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NEW QUESTION 285
An organization contracted a third party to construct a new facility that was estimated to cost $25 million.
Which of the following is the most pertinent reason for the organization to audit the contractor's records?
- A. The contractor will be paid on a cost-plus basis.
- B. The contract includes a right-to-audit clause.
- C. The estimated cost is high.
- D. The contractor has subcontracted much of the work.
Answer: A
NEW QUESTION 286
Which of the following statements is true?
- A. Internal audit's responsibility for an assurance engagement observation ends when management implements changes to remediate the observation.
- B. If management chooses not to take action on internal audit's assurance engagement observation, the chief audit executive (CAE) has a responsibility to propose an action plan to the board.
- C. An assurance engagement observation is considered remediated when management's corrective action plan is approved by the board.
- D. When management decides to accept the risk of not taking action on an assurance observation, the (CAE) is responsible for judging whether or not that decision is prudent.
Answer: D
NEW QUESTION 287
Which of the following trends found on financial reports would most likely indicate a possible problem?
- A. A material increase in the acid-test ratio.
- B. A material increase in daily sales compared to total outstanding receivables.
- C. A material decrease in the receivables turnover.
- D. A material increase in inventory turnover.
Answer: C
NEW QUESTION 288
Which of the following would be the most important reason for the chief audit executive (CAE) to use inputs from management strategy to update the audit universe?
- A. The CAE wants to cover management planned activities for the upcoming year in the audit plan.
- B. The CAE wants to consider the organization's strategic plan including attitude toward risk and the degree of difficulty to achieving planned objectives.
- C. The CAE wants to determine internal audit resourcing requirements to cover the organization's major processes and activities over time.
- D. The audit charter requires the CAE to update the audit universe before embarking on the selection of potential audit engagements.
Answer: B
Explanation:
Section: Volume D
NEW QUESTION 289
During a review of performance measures in an organization's purchasing function, the preliminary survey indicates that most of the measures have been in use for some time. The internal auditor should:
- A. Establish the history of the measures and reasons for use.
- B. Review the data that was used to develop the measures.
- C. Report that the measures being used are out-of-date and should be improved.
- D. Perform benchmarking in order to verify that the measures being used are meaningful.
Answer: D
NEW QUESTION 290
Which of the following represents appropriate evidence of supervisory review of engagement workpapers?
I. A supervisor's initials on each workpaper.
II. An engagement workpaper review checklist.
III. A memorandum specifying the nature, extent, and results of the supervisory review of workpapers.
IV. Performance appraisals that assess the quality of workpapers prepared by auditors.
- A. I, III, and IV only
- B. I, II, III, and IV.
- C. II and IV only
- D. I, II, and III only
Answer: D
Explanation:
Section: Volume B
Explanation/Reference:
NEW QUESTION 291
During which of the following systems development stages would it be most useful for an internal auditor to be involved?
- A. Design and implementation.
- B. Testing and user acceptance.
- C. Coding and testing.
- D. User acceptance and post-implementation.
Answer: A
NEW QUESTION 292
If the chief audit executive believes that senior management has accepted a level of residual risk that is unacceptable to the organization, they should:
- A. Disclose the issue in the audit report when auditing the area where the risk was identified.
- B. Discuss the concern with management and if not resolved, escalate it to the board.
- C. Accept the decision of senior management as they are ultimately responsible for risk management.
- D. Report the concern directly to the board.
Answer: B
NEW QUESTION 293
What is the most important risk in determining the validity of construction delay claims?
- A. Contractor claims may be understated.
- B. Contractor claims may include costs considered in the fixed-price portion of the work.
- C. Contractor claims may be submitted prior to completion of the work.
- D. Contractor claims may include subcontractor estimates of balances due to the subcontractor.
Answer: B
NEW QUESTION 294
The most common motivation for management fraud is the existence of:
- A. Financial pressures on the organization.
- B. Vices, such as a gambling habit.
- C. Job dissatisfaction.
- D. The challenge of committing the perfect crime.
Answer: A
NEW QUESTION 295
After issuance of the engagement final communication for an audit of an organization's accounts payable function, which of the following should be sent satisfaction surveys?
I. Manager of disbursements.
II. Controller.
III. Chief operating officer.
IV.
Audit committee members.
- A. II, III, and IV only
- B. I and II only
- C. I only
- D. II and III only
Answer: B
NEW QUESTION 296
Many questionnaires are made up of a series of different questions that use the same response categories (for example: strongly agree, agree, neither, disagree, strongly disagree). Some designs will have different groups of respondents answer alternate versions of the questionnaire that present the questions in different orders and reverse the orientation of the endpoints of the scale (for example: agree on the right and disagree on the left).
The purpose of such questionnaire variations is to:
- A. Reduce the effects of pattern response tendencies.
- B. Test whether respondents are reading the questionnaire.
- C. Eliminate intentional misrepresentations.
- D. Make it possible to get information about more than one population parameter using the same questions.
Answer: A
Explanation:
Section: Volume A
Explanation
NEW QUESTION 297
Which of the following is true of engagement recommendations?
I. Specific suggestions for implementation must be included.
II. The internal auditor's observations and conclusions may serve as the basis.
III. Actions to correct existing conditions or improve operations may be included.
IV.
Approaches to correcting or enhancing performance may be suggested.
- A. I, III, and IV only
- B. III only
- C. I only
- D. II, III, and IV only
Answer: D
NEW QUESTION 298
The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?
I. Financial measures.
II. Internal business process measures.
III. Client satisfaction measures.
IV. Innovation and learning measures.
- A. III and IV only
- B. I only
- C. II, III, and IV only
- D. II and IV only
Answer: C
NEW QUESTION 299
Which of the following is the best approach for obtaining feedback from engagement clients regarding the quality of internal audit work?
- A. Distribute questionnaires to selected engagement clients shortly before preparing the internal audit annual activity report.
- B. Ask questions during the exit interviews and send copies of the documented responses to the clients.
- C. Call engagement clients after the exit interviews and send copies of the documented responses to the clients.
- 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
NEW QUESTION 300
The efficiency of internal audit operations is best enhanced if workpaper standards:
- A. Permit the extent of documentation to vary according to engagement objectives.
- B. Allow access to workpapers by external parties if approved by senior management or the audit committee.
- C. Mandate the workpaper retention period.
- D. Require supervisors to initial and date each workpaper that they review.
Answer: A
NEW QUESTION 301
A retail sales company has discontinued a product that normally sold for $100. During the first month of a sale of the product, a 20 percent discount was given. Later that sale price was reduced by an additional 40 percent.
What was the overall discount from the original selling price?
- A. 48 percent.
- B. 52 percent.
- C. 30 percent.
- D. 60 percent.
Answer: B
Explanation:
Section: Volume B
NEW QUESTION 302
Which of the following would have the least significance in an audit of the efficiency of a driver's license testing facility?
- A. A point-of-sale cashiering system reduces the need to reenter payment data.
- B. Staff are cross-trained to provide backup for other areas of the facility as required.
- C. Clerical staff administer written tests to allow examiners more time to supervise driving tests.
- D. Examiners are required to be recertified on an annual basis.
Answer: D
NEW QUESTION 303
Which of the following best defines an audit opinion?
- A. A summary of the significant audit observations and recommendations.
- B. An auditor's evaluation of the effects of the observations and recommendations on the activities reviewed.
- C. A conclusion which must be included in the audit report.
- D. A recommendation for corrective action.
Answer: B
NEW QUESTION 304
Which of the following would be a legitimate action for the internal auditor to take when monitoring audit engagement results?
1. Disregard a certain risk because management and the board accepted the risk in the past.
2. Abdicate the responsibility for a particular risk because it is not part of the audit plan.
3. Obtain agreement from senior management that unresolved audit issues will be reported to the board.
Request corrective action from management in writing.
- A. 1 and 3 only
- B. 2 and 3 only
- C. 3 and 4 only
- D. 1, 2, and 4 only
Answer: C
Explanation:
Section: Volume D
NEW QUESTION 305
After finalizing an assurance engagement concerning safety operations in the oil mining process, the audit team concluded that no key controls were compromised. However, some opportunities for improvement were noted. Which of the following would be the most appropriate way for the chief audit executive (CAE) to report these results?
- A. The CAE should send the final report to operational management and notify senior management and the audit committee that no significant findings were identified.
- B. The CAE should notify operational and senior management that the audit engagement was completed with no significant findings to report.
- C. The CAE should send the final report to operational and senior management and the audit committee.
- D. The CAE should send the final report to operational management only, as there is no need to communicate this information to higher levels.
Answer: A
Explanation:
Section: Volume E
NEW QUESTION 306
During an audit of a major contract, an auditor finds that actual hours and dollars billed are consistently at or near budgeted amounts. This condition is a red flag for which of the following procurement fraud schemes?
- A. Cost mischarging.
- B. Bid rotation.
- C. Defective pricing.
- D. Fictitious vendor.
Answer: A
NEW QUESTION 307
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