Certified Internal Auditor Questions + Answers Part 18
Posted: Tue Mar 01, 2022 5:12 am
QUESTION 2
Which of the following statements regarding organizational governance is not correct?
A. An effective internal audit function is one of the four cornerstones of good governance.
B. Those performing governance activities are accountable to the customer.
C. Accountability is one of the key elements of organizational governance.
D. Governance principles and the need for an internal audit function are applicable to governmental and not-for-profit activities.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
A. The extent to which management judgments are required in an area could serve as a risk factor in assisting the auditor in making a comparative risk analysis. B. The highest risk assessment should always be assigned to the area with the largest potential loss.
C. The highest risk assessment should always be assigned to the area with the highest probability of occurrence.
D. Risk analysis must be reduced to quantitative terms in order to provide meaningful comparisons across an organization.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 3
Which of the following is a role of the board of directors in the governance process?
A. Conduct periodic assessments of the organization's governance systems.
B. Obtain assurance concerning the effectiveness of the organization's governance systems.
C. Implement an effective system of internal controls to support the organization's governance systems. D. Review and approve operational goals and objectives.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 4
Which is the least effective form of risk management?
A. Systems-based preventive control. B. People-based preventive control. C. Systems-based detective control. D. People-based detective control.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 5
When developing an effective risk-based plan to determine audit priorities, an internal audit activity should start by:
A. Identifying risks to the organization's operations. B. Observing and analyzing controls.
C. Prioritizing known risks.
D. Reviewing organizational objectives.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 6
The main reason to establish internal controls in an organization is to:
A. Encourage compliance with policies and procedures.
B. Safeguard the resources of the organization.
C. Ensure the accuracy, reliability, and timeliness of information.
D. Provide reasonable assurance on the achievement of objectives.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 7
Which of the following steps should an internal auditor take during an audit of an organization's business continuity plans?
1. Evaluate the business continuity plans for adequacy and currency.
2. Prepare a business impact analysis regarding the loss of critical business.
3. Identify key personnel who will be required to implement the plans.
4. Identify and prioritize the resources required to support critical business processes.
A. 1 only
B. 2 and 4 only
C. 1, 3, and 4 only D. 1, 2, 3, and 4
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 8
Which of the following control techniques would minimize the risk of interception during transmission in an electronic data interchange system?
1. Encryption.
2. Traffic padding.
3. Edit checks.
4. Structured data format.
A. 1 and 2 only
B. 2 and 3 only
C. 3 and 4 only
D. 1, 2, and 3 only
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 9
Refer to the exhibit.
The figure below shows the network diagram for the activities of a large project. What is the shortest number of days in which the project can be completed?
A. 21 days. B. 22 days. C. 27 days. D. 51 days.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 10
Which of the following is a characteristic of just-in-time inventory management systems?
A. Users determine the optimal level of safety stocks.
B. They are applicable only to large organizations.
C. They do not really increase overall economic efficiency because they merely shift inventory levels further up the supply chain. D. They rely heavily on high quality materials.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 11
The economic order quantity for inventory is higher for an organization that has:
A. Lower annual unit sales.
B. Higher fixed inventory ordering costs.
C. Higher annual carrying costs as a percentage of inventory value. D. A higher purchase price per unit of inventory.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 12
What must be monitored in order to manage risk of consumer product inventory obsolescence?
1. Inventory balances.
2. Market share forecasts. 3. Sales returns.
4. Sales trends.
A. 1 only
B. 4 only
C. 1 and 4 only
D. 1, 2, and 3 only
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 13
Preferred stock is less risky for investors than is common stock because:
A. Common stock pays dividends as a stated percentage of face value.
B. Common stock has priority over preferred stock with regard to earnings and assets.
C. Preferred dividends are usually cumulative.
D. Preferred stock with no conversion feature has a higher dividend yield than does convertible preferred stock.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 14
Which of the following borrowing options is an unsecured loan?
A. Second-mortgage financing from a bank. B. An issue of commercial paper.
C. Pledged accounts receivable.
D. Asset-based financing.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 15
All of the following are possible explanations for a significant unfavorable material efficiency variance except:
A. Cutbacks in preventive maintenance.
B. An inadequately trained and supervised labor force.
C. A large number of rush orders.
D. Production of more units than planned for in the master budget.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 16
An organization is projecting sales of 100,000 units, at a unit price of $12. Unit variable costs are $7. If fixed costs are $350,000, what is the projected total contribution margin?
A. $350,000 B. $500,000 C. $850,000 D. $1,200,000
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 17
A brand manager in a consumer food products organization suspected that several days of the point-of-sale data on the spreadsheet from one grocery chain were missing. The best approach for detecting missing rows in spreadsheet data would be to:
A. Sort on product identification code and identify missing product identification codes. B. Review store identification code and identify missing product identification codes. C. Compare product identification codes for consecutive periods.
D. Compare product identification codes by store for consecutive periods.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 18
An organization uses a database management system (DBMS) as a repository for data. The DBMS, in turn, supports a number of end-user developed applications which were created using fourth-generation programming languages. Some of the applications update the database. Which of the following is the most important control related to the integrity of the data in the database?
A. End users have their read-only applications approved by the information systems department before accessing the database. B. Concurrency update controls are in place.
C. End-user applications are developed on personal computers before being implemented on the mainframe.
D. A hierarchical database model is adopted so that multiple users can be served at the same time.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 19
Which of the following is not a method for implementing a new application system?
A. Direct cutover. B. Parallel.
C. Pilot.
D. Test.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 20
A key advantage of developing a computer application by using the prototyping approach is that it:
A. Does not require testing for user acceptance.
B. Allows applications to be portable across multiple system platforms. C. Is less expensive since it is self-documenting.
D. Better involves users in the design process.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 21
Which of the following is a disadvantage of selecting a commercial software package rather than developing an application internally?
A. Lack of flexibility.
B. Incompatibility with client/server technology. C. Employee resistance to change.
D. Inadequate technical support.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 22
Which of the following best describes the concept of relevant cost?
A. A future cost that is the same among alternatives. B. A future cost that differs among alternatives.
C. A past cost that is the same among alternatives. D. A past cost that differs among alternatives.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 23
Which of the following statements pertaining to a market skimming pricing strategy is not true?
A. The strategy is favored when unit costs fall with the increase in units produced.
B. The strategy is favored when buyers are relatively insensitive to price increases.
C. The strategy is favored when there is insufficient market capacity and competitors cannot increase market capacity. D. The strategy is favored when high price is perceived as high quality.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 24
The market price is the most appropriate transfer price to be charged by one department to another in the same organization for a service provided when:
A. There is an external market for that service.
B. The selling department operates at 50 percent of its capacity.
C. The purchasing department has more negotiating power than the selling department. D. There is no external market for that service.
Correct Answer: A Section: (none)
Explanation Explanation/Reference:
QUESTION 25
During the last year, an organization had an opening inventory of $300,000, purchases of $980,000, sales of $1,850,000, and a gross margin of 40 percent. What is the closing inventory if the periodic inventory system is used?
A. $170,000 B. $280,000 C. $300,000 D. $540,000
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 26
Which of the following describes the free trade zone in an e-commerce environment?
A. Zone that separates an organization's servers from outside forces.
B. Area in which messages are scrutinized to determine if they are authorized.
C. Area where communication and transactions occur between trusted parties.
D. Zone where data is encrypted, users are authenticated, and user traffic is filtered.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 27
An organization produces two products, X and Y. The materials used for the production of both products are limited to 500 kilograms (kg) per month. All other resources are unlimited and their costs are fixed. Individual product details are as follows:
Product X Product Y
Selling price per unit $10
$13
Materials per unit (at $1/kg) 2 kg
6 kg
Monthly demand 100 units
120 units
In order to maximize profit, how much of product Y should the organization produce each month?
A. 50 units. B. 60 units. C. 100 units. D. 120 units.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 28
Which of the following standards would be most useful in evaluating the performance of a customer-service group?
A. The average time per customer inquiry should be kept to a minimum.
B. Customer complaints should be processed promptly.
C. Employees should maintain a positive attitude when dealing with customers. D. All customer inquiries should be answered within seven days of receipt.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 29
A small furniture-manufacturing firm with 100 employees is located in a two-story building and does not plan to expand. The furniture manufactured is not special- ordered or custom-made. The most likely structure for this organization would be:
A. Functional departmentalization. B. Product departmentalization. C. Matrix organization.
D. Divisional organization.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 30
When writing a business memorandum, the writer should choose a writing style that achieves all of the following except:
A. Draws positive attention to the writing style. B. Treats all receivers with respect.
C. Suits the method of presentation and delivery. D. Develops ideas without overstatement.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 31
Listening effectiveness is best increased by:
A. Resisting both internal and external distractions.
B. Waiting to review key concepts until the speaker has finished talking.
C. Tuning out messages that do not seem to fit the meeting purpose. D. Factoring in biases in order to evaluate the information being given.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 32
Multinational organizations generally spend more time and effort to identify and evaluate:
A. Internal strengths and weaknesses. B. Break-even points.
C. External trends and events.
D. Internal risk factors.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 33
A global business organization is selecting managers to post to various international (expatriate) assignments. In the screening process, which of the following traits would be required to make a manager a successful expatriate?
1. Superior technical competence.
2. Willingness to attempt to communicate in a foreign language. 3. Ability to empathize with other people.
A. 1 and 2 only B. 1 and 3 only C. 2 and 3 only D. 1, 2, and 3
Correct Answer: C Section: (none)
Explanation Explanation/Reference:
QUESTION 34
Which of the following is the best reason for considering the acquisition of a nondomestic organization?
A. Relatively fast market entry.
B. Improved cash flow of the acquiring organization. C. Increased diversity of corporate culture.
D. Opportunity to influence local government policy.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 35
When initiating international ventures, an organization should consider cultural dimensions in order to prevent misunderstandings. Which of the following does not represent a recognized cultural dimension in a work environment?
A. Self control.
B. Power distance.
C. Masculinity versus femininity. D. Uncertainty avoidance.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 36
According to Porter's model of competitive strategy, which of the following is a generic strategy? 1. Differentiation.
2. Competitive advantage. 3. Focused differentiation. 4. Cost focus.
A. 2 only
B. 3 and 4 only
C. 1, 3, and 4 only D. 1, 2, 3, and 4
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 37
International marketing activities often begin with:
A. Standardization.
B. Global marketing.
C. Limited exporting. D. Domestic marketing.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 38
Which of the following is a characteristic of an emerging industry?
A. Established strategy of players. B. Low number of new firms.
C. High unit costs.
D. Technical expertise.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 39
For a multinational organization, which of the following is a disadvantage of an ethnocentric staffing policy?
1. It significantly raises compensation and staffing costs.
2. It produces resentment among the organization's employees in host countries. 3. It limits career mobility for parent-country nationals.
4. It can lead to cultural myopia.
A. 1 and 4 only
B. 2 and 3 only
C. 1, 2, and 3 only D. 1, 2, and 4 only
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 40
Which of the following conflict resolution methods should be applied when the intention of the parties is to solve the problem by clarifying differences and attaining everyone's objectives?
A. Accommodating. B. Compromising. C. Collaborating.
D. Competing.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 41
Which of the following factors would reduce dissatisfaction for a management trainee but would not particularly motivate the trainee?
A. A sense of achievement.
B. Promotion.
C. Recognition.
D. An incremental increase in salary.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 42
Which mindset promotes the most comprehensive risk management strategy?
A. Increase shareholder value. B. Maximize market share.
C. Improve operational efficiency. D. Mitigate losses.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 43
Which audit approach should be employed to test the accuracy of information housed in a database on an un-networked computer?
A. Submit batches of test transactions through the current system and verify with expected results. B. Use a test program to simulate the normal data entering process.
C. Select a sample of records from the database and ensure it matches supporting documentation.
D. Evaluate compliance with the organization's change management process.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 44
Which of the following statements accurately describes the responsibility of the internal audit activity (IAA) regarding IT governance?
1. The IAA does not have any responsibility because IT governance is the responsibility of the board and senior management of the organization.
2. The IAA must assess whether the IT governance of the organization supports the organization’s strategies and objectives.
3. The IAA may assess whether the IT governance of the organization supports the organization’s strategies and objectives.
4. The IAA may accept requests from management to perform advisory services regarding how the IT governance of the organization supports the organization’s strategies and objectives.
A. 1 only B. 4 only C. 2 and 4 D. 3 and 4
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 45
An organization decided to install a motion detection system in its warehouse to protect against after-hours theft. According to the COSO enterprise risk management framework, which of the following best describes this risk management strategy?
A. Avoidance. B. Reduction. C. Elimination. D. Sharing.
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 46
The internal audit activity completed an initial risk analysis of the organization's data storage center and found several areas of concern. Which of the following is the most appropriate next step?
A. Risk response.
B. Risk identification.
C. Identification of context. D. Risk assessment.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 47
Organizations use matrix management to accomplish which of the following?
A. To improve the chain of command.
B. To strengthen corporate headquarters. C. To focus better on a single market.
D. To increase lateral communication.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 48
Which of the following are included in ISO 31000 risk principles and guidelines?
A. Standards, framework, and process. B. Standards, assessments, and process. C. Principles, framework, and process.
D. Principles, practices, and process.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 49
The audit committee of a global corporation has mandated a change in the organization's business ethics policy. Which of the following approaches describes the best way to accomplish the policy's diffusion worldwide?
A. Deploy the policy in the corporate headquarters' language, so everyone gets an unfiltered version simultaneously.
B. Introduce the policy region by region, using any lessons learned to change the subsequent version of the policy for the next area.
C. Consult with legal and operational management in each affected country to ensure the final version can be implemented globally, following audit committee approval.
D. Send the board-approved version of the policy to each country's senior leadership, and empower them to tailor the policy to the local language and culture.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 50
Which of the following best describes a market signal?
A. The bargaining power of buyers is forcing a drop in market prices.
B. There is pressure from the competitor's substitute products.
C. Strategic analysis by the organization indicates feasibility of expanding to new market niches. D. The competitor announces a new warranty program.
Correct Answer: D Section: (none)
Explanation Explanation/Reference:
QUESTION 51
Which of the following is a limiting factor for capacity expansion?
A. Government pressure on organizations to increase or maintain employment. B. Production orientation of management.
C. Lack of credible market leader in the industry.
D. Company diversification.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 52
Which of the following is false with regard to Internet connection firewalls?
A. Firewalls can protect against computer viruses.
B. Firewalls monitor attacks from the Internet.
C. Firewalls provide network administrators tools to retaliate against hackers. D. Firewalls may be software-based or hardware-based.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 53
Which of the following are likely indicators of ineffective change management?
