A limitation of using ratio analysis in an audit engagement is that it:
A. Often uses financial information provided by management which has not been reviewed for reliability and validity.
B. Is an expensive method of testing.
C. Requires computer software in order to develop meaningful interpretations of data.
D. Is useful only when comparisons can be made across other industries.
Which of the following would cause a company's accounts receivable turnover ratio to decrease steadily over a three-year period?
A. An increase in the discount offered for early payment.
B. A more liberal credit policy.
C. Invoices provided on a weekly rather than a monthly basis.
D. Increased cash sales.
Which of the following would be the best audit procedure to use to determine if a division's unusually high sales and gross margin for November and December were the result of fraudulently recorded sales?
A. Trace a sample of shipping documents to related sales invoices to verify proper billing.
B. Confirm accounts receivable balances with customers.
C. Compare sales and gross margin totals with those of the previous ten months and the first month of the following year.
D. Use regression analysis techniques to estimate the sales and cost of goods sold for November and December.
Checklists used to assess audit risk have been criticized for all of the following reasons except:
A. Providing a false sense of security that all relevant factors are addressed.
B. Inappropriately implying equal weight to each item on the checklist.
C. Decreasing the uniformity of data acquisition.
D. Being incapable of translating the experience or sound reasoning intended to be captured by each item on the checklist.
An auditor used a questionnaire during an interview to gather information about the nature of credit sales processing. The questionnaire did not cover some pertinent information offered by the person being interviewed, and the auditor did not document the potential problems for further investigation.
The primary deficiency with the above process is that:
A. The auditor failed to consider the importance of the information offered.
B. A questionnaire was used in a situation where a structured interview should have been used.
C. Using a questionnaire precludes the auditor from documenting other information.
D. The engagement program was incomplete.
The use of standard operating procedure questionnaires in audit fieldwork can be beneficial because.
A. These questionnaires can both identify discrepancies and educate clients.
B. Standard operating procedures are essential to the effectiveness and efficiency of operations.
C. These questionnaires are more comprehensive than are other types of techniques for gathering data during fieldwork.
D. These questionnaires do not normally require prior clearance with management of the audited area.
Many questionnaires are made up of a series of different questions that use the same response categories (for example: strongly agree, agree, neither, disagree, strongly disagree). Some designs will have different groups of respondents answer alternate versions of the questionnaire that present the questions in different orders and reverse the orientation of the endpoints of the scale (for example: agree on the right and disagree on the left). The purpose of such questionnaire variations is to:
A. Eliminate intentional misrepresentations.
B. Reduce the effects of pattern response tendencies.
C. Test whether respondents are reading the questionnaire.
D. Make it possible to get information about more than one population parameter using the same questions.
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. Attributes sampling.
B. Discovery sampling.
C. Probability-proportional-to-size sampling.
D. Mean-per-unit sampling.
Monetary-unit sampling is most useful when the internal auditor:
A. Is testing the accounts payable balance.
B. Cannot cumulatively arrange the population items.
C. Expects to find several material errors in the sample.
D. Is concerned with overstatements.
If management expects 100 percent compliance with a procedure, which of the following sampling approaches would be most appropriate?
A. Attributes sampling.
B. Discovery sampling.
C. Targeted sampling.
D. Variables sampling.
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