AUDIT - EXAM 2 (CIA).FINAL TEST 2026\2027.
Internal control can provide only reasonable assurance that the organization's objectives will be
met efficiently and effectively. One factor limiting the likelihood of achieving those objectives is
that
A) The internal auditor's primary responsibility is the detection of fraud.
B) The board is active and independent.
C) Management monitors performance.
D) The cost of internal control should not exceed its benefits.
D) The cost of internal control should not exceed its benefits.
An internal auditor is examining inventory control in a merchandising division with annual sales of
US $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of
purchases do not reach inventory because of breakage and employee theft. Adding certain
controls costing US $35,000 annually could reduce these losses to .5% of purchases. Should the
controls be recommended?
A) No, because the cost of the added controls exceeds the projected savings.
B) Yes, regardless of cost-benefit considerations, because the situation involves employee theft.
C) Yes, because the ideal system of internal control is the most extensive one.
D) Yes, because the projected saving exceeds the cost of the added controls.
A) No, because the cost of the added controls exceeds the projected savings.
The procedure requiring preparation of a prelisting of incoming cash receipts, with copies of the
prelist going to the cashier and to accounting, is an example of which type of control?
A) Detective.
B) Preventive.
C) Corrective.
D) Directive.
B) Preventive.
An adequate and effective system of internal control provides reasonable assurance that
objectives will be achieved. Controls may be preventive, detective, or directive. Which of the
following is a detective control for the procurement function?
A) Goods received are counted and compared with quantities on purchase order and receiving
,AUDIT - EXAM 2 (CIA).FINAL TEST 2026\2027.
reports.
B) Review and approval of each procurement action is required prior to the final issuance of a
purchase order.
C) Prenumbered standard purchase order forms include all relevant terms required to be used in
all applicable instances.
D) The procurement function is organizationally separate from receiving, disbursing, and
accounting.
A) Goods received are counted and compared with quantities on purchase order and receiving reports.
Of the following, the controls that are often difficult for internal auditors to evaluate because of
the lack of criteria or standards are
A) Operating controls.
B) Financial controls.
C) Preventive controls.
D) Corrective controls.
A) Operating controls.
The requirement that purchases be made from suppliers on an approved vendor list is an example
of a
A) Monitoring control.
B) Detective control.
C) Preventive control.
D) Corrective control.
C) Preventive control.
According to COSO, which of the following is the most effective method to transmit a message of
ethical behavior throughout an organization?
A) Removing pressures to meet unrealistic targets, particularly for short-term results.
B) Demonstrating appropriate behavior by example.
C) Specifying the competence levels for every job in an organization and translating those levels
to requisite knowledge and skills.
D) Strengthening internal audit's ability to deter and report improper behavior.
B) Demonstrating appropriate behavior by example.
An organization's directors, management, and internal auditors all have important roles in
creating a proper control environment. Senior management is primarily responsible for
, AUDIT - EXAM 2 (CIA).FINAL TEST 2026\2027.
A) Implementing and monitoring controls designed by the board of directors.
B) Establishing a proper ethical culture.
C) Designing and operating a control system that provides reasonable assurance that established
objectives and goals will be achieved.
D) Ensuring that external and internal auditors adequately monitor the control environment.
B) Establishing a proper ethical culture.
According to The IIA Glossary appended to the Standards, which of the following are most directly
designed to ensure that risks are contained?
A) Risk management processes.
B) Control processes.
C) Governance processes.
D) Internal audit activities.
B) Control processes.
The primary responsibility for establishing and maintaining internal control rests with
A) Management.
B) The controller or the treasurer.
C) The external auditors.
D) The internal auditors.
A) Management.
Which of the following is most likely to be performed in the control activities component of
internal control?
A) Assessing fraud risks.
B) Information processing.
C) Ongoing evaluations.
D) Segregation of duties.
D) Segregation of duties.
Effective internal control
A) Assists with the safeguarding of assets.
B) Is unaffected by changing circumstances and conditions encountered by the organization.
C) Eliminates risk and potential loss to the organization.
D) Cannot be circumvented by management.
Internal control can provide only reasonable assurance that the organization's objectives will be
met efficiently and effectively. One factor limiting the likelihood of achieving those objectives is
that
A) The internal auditor's primary responsibility is the detection of fraud.
B) The board is active and independent.
C) Management monitors performance.
D) The cost of internal control should not exceed its benefits.
D) The cost of internal control should not exceed its benefits.
An internal auditor is examining inventory control in a merchandising division with annual sales of
US $3,000,000 and a 40% gross profit rate. Tests show that 2% of the monetary amount of
purchases do not reach inventory because of breakage and employee theft. Adding certain
controls costing US $35,000 annually could reduce these losses to .5% of purchases. Should the
controls be recommended?
A) No, because the cost of the added controls exceeds the projected savings.
B) Yes, regardless of cost-benefit considerations, because the situation involves employee theft.
C) Yes, because the ideal system of internal control is the most extensive one.
D) Yes, because the projected saving exceeds the cost of the added controls.
A) No, because the cost of the added controls exceeds the projected savings.
The procedure requiring preparation of a prelisting of incoming cash receipts, with copies of the
prelist going to the cashier and to accounting, is an example of which type of control?
A) Detective.
B) Preventive.
C) Corrective.
D) Directive.
B) Preventive.
An adequate and effective system of internal control provides reasonable assurance that
objectives will be achieved. Controls may be preventive, detective, or directive. Which of the
following is a detective control for the procurement function?
A) Goods received are counted and compared with quantities on purchase order and receiving
,AUDIT - EXAM 2 (CIA).FINAL TEST 2026\2027.
reports.
B) Review and approval of each procurement action is required prior to the final issuance of a
purchase order.
C) Prenumbered standard purchase order forms include all relevant terms required to be used in
all applicable instances.
D) The procurement function is organizationally separate from receiving, disbursing, and
accounting.
A) Goods received are counted and compared with quantities on purchase order and receiving reports.
Of the following, the controls that are often difficult for internal auditors to evaluate because of
the lack of criteria or standards are
A) Operating controls.
B) Financial controls.
C) Preventive controls.
D) Corrective controls.
A) Operating controls.
The requirement that purchases be made from suppliers on an approved vendor list is an example
of a
A) Monitoring control.
B) Detective control.
C) Preventive control.
D) Corrective control.
C) Preventive control.
According to COSO, which of the following is the most effective method to transmit a message of
ethical behavior throughout an organization?
A) Removing pressures to meet unrealistic targets, particularly for short-term results.
B) Demonstrating appropriate behavior by example.
C) Specifying the competence levels for every job in an organization and translating those levels
to requisite knowledge and skills.
D) Strengthening internal audit's ability to deter and report improper behavior.
B) Demonstrating appropriate behavior by example.
An organization's directors, management, and internal auditors all have important roles in
creating a proper control environment. Senior management is primarily responsible for
, AUDIT - EXAM 2 (CIA).FINAL TEST 2026\2027.
A) Implementing and monitoring controls designed by the board of directors.
B) Establishing a proper ethical culture.
C) Designing and operating a control system that provides reasonable assurance that established
objectives and goals will be achieved.
D) Ensuring that external and internal auditors adequately monitor the control environment.
B) Establishing a proper ethical culture.
According to The IIA Glossary appended to the Standards, which of the following are most directly
designed to ensure that risks are contained?
A) Risk management processes.
B) Control processes.
C) Governance processes.
D) Internal audit activities.
B) Control processes.
The primary responsibility for establishing and maintaining internal control rests with
A) Management.
B) The controller or the treasurer.
C) The external auditors.
D) The internal auditors.
A) Management.
Which of the following is most likely to be performed in the control activities component of
internal control?
A) Assessing fraud risks.
B) Information processing.
C) Ongoing evaluations.
D) Segregation of duties.
D) Segregation of duties.
Effective internal control
A) Assists with the safeguarding of assets.
B) Is unaffected by changing circumstances and conditions encountered by the organization.
C) Eliminates risk and potential loss to the organization.
D) Cannot be circumvented by management.