1. IT management is unable to predict how a change will impact interdependent systems or business processes. 2. There have been significant increases in trouble calls or in support hours logged by programmers.
3. There is a lack of turnover in the systems support and business analyst development groups. 4. Emergency changes that bypass the normal control process frequently are deemed necessary.
A. 1 and 3 only
B. 2 and 4 only
C. 1, 2, and 4 only D. 1, 2, 3, and 4
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 54
Which of the following statements is true regarding the relationship between an individual’s average tax rate and marginal tax rate?
A. In a regressive personal tax system, an individual's marginal tax rate is normally greater than his average tax rate. B. In a regressive personal tax system, an individual's marginal tax rate is normally equal to his average tax rate.
C. In a progressive personal tax system, an individual's marginal tax rate is normally equal to his average tax rate.
D. In a progressive personal tax system, an individual's marginal tax rate is normally greater than his average tax rate.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 55
An organization needs to borrow a large amount of cash to fund its expansion plan. Which of the following annual interest rates is least expensive?
A. 7 percent simple interest with a 10 percent compensating balance. B. 7 percent simple interest paid at the end of each year.
C. 7 percent discount interest.
D. 7 percent compounding interest.
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 56
Which of the following statements accurately describes one of the characteristics that distinguishes a multinational company from a domestic company?
A. A multinational company has stockholders in other countries.
B. A multinational company exports its products to other countries.
C. A multinational company operates outside of its country of origin.
D. A multinational company uses raw materials and components from more than one country.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 57
Which of the following best describes an objective for an audit of an environmental management system?
A. To assess whether an annual control review is necessary.
B. To determine conformance with requirements and agreements. C. To evaluate executive management oversight.
D. To promote environmental awareness.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 58
Which of the following descriptions of the internal control system are indicators that risks are managed effectively? 1. Existing controls promote compliance with applicable laws and regulations.
2. The control environment is designed to address all identified risks to the organization. 3. Key controls for significant risks to the organization remain consistent over time.
4. Monitoring systems are in place to alert management to unexpected events.
A. 1 and 3. B. 1 and 4. C. 2 and 3. D. 2 and 4.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 59
The economic order quantity can be calculated using the following formula:
Which of the following describes how the optimal order size will change if the annual demand increases by 36 percent?
A. Decrease by about 17 percent. B. Decrease by about 7 percent. C. Increase by about 7 percent. D. Increase by about 17 percent.
Correct Answer: D
Section: (none) Explanation
Explanation/Reference:
QUESTION 60
Which of the following statements best describes the frameworks set forth by the International Standards Organization?
A. Globally accepted standards for industries and processes.
B. Bridging the gaps among control requirements, technical issues, and business risks.
C. Practical guidance and benchmarks for all organizations that use information systems.
D. Frameworks and guidance on enterprise risk management, internal control, and fraud deterrence.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 61
Which of the following is the most likely reason an organization may decide to undertake a stock split?
A. To keep stock price constant.
B. To keep shareholders' equity constant. C. To increase shareholders' equity.
D. To enhance the stock liquidity.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 62
Which of the following techniques would be least effective in resolving the conflict created by an internal audit client's perception of the audit report as a personal attack on his management performance?
A. The auditor should focus on the audit client as a person and understand him, rather than just concentrating on the problem.
B. The auditor should make recommendations based on objective criteria, rather than based on a subjective assessment.
C. The auditor should explore alternative solutions to address the audit problem, so the audit client has options.
D. The auditor should take a flexible position on the recommendations and focus on resolving the issue by addressing the interests of the people concerned.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 63
Which of the following most accurately describes the purpose of application authentication controls?
A. To ensure that data input into business applications is valid, complete, and accurate.
B. To prevent or detect errors in data processed using business applications.
C. To ensure that business applications are protected from unauthorized logical access.
D. To ensure the validity, accuracy, and completeness of outputs from business applications.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 64
Which of the following is always true regarding the use of encryption algorithms based on public key infrastructure (PKI)?
A. PKI uses an independent administrator to manage the public key.
B. The public key is authenticated against reliable third-party identification. C. PKI's public accessibility allows it to be used readily for e-commerce. D. The private key uniquely authenticates each party to a transaction.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 65
Which of the following application-based controls is an example of a programmed edit check?
A. Reasonableness check. B. Transaction log.
C. Input error correction.
D. Authorization for access.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 66
Which of the following describes the result if an organization records merchandise as a purchase, but fails to include it in the closing inventory count?
A. The cost of goods sold for the period will be understated.
B. The cost of goods sold for the period will be overstated.
C. The net income for the period will be understated.
D. There will be no effect on the cost of goods sold or the net income for the period.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
Which of the following statements regarding organizational governance is not correct?
A. An effective internal audit function is one of the four cornerstones of good governance.
B. Those performing governance activities are accountable to the customer.
C. Accountability is one of the key elements of organizational governance.
D. Governance principles and the need for an internal audit function are applicable to governmental and not-for-profit activities.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
A. The extent to which management judgments are required in an area could serve as a risk factor in assisting the auditor in making a comparative risk analysis. B. The highest risk assessment should always be assigned to the area with the largest potential loss.
C. The highest risk assessment should always be assigned to the area with the highest probability of occurrence.
D. Risk analysis must be reduced to quantitative terms in order to provide meaningful comparisons across an organization.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 3
Which of the following is a role of the board of directors in the governance process?
A. Conduct periodic assessments of the organization's governance systems.
B. Obtain assurance concerning the effectiveness of the organization's governance systems.
C. Implement an effective system of internal controls to support the organization's governance systems. D. Review and approve operational goals and objectives.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 4
Which is the least effective form of risk management?
A. Systems-based preventive control. B. People-based preventive control. C. Systems-based detective control. D. People-based detective control.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 5
When developing an effective risk-based plan to determine audit priorities, an internal audit activity should start by:
A. Identifying risks to the organization's operations. B. Observing and analyzing controls.
C. Prioritizing known risks.
D. Reviewing organizational objectives.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 6
The main reason to establish internal controls in an organization is to:
A. Encourage compliance with policies and procedures.
B. Safeguard the resources of the organization.
C. Ensure the accuracy, reliability, and timeliness of information.
D. Provide reasonable assurance on the achievement of objectives.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 7
Which of the following steps should an internal auditor take during an audit of an organization's business continuity plans?
1. Evaluate the business continuity plans for adequacy and currency.
2. Prepare a business impact analysis regarding the loss of critical business.
3. Identify key personnel who will be required to implement the plans.
4. Identify and prioritize the resources required to support critical business processes.
A. 1 only
B. 2 and 4 only
C. 1, 3, and 4 only D. 1, 2, 3, and 4
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 8
Which of the following control techniques would minimize the risk of interception during transmission in an electronic data interchange system?
1. Encryption.
2. Traffic padding.
3. Edit checks.
4. Structured data format.
A. 1 and 2 only
B. 2 and 3 only
C. 3 and 4 only
D. 1, 2, and 3 only
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 9
Refer to the exhibit.
The figure below shows the network diagram for the activities of a large project. What is the shortest number of days in which the project can be completed?
A. 21 days. B. 22 days. C. 27 days. D. 51 days.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 10
Which of the following is a characteristic of just-in-time inventory management systems?
A. Users determine the optimal level of safety stocks.
B. They are applicable only to large organizations.
C. They do not really increase overall economic efficiency because they merely shift inventory levels further up the supply chain. D. They rely heavily on high quality materials.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 11
The economic order quantity for inventory is higher for an organization that has:
A. Lower annual unit sales.
B. Higher fixed inventory ordering costs.
C. Higher annual carrying costs as a percentage of inventory value. D. A higher purchase price per unit of inventory.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 12
What must be monitored in order to manage risk of consumer product inventory obsolescence?
1. Inventory balances.
2. Market share forecasts. 3. Sales returns.
4. Sales trends.
A. 1 only
B. 4 only
C. 1 and 4 only
D. 1, 2, and 3 only
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 13
Preferred stock is less risky for investors than is common stock because:
A. Common stock pays dividends as a stated percentage of face value.
B. Common stock has priority over preferred stock with regard to earnings and assets.
C. Preferred dividends are usually cumulative.
D. Preferred stock with no conversion feature has a higher dividend yield than does convertible preferred stock.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 14
Which of the following borrowing options is an unsecured loan?
A. Second-mortgage financing from a bank. B. An issue of commercial paper.
C. Pledged accounts receivable.
D. Asset-based financing.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 15
All of the following are possible explanations for a significant unfavorable material efficiency variance except:
A. Cutbacks in preventive maintenance.
B. An inadequately trained and supervised labor force.
C. A large number of rush orders.
D. Production of more units than planned for in the master budget.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 16
An organization is projecting sales of 100,000 units, at a unit price of $12. Unit variable costs are $7. If fixed costs are $350,000, what is the projected total contribution margin?
A. $350,000 B. $500,000 C. $850,000 D. $1,200,000
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 17
A brand manager in a consumer food products organization suspected that several days of the point-of-sale data on the spreadsheet from one grocery chain were missing. The best approach for detecting missing rows in spreadsheet data would be to:
A. Sort on product identification code and identify missing product identification codes. B. Review store identification code and identify missing product identification codes. C. Compare product identification codes for consecutive periods.
D. Compare product identification codes by store for consecutive periods.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 18
An organization uses a database management system (DBMS) as a repository for data. The DBMS, in turn, supports a number of end-user developed applications which were created using fourth-generation programming languages. Some of the applications update the database. Which of the following is the most important control related to the integrity of the data in the database?
A. End users have their read-only applications approved by the information systems department before accessing the database. B. Concurrency update controls are in place.
C. End-user applications are developed on personal computers before being implemented on the mainframe.
D. A hierarchical database model is adopted so that multiple users can be served at the same time.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 19
Which of the following is not a method for implementing a new application system?
A. Direct cutover. B. Parallel.
C. Pilot.
D. Test.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 20
A key advantage of developing a computer application by using the prototyping approach is that it:
A. Does not require testing for user acceptance.
B. Allows applications to be portable across multiple system platforms. C. Is less expensive since it is self-documenting.
D. Better involves users in the design process.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 21
Which of the following is a disadvantage of selecting a commercial software package rather than developing an application internally?
A. Lack of flexibility.
B. Incompatibility with client/server technology. C. Employee resistance to change.
D. Inadequate technical support.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 22
Which of the following best describes the concept of relevant cost?
A. A future cost that is the same among alternatives. B. A future cost that differs among alternatives.
C. A past cost that is the same among alternatives. D. A past cost that differs among alternatives.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 23
Which of the following statements pertaining to a market skimming pricing strategy is not true?
A. The strategy is favored when unit costs fall with the increase in units produced.
B. The strategy is favored when buyers are relatively insensitive to price increases.
C. The strategy is favored when there is insufficient market capacity and competitors cannot increase market capacity. D. The strategy is favored when high price is perceived as high quality.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 24
The market price is the most appropriate transfer price to be charged by one department to another in the same organization for a service provided when:
A. There is an external market for that service.
B. The selling department operates at 50 percent of its capacity.
C. The purchasing department has more negotiating power than the selling department. D. There is no external market for that service.
Correct Answer: A Section: (none)
Explanation Explanation/Reference:
QUESTION 25
During the last year, an organization had an opening inventory of $300,000, purchases of $980,000, sales of $1,850,000, and a gross margin of 40 percent. What is the closing inventory if the periodic inventory system is used?
A. $170,000 B. $280,000 C. $300,000 D. $540,000
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 26
Which of the following describes the free trade zone in an e-commerce environment?
A. Zone that separates an organization's servers from outside forces.
B. Area in which messages are scrutinized to determine if they are authorized.
C. Area where communication and transactions occur between trusted parties.
D. Zone where data is encrypted, users are authenticated, and user traffic is filtered.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 27
An organization produces two products, X and Y. The materials used for the production of both products are limited to 500 kilograms (kg) per month. All other resources are unlimited and their costs are fixed. Individual product details are as follows:
Product X Product Y
Selling price per unit $10
$13
Materials per unit (at $1/kg) 2 kg
6 kg
Monthly demand 100 units
120 units
In order to maximize profit, how much of product Y should the organization produce each month?
A. 50 units. B. 60 units. C. 100 units. D. 120 units.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 28
Which of the following standards would be most useful in evaluating the performance of a customer-service group?
A. The average time per customer inquiry should be kept to a minimum.
B. Customer complaints should be processed promptly.
C. Employees should maintain a positive attitude when dealing with customers. D. All customer inquiries should be answered within seven days of receipt.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 29
A small furniture-manufacturing firm with 100 employees is located in a two-story building and does not plan to expand. The furniture manufactured is not special- ordered or custom-made. The most likely structure for this organization would be:
A. Functional departmentalization. B. Product departmentalization. C. Matrix organization.
D. Divisional organization.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 30
When writing a business memorandum, the writer should choose a writing style that achieves all of the following except:
A. Draws positive attention to the writing style. B. Treats all receivers with respect.
C. Suits the method of presentation and delivery. D. Develops ideas without overstatement.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 31
Listening effectiveness is best increased by:
A. Resisting both internal and external distractions.
B. Waiting to review key concepts until the speaker has finished talking.
C. Tuning out messages that do not seem to fit the meeting purpose. D. Factoring in biases in order to evaluate the information being given.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 32
Multinational organizations generally spend more time and effort to identify and evaluate:
A. Internal strengths and weaknesses. B. Break-even points.
C. External trends and events.
D. Internal risk factors.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 33
A global business organization is selecting managers to post to various international (expatriate) assignments. In the screening process, which of the following traits would be required to make a manager a successful expatriate?
1. Superior technical competence.
2. Willingness to attempt to communicate in a foreign language. 3. Ability to empathize with other people.
A. 1 and 2 only B. 1 and 3 only C. 2 and 3 only D. 1, 2, and 3
Correct Answer: C Section: (none)
Explanation Explanation/Reference:
QUESTION 34
Which of the following is the best reason for considering the acquisition of a nondomestic organization?
A. Relatively fast market entry.
B. Improved cash flow of the acquiring organization. C. Increased diversity of corporate culture.
D. Opportunity to influence local government policy.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 35
When initiating international ventures, an organization should consider cultural dimensions in order to prevent misunderstandings. Which of the following does not represent a recognized cultural dimension in a work environment?
A. Self control.
B. Power distance.
C. Masculinity versus femininity. D. Uncertainty avoidance.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 36
According to Porter's model of competitive strategy, which of the following is a generic strategy? 1. Differentiation.
