IIA IIA-CIA-Part2 Quiz 160 Topic 6 Questions 796-800

Question: 1

The internal auditor is evaluating the effectiveness of a sales commission plan adopted 12 months earlier. An engagement procedure likely to provide strong support for the plan's effectiveness is to

ACalculate the percentage change in monthly sales by product line for the last 3 years.

BCompare monthly selling costs of this year with those of the 2 preceding years.

CRegress monthly indices of external economic conditions against sales for the 2 preceding years and compare predictions with reported sales.

DCompare the ratio of selling costs per dollar of sales each month for the past year with that of other organizations in the industry.

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Question: 2

The audit committee has expressed concern that the financial institution has been taking on higher-risk loans in pursuit of short-term profit goals. Which of the following engagement procedures provides the least amount of information to address this concern?

APerform an analytical review of interest income as a percentage of the investment portfolio in comparison with a group of peer financial institutions.

BTake a random sample of loans made during the period and compare the riskiness of the loans with that of a random sample of loans made 2 years ago.

CPerform an analytical review that involves developing a chart to compare interest income plotted over the past 10 years.

DDevelop a multiple-regression time-series analysis of income over the past 5 years including such factors as interest rate in the economy, size of loan portfolio, and dollar amount of new loans each year.

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Question: 3

Two major retail organizations, both publicly traded and operating in the same geographic area, have recently merged. Both are approximately the same size and have internal audit activities. Organization A has little EDI experience. Organization B has invested heavily in information technology and has EDI connections with its major vendors.The board has asked the internal auditors from both organizations to analyze risk areas that should be addressed after the merger. The chief audit executive of Organization B has suggested that the two IAAs have a planning meeting to share work programs, scope of engagement coverage, and copies of engagement communications that were delivered to their boards. Management has also suggested that the internal auditors review the compatibility of the organizations' two computer systems and control philosophy for individual store operations.The two organizations agree to share data on store operations. The data reveal that three stores in Organization A are characterized by significantly lower gross margins, higher-than-average sales volume, and higher levels of employee bonuses. The three stores are part of a set of six that are managed by a relatively new section manager. In addition, the store managers of the three stores are also relatively new. The most likely cause of the observed data is

AThe relative inexperience of the store managers.

BProblems with employee training and employee ability to meet customer needs.

CFraudulent activity whereby goods are taken from the stores, thus resulting in the lower gross margins.

DPromotional activities that offer large discounts coupled with the payment of bonuses to employees who reach targeted sales goals.

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Question: 4

A rental car organization's fleet maintenance division uses a different code for each type of inventory transaction. A daily summary report lists activity by part number and transaction code. The report is reconciled by the parts room supervisor to the day's material request forms and is then forwarded to the fleet manager for approval. The use of transaction codes provides the fleet manager with information concerning the types of inventory activities. The internal auditor is considering an analytical review of transaction codes and materials used. The objective of this review is to

AProvide information about overstocked inventory items.

BReveal shortages in perpetual inventory records.

CDetermine whether inventory items are properly valued.

DIdentify possible material lost due to employee theft.

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Question: 5

An internal auditor traces individual time tickets to the payroll cost distribution, and also traces totals from the payroll cost distribution to the various work-in-process accounts. If no exceptions are found, this procedure constitutes information indicating that

AThe work-in-process accounts have not been padded by the inclusion of unsupported payroll costs.

BIndividual time tickets have been properly authorized.

CPayroll costs have been accurately distributed to work-in-process accounts.

DEmployees have been paid only for time actually worked.

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IIA IIA-CIA-Part2 Quiz:160 Topic:6 Questions:796-800