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NEW QUESTION 31
A chief audit executive (CAE) is planning to issue an annual report concluding on the overall effectiveness of the organization's internal control system. According to the Standards, which of the following is likely the most significant challenge facing the CAE when creating the report?
- A. Assessing control effectiveness is complicated by inherent risks.
- B. The opinion is only issued once a year, limiting its usefulness.
- C. The opinion is dependent on complex analyses of numerous internal audit engagements carried out over the prior year.
- D. The opinion must include difficult to measure risks such as the risks of management override of controls, and collusion among dishonest personnel.
Answer: C
NEW QUESTION 32
A daily log of treasury dealers who exceeded their authorized limits serves as a:
- A. Feed-forward control.
- B. Preventive control.
- C. Directive control.
- D. Detective control.
Answer: D
NEW QUESTION 33
An organization's accounts payable function improved its internal controls significantly after
it received an unsatisfactory audit report. When planning a follow-up audit of the function, what level of detection risk should be expected if the audit and sampling procedures used are unchanged from the prior audit?
- A. Detection risk is higher because control risk is lower.
- B. Detection risk is unchanged although control risk is lower.
- C. Detection risk is lower because control risk is higher.
- D. Detection risk is lower because control risk is lower.
Answer: B
NEW QUESTION 34
Which of the following statements regarding an internal auditor's responsibility for detecting fraud is not correct?
- A. The auditor should have sufficient knowledge to detect red flags.
- B. The auditor should identify control weaknesses which could allow fraud to occur.
- C. The auditor may obtain assistance from outside experts in areas where the auditor is not sufficiently proficient.
- D. The auditor should detect fraud before recommending a fraud investigation should take place.
Answer: D
Explanation:
Section: Volume D
NEW QUESTION 35
During an audit of financial contracts, an internal auditor learns that a relative has a substantial loan with the organization. The auditor should:
- A. Immediately withdraw from the audit engagement.
- B. Proceed with the audit engagement but disclose in the engagement final communication that the relative is a customer.
- C. Notify management and the chief audit executive (CAE) and have the CAE determine whether the auditor should continue with the audit engagement.
- D. Exclude the relative's information from the audited work and proceed with the audit engagement.
Answer: C
NEW QUESTION 36
What role, if any, should the internal audit activity have in the process of following up on observations and recommendations made by the external auditors?
- A. The internal audit activity should become involved only if specifically requested by management or the board of directors.
- B. The internal audit activity should become involved only if the chief audit executive has sufficient evidence that the follow-up is not occurring.
- C. The internal audit activity should review the adequacy and effectiveness of management's follow-up actions.
- D. The internal audit activity should have no role in this process in order to ensure independence.
Answer: C
Explanation:
Section: Volume B
NEW QUESTION 37
Which of the following are components of the COSO enterprise risk management framework?
1. Objective setting.
2. External environment.
3. Data collection.
4. Control activities.
- A. 1 and 3 only
- B. 2 and 4 only
- C. 2 and 3 only
- D. 1 and 4 only
Answer: D
NEW QUESTION 38
Which of the following conditions is the most likely indicator of fraud?
- A. Commissions are paid based on verified increases to sales.
- B. A manager regularly assumes subordinates' duties.
- C. Lower earnings occur during the industry's down cycle.
- D. Departmental reports are consistently issued in an untimely manner.
Answer: B
NEW QUESTION 39
Which of the following policies exemplifies a control weakness in the approval and oversight of credit sales?
- A. The head of the sales department can authorize credit lines for large customers.
- B. The finance committee of the board of directors periodically reviews credit standards.
- C. Customers who fail to meet credit requirements must pay cash for shipments upon delivery.
- D. The credit department is responsible for approving shipments to all customers.
Answer: A
NEW QUESTION 40
In order to save time, an audit manager no longer required that a standard internal control questionnaire be completed for each audit engagement. Does this represent a violation of the Standards?
- A. Yes, because internal control should be evaluated on every engagement and the internal control questionnaire is the most efficient method to do so.
- B. No, because auditors are not required to complete internal control questionnaires on every engagement.
- C. No, because auditors may omit necessary procedures if there is a time constraint, based on audit judgment.
- D. Yes, because internal control should be evaluated on every engagement and the internal control questionnaire is the mandated approach to evaluate controls.
Answer: B
NEW QUESTION 41
An internal auditor is planning an audit of an organization where temporary employees are suspected of receiving pay for hours they have not worked. Which of the following tasks should not be performed at this stage in the audit?
- A. Obtaining a copy of the contract between the organizations and the temporary employment agency.
- B. Interviewing the manager who requested the audit engagement.
- C. Interviewing shift supervisors about their employees' attendance.
- D. Preparing an engagement program.
Answer: C
NEW QUESTION 42
Suspecting fraud, the chief financial officer (CFO) asked the internal audit activity to investigate a significant increase in travel related expenditures. Work was performed by a qualified internal auditor. Following the completion of the engagement, the chief audit executive (CAE) reported to the CFO that no violations were found and no fraud had occurred.
According to the Standards, which of the following principles did the CAE violate?
- A. Organizational independence.
- B. Proficiency.
- C. Due professional care.
- D. Individual objectivity.
Answer: C
Explanation:
Section: Volume E
NEW QUESTION 43
During the planning phase of an audit of suspected overbilling on contracts for security services, an internal auditor should perform all of the following except:
- A. Obtain a copy of the contract between the two organizations.
- B. Interview an official of the security services company to determine the cause of recent increases in billings for services.
- C. Interview the manager who requested the audit engagement.
- D. Prepare an engagement program.
Answer: B
NEW QUESTION 44
A senior manager asks the chief audit executive (CAE) to explain why statistical sampling is the best method to use in conducting an internal audit. Which advantages should the CAE point to in order to justify the internal audit activity's (IAA) use of statistical sampling?
- A. Statistical sampling sets limits on resources used for the IAA, allows for a subjective interpretation of the IAA's sampling results, and supports The Institute of Internal Auditors' requirements for using questionnaires as a sampling tool.
- B. Statistical sampling allows for the selection of a minimum sample size, provides a quantitative expression of the IAA's sampling results, and supports extrapolation.
- C. Statistical sampling itself identifies root causes of issues, utilizes a qualitative method for analyzing results, and supports engagement objectives through the use of external benchmarking.
- D. Statistical sampling allows for evaluation of all organizational data at once, increases the likelihood that risks are immediately identified, and does not require a level of tolerable misstatement or margin of error.
Answer: B
NEW QUESTION 45
A bakery chain has a statistical model that can be used to predict daily sales at individual stores based on a direct relationship to the cost of ingredients used and an inverse relationship to rainy days. What conditions would an auditor look for as an indicator of employee theft of food from a specific store?
- A. On a rainy day, total sales are greater than expected when compared to the cost of ingredients used.
- B. On a sunny day, total sales are less than expected when compared to the cost of ingredients used.
- C. Both total sales and cost of ingredients used are less than expected.
- D. Both total sales and cost of ingredients used are greater than expected.
Answer: B
NEW QUESTION 46
An objective for an audit of a medical research corporation is to evaluate management's controls to ensure that timely reports are submitted to sponsors of contracted research projects. In planning the audit to achieve this objective, the auditor should begin by:
- A. Observing report preparation in a number of laboratories.
- B. Interviewing a group of research managers.
- C. Sending a questionnaire to a sample of research sponsors.
- D. Reviewing policies and procedures.
Answer: D
NEW QUESTION 47
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