2. Competitive advantage. 3. Focused differentiation. 4. Cost focus.
A. 2 only
B. 3 and 4 only
C. 1, 3, and 4 only D. 1, 2, 3, and 4
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 37
International marketing activities often begin with:
A. Standardization.
B. Global marketing.
C. Limited exporting. D. Domestic marketing.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 38
Which of the following is a characteristic of an emerging industry?
A. Established strategy of players. B. Low number of new firms.
C. High unit costs.
D. Technical expertise.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 39
For a multinational organization, which of the following is a disadvantage of an ethnocentric staffing policy?
1. It significantly raises compensation and staffing costs.
2. It produces resentment among the organization's employees in host countries. 3. It limits career mobility for parent-country nationals.
4. It can lead to cultural myopia.
A. 1 and 4 only
B. 2 and 3 only
C. 1, 2, and 3 only D. 1, 2, and 4 only
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 40
Which of the following conflict resolution methods should be applied when the intention of the parties is to solve the problem by clarifying differences and attaining everyone's objectives?
A. Accommodating. B. Compromising. C. Collaborating.
D. Competing.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 41
Which of the following factors would reduce dissatisfaction for a management trainee but would not particularly motivate the trainee?
A. A sense of achievement.
B. Promotion.
C. Recognition.
D. An incremental increase in salary.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 42
Which mindset promotes the most comprehensive risk management strategy?
A. Increase shareholder value. B. Maximize market share.
C. Improve operational efficiency. D. Mitigate losses.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 43
Which audit approach should be employed to test the accuracy of information housed in a database on an un-networked computer?
A. Submit batches of test transactions through the current system and verify with expected results. B. Use a test program to simulate the normal data entering process.
C. Select a sample of records from the database and ensure it matches supporting documentation.
D. Evaluate compliance with the organization's change management process.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 44
Which of the following statements accurately describes the responsibility of the internal audit activity (IAA) regarding IT governance?
1. The IAA does not have any responsibility because IT governance is the responsibility of the board and senior management of the organization.
2. The IAA must assess whether the IT governance of the organization supports the organization’s strategies and objectives.
3. The IAA may assess whether the IT governance of the organization supports the organization’s strategies and objectives.
4. The IAA may accept requests from management to perform advisory services regarding how the IT governance of the organization supports the organization’s strategies and objectives.
A. 1 only B. 4 only C. 2 and 4 D. 3 and 4
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 45
An organization decided to install a motion detection system in its warehouse to protect against after-hours theft. According to the COSO enterprise risk management framework, which of the following best describes this risk management strategy?
A. Avoidance. B. Reduction. C. Elimination. D. Sharing.
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 46
The internal audit activity completed an initial risk analysis of the organization's data storage center and found several areas of concern. Which of the following is the most appropriate next step?
A. Risk response.
B. Risk identification.
C. Identification of context. D. Risk assessment.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 47
Organizations use matrix management to accomplish which of the following?
A. To improve the chain of command.
B. To strengthen corporate headquarters. C. To focus better on a single market.
D. To increase lateral communication.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 48
Which of the following are included in ISO 31000 risk principles and guidelines?
A. Standards, framework, and process. B. Standards, assessments, and process. C. Principles, framework, and process.
D. Principles, practices, and process.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 49
The audit committee of a global corporation has mandated a change in the organization's business ethics policy. Which of the following approaches describes the best way to accomplish the policy's diffusion worldwide?
A. Deploy the policy in the corporate headquarters' language, so everyone gets an unfiltered version simultaneously.
B. Introduce the policy region by region, using any lessons learned to change the subsequent version of the policy for the next area.
C. Consult with legal and operational management in each affected country to ensure the final version can be implemented globally, following audit committee approval.
D. Send the board-approved version of the policy to each country's senior leadership, and empower them to tailor the policy to the local language and culture.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 50
Which of the following best describes a market signal?
A. The bargaining power of buyers is forcing a drop in market prices.
B. There is pressure from the competitor's substitute products.
C. Strategic analysis by the organization indicates feasibility of expanding to new market niches. D. The competitor announces a new warranty program.
Correct Answer: D Section: (none)
Explanation Explanation/Reference:
QUESTION 51
Which of the following is a limiting factor for capacity expansion?
A. Government pressure on organizations to increase or maintain employment. B. Production orientation of management.
C. Lack of credible market leader in the industry.
D. Company diversification.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 52
Which of the following is false with regard to Internet connection firewalls?
A. Firewalls can protect against computer viruses.
B. Firewalls monitor attacks from the Internet.
C. Firewalls provide network administrators tools to retaliate against hackers. D. Firewalls may be software-based or hardware-based.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 53
Which of the following are likely indicators of ineffective change management?
1. IT management is unable to predict how a change will impact interdependent systems or business processes. 2. There have been significant increases in trouble calls or in support hours logged by programmers.
