IIA-CHAL-QISA Exam Practice Test Instant Access

Question 1

A bicycle manufacturer incurs a combination of fixed and variable costs with the production of each bicycle. Which of the following statements is true regarding these costs?

Aif the number of bicycles produced is increased by 15 percent, the variable cost per unit will increase proportionally

BThe fixed cost per unit will vary directly based on the number of bicycles produced during the production cycle.

CThe total variable cost will vary proportionally and inversely with the number of bicycles produced during a production run.

Dif the number of bicycles produced is increased by 30 percent, the fixed cost per unit will decline.

Answer : D

Introduction:

Understanding cost behavior is crucial in managing production and financial performance in manufacturing.

Cost Characteristics:

Fixed costs remain constant in total but vary per unit with changes in production volume.

Variable costs vary directly with production volume but remain constant per unit.

Options Analysis:

Option A: Variable costs per unit remain constant regardless of production volume.

Option B: Fixed costs per unit decrease as production volume increases, not directly.

Option C: Total variable costs vary directly with production volume, not inversely.

Option D: Fixed costs per unit will decline as the number of units produced increases due to the spreading of fixed costs over a larger number of units.

Conclusion:

When production increases by 30%, the fixed cost per unit will decline as the same total fixed cost is allocated over a greater number of units.

Cost Accounting Standards and Practices .

Question 2

Which of the following offers the best evidence that the internal audit activity has achieved organizational independence?

AAn independent third party has assessed the organization's system of internal controls to be adequate and effective.

BThe chief audit executive reports both functionally and administratively to the CEO

CThe internal audit charter is drafted properly and approved by the appropriate parties.

DThe mission statement and strategy of the internal audit activity demonstrates alignment to organizational objectives

Answer : C

The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. It is crucial for establishing the internal audit function's independence and objectivity. When the internal audit charter is properly drafted and approved by the appropriate parties, it provides a clear mandate for the internal audit activity and sets the foundation for its operations. This ensures that the internal audit activity can function independently without undue influence from management.

Question 3

An investor has acquired an organization that has a dominant position in a mature, slow-growth industry and consistently creates positive financial income Which of the following terms would the investor most likely label this investment in her portfolio?

AA star.

BA cash cow.

CA question mark.

DA dog

Answer : B

Investment Portfolio Terms:

Cash Cow: A business unit with a dominant market position in a mature, slow-growth industry that generates consistent positive cash flow and profits. It requires little investment to maintain its market position and provides funds for other investments.

Star: A business unit with a high market share in a fast-growing industry. It requires significant investment to maintain its position and support further growth.

Question Mark: A business unit with a low market share in a high-growth industry. It requires substantial investment to increase market share.

Dog: A business unit with a low market share in a slow-growth industry, generating minimal profit or loss.

Characteristics of a Cash Cow:

Dominant Position: The acquired organization has a strong market position.

Mature Industry: The industry is mature with slow growth.

Positive Financial Income: Consistently generates positive cash flow and profits, requiring minimal investment.

Investment Strategy:

Portfolio Management: Investors typically use cash cows to fund other investments, maintaining a balanced portfolio that supports growth while providing stable returns.

Reference:

The term 'cash cow' accurately describes an organization with a dominant position in a mature, slow-growth industry that consistently generates positive financial income, fitting the investor's description.

Question 4

With regard to project management, which of the following statements about project crashing is true?

AIt leads to an increase in risk and often results in rework.

BIt is an optimization technique where activities are performed in parallel rather than sequentially

CIt involves a revaluation of project requirements and/or scope.

DIt is a compression technique in which resources are added to the project

Answer : D

Project crashing is a schedule compression technique used in project management to shorten the project duration without changing the project scope. It involves adding additional resources to critical path activities to complete them faster. This method can lead to increased costs but aims to reduce the project timeline effectively. Crashing is often used when project deadlines are tight and time is more critical than budget.

Question 5

Which of the following is applicable to both a job order cost system and a process cost system'?

ATotal manufacturing costs are determined at the end of each period.

BCosts are summarized in a production cost report for each department

CThree manufacturing cost elements are tracked: direct materials, direct labor, and manufacturing overhead.

DThe unit cost can be calculated by dividing the total manufacturing costs for the period by the units produced during the period.

