IIA IIA-CIA-PART3 Online Practice Questions and Exam Preparation

IIA IIA-CIA-PART3 Online Questions & Answers

• Question 201:

  The balanced scorecard approach differs from traditional performance measurement approaches because it adds which of the following measures?

  1) Financial measures 2) Internal business process measures. 3) Client satisfaction measures 4) Innovation and learning measures

  A. 1 only.
  B. 2 and 4 only.
  C. 3 and 4 only.
  D. 2, 3, and 4 only
  D. 2, 3, and 4 only

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  Explanation

• Question 202:

  An Internal Audit Department adopts a training posture that provides training to management on fraud awareness, including an overview of the corporate fraud policy and hotline. This training posture best demonstrates that the Internal Audit Department is taking which of the four leadership roles?

  A. Path finding, which focuses on a purpose and how to achieve it.
  B. Aligning, which focuses on how to align systems and processes to achieve a purpose.
  C. Empowering, which focuses on how to cultivate people to have the right authority, responsibility, and commitment to best help achieve a purpose.
  D. Modeling, which focuses on how to demonstrate the values to convince others to follow an example and take responsibility for achieving a purpose.
  C. Empowering, which focuses on how to cultivate people to have the right authority, responsibility, and commitment to best help achieve a purpose.

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  Explanation

  Empowering is the best answer because fraud awareness training as noted in the question provides individuals with the information and guidance they need to take responsibility and commit to tasks required to achieve a purpose. Fraud awareness training makes sure they know policy and how to report suspected issues.

• Question 203:

  The internal audit function for a large organization has commenced this year's scheduled accounts payable audit. The annual external audit for the organization is currently being planned. Can the external auditors place reliance on the work performed by the internal audit function?

  A. Yes, if an external audit manager is assigned to lead the internal audit team
  B. No, the external auditors should do their own substantive testing on accounts payable
  C. Yes, if they believe that the internal audit is going to be performed with due competence and objectivity
  D. No, the internal audit function should not share information relating to its work with external parties
  C. Yes, if they believe that the internal audit is going to be performed with due competence and objectivity

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  Explanation

  External auditors may rely on internal audit's work if they evaluate the objectivity, competence, and quality of the internal audit function. If satisfied, they may use internal audit work to support their opinion, reducing duplication.

  Option A is incorrect because external auditors do not manage internal audit. Option B is too restrictive, as reliance is allowed under auditing standards. Option D is false because internal audit can share relevant work with external auditors.

  IIA Standards - Standard 2050: Coordination and Reliance; ISA 610 (Using the Work of Internal Auditors).

• Question 204:

  Patents are granted to encourage firms to invest in the research and development of new products. Patents are an example of A. Vertical integration.

  B. Market concentration.

  C. Entry barriers.

  D. Collusion.

  Correct Answer. C
  C

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  Explanation

  Entry barriers exist in all market structures other than perfect competition. The fewer the firms in an industry, the greater the barriers tend to be. Entry barriers include the existence of substantial economies of scale (low unit costs can be achieved only by large producers). They also include barriers created by existing firms. For example, large advertising expenditures may be necessary to compete. Control of raw materials or technology is another barrier. Consequently, patents held by existing firms may serve as an entry barrier because they prevent potential competitors from using certain technology. Patents are rights granted by the federal government to inventors to allow them the exclusive use of their inventions for a specific.

• Question 205:

  The General Electric (GE) portfolio model for competitive analysis of strategic business units (SBUs) should be compared with the Boston Consulting Croup's growth-share matrix. The GE model:

  A. Is a matrix with two variables:relative market share and market growth rate.
  B. Calculates an index for each of its two variables.
  C. Considers such factors for business strength as market size, growth rate, and price levels.
  D. Considers such factors for market attractiveness as market share, growth rate, and marketing skills.
  B. Calculates an index for each of its two variables.

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  Explanation

  The GE model is a multifactor portfolio matrix with two variables. Business strength or competitive position (BUS) is on one axis, and market attractiveness (MAT) is on the other. BUS is classified as strong, medium, or weak, and MAT is classified as high, medium, or low. Thus, the matrix in this model is 3 x 3 and has nine cells. SBUs are shown in the matrix as circles. Circle size is directly proportional to the size of the related market, with a shaded portion in the circle that represents the SBU's market share. To measure BUS and MAT, the firm must isolate the multiple factors affecting each, quantify them, and create an index. Factors will vary with each business. The measurements will provide the values on the axes of the matrix.

• Question 206:

  According to Bruce Henderson, competitive equilibrium is most likely to be stable when:

  A. One competitor has twice the market share of a second competitor.
  B. Competitors are almost identical.
  C. One major factor is the critical factor.
  D. The product is undifferentiated.
  A. One competitor has twice the market share of a second competitor.

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  Explanation

  Bruce Henderson has analyzed firms' reaction patterns when confronted with competitive attacks. A key to the analysis is competitive equilibrium. When one competitor hasapproximately twice the market share of a second competitor, equilibrium exists. The costs of gaining market share outweigh the benefits to either party.

• Question 207:

  Which of the following COSO internal control framework components encompasses establishing structures, reporting lines, authorities, and responsibilities?

  A. Control environment.
  B. Control activities.
  C. Information and communication.
  D. Monitoring.
  A. Control environment.

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  Explanation

• Question 208:

  In which of the following industry environments would an internal auditor be most likely to recommend strategies such as franchising and horizontal mergers?

  A. Emerging industries.
  B. Declining industries.
  C. Fragmented industries.
  D. Mature industries.
  C. Fragmented industries.

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  Explanation

  Strategies such as chaining, franchising, and horizontal mergers are commonly used in fragmented industries. Overcoming fragmentation has significant strategic payoffs given that entry is not costly and competitors are weak. If the factor(s) preventing consolidation can be eliminated, industry structure will change. Isolating factors responsible for fragmentation has been achieved in, for example, the fast food industry. The need to have numerous local operations under tight control and near customers has been isolated or neutralized by franchising to local owners. The franchisor provides national advertising, centralized purchasing, and other services, which result in economies of scale and industry consolidation. In effect, the service or production function is separated from the rest of the business. Also, acquisitions (horizontal mergers) that enable a firm to expand when competing with local firms might be difficult because of their contacts and image.

• Question 209:

  Frederick Taylor's scientific approach to motivation concluded that workers are best motivated by:

  A. Psychic income.
  B. Money.
  C. Fear of punishment.
  D. Knowledge of a job well done.
  B. Money.

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  Explanation

  Taylor felt that employees responded best to the extrinsic motivator of monetary incentives.

• Question 210:

  Which of the following conditions would motivate employees to improve performance under a merit pay system?

  A. Ideal goals are stressed.
  B. The company's culture emphasizes outstanding performance.
  C. Different levels of performance have minimal differences in pay.
  D. Job descriptions are invariably set with the required tasks clearly outlined.
  B. The company's culture emphasizes outstanding performance.

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  Explanation

  A merit pay system rewards good conduct or behavior with salary increases. To motivate employees under this system, management should be visibly committed to the system, develop a culture that emphasizes above-average performance, implement a policy of following up on unacceptable performance reviews, and establish an employee appeal process for unfavorable reviews.