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Q121. Statistical quality control often involves the use of control charts whose basic purpose is to:
A. Determine when accounting control procedures are not working.
B. Control labor costs in production operations.
C. Detect performance trends away from normal operations.
D. Monitor internal control applications of information technology.
Answer: C
Explanation:
Statistical control charts are graphic aids for monitoring the status of any process subject to random variations. The chart consists of three horizontal lines plotted on a horizontal time scale. The vertical scale represents the appropriate quantitative measure. The center line represents the average range or overall mean for the process being controlled. The other two lines are the upper control limit and the lower control limit. The processes are measured periodically, and the values are plotted on the chart. If the value falls within the control limits, no action is taken. If the value falls outside the limits, the process is considered "out of control," and an investigation is made for possible corrective action. Another advantage of the chart is that it makes trends visible.
Q122. Which of the following methods of employee evaluation is best used when employees are heavily involved in teamwork?
A. 360-degree performance appraisal.
B. Attribution method.
C. Critical incident technique.
D. Behaviorally anchored rating scales BARS)
Answer: A
Explanation:
The 360-degree performance appraisal is a model for employee assessment in the age of teamwork. It is based on giving workers feedback from peers, customers, supervisors, and those who work for the employee. Feedback is typically provided anonymously and is usually subjective.
Q123. Your company (Company Y) has decided to enter the European market with one of its products and is now considering three advertising strategies. This market currently belongs to Company X. Company X is aware that your company is entering the market and is itself considering steps to protect its market. An analyst for your company has identified three strategies Company X might develop and has shown the payoffs for each in the tables below.
The analyst has formulated this problem as a:
A. Zero-sum game.
B. Cooperative game.
C. Prisoner's dilemma.
D. Game against nature.
Answer: A
Explanation:
Game theory is a mathematical approach to decision making when confronted with an enemy or competitor. Games are classified according to the number of players and the algebraic sum of the payoffs. In a two-player game, if the payoff is given by the loser to the winner, the algebraic sum is zero, and the game is a zero-sum game; if it is possible for both players to profit, the game is a positive-sum game. In this situation, the sum of the payoffs for each combination of strategies is zero. For example, if X takes no action and Y chooses limited advertising, X's payoff is -1 and Ys is 1.
Q124. Which of the following statements describes an internal control questionnaire?
A. Provides detailed evidence regarding the substance of the control system.
B. Takes less of the engagement client's time to complete than other control evaluation devices.
C. Requires that the internal auditor be in attendance to properly administer it.
D. Provides indirect evidence that might need corroboration.
Answer: D
Explanation:
An internal control quest consists re consists of a series of questions about the controls designed to prevent or detect errors or irregularities lies. Answers to the questions help the internal auditor to identify specific internal control policies and procedures relevant to specific assertions and to design tests of controls to evaluate the effectiveness of their design and operation. The questionnaire provides a framework to assure that specific concerns are not overlooked. but it is not a sufficient means of understanding the entire system. Thus, the evidence obtained is indirect and requires corroboration by means of observation. interviews, flowcharting. examination of documents, etc.
Q125. Which of the following is a major element of the ISO 9000 quality management system standards?
A. The principle that improved employee satisfaction will lead to increased productivity.
B. The attitude and actions of the board and management regarding the significance of control within the organization.
C. The assessment of the risk that objectives are not achieved.
D. A requirement for organizations to monitor information on customer satisfaction as a measure of performance.
Answer: D
Explanation: ISO 9000:2008 provides a model for quality assurance programs. It requires an entity to demonstrate its ability to increase customer satisfaction through improving the QMS and ensuring conformity with requirements.
Q126. The marketing department of a company is deciding on the price to charge for a key product.
In setting this price, marketing needs to consider the price that a major competitor will charge for a similar product because the competitor's price will affect the demand for the company's product. Similarly, in setting its price, the competitor will consider what the company will charge. What is an appropriate mathematical technique for analyzing such a decision?
A. Game theory.
B. Probability theory.
C. Linear programming.
D. Sensitivity analysis.
Answer: A
Explanation: Game or decision) theory is a mathematical approach to decision making when confronted with an enemy or competitor. Games are classified according to the number of players and the algebraic sum of the payoffs. In a two-person game, if the payoff is given by the loser to the winner, the algebraic sum is zero and the game is called a zero-sum game. If it is possible for both players to profit, however, the game is a positive-sum game. Mathematical models have been developed to select optimal strategies for certain simple games.
Q127. The internal auditor of a bank has developed a multiple regression model which has been used for a number of gears 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 the model otherwise seems to be working okay. Which of the following conclusions is justified by the change?
A. Changing to a cross-sectional regression analysis should cause r- 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
Explanation:
The coefficient of determination r-) is the amount of variation in the dependent variable interest income) that is explained by the independent variables. In this case, less of the change in interest income is explained by the model. Thus, some other factor must be causing interest income to change. This change merits audit investigation. In preparing the annual profit plan for the coming year, Wilkens Company wants to determine the cost behavior pattern of the maintenance costs. Wilkens has decided to use linear regression by employing the equation = a + bx for maintenance costs. The prior year's data regarding maintenance hours and costs, and the results of the regression analysis, are given below and in the opposite column.
Q128. What are revenue tariffs designed to do?
A. Develop new export opportunities.
B. Provide the government with tax revenues.
C. Restrict the amount of a commodity that can be imported in a given period.
D. Encourage foreign companies to limit the amount of their exports to a particular country.
Answer: B
Explanation:
Revenue tariffs are usually applied to products that are not produced domestically. Their purpose is to provide the government with tax revenue.
Q129. A small client recently put its cash disbursements system on a server. About which of the following internal control features would an auditor most likely be concerned?
A. Programming of the applications are in Visual Basic rather than Java.
B. The server is operated by employees who have cash custody responsibilities.
C. Only one employee has the password to gain access to the cash disbursement system.
D. There are restrictions on the amount of data that can be stored and on the length of time that data can be stored.
Answer: B
Explanation:
Segregation of duties is a basic category of control activities AU 319). Functions are incompatible if a person is in a position both to perpetrate and conceal fraud or errors.
Hence, the duties of authorizing transactions, recording transactions, and custody of assets should be assigned to different people. Those employees that operate the server may be able to override the controls to change records to conceal a theft of cash.
Q130. Which of the following is not true about simu-lation models that use Monte Carlo processes?
A. They are deterministic in nature.
B. They may involve sampling.
C. They mathematically estimate what actual performance would be.
D. They emulate stochastic systems.
Answer: A
Explanation:
The Monte Carlo simulation is often used in computer modeling to generate the individual values for a random variable. The performance of a quantitative model under uncertainty may be investigated by randomly selecting values for each variable in the model (based on the probability distribution of each variable) and then calculating the value of the solution. Because Monte Carlo processes use the laws of probability to generate values for random variables, simulations using them are probabilistic, not deterministic.
Q131. The effect of just-in-time production approaches:
A. Reduces the dependency on suppliers.
B. Reduces the cost of implementing strategies.
C. Decreases production facility flexibility.
D. Increases the need for a dependable workforce.
Answer: B
Explanation:
Just-in-time JIT) production approaches can reduce the cost of production. It lowers or eliminates inventory costs and requires production improvements to eliminate product defects.
Q132. The company uses a planning system that focuses first on the amount and timing of finished goods demanded and then determines the derived demand for raw material, components, and subassemblies at each of the prior stages of production. This system is referred to as:
A. Economic order quantity.
B. Material requirements planning.
C. Linear programming.
D. Just-in-time purchasing.
Answer: B
Explanation:
Materials requirements planning CIRF) is usually a computer-based information system designed to plan and control raw materials used in a production setting. It assumes that estimated demand for materials is reasonably accurate and that suppliers can deliver based upon this accurate schedule. It is crucial that delivery delays be avoided because, under CIRF, production delays are almost unavoidable if the materials are not on hand. An MRF system uses a parts list, often called a bill of materials, and lead times for each type of material to obtain materials just as they are needed for planned production.
Q133. Managerial performance may be measured in many ways. For example, an internal nonfinancial measure is:
A. Market share.
B. Delivery performance.
C. Customer satisfaction.
D. Manufacturing lead time.
Answer: D
Explanation:
Feedback regarding managerial performance may take the form of financial and nonfinancial measures that may be internally or externally generated. Moreover, different measures have a long-term or short-term emphasis. Examples of internal nonfinancial measures are product quality, new product development time, and manufacturing lead time cycle time).
Q134. he bullwhip, or whiplash, effect on inventories begins when retailers face uncertain demand from consumers caused by randomness in buying habits. It can be avoided by:
A. The need to purchase or manufacture goods in cost-efficient batches.
B. Changes in price that may encourage purchases in anticipation of future increases.
C. Shortages that may lead to rationing by suppliers or manufacturers and hoarding by manufacturers or retailers.
D. Sharing of information and coordination among the organizations in the supply chain.
Answer: D
Explanation: Sharing information about sales, inventory, pricing, advertising campaigns, and sales forecasts by all functions and organizations in the supply chain moderates demand uncertainty for all parties. The desired results are a) minimization of inventories held by suppliers, manufacturers, and retailers; b) avoidance of stackouts; c) fewer rush orders; and d) production as needed by retailers.
Q135. Which one of the following is least likely to be recommended by the auditor when an EDI-EFT system is being designed?
A. The identity of the individual approving an electronic document should be stored as a data field.
B. Disaster recovery plans should be established.
C. Data security procedures should be written to prevent changes to data by unauthorized individuals
D. Remote access to electronic data should be denied.
Answer: D
Explanation:
One of the benefits of an EDI-EFT system is that it can provide remote access at any time from any place if telecommunications links are available. However, appropriate controls should prevent unauthorized access. A multinational company has an agreement with a value-added network VAN) that provides the encoding and communications transfer for the company's electrons.. data interchange EDI) and electronic funds transfer EFT) transactions. Before transfer of data to the VAN, the company performs online preprocessing of the transactions. The internal auditor is responsible for assessing preprocessing controls. In addition, the agreement between the company and the VAN states that the internal auditor is allowed toe :amine and report on the controls in place at the VAN on an annual basis. The contract specifies that access to the VAN can occur on a surprise basis during the second or third quarter of the company's fiscal year. This p n I was -hosen so it would not interfere with processing during the VAN's peak transaction periods. This provision was riot reviewed with internal auditing. The annual audit plan approved by the board of directors specifies that a full audit would be done during the current year.