IIA-CIA-Part3 Exam Dumps - Business Knowledge for Internal Auditing

Performance Measurement Should Provide Meaningful Insights:

While providing detailed statistics on disbursements, the greatest concern is whether the data is relevant to achieving the objective of accurate disbursements.

If the data does not directly support decision-making or process improvements, it may not serve its intended purpose.

IIA Standard 2010 - Planning requires internal auditors to evaluate the relevance of information used in decision-making.

A. Articulation of the data (Incorrect)

The way the data is presented is important but is a secondary concern compared to whether the data is relevant.

B. Availability of the data (Incorrect)

While timely access to data is critical, the primary concern is whether the data is meaningful in evaluating disbursement accuracy.

C. Measurability of the data (Incorrect)

The data is already being measured and reported; the real issue is whether it provides useful insights for improving accuracy.

Explanation of Incorrect Answers:Conclusion:The greatest concern with this performance measurement is whether the data is relevant (Option D) to assessing disbursement accuracy and guiding improvements.

IIA References:

IIA Standard 2010 - Planning

Vertical analysis expresses each financial statement item as a percentage of a base figure (e.g., revenue). In this case, the internal auditor calculates electricity and depreciation expenses as a percentage of revenue, which is a clear application of vertical analysis.

(A) Horizontal analysis:

Compares financial data across different periods to identify trends and growth.

The given scenario does not compare financial statements over time, making this incorrect.

(B) Vertical analysis (Correct Answer):

Expresses each line item as a percentage of a base figure (e.g., revenue for income statements, total assets for balance sheets).

In this case, electricity and depreciation expenses are calculated as a percentage of revenue, confirming vertical analysis.

(C) Ratio analysis:

Involves calculating financial ratios (e.g., profitability, liquidity, efficiency).

This scenario does not involve ratios but rather percentage-based comparisons, making it incorrect.

(D) Trend analysis:

Identifies patterns over multiple periods (e.g., revenue growth over five years).

The question does not involve time-based comparisons, so this answer is incorrect.

IIA Practice Guide: Internal Audit and Financial Reporting – Recommends vertical analysis for financial statement assessment.

IIA Standard 2320 – Analysis and Evaluation – Requires auditors to apply relevant analytical techniques, including percentage-based evaluations.

COSO Internal Control Framework – Financial Reporting Component – Supports financial data analysis techniques such as vertical and horizontal analysis.

Analysis of Each Option:IIA References:Conclusion:Since the auditor expressed financial statement items as a percentage of revenue, option (B) is the correct answer.

A firewall is a security control mechanism designed to prevent unauthorized access to or from a private network. It monitors and filters incoming and outgoing network traffic based on predefined security rules.

Definition of Control Types:

Preventive Control: Stops an undesirable event from occurring.

Detective Control: Identifies and records events after they have happened.

Corrective Control: Takes action to correct an issue after it has been detected.

Discretionary Control: Provides access control based on user discretion.

Why a Firewall is a Preventive Control:

Firewalls block unauthorized access to protect networks before a security breach can occur.

They enforce security policies in real-time, preventing cyber threats such as malware, intrusions, and unauthorized data access.

As per IIA GTAG (Global Technology Audit Guide) on Information Security, firewalls are categorized as preventive controls because they proactively mitigate threats before they materialize.

Why Not Other Options?

A. Corrective: Firewalls do not correct security breaches; they prevent them.

B. Detective: Firewalls do not just detect threats but actively block them.

D. Discretionary: Firewalls operate based on preset security rules rather than user discretion.

IIA GTAG – Information Security

IIA Standard 2110 – IT Governance & Risk Management

Step-by-Step Justification:IIA References:Thus, the correct and verified answer is C. Preventive.

Total Quality Management (TQM) focuses on continuous improvement, teamwork, and process efficiency. The CAE’s goal is to reduce audit time and improve client satisfaction, which requires collaborative decision-making and diverse skill sets to ensure a high-quality, efficient audit process.

(A) Assign a team with a trained audit manager to plan each audit and distribute fieldwork tasks to various staff auditors. ❌

Incorrect. While structured planning is beneficial, TQM emphasizes decentralized decision-making rather than relying solely on the audit manager.

(B) Assign a team of personnel who have different specialties to each audit and empower team members to participate fully in key decisions. ✅

Correct. TQM encourages cross-functional teams, collaboration, and shared decision-making, which helps in reducing audit time and improving quality.

IIA GTAG "Auditing Continuous Improvement Initiatives" highlights diverse audit teams as a best practice for improving audit effectiveness.

(C) Assign a team to each audit, designate a single person to be responsible for each phase of the audit, and limit decision-making outside of their area of responsibility. ❌

Incorrect. This approach is too rigid and limits team collaboration, which contradicts TQM principles.

(D) Assign a team of personnel who have similar specialties to specific engagements that would benefit from those specialties and limit key decisions to the senior person. ❌

Incorrect. Specializing teams in certain audits may improve technical accuracy, but TQM promotes diverse perspectives rather than restricting decisions to one senior auditor.

IIA GTAG – "Auditing Continuous Improvement Initiatives"

IIA Standard 2110 – Governance (Process Improvement)

ISO 9001 – Total Quality Management Principles

Analysis of Answer Choices:IIA References:Thus, the correct answer is B, as TQM supports cross-functional teams and shared decision-making to improve audit efficiency and client satisfaction.

Indirect labor costs incurred in the production process are treated as part of manufacturing overhead. Since the cost was incurred on the last day of the year, it is likely that the related products are still in inventory rather than being sold.

Under Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), indirect labor costs associated with manufacturing should be included in the cost of inventory until the related goods are sold.

Once the goods are sold, the cost will be transferred to the cost of goods sold (COGS) in the income statement.

A. It should be reported as an administrative expense on the income statement. (Incorrect)

Indirect labor related to manufacturing is classified as part of manufacturing overhead, not an administrative expense.

B. It should be reported as a period cost other than a product cost on the management accounts. (Incorrect)

Indirect labor in production is a product cost (i.e., a cost that is included in inventory and matched with revenues when the product is sold).

Period costs refer to expenses like selling and administrative costs, which are expensed immediately.

C. It should be reported as cost of goods sold on the income statement. (Incorrect)

Since the cost was incurred on the last day of the year, the related products have likely not yet been sold, meaning the cost remains in inventory.

D. It should be reported on the balance sheet as part of inventory. (Correct)

Manufacturing overhead, including indirect labor, is included in inventory (work-in-process or finished goods) on the balance sheet until the goods are sold.

IIA Practice Guide: Auditing Inventory Management emphasizes that manufacturing costs, including indirect labor, should be allocated properly to inventory.

IIA Standard 2330 – Documenting Information requires auditors to ensure proper financial reporting of costs in accordance with GAAP/IFRS inventory valuation principles.

IFRS (IAS 2 – Inventories) and GAAP (ASC 330 – Inventory) state that indirect production costs must be capitalized as inventory until sold.

Explanation of Answer Choices:IIA References:Thus, the correct answer is D. It should be reported on the balance sheet as part of inventory.

The acid-test (quick) ratio is a more dependable liquidity indicator than working capital because it excludes inventory, which may not be easily converted to cash in the short term. This ratio measures a company’s ability to pay its short-term liabilities using only its most liquid assets (cash, marketable securities, and accounts receivable).

Formula for the Acid-Test Ratio:Acid-Test Ratio=Current Assets−InventoryCurrent Liabilities\text{Acid-Test Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}Acid-Test Ratio=Current LiabilitiesCurrent Assets−Inventory​

This ratio is more reliable than working capital since it removes inventory, which may be difficult to liquidate quickly in financial distress.

A. Acid-test (quick) ratio (Correct Answer) – This provides a stronger measure of liquidity because it excludes inventory, which might not be quickly converted to cash.

B. Average collection period – This measures the efficiency of accounts receivable collections, but it does not directly measure overall liquidity.

C. Current ratio – While this ratio is commonly used, it includes inventory, which can distort liquidity assessments if inventory is not easily sold.

D. Inventory turnover – This measures how quickly inventory is sold, but it does not directly assess liquidity.

IIA IPPF Standard 2130 – Control emphasizes liquidity monitoring as a key financial control.

COSO ERM Framework – Financial Performance Measures discusses acid-test ratio as a critical liquidity metric.

IFRS 7 – Financial Instruments Disclosures outlines the importance of liquidity risk assessments.

Explanation of Each Option:IIA References:

ï‚· Understanding Resource Coordination in Project Management:

Resource coordination involves assigning and managing human, financial, and technological resources to ensure the project runs smoothly.

The Execution phase is when project plans are implemented, and resources are actively utilized.

ï‚· Why Execution?

During execution, the project manager must coordinate resources, monitor performance, and resolve conflicts to keep the project on track.

This phase involves managing teams, distributing tasks, and ensuring resources are used efficiently.

ï‚· Why Other Options Are Incorrect:

A. Initiation: Focuses on defining project objectives, scope, and feasibility but does not involve active resource coordination.

B. Planning: Deals with creating resource allocation plans but does not handle real-time coordination.

D. Monitoring: Involves tracking performance and making adjustments but does not actively assign or manage resources.

ï‚· IIA Standards and References:

IIA Practice Guide: Auditing Project Management (2020): Recommends evaluating resource management practices during the execution phase.

IIA Standard 2110 – Governance: Internal auditors should ensure project resources are managed effectively to achieve objectives.

PMBOK Guide – Project Resource Management: Specifies that resource coordination primarily happens in the execution phase.

Information access management is the component of an organization’s cybersecurity risk assessment framework that allows management to implement user controls based on a user’s role. This principle, often referred to as Role-Based Access Control (RBAC), ensures that individuals have access only to the data and systems necessary for their job responsibilities.

Definition of Role-Based Access Control (RBAC):

RBAC assigns permissions based on an individual's role within the organization.

For example, a finance employee may access financial records, but not HR data.

Minimization of Insider Threats:

By limiting access to sensitive data, information access management helps reduce the risk of fraud, data breaches, and unauthorized modifications.

Regulatory Compliance:

Many regulations (e.g., GDPR, SOX, HIPAA) require companies to implement access control measures to protect sensitive information.

Internal auditors assess whether access management policies are enforced properly.

Alignment with Cybersecurity Risk Frameworks:

NIST Cybersecurity Framework – Access Control (AC) Family: Establishes guidelines for restricting access based on user identity and role.

ISO/IEC 27001 – Information Security Management System (ISMS): Requires organizations to implement access control policies to protect data integrity.

A. Prompt response and remediation policy: Focuses on incident response rather than proactive access control.

B. Inventory of information assets: Important for tracking IT assets but does not define access privileges.

D. Standard security configurations: Enforce security settings but do not manage access based on user roles.

IIA GTAG (Global Technology Audit Guide) on Information Security: Recommends implementing access control policies to restrict unauthorized access.

IIA Standard 2110 – Governance: Emphasizes the importance of cybersecurity governance, including role-based access management.

COBIT Framework – DSS05.04 (Manage User Identity and Access): Defines best practices for controlling user access based on organizational roles.

Step-by-Step Justification:Why Not the Other Options?IIA References: