Certified Internal Auditor

Answers to Sample Questions

I.
1. Which of the following actions would be a violation of auditor independence?
a. Continuing on an audit assignment at a division for which the auditor will soon be responsible as the
result of a promotion.
b. Reducing the scope of an engagement due to budget restrictions.
c. Participating on a task force which recommends standards of control for a new distribution sstem.
d. Reviewing a purchasing agent!s contract drafts prior to their e"ecution.
#. An auditor$ nearl finished with an engagement$ discovers that the director of marketing has a gambling
habit. %he gambling issue is not directl related to the e"isting engagement and there is pressure to
complete the current engagement. %he auditor notes the problem and forwards the information to the chief
audit e"ecutive but performs no further follow&up. %he auditor's actions would(
a. )e in violation of the IIA Code of *thics for withholding meaningful information.
b. )e in violation of the +tandards because the auditor did not properl follow up on a red flag that might
indicate the e"istence of fraud.
c. ,ot be in violation of either the IIA Code of *thics or +tandards.
d. )oth a and b.
-. In assessing organi.ational risk in a manufacturing environment$ which of the following would have the
most long&range impact on the organi.ation?
a. Production scheduling.
b. Inventor polic.
c. Product /ualit.
d. Advertising budget.
0. %he internal audit activit of a large corporation has established its operating plan and budget for the
coming ear. %he operating plan is restricted to the following categories( a prioriti.ed listing of all
engagements$ staffing$ a detailed e"pense budget$ and the commencement date of each engagement.
Which of the following best describes the ma1or deficienc of this operating plan?
a. Re/uests b management for special pro1ects are not considered.
b. 2pportunities to achieve operating benefits are ignored.
c. 3easurabilit criteria and targeted dates of completion are not provided.
d. 4nowledge$ skills$ and disciplines re/uired to perform work are ignored.
5. Which of the following best describes an internal auditor!s purpose in reviewing the organi.ation's
e"isting risk management$ control$ and governance processes?
a. %o help determine the nature$ timing$ and e"tent of tests necessar to achieve engagement ob1ectives.
b. %o ensure that weaknesses in the internal control sstem are corrected.
c. %o provide reasonable assurance that the processes will enable the organi.ation!s ob1ectives and goals
to be met efficientl and
economicall.
d. %o determine whether the processes ensure that the accounting records are correct and that financial
statements are fairl stated.
6. Compan A has a formal corporate code of ethics while compan ) does not. %he code of ethics covers
such things as purchase agreements and relationships with vendors as well as man other issues to
guide individual behavior within the compan. Which of the following statements can be logicall inferred?
I. Compan A e"hibits a higher standard of ethical behavior than does compan ).
II. Compan A has established ob1ective criteria b which an emploee!s actions can be evaluated.
III. %he absence of a formal corporate code of ethics in compan ) would prevent a successful audit of
ethical behavior in that compan.
a. II onl.
b. III onl.
c. I and II onl.
d. II and III onl.
7. %he function of the chief risk officer 8CR29 is most effective when the CR2(
a. 3anages risk as a member of senior management.
b. +hares the management of risk with line management.
c. +hares the management of risk with the chief audit e"ecutive.
d. 3onitors risk as part of the enterprise risk management team.
1
:. %he control that would most likel ensure that paroll checks are written onl for authori.ed amounts is
to(
a. Conduct periodic floor verification of emploees on the paroll.
b. Re/uire the return of undelivered checks to the cashier.
c. Re/uire supervisor approval of emploee time cards.
d. Periodicall witness the distribution of paroll checks.
;. An auditor$ e"perienced in air&/ualit issues$ discovered a significant lack of knowledge about legal
re/uirements for controlling air emissions while interviewing the manager of the environmental$ health$
and safet 8*<+9 department. %he auditor should(
a. Alter the scope of the engagement to focus on activities associated with air emissions.
b. +hare e"tensive personal knowledge with the *<+ manager.
c. %ake note of the weakness and direct additional /uestions to determine the potential effect of the lack of
knowledge.
d. Report potential violations in this area to the appropriate regulator agenc.
