Q171. Listed below are selected line items from the cost-of-quality report for Company B for What is Company B's total prevention and appraisal cost for last month? 

A. US $786 

B. US $1,154 

C. US $1,940 

D. US $2,665 



The costs of prevention and appraisal are conformance costs that serve as financial measures of internal performance. Prevention costs are incurred to prevent defective output. These costs include preventive maintenance, employee training, review of equipment design, and evaluation of suppliers. Appraisal costs are incurred to detect nonconforming output. They embrace such activities as statistical quality control programs, inspection, and testing. The equipment maintenance cost of US $1,154 is a prevention cost. The product testing cost of US $786 is an appraisal cost. Their sum is US $1,940. 

Q172. The graph depicts the domestic supply of and demand for a product that is also sold in the domestic market by foreign producers. The domestic producers are protected by a tariff of the amount Pt minus Pw. Bt is the domestic price including the tariff, and Rw is the world price for the product. The effect of the tariff is to: 

A. Reduce the domestic price from ORw to ORt B. Reduce foreign sales in the domestic market from ac to bc. 

C. Increase domestic production from Ob to Cc. 

D. Increase domestic production from Oa to Ob. 



Without the tariff, domestic production is determined by the intersection of the Pw line with the domestic supply curve at the quantity Oa. Domestic production increases from Oa to Ob as a result of the introduction of the tariff. Supply intersects the Pt line at a higher price and at a greater domestic quantity, Ob. 

Q173. An appropriate technique for planning and controlling manufacturing inventories, such as raw materials, components, and subassemblies whose demand depends on the level of production is: 

A. Materials requirements planning. 

B. Regression analysis. 

C. Capital budgeting. 

D. Linear programming. 



Materials requirements planning MRP) is a system that translates a production schedule into requirements for each component needed to meet the schedule. It is usually implemented in the form of a computer-based information system designed to plan and control raw materials used in production. It assumes that forecasted demand is reasonably accurate and that suppliers can deliver based upon this accurate schedule. MRP is a centralized push-through system, output based on forecasted demand is pushed through to the next department or to inventory. 

Q174. An example of an internal nonfinancial benchmark is: 

A. The labor rate of comparably skilled employees at a major competitor's plant. 

B. The average actual cost per pound of a specific product at the company's most efficient plant. 

C. A US $50,000 limit on the cost of employee training programs at each of the company's plants. 

D. The percentage of customer orders delivered on time at the company's most efficient plant. 



Benchmarking is a continuous evaluation of the practices of the best organizations in their class and the adaptation of processes to reflect the best of these practices. It requires analysis and measurement of key outputs against those of the best organizations. This procedure also involves identifying the underlying key actions and causes that contribute to the performance difference. The percentage of orders delivered on time at the company's most efficient plant is an example of an internal nonfinancial benchmark. 

Q175. Government subsidies of the domestic production of military weapons is an example of what rationale for government intervention in trade? 

A. Infant industry concept. 

B. Maintenance of essential industries. 

C. Maintenance of extension of spheres of influence. 

D. Protecting the national identity. 



Providing subsidies to military weapons manufacturers is an example of the essential industry argument. The government protects essential domestic industries during peacetime so that a country is not dependent on foreign sources of supply during war. 

Q176. With regard to e-commerce, risk is best defined as the uncertainty of an event that could: 

A. Have a negative impact on the achievement of objectives. 

B. Positively impact management's ability to safeguard organizational assets. 

C. Have a positive impact on the achievement of objectives. 

D. Have an impact on the effective and efficient use of an organization's resources. 


Explanation: The e-commerce risk and control environment is complex and evolving. Risk can be defined as the uncertainty of an event occurring that could have a negative impact on the achievement of objectives. 

Q177. Which of the following e-commerce audit protocol items relates to the area of fraud? 

A. Segregation of duties. 

B. Inadequacies in interfacing between e-commerce and financial management systems. 

C. Examination of service level agreements between buyer, supplier, and certification authority. 

D. Denial of orders placed or received, goods received, or payments made. 



With regard to the e-commerce audit protocol in the area of fraud, the internal auditor should be alert for the following conditions: 


 Unauthorized movement of money e.g., transfers to jurisdictions where the recovery of funds would be difficult). 


 Duplication of payments. 


 Denial of orders placed or received, goods received, or payments made. 


 Exception reports and procedures, and effectiveness of the follow up. 


 Digital signatures: Are they used for all transactions Who authorizes them Who has access to 

them Protections against viruses and hacking activities history file use of tools). 


 Access rights Are they reviewed regularly Are they promptly revised when staff members are changed? 


 History of interception of transactions by unauthorized persons. 

Q178. Because of the large number of factors that could affect the demand for its new product, interactions among these factors, and the probabilities associated with different values of these factors, the marketing department would like to develop a computerized model for projecting demand for this product. By using a random-number procedure to generate values for the different factors, it will be able to estimate the distribution of demand for this new product. This method of estimating the distribution of demand for the new product is called 

A. Monte Carlo simulation. 

B. Linear programming. 

C. Correlation analysis. 

D. Differential analysis. 



Simulation is a technique in which a probabilistic process is first modeled. The inputs to the model are then varied a large number of times to estimate the distribution of possible outcomes from the model of the variable of interest. Simulations that use a random-number procedure to generate values for the inputs are referred to as Monte Carlo simulations. 

Q179. A cost-volume-profit model developed in a dynamic environment determined that the estimated parameters used may vary between limits. Subsequent testing of the model with respect to all possible values of the estimated parameters is termed: 

A. A sensitivity analysis. 

B. Statistical estimation. 

C. Statistical hypothesis testing. 

D. A time-series study. 



After a problem has been formulated into any mathematical model, it may be subjected to sensitivity analysis. Sensitivity analysis is a method for studying the effects of changes in one or more variables on the results of a decision model. 

Q180. Which of the following is an economic rationale for government intervention in trade? 

A. Maintaining spheres of influence. 

B. Protecting infant industries. 

C. Preserving national identity. 

D. Dealing with friendly countries. 


Explanation: The infant-industry argument contends that protective tariffs are needed to allow new domestic industries to become established. Once such industries reach a maturity stage in 

their life cycles, the tariffs can supp: - dry be removed.