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NEW QUESTION 64
In addition to data protection, which of the following is a control that is typically used by companies to safeguard the privacy rights of their customers?
I. End-user computing.
II. Encryption of data.
III. Spyware.
IV. Intrusion detection.
- A. II and IV only
- B. II only
- C. I and III only
- D. I, II, and IV only
Answer: A
NEW QUESTION 65
A manufacturing line supervisor joins the internal audit activity for a two-year rotational job assignment and is assigned to an accounts receivable audit. With regard to this assignment, which of the following should be the primary concern of the audit manager?
- A. Due professional care.
- B. Individual objectivity.
- C. Organizational independence.
- D. Individual independence.
Answer: A
NEW QUESTION 66
Which of the following is not considered one of the most common red flags for perpetrators of fraud?
- A. Excessive control issues.
- B. Repeat performance issues.
- C. Experiencing financial difficulty.
- D. Unusually close association with customers.
Answer: B
Explanation:
Section: Volume D
NEW QUESTION 67
A chief audit executive (CAE) of an international charity reports functionally to the audit committee of the board of directors and administratively to the charity's chief financial officer(CFO).
Which of the following would impair the internal audit function's independence?
- A. The CFO provides feedback on the CAE's audit reports.
- B. The CFO manages the accounting of the budget for the internal audit function.
- C. The CFO administers the annual evaluation process for the internal auditors.
- D. The CFO determines the scope of internal audit work in the accounting department.
Answer: D
NEW QUESTION 68
An internal audit charter describes the mission and scope of the internal audit activity (IAA), responsibilities of the IAA, accountability of the chief audit executive, independence of the IAA, and standards followed by the IAA. Which of the following also should be included in the charter?
- A. The IAA's right to have unrestricted access to functions, records, personnel, and physical property.
- B. A detailed audit plan or program for the year.
- C. The job specifications and descriptions of the internal audit staff.
- D. The purpose of the IAA.
Answer: A
NEW QUESTION 69
The chairperson of an organization's audit committee has obtained a risk management report that identifies significant industry concerns that impact the organization. The chairperson has asked the chief audit executive (CAE) to review these concerns and advise if they are relevant to the organization. How should the CAE respond?
- A. Accept the engagement but communicate only with the audit committee to protect the confidentiality of the request.
- B. Accept the engagement but inform senior management of the request.
- C. Decline the engagement because it is outside of the scope of the internal audit charter.
- D. Decline the engagement because it impairs the internal audit activity's independence.
Answer: B
Explanation:
Section: Volume B
NEW QUESTION 70
Which of the following is a valid statement about the use of visual observations during an audit engagement?
1. Visual observations can be used to detect ineffective controls, idle resources, and safety hazards.
2. Visual observations can be used during both preliminary survey and fieldwork stages of the audit engagement.
3. Visual observations can provide unsubstantiated facts to management if the internal auditor believes the information is useful.
4. Visual observations can assist an auditor in determining if a material observation should be communicated through informal means to the organization's senior management.
- A. 2 and 3 only
- B. 1 and 2 only
- C. 1 and 4 only
- D. 3 and 4 only
Answer: B
NEW QUESTION 71
According to the IIA guidance, who is responsible for periodically assessing the internal audit activity?
- A. Senior management.
- B. The board.
- C. The chief audit executive.
- D. The external auditors.
Answer: C
NEW QUESTION 72
According to IIA guidance, which of the following is ultimately responsible for seeing that the internal control system of an organization's social responsibility program is effective?
- A. All employees.
- B. Senior management.
- C. Board of directors.
- D. Internal audit activity.
Answer: C
NEW QUESTION 73
A large trucking organization wants to reduce traffic accidents by improving its system of internal controls.
Which of the following controls is correctly classified?
1. Review of speeding violations to identify repetitive locations and drivers is an example of a preventive control.
2. Defensive driver training is an example of a directive control.
3. The installation of tracking devices in delivery vehicles is an example of a corrective control.
4. Providing a vehicle driver handbook is an example of a detective control.
- A. 1 and 4.
- B. 2 and 3.
- C. 1 and 2.
- D. 3 and 4.
Answer: C
NEW QUESTION 74
During a payroll audit of a large organization, an auditor noted that the assistant personnel director is responsible for many aspects of the computerized payroll system, including adding new employees in the system; entering direct-deposit information for employees; approving and entering all payroll changes; and providing training for system users. After discussions with the director of personnel, the auditor concluded that the director was not comfortable dealing with information technology issues and felt obliged to support all actions taken by the assistant director. The auditor should:
- A. Test a sample of payroll changes to ensure that they were approved by the assistant director before being processed.
- B. Continue to follow the engagement program because the engagement scope and objectives have already been discussed with management.
- C. Review the engagement program to ensure testing of direct deposits to employee bank accounts is adequately covered.
- D. Recommend to the chief audit executive that a fraud investigation be started.
Answer: C
Explanation:
Section: Volume A
NEW QUESTION 75
Which of the following actions indicates a lack of due professional care by an internal auditor performing an audit of a store's cash function?
- A. The auditor tested samples of transactions to test the cash function's process flows.
- B. The auditor discovered an instance of potential fraud and reported it immediately to management, but did not alert authorities outside the organization.
- C. The audit report included a well-supported recommendation for a reduction in staff even though such a reduction might adversely impact morale.
- D. After determining that the cash function internal controls were strong, the audit report assured senior management that fraud was not present.
Answer: D
NEW QUESTION 76
Management has asked the chief audit executive (CAE) to provide assurance on the organization's automated control system related to financial data. The current audit staff does not have the expertise needed to conduct this type of engagement. Which of the following would be the best response by the CAE?
- A. Accept the assignment if the engagement is included in the current audit plan,but inform senior management that the current audit staff does not have the knowledge and skills required.
- B. Do not accept the assignment because the internal audit activity lacks the competency to perform the engagement with due professional care.
- C. Accept the assignment and use an external provider with the necessary knowledge and skills to perform the engagement.
- D. Accept the assignment and use control self-assessment to complete the project.
Answer: C
NEW QUESTION 77
In preparing for an audit of the footwear division of a major retail organization, an internal auditor gathered the following information about the organization's stores:
In addition to labor costs, the other costs associated with each store are leasing and maintenance expenses. Which of the following is a valid conclusion?
- A. Cost of goods sold is directly related to the size of the store.
- B. Employees are less productive in larger stores.
- C. Gross margin is directly related to the size of the store.
- D. Sales per store are directly related to the size of the store.
Answer: D
NEW QUESTION 78
Which of the following conditions is the most likely indicator of fraud?
- A. Lower earnings occur during the industry's down cycle.
- B. A manager regularly assumes subordinates' duties.
- C. Commissions are paid based on verified increases to sales.
- D. Departmental reports are consistently issued in an untimely manner.
Answer: B
NEW QUESTION 79
According to COSO, which of the following describes a principle related to the control environment?
- A. The organization establishes appropriate authorities and responsibilities in the pursuit of objectives.
- B. The organization selects and develops control activities that contribute to the mitigation of risks.
- C. The organization identifies and assesses changes that could significantly impact the system of internal control.
- D. The organization performs evaluations to ascertain whether internal control components are present and functioning.
Answer: A
NEW QUESTION 80
During an audit of financial contracts, an auditor learns that a relative has a substantial loan with the organization. The auditor should:
- A. Immediately withdraw from the audit engagement.
- B. Notify management and the chief audit executive (CAE) and have the CAE determine whether the auditor should continue with the audit engagement.
- C. Proceed with the audit engagement but disclose in the engagement final communication that the relative is a customer.
- D. Exclude the relative's information from the audited work and proceed with the audit engagement.
Answer: B
NEW QUESTION 81
Which of the following statements is correct regarding risk analysis?
- 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.
Answer: A
NEW QUESTION 82
An internal auditor is testing,on a sample basis,whether invoices paid between January 1 and December 31 are supported by appropriately approved purchase orders. Over 25,000 invoices were paid during the fiscal year,which runs from the first of April to the end of March. The auditor sets the acceptable risk of assessing control risk too low at 5% and the tolerable deviation rate at 5%. The internal auditor consults the previous audit and sets the expected population deviation rate at 1%. Sample size (77) is selected from a table and rounded up to 80. No sample deviations were found. The upper deviation limit was 3.7%.
Which of the following statements represents a valid conclusion regarding this information?
- A. I am 95% confident that the actual population deviation rate is 3.7%. Since this is less than the tolerable deviation rate,quantitative attribute testing results indicate that the control is effective.
- B. I am 95% confident that the true,but unknown,population deviation rate is less than or equal to 3.7%. Results indicated that the sample size was too small,as no sample deviations were found.
- C. I am 95% confident that the true,but unknown,population deviation rate is less than or equal to 3.7%. The quantitative attribute testing results indicate that the control is effective.
- D. I am 95% confident that the true,but unknown,population deviation rate is less than or equal to 3.7%. The quantitative attribute testing results indicate that the control is not effective.
Answer: C
NEW QUESTION 83
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