3. There is a lack of turnover in the systems support and business analyst development groups. 4. Emergency changes that bypass the normal control process frequently are deemed necessary.
A. 1 and 3 only
B. 2 and 4 only
C. 1, 2, and 4 only D. 1, 2, 3, and 4
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 54
Which of the following statements is true regarding the relationship between an individual’s average tax rate and marginal tax rate?
A. In a regressive personal tax system, an individual's marginal tax rate is normally greater than his average tax rate. B. In a regressive personal tax system, an individual's marginal tax rate is normally equal to his average tax rate.
C. In a progressive personal tax system, an individual's marginal tax rate is normally equal to his average tax rate.
D. In a progressive personal tax system, an individual's marginal tax rate is normally greater than his average tax rate.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 55
An organization needs to borrow a large amount of cash to fund its expansion plan. Which of the following annual interest rates is least expensive?
A. 7 percent simple interest with a 10 percent compensating balance. B. 7 percent simple interest paid at the end of each year.
C. 7 percent discount interest.
D. 7 percent compounding interest.
Correct Answer: B
Section: (none) Explanation
Explanation/Reference:
QUESTION 56
Which of the following statements accurately describes one of the characteristics that distinguishes a multinational company from a domestic company?
A. A multinational company has stockholders in other countries.
B. A multinational company exports its products to other countries.
C. A multinational company operates outside of its country of origin.
D. A multinational company uses raw materials and components from more than one country.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 57
Which of the following best describes an objective for an audit of an environmental management system?
A. To assess whether an annual control review is necessary.
B. To determine conformance with requirements and agreements. C. To evaluate executive management oversight.
D. To promote environmental awareness.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 58
Which of the following descriptions of the internal control system are indicators that risks are managed effectively? 1. Existing controls promote compliance with applicable laws and regulations.
2. The control environment is designed to address all identified risks to the organization. 3. Key controls for significant risks to the organization remain consistent over time.
4. Monitoring systems are in place to alert management to unexpected events.
A. 1 and 3. B. 1 and 4. C. 2 and 3. D. 2 and 4.
Correct Answer: B Section: (none) Explanation
Explanation/Reference:
QUESTION 59
The economic order quantity can be calculated using the following formula:
Which of the following describes how the optimal order size will change if the annual demand increases by 36 percent?
A. Decrease by about 17 percent. B. Decrease by about 7 percent. C. Increase by about 7 percent. D. Increase by about 17 percent.
Correct Answer: D
Section: (none) Explanation
Explanation/Reference:
QUESTION 60
Which of the following statements best describes the frameworks set forth by the International Standards Organization?
A. Globally accepted standards for industries and processes.
B. Bridging the gaps among control requirements, technical issues, and business risks.
C. Practical guidance and benchmarks for all organizations that use information systems.
D. Frameworks and guidance on enterprise risk management, internal control, and fraud deterrence.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 61
Which of the following is the most likely reason an organization may decide to undertake a stock split?
A. To keep stock price constant.
B. To keep shareholders' equity constant. C. To increase shareholders' equity.
D. To enhance the stock liquidity.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 62
Which of the following techniques would be least effective in resolving the conflict created by an internal audit client's perception of the audit report as a personal attack on his management performance?
A. The auditor should focus on the audit client as a person and understand him, rather than just concentrating on the problem.
B. The auditor should make recommendations based on objective criteria, rather than based on a subjective assessment.
C. The auditor should explore alternative solutions to address the audit problem, so the audit client has options.
D. The auditor should take a flexible position on the recommendations and focus on resolving the issue by addressing the interests of the people concerned.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 63
Which of the following most accurately describes the purpose of application authentication controls?
A. To ensure that data input into business applications is valid, complete, and accurate.
B. To prevent or detect errors in data processed using business applications.
C. To ensure that business applications are protected from unauthorized logical access.
D. To ensure the validity, accuracy, and completeness of outputs from business applications.
Correct Answer: C Section: (none) Explanation
Explanation/Reference:
QUESTION 64
Which of the following is always true regarding the use of encryption algorithms based on public key infrastructure (PKI)?
A. PKI uses an independent administrator to manage the public key.
B. The public key is authenticated against reliable third-party identification. C. PKI's public accessibility allows it to be used readily for e-commerce. D. The private key uniquely authenticates each party to a transaction.
Correct Answer: D Section: (none) Explanation
Explanation/Reference:
QUESTION 65
Which of the following application-based controls is an example of a programmed edit check?
A. Reasonableness check. B. Transaction log.
C. Input error correction.
D. Authorization for access.
Correct Answer: A Section: (none) Explanation
Explanation/Reference:
QUESTION 66
Which of the following describes the result if an organization records merchandise as a purchase, but fails to include it in the closing inventory count?
A. The cost of goods sold for the period will be understated.
B. The cost of goods sold for the period will be overstated.
C. The net income for the period will be understated.
D. There will be no effect on the cost of goods sold or the net income for the period.
Correct Answer: B Section: (none) Explanation
Explanation/Reference: