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NEW QUESTION 151
Which of the following are advantages of flowcharts over internal control questionnaires''
1 Flowcharts reduce the need to test whether employees are observing internal control processes
2 Flowcharts provide a visual depiction of the processes in the area under review 3. Flowcharts identify and prioritize internal control design weaknesses.
4 Flowcharts highlight the control points to help internal auditors evaluate control design
- A. 2. 3 and 4 only
- B. 2 and 4 only.
- C. 1.2. and 3 only
- D. 1 and 3 only
Answer: A
NEW QUESTION 152
When internal auditors provide consulting services, the scope of the engagement is primarily determined by:
- A. The internal audit activity's charter.
- B. The audit engagement team.
- C. The engagement client.
- D. Internal auditing standards.
Answer: C
Explanation:
Section: Volume A
NEW QUESTION 153
Which of the following processes real-transaction data through auditor-developed test programs?
- A. Parallel simulation.
- B. Mapping.
- C. Generalized audit software.
- D. Tracing.
Answer: A
NEW QUESTION 154
What decision-making approach should a facilitator initiate if a group addresses an unfamiliar situation during a control self-assessment session?
- A. Consensus building.
- B. Spontaneous agreement.
- C. Compromise.
- D. Majority voting.
Answer: A
NEW QUESTION 155
Which of the following types of contracts would provide the least incentive for a contractor to achieve economy and efficiency?
- A. Lump-sum contract.
- B. Unit-price contract.
- C. Indefinite delivery contract.
- D. Cost-plus contract.
Answer: D
NEW QUESTION 156
An appliance repair company is considering relocating the center that houses its service vehicles. An internal auditor wants to determine the potential reduction in average miles driven by the service vehicles if the center is relocated. Which of the following statistical sampling methods would be most appropriate for this test?
- A. Discovery sampling.
- B. Mean-per-unit sampling.
- C. Attributes sampling.
- D. Probability-proportional-to-size sampling.
Answer: B
Explanation:
Section: Volume A
Explanation/Reference:
NEW QUESTION 157
A code of business conduct provides:
- A. A program to anonymously report irregularities to authorities.
- B. A passive method of fraud deterrence.
- C. A fraud avoidance plan that does not explicitly describe punishments for violations.
- D. An alternative to "tone at the top" programs.
Answer: B
NEW QUESTION 158
An organization has recently incurred significant cost overruns on one of its construction projects.
Management suspects that these overruns were caused by the contractor improperly charging for costs related to contract change orders. Which of the following procedures are appropriate for testing this suspicion?
1. Determine if the contractor has received proper approval of change orders from management.
2. Determine if the contractor has billed for original contract work cancelled by the change orders.
3. Determine if the contractor has charged change orders with costs already billed to the original contract.
4. Determine if the contractor has been paid for change orders that have not yet been completed.
- A. 3 and 4 only
- B. 2 and 3 only
- C. 1 and 2 only
- D. 1 and 3 only
Answer: B
NEW QUESTION 159
Which of the following methods would an auditor most likely use to document a complex sales order process?
- A. Create a critical path method chart, noting the processes involved for each step.
- B. Develop a horizontal flowchart, with supporting documentation for key control points.
- C. Perform a process review, assigning time and cost to each step of the process to develop a hierarchy flowchart.
- D. Utilize a systems narrative, which can be updated during subsequent audits.
Answer: B
NEW QUESTION 160
The best method for assessing the relative importance of risk factors is to:
- A. List the risk factors in a priority order.
- B. Assign weights to the factors based on the comparative impact.
- C. Use data from an independent source.
- D. Change the rating of the factors from a 1-3 scale to a 1-5 scale.
Answer: B
Explanation:
Section: Volume C
Explanation/Reference:
NEW QUESTION 161
A bank uses a risk analysis matrix to quantify the relative risk of auditable entities. The analysis involves rating auditable entities on risk factors using a scale of 1 to 10, with 10 representing the greatest risk. A partial list of risk factors and the ratings given to three of the bank's departments is provided below:
Which of the following statements regarding risk in the department is true?
- A. The nature of department A's control structure may be justified by the nature of the department's assets and the complexity of its transactions.
- B. The relative ranking of the departments in order of their risk, from greatest to least risk, is: A; C; B.
- C. As compared to departments A and C, department B has a stronger control system to compensate for the greater complexity of the department's transactions and dollar value of its assets.
- D. The internal audit activity should schedule audits of department B more often than audits of department C because of the relative control strength of department C as compared to department B.
Answer: A
NEW QUESTION 162
Which of the following sampling techniques is typically used when an internal auditor wants to test a large sample for fraud?
- A. Probability-proportional-to-size sampling
- B. Discovery sampling
- C. Stratified sampling
- D. Haphazard sampling
Answer: B
NEW QUESTION 163
Which of the following factors should a chief audit executive consider when determining the audit universe?
1. Components of the organization's strategic plan.
2. Inputs from senior management and the board.
3. Views of competitors and business associates.
4. Results of exit interviews with departing employees.
- A. 2, 3, and 4
- B. 2 and 4 only
- C. 1 and 2 only
- D. 1, 2, and 4
Answer: C
NEW QUESTION 164
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. 3 and 4 only
- B. 1, 2, and 4 only
- C. 1 and 3 only
- D. 2 and 3 only
Answer: A
NEW QUESTION 165
Which of the following statements is true regarding the communication of audit engagement observations?
- A. Criteria, condition, cause, and effect must be communicated for material observations only
- B. Criteria, condition, cause, and effect must be communicated for all engagement observations.
- C. Criteria, condition, cause, and effect must be communicated for material observations and significant deficiencies only
- D. Criteria, condition, cause, and effect do not need to be communicated for insignificant observations with adquate compensating key controls.
Answer: B
NEW QUESTION 166
During an audit of a major metropolitan museum, an auditor was unable to locate selected items from the museum's collection. The director of the museum informed the auditor that the upcoming replacement of the museum's inventory tracking system would address the auditor's concerns. What follow-up activity should the auditor propose?
- A. Receive periodic feedback from museum staff regarding the status of the system implementation.
- B. Determine whether the items are indeed missing and assess the ability of the new system to remedy the problem.
- C. Schedule an audit of the museum's security systems to determine if theft is a problem.
- D. Monitor the system implementation and schedule a follow-up review once the new system is in place.
Answer: B
Explanation:
Section: Volume B
Explanation/Reference:
NEW QUESTION 167
A retail company uses a computer program that matches electronic vendor invoices with the applicable purchase orders and receiving information, which are also maintained electronically.
If an invoice does not match the other items within predefined ranges, a report is generated and sent to the accounts payable department for further investigation. All of the applicable documents are electronically marked, cross-referenced, and retained in open files. Both an integrated test facility and a systems control audit review file (SCARF) have been included in the system.
An auditor wants to determine the extent to which items are not matched at year end and to investigate the potential causes of the unmatched items. Which of the following audit procedures would be most effective in determining the items to investigate?
- A. Submit test data to identify attributes of unmatched items. Follow up by investigating the identified attributes.
- B. Use the SCARF to identify unusual items. Select an attributes sample and trace to the underlying documentation.
- C. Use generalized audit software to read the electronically marked unmatched items.
- D. Use generalized audit software to read the purchase orders and trace to applicable receiving and vendor invoice files.
Answer: C
NEW QUESTION 168
Which of the following risks assumes an absence of compensating controls in the area being reviewed?
- A. Sampling risk.
- B. Detection risk.
- C. Control risk.
- D. Inherent risk.
Answer: D
NEW QUESTION 169
Which of the following tasks is typically performed in the analysis phase of a benchmarking consulting engagement?
- A. Identifying business capabilities.
- B. Determining sample size.
- C. Determining benchmarked process attributes.
- D. Developing data collection tools.
Answer: C
NEW QUESTION 170
An audit identified a number of weaknesses in the configuration of a critical client/server system. Although some of the weaknesses were corrected prior to the issuance of the audit report, correction of the rest will require between six and 18 months for completion. Consequently, management has developed a detailed action plan, with anticipated completion dates, for addressing the weaknesses. Which of the following is the most appropriate course of action for the chief audit executive to take?
- A. Reassign information systems auditors to assist the information technology department in correcting the weaknesses.
- B. Assess the adequacy of the action plan and monitor key dates and deliverables.
- C. Schedule a follow-up audit engagement to assess the status of corrective action.
- D. Evaluate statistics related to unplanned system outages, unauthorized access attempts, and denials of service to assess the effectiveness of corrections.
Answer: B
NEW QUESTION 171
An auditor evaluating excessive product rejection rates should investigate:
I. Communication between sales and production departments on sales returns.
II. Volume of product sales year-to-date in comparison to prior year-to-date.
III. Changes in credit ratings of customers versus sales to those customers.
IV. Detailed product scrap accounts and accumulations.
- A. I, II, III, and IV.
- B. I and IV only
- C. II, III, and IV only
- D. I and III only
Answer: B
NEW QUESTION 172
In which of the following cases is it appropriate for an audit report to not contain management's response either within the report or as an attachment?
- A. Management's response to an audit report is generally not a requirement.
- B. Internal controls were found to be properly designed and operating effectively although operations are deemed inefficient.
- C. An internal audit report contains no observations.
- D. There was insufficient time to obtain management's response during the draft reporting process.
Answer: C
Explanation:
Section: Volume C
NEW QUESTION 173
A chief audit executive (CAE) received a detailed internal report of senior management's internal control assessment. Which of the following subsequent actions by the CAE would provide the greatest assurance over management's assertions?
- A. Determine whether management's operating style and the philosophy described in the report reflect the effective functioning of internal controls.
- B. Assert whether the described and reported control processes and systems exist.
- C. Assess whether senior management adequately supports and promotes the internal control culture described in the report.
- D. Evaluate the completeness of the report and management's responses to identified deficiencies.
Answer: D
Explanation:
Section: Volume E
Explanation
Explanation/Reference:
NEW QUESTION 174
A fast-food company is developing a computer simulation involving arrival time at a drive-through restaurant. The distribution for arrival times is:
Time
Single-Digit Random
Between Arrivals
Probability
Number Assigned
1 minute
0.1
0
2 minutes
0.2
1, 2
3 minutes
0.3
3, 4, 5
4 minutes
0.4
6, 7, 8, 9
Six random numbers are selected to represent the arrival of six cars: 1, 6, 9, 0, 5, 6. The mean time between arrivals for these cars, in this run of the simulation model, is:
- A. 4 minutes.
- B. 1 minute.
- C. 2 minutes.
- D. 3 minutes.
Answer: D
NEW QUESTION 175
As part of a preliminary survey of the purchasing function, an internal auditor reads the department's policies and procedures manual and concludes that the manual describes the processing steps clearly and contains an appropriate internal control design. The next engagement objective is to evaluate the operating effectiveness of internal controls. Which procedure would fulfill this objective most effectively?
- A. Perform a compliance test.
- B. Perform a systems test.
- C. Perform an efficiency test.
- D. Perform a design test.
Answer: A
NEW QUESTION 176
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