Answer : C

Both job order cost systems and process cost systems track three manufacturing cost elements: direct materials, direct labor, and manufacturing overhead. These cost elements are essential in calculating the total production cost and determining the cost per unit.

Direct Materials: The raw materials directly used in the production of goods.

Direct Labor: The wages of workers who are directly involved in manufacturing the products.

Manufacturing Overhead: Indirect costs associated with production, such as utilities, maintenance, and depreciation of equipment.

'Cost Accounting: A Managerial Emphasis,' which details the tracking of manufacturing costs in different costing systems .

Question 6

While conducting an engagement in the procurement department, the internal auditor noticed that the department head's travel reports showed minor travel expenses, and there were no charges for hotels, meals, or transportation However, the auditor knew that the department head frequently traveled worldwide to meet with suppliers and visit their production sites. Which of the following would be the most appropriate next step for the auditor?

AThe auditor should make a note of the issue for follow-up when employee travel expenses are audited.

BThe auditor should analyze trends and changes among the organization's suppliers over the past few years.

CThe auditor should investigate whether there are any special arrangements regarding senior management travel.

DThe auditor should analyze the list of destinations the department head visited to estimate typical costs

Answer : C

Identifying the Anomaly: The internal auditor has identified a discrepancy in the travel expenses of the department head, who frequently travels yet reports minimal expenses. This raises a red flag that needs further investigation.

Understanding the Context: It is important to determine if there are legitimate reasons for the discrepancy, such as special arrangements made for senior management travel, which could explain the absence of typical travel expenses like hotels, meals, and transportation.

Appropriate Next Step: Investigating whether there are any special arrangements for senior management travel (Option C) is the most logical next step. This helps in understanding the context and validating whether the discrepancy is justified or indicative of potential issues such as fraud or misreporting.

Other Options Considered:

Option A: Making a note for future follow-up is not proactive and delays addressing a potential issue.

Option B: Analyzing supplier trends, while useful, does not directly address the travel expense anomaly.

Option D: Estimating costs based on destinations can provide insights but does not explain potential legitimate arrangements made by the organization.

Conclusion: Investigating special arrangements regarding senior management travel (Option C) is the most appropriate step to understand the discrepancy and ensure there are no irregularities.

Question 7

An organization does not have a formal risk management function. According to the Standards, which of the following are conditions where the internal audit activity may provide risk management consulting?

1. There is a clear strategy and timeline to migrate risk management responsibility back to management.

2. The internal audit activity has the final approval on any risk management decisions.

3. The internal audit activity gives objective assurance on all parts of the risk management framework for which it is responsible.

4. The nature of services provided to the organization is documented in the internal audit charter.

A1 and 4 only.

B2 and 4 only.

C1 and 3 only.

D2 and 3 only.

Answer : A

Conditions for Risk Management Consulting by Internal Audit:

Strategy and Timeline for Migration: The internal audit activity can provide risk management consulting if there is a clear strategy and timeline to transfer risk management responsibilities back to management. This ensures a temporary arrangement with a defined end goal.

Documentation in Internal Audit Charter: The nature of services provided, including risk management consulting, must be documented in the internal audit charter. This formalizes the internal audit activity's role and ensures transparency and alignment with organizational governance.

IIA Standards:

Standard 1130 -- Impairment to Independence or Objectivity: When internal auditors perform risk management roles, it must not impair their objectivity. Clear documentation and a transition strategy mitigate potential conflicts of interest.

Standard 2050 -- Coordination and Reliance: Internal auditors must coordinate with other assurance providers, ensuring roles are clear and documented.

Inappropriate Conditions:

Final Approval on Risk Management Decisions: The internal audit activity should not have final approval on risk management decisions, as this impairs independence and objectivity.

Objective Assurance on Own Work: Providing objective assurance on parts of the risk management framework for which the internal audit activity is responsible creates a conflict of interest.

Reference:

The conditions under which internal audit can provide risk management consulting must include a clear strategy for migrating responsibilities back to management and documentation in the internal audit charter to ensure transparency and avoid conflicts of interest.

IIA-CHAL-QISA Qualified Info Systems Auditor CIA Challenge Exam Practice Test