1=. As a means of controlling pro1ects and avoiding time&budget overruns$ decisions to revise time
budgets for an audit engagement should normall be made(
a. Immediatel after completing the preliminar surve.
b. When a significant deficienc has been substantiated.
c. When ine"perienced audit staff members are assigned to an engagement.
d. Immediatel after e"panding tests to establish reliabilit of observations.
1. Solution = A
A. Correct. An auditor who has been promoted to an operating department should not continue on an
audit of that department. According to Practice Advisor 11-=&1.1$ the chief audit e"ecutive should
reassign auditors if a conflict of interest or bias ma be reasonabl inferred.
). Incorrect. )udget restrictions do not constitute a violation of an auditor!s independence.
C. Incorrect. Practice Advisor 11-=.A1&1.0 states that an auditor ma recommend standards of control for
new sstems. <owever$ designing$ installing$ or operating such sstems might impair ob1ectivit.
>. Incorrect. An auditor ma review contracts prior to their e"ecution
2. Solution = C
A. Incorrect. %he auditor is not withholding information because the information has been forwarded to the
chief audit e"ecutive. %he information ma be useful in a subse/uent engagement in the marketing area.
). Incorrect. %he auditor has documented a red flag that ma be important in a subse/uent engagement.
%his does not violate the +tandards.
C. Correct. %here is no violation of either the Code of *thics or the Standards. +ee answers ?a? and ?b?.
>. Incorrect. +ee answers ?a? and ?b?.
3. Solution = C
A. Incorrect. %his would seldom have a long&range impact.
). Incorrect. %his would rarel be a long&range concern.
C. Correct. %his would be a long&range planning topic because it affects market positioning.
>. Incorrect. %his is certainl a concern$ but has less long&range impact than product /ualit.
4. Solution = C
A. Incorrect. %his factor would be considered in prioriti.ing the engagements.
). Incorrect. ) reviewing staffing$ prioriti.ation of engagements$ and e"penses$ operating benefits can be
achieved.
C. Correct. Practice Advisor #=1=&1.# states that the goals of the internal audit activit$ as stated in
specific operating plans and budgets$ should include measurement criteria and targeted dates of
accomplishment.
>. Incorrect. +taffing for each engagement would include this consideration.
5. Solution = C
A. Incorrect. %his is a purpose of audit planning.
). Incorrect. Correcting control weaknesses is a function of management$ not of the internal auditor.
C. Correct. %his is the purpose stated in Practice Advisor #1==&1.1.
>. Incorrect. %his is a basic ob1ective from a financial accounting and auditing perspective$ but is not
broad enough to cover the internal auditor!s entire purpose for review.
2
6. Solution = A (II only)
I. Incorrect. %he e"istence of a corporate code of ethics$ b itself$ does not ensure higher standards of
ethical behavior. It must be complemented b follow&up policies and monitoring activities to ensure
adherence to the code.
II. Correct. A formali.ed corporate code of ethics presents ob1ective criteria b which actions can be
evaluated and would thus serve as criteria against which activities could be evaluated.
III. Incorrect. +tandards which would influence individual actions can occur in other places than the
corporate code of ethics. @or e"ample$ there ma be defined policies regarding purchasing activities that
ma serve the same purpose as a code of ethics. %hese policies also serve as criteria against which
activities ma be evaluated.
. Solution = !
A. Incorrect. +enior management has an oversight role in risk management.
). Incorrect. %he risk knowledge at the line level would be specific onl to that area of the organi.ation.
C. Incorrect. %he chief audit e"ecutive 8CA*9 does not have the responsibilit for managing risk.
>. Correct. %he chief risk officer is most effective when supported b a specific team with the necessar
e"pertise and e"perience related to organi.ational risk.
". Solution = C
A. Incorrect. *mploees ma be properl included on paroll$ but the amounts paid ma be unauthori.ed.
). Incorrect. Andelivered checks provide no evidence regarding the validit of the amounts.
C. Correct. %he emploee!s supervisor would be in the best position to ensure pament of the proper
amount.
>. Incorrect. Witnessing a paroll distribution would not assure that amounts paid are authori.ed.
#. Solution = C
A. Incorrect. It is important to maintain a broad scope and not reduce scope prematurel.
). Incorrect. While the auditor ma be able to contribute to the environmental$ health$ and safet 8*<+9
manager!s knowledge of pertinent air&/ualit matters$ it is much more important during this phase of the
engagement to learn what the manager does.
C. Correct. %he auditor should ensure that the fieldwork is designed to identif potential instances of
noncompliance and$ in the closing conference$ should recommend additional training for the *<+
manager.
>. Incorrect. It is not appropriate for an auditor to report violations or potential violations to regulator
agencies. +uch matters are the responsibilit of compan counsel.
1$. Solution = A
A. Correct. %ime budgets should be appraised for revision after the preliminar surve and preparation of
the engagement program.
). Incorrect. When a deficienc has been substantiated$ no further audit work is re/uired.
C. Incorrect. %he assignment of ine"perienced staff should have no effect on the time budget.
>. Incorrect. *"panded tests should have no effect on the time budgetB the budget would have alread
been e"panded as necessar.
II.
1. Which of the following best describes an auditor's responsibilit after noting some indicators of fraud?
a. *"pand activities to determine whether an investigation is warranted.
b. Report the possibilit of fraud to senior management and ask how to proceed.
c. Consult with e"ternal legal counsel to determine the course of action to be taken.
d. Report the matter to the audit committee and re/uest funding for outside specialists to help investigate
the possible fraud.
#. >uring a review of purchasing operations$ an auditor found that procedures in use did not agree with
stated compan procedures. <owever$ audit tests revealed that the procedures in use represented an
increase in efficienc and a decrease in processing time$ without a discernible decrease in control. %he
auditor should(
a. Report the lack of adherence to documented procedures as an operational deficienc.
b. >evelop a flowchart of the new procedures and include it in the report to management.
c. Report the change and suggest that the change in procedures be documented.
d. +uspend the completion of the engagement until the engagement client documents the new
procedures.
3
-. Which phrase best describes a control&based control self&assessment process?
a. *valuating$ updating$ and streamlining selected control processes.
b. *"amining how well controls are working in managing ke risks.
c. Anal.ing the gap between control design and control frameworks.
d. >etermining the cost&effectiveness of controls.
0. A hospital is evaluating the purchase of software to integrate a new cost accounting sstem with its
e"isting financial accounting sstem. Which of the following describes the most effective wa for the
internal audit activit to be involved in the procurement process?
a. %he internal audit activit evaluates whether performance specifications are consistent with the
hospital!s needs.
b. %he internal audit activit evaluates whether the application design meets internal development and
documentation standards.
c. %he internal audit activit determines whether the prototped model is validated and reviewed with
users before production use begins.
d. %he internal audit activit has no involvement since the sstem has alread been developed e"ternall.
5. 2ne of the audit ob1ectives for a manufacturing compan is to verif that all rework is reviewed b the
production engineer. Which of the following audit procedures would provide the best evidence for meeting
this ob1ective?
a. %race a sample of entries in the rework log to remedial action taken.
b. %race a sample of rework orders to entries in the rework log.
c. %race a sample of entries in the review log to rework orders.
d. %race a sample of rework orders to entries in the review log.
6. Which of the following statements best describes the internal audit function's responsibilit for follow&up
activities related to a previous engagement?
a. Internal auditors should determine if corrective action has been taken and is achieving the desired
results or if management has assumed the risk of not taking the corrective action.
b. Internal auditors should determine if management has initiated corrective action$ but the have no
responsibilit to determine if the action is achieving the desired results. %hat determination is
management!s responsibilit.
c. %he chief audit e"ecutive is responsible for scheduling follow&up activities onl if directed to do so b
senior management or the audit committee. 2therwise$ follow&up is entirel discretionar.
d. ,one of the above.
7. What computer&assisted audit techni/ue would an auditor use to identif a fictitious or terminated
emploee?
a. Parallel simulation of paroll calculations.
b. *"ception testing for paroll deductions.
c. Recalculations of net pa.
d. %agging and tracing of paroll ta"&rate changes
:. Which of the following would indicate that fraud ma be taking place in a marketing department?
a. %here is no documentation for some fairl large e"penditures made to a new vendor.
b. A manager appears to be living a lifestle that is in e"cess of what could be provided b a marketing
manager!s salar.
c. %he control environment can best be described as ?ver loose.? <owever$ this attitude is 1ustified b
management on the grounds that it is needed for creativit.
d. All of the above.
;. A bank internal auditor wishes to determine whether all loans are supported b sufficient collateral$
properl aged regarding current paments$ and accuratel categori.ed as current or noncurrent. %he best
audit procedure to accomplish these ob1ectives would be to(
a. Ase generali.ed audit software to read the total loan file$ age the file b last pament due$ and e"tract a
statistical sample stratified b the current and aged population. *"amine each loan selected for proper
collaterali.ation and aging.
b. +elect a block sample of all loans in e"cess of a specified dollar limit and determine if the are current
and properl categori.ed. @or each loan approved$ verif aging and categori.ation.
c. +elect a discover sample of all loan applications to determine whether each application contains a
statement of collateral.
d. +elect a sample of paments made on the loan portfolio and trace them to loans to see if the paments
are properl applied. @or each loan identified$ e"amine the loan application to determine that the loan has
proper collaterali.ation.
4
1=. When using a rational decision&making process$ the ne"t step after definition of the problem is(
a. >eveloping alternative solutions.
b. Identifing acceptable levels of risk.
c. Recogni.ing the gap between realit and e"pectations.
d. Confirming hpotheses.
&&&&&&&&&&&&&&&&&&&&&&&&
1. Solution = A
A. Correct. %his is the appropriate action according to Practice Advisor 1#1=.A#&1.1-.
). Incorrect. %he auditor should first e"pand work to determine the e"istence of fraud before reporting the
matter to senior management. At this point$ the auditor onl has suspicions of fraud$ given the red flags.
3ore work should be performed before consulting with management$ e"ternal legal counsel$ or the audit
committee.
C. Incorrect. +ee answer ?b?.
>. Incorrect. +ee answer ?b?.
2. Solution = C
A. Incorrect. %he procedures do not represent a deficienc since efficienc has improved without
diminishing control.
). Incorrect. A flowchart is not the best form of documentation because it does not address efficienc.
C. Correct. %his represents a change in process that should be brought to the attention of management
and documented.
>. Incorrect. %he engagement should be completed.
3. Solution = %
A. Incorrect. %his phrase best describes a process&based approach$ although control processes are not
the onl processes reviewed in this approach.
). Correct. A control&based approach concentrates on how well controls are working to manage risks.
%he ke risks and controls are generall identified before the workshop.
C. Incorrect. While control design could be compared to control frameworks in a control&based approach$
this does not ade/uatel describe the process. A control&based process is more likel to e"amine the gap
between control design and control effectiveness in managing risks.
>. Incorrect. Cost&effectiveness could be discussed in a control&based control self&assessment workshop$
but it is not the primar focus of this process.
4. Solution = A
A. Correct. %he internal audit activit should be involved to ensure the e"istence of performance
specifications consistent with the hospital!s needs because incomplete or erroneous specifications ma
result in the ac/uisition of unusable software or unenforceable contract terms with the software vendor.
). Incorrect. %he internal audit activit cannot ensure that the application design meets internal
development and documentation standards because an e"ternal group with different standards has
alread developed the sstem.
C. Incorrect. %here is no prototpe in procurement of proprietar software.
>. Incorrect. @or e"ternall developed sstems$ the onl omitted or abbreviated sstems development life
ccle step is programming of the actual sstem. All other phases remain$ even if the are modified.
5. Solution& = !
A. Incorrect. %his procedure onl considers the rework 1obs that re/uire remedial action. ,ot all rework
orders reviewed b the engineer will re/uire remedial action.
). Incorrect. %his test would be useful for verifing that all rework is recorded in the rework log but
provides no evidence that the work was reviewed.
C. Incorrect. +ince this procedure begins with onl rework 1obs that were reviewed$ it would not be useful
in finding 1obs that were not reviewed.
>. Correct. %he best evidence of all work performed is the set of rework order forms and the best
evidence of what was reviewed are the entries in the review log. %o determine whether all rework was
reviewed$ the auditor needs to start with the population of all the rework that was performed 8that is$
rework order forms9 and trace to evidence that it was reviewed 8that is$ review log9.
6. Solution = A
A. Correct. %his is stated in Practice Advisor #5==.A1&1.
). Incorrect. %his contradicts answer ?a? and Practice Advisor #5==.A1&1.
C. Incorrect. Implementation +tandard #5==.A1 states that follow&up action should take place. It is not
5
dependent on directives of either management or the audit committee.
>. Incorrect. +ee answer ?a?.
. Solution = %
A. Incorrect. In a parallel simulation$ data that were processed b the engagement client!s sstem are
reprocessed through the auditor!s program to determine if the output obtained matches the output
generated b the client!s sstem. %his techni/ue might identif problems with the client!s processing but
would not identif a fictitious or terminated emploee.
). Correct. %his tpe of computer&assisted audit techni/ue 8CAA%9 program can identif emploees who
have no deductions. %his is important because fictitious or terminated emploees will generall not have
an deductions.
C. Incorrect. A CAA% program can recalculate amounts such as gross pa$ net pa$ ta"es and other
deductions$ and accumulated or used leave times. %hese recalculations can help determine if the paroll
program is operating correctl or if emploee files have been altered$ but would not identif a fictitious or
terminated emploee.
>. Incorrect. In this tpe of CAA% program$ certain actual transactions are ?tagged$? and as the proceed
through the sstem$ a data file is created that traces the processing through the sstem and permits an
auditor to subse/uentl review that processing. %his would not$ however$ identif a fictitious or terminated
emploee.
". Solution = !
A. Incorrect. %his is considered a potential fraud smptom$ but so are the other items.
). Incorrect. +ee answer ?a?.
C. Incorrect. +ee answer ?a?.
>. Correct. Ansupported transactions$ lavish lifestles$ and weak control environments are all considered
fraud smptoms that should heighten the auditor!s awareness of potential fraud.
#. Solution& = A
A. Correct. %his is the best procedure because it takes a sample from the total loan file and tests to
determine that the loan is properl categori.ed as well as properl collaterali.ed and aged.
). Incorrect. %his sample onl deals with large dollar items and does not test for proper collaterali.ation.
C. Incorrect. %his is an inefficient audit procedure because it samples from loan applications$ not loans
approved.
>. Incorrect. %his would be an ineffective procedure because it is based onl on loans for which paments
are currentl being made. It does not include loans that should have been categori.ed differentl because
paments are not being made.
1$. Solution = %
A. Incorrect. +ee answer ?b?.
). Correct. %he rational decision&making process involves(
&Recogni.ing the gap between realit and e"pectations 8?c?9.
&>efining the problem 8given in the stem9.
&*valuating the level of acceptable risk associated with a particular decision 8?b?9.
&+earching for and evaluating solutions to the problem 8?a?9.
&Choosing a solution.
&Implementing the solution and measuring results.
C. Incorrect. +ee answer ?b?.
>. Incorrect. +ee answer ?b?.
III.
1. All of the following are useful for forecasting the needed level of inventor e"cept(
a. 4nowledge of the behavior of business ccles.
b. Internal accounting allocations of costs to different segments of the compan.
c. Information about seasonal variations in demand.
d. *conometric modeling.
#. An appropriate techni/ue for planning and controlling manufacturing inventories$ such as raw materials$
components$ and sub&assemblies$ whose demand depends on the level of production is(
a. 3aterials re/uirements planning.
b. Regression analsis.
c. Capital budgeting.
d. Cinear programming.
6
-. Which of the following is an e"ample of a contingent liabilit?
a. A retail store in a shopping mall pas the lessor a minimum monthl rent plus an agreed&upon
percentage of sales.
b. A compan is refusing to pa the invoice for the annual audit because it seems higher than the amount
agreed upon with the public accounting firm!s partner.
c. A compan accrues income ta" paable in its interim financial statements.
d. A lessee agrees to reimburse a lessor for a shortfall in the residual value of an asset under lease.
0. If bonds are sold at a discount and the effective interest method of amorti.ation is used$ interest
e"pense will(
a. Increase from one period to another.
b. Remain constant from one period to another.
c. */ual the cash interest pament each period.
d. )e less than the cash interest pament each period.
5. Which of the following is a product cost for a manufacturing compan?
a. Insurance on the corporate head/uarters building.
b. Propert ta"es on a factor.
c. >epreciation on a salesperson!s vehicle.
d. %he salar of a sales manager.
6. Residual income is often preferred over return on investment 8R2I9 as a performance evaluation
because(
a. Residual income is a measure over time while R2I represents the results for a single time period.
b. Residual income concentrates on ma"imi.ing absolute dollars of income rather than a percentage
return as with R2I.
c. %he imputed interest rate used in calculating residual income is more easil derived than the target rate
that is compared to the calculated R2I.
d. Average investment is emploed with residual income while ear&end investment is emploed with R2I.
7. Which of the following is a tool of monetar polic that a nation's central bank could use to stabili.e the
econom during an inflationar period?
a. +elling government securities.
b. Cowering bank reserve re/uirements.
c. Cowering bank discount rates.
d. *ncouraging higher ta" rates.
:. %emporar and permanent differences between ta"able income and pre&ta" financial income differ in
that(
a. %emporar differences do not give rise to future ta"able or deductible amounts.
b. 2nl permanent differences have deferred ta" conse/uences.
c. 2nl temporar differences have deferred ta" conse/uences.
d. %emporar differences include items that enter into pre&ta" financial income but never into ta"able
income.
;. 3inimi.ing the likelihood of unauthori.ed editing of production programs$ 1ob control language$ and
operating sstem software can best be accomplished b(
a. >atabase access reviews.
b. Compliance reviews.
c. Dood change control procedures.
d. *ffective network securit software.
1=. An electronics compan has decided to implement a new sstem through the use of rapid application
development techni/ues. Which of the following would be included in the development of the new
sstem?
a. >eferring the need for sstem documentation until the final modules are completed.
b. Removing pro1ect management responsibilities from the development teams.
c. Creating the sstem module b module until completed.
d. Asing ob1ect development techni/ues to minimi.e the use of previous code.
1. Solution = %
A. Incorrect. 4nowing the behavior of business ccles$ understanding seasonal variations in demand for
the product$ and using econometric models can be valuable when forecasting the re/uired purchases of
inventor.
7
). Correct. Internal accounting allocations of costs to different segments of the compan are arbitrar
assignments of alread incurred costs that do not have anthing to do with forecasting demand.
C. Incorrect. +ee answer ?a?.
>. Incorrect. +ee answer ?a?.
2. Solution = A
A. Correct. 3aterials re/uirements planning 83RP9 is a planning and controlling techni/ue for managing
dependent&demand manufacturing inventories.
). Incorrect. Regression analsis is a statistical procedure for estimating the relation between variables.
C. Incorrect. Capital budgeting is used for anal.ing and evaluating long&term capital investments.
>. Incorrect. Cinear programming is a mathematical techni/ue for ma"imi.ing or minimi.ing a given
ob1ective sub1ect to certain constraints.
3. Solution = !
A. Incorrect. %here is no uncertaint regarding the amount of rent. Rent e"pense can be accrued as sales
occur.
). Incorrect. A service was received and the compan owes an amount. %he amount is not contingent on
a future event. %he compan can accrue the amount that it e"pected the invoice to show.
C. Incorrect. As of the date of the interim financial statements$ the income ta" is paable because
earnings have occurred. %here is no uncertaint regarding the amount or the timing of the pament as of
the date of the interim financial statements.
>. Correct. %his is a guarantee. %he liabilit is contingent on the lessor not receiving the full residual
value from a third part.
4. Solution = A
A. Correct. Interest e"pense e/uals the carring value of the liabilit at the beginning of the period times
the effective interest rate. %he carring value of the liabilit e/uals the face value of the bond minus the
discount. As the discount is amorti.ed over the life of the bond$ the carring value increases.
Conse/uentl$ the interest e"pense increases over the life of the bond.
). Incorrect. +ee answer ?a?.
C. Incorrect. Interest e"pense e"ceeds the cash interest pament. %he e"cess is the amount of discount
amorti.ed each period.
>. Incorrect. +ee answer ?c?.
5. Solution = %
A. Incorrect. Insurance on the corporate head/uarters building is not a cost of production and is therefore
a period cost.
). Correct. Propert ta"es on a factor are a product cost.
C. Incorrect. >epreciation on salespersons! vehicles is not a cost of production and is therefore a period
cost.
>. Incorrect. %he salar of a sales manager is not a cost of production and is therefore a period cost.
6. Solution = %
A. Incorrect. %his is incorrect because both measures represent the results for a single time period.
). Correct. Residual income concentrates on earnings in e"cess of the minimum desired return. With
R2I$ a segment ma re1ect a pro1ect that e"ceeds the minimum return if the pro1ect will decrease the
segments overall R2I. @or e"ample$ a pro1ect that earns R2I of ##E$ which is greater than the target rate
of #=E$ might be re1ected if the segment is currentl earning #5E$ because the pro1ect will decrease the
segment!s R2I. %his would not occur with residual income.
C. Incorrect. %his is not correct because the target rate for R2I is the same as the imputed interest rate
used in the residual income calculation.
>. Incorrect. %his is incorrect because average investment should be emploed in both methods. At an
rate$ the investment base emploed for both methods would be the same.
. Solution = A
A. Correct. +elling government securities is contractional because it takes mone out of circulation.
). Incorrect. Cower reserve re/uirements would fuel the econom because banks could lend more mone.
C. Incorrect. Cower discount rates would fuel the econom because borrowing would be encouraged.
>. Incorrect. %his is fiscal polic$ not monetar polic.
". Solution = C
8
A. Incorrect. It is temporar differences that result in ta"able or deductible amounts in some future ear8s9$
when the reported amounts of assets are recovered and the reported amounts of liabilities are settled.
). Incorrect. %emporar differences have deferred ta" conse/uences while the permanent differences do
not. Permanent differences affect onl the period in which the occur.
C. Correct. Permanent differences have no deferred ta" conse/uences because the affect onl the
period in which the occur. Permanent differences include 819 items that enter into pre&ta" financial income
but never into ta"able income and 8#9 items that enter into ta"able income but never into pre&ta" financial
income. In contrast$ temporar differences result in ta"able or deductible amounts in some future ear8s9$
when the reported amounts of assets are recovered and the reported amounts of liabilities are settled.
%emporar differences therefore do have deferred ta" conse/uences while permanent differences do not.
>. Incorrect. Permanent differences$ not temporar differences$ include items that enter into pre&ta"
financial income but never into ta"able income.
#. Solution = C
A. Incorrect. @re/uentl$ the purpose of database reviews is to determine if( 819 users have gained access
to database areas for which the have no authori.ation$ and 8#9 authori.ed users can access the
database using programs that provide them with unauthori.ed privileges to view andFor change
information.
). Incorrect. %he purpose of compliance reviews is to determine whether an organi.ation has complied
with applicable internal and e"ternal procedures and regulations.
C. Correct. Program change control comprises( 819 maintaining records of change authori.ations$ code
changes$ and test resultsB 8#9 adhering to a sstems development methodolog 8including
documentation9B 8-9 authori.ing changeovers of subsidiar and head/uarters! interfacesB and 809
restricting access to authori.ed source and e"ecutable codes.
>. Incorrect. %he purpose of network securit software is to provide logical controls over the network.
1$. Solution = C
A. Incorrect. +stem documentation is not eliminated or deferred b using rapid application development.
). Incorrect. Pro1ect management involves development teams.
C. Correct. %he new sstem would be developed module b module.
>. Incorrect. 2b1ect development might not be of useB if it were$ it would increase usage of previous code.
IV.
1. Dovernments restrict trade in order to(
I. @oster national securit.
II. >evelop new industries.
III. Protect declining industries.
IG. Increase ta" revenues.
R( a. I and IG onl.
b. II and III onl.
c. I$ II and III onl.
d. II$ III$ and IG onl.
#. In the product life ccle$ the first smptom of the decline stage is a decline in a(
a. @irm!s inventor levels. b. Product!s sales. c. Product!s production cost. d. Product!s prices.
-. %he price charged on a consistent basis for a specific product would most likel be lowest during which
stage of the product life ccle?
a. Introduction stage. b. Drowth stage. c. 3aturit stage. d. >ecline stage.
0. Which of the following is a cultural aspect that tpicall makes international and intercultural
communication more difficult?
I. Cong distances between sender and receiver.
II. )od language.
III. Canguage.
IG. Attitude.
G. %ime.
a. I and III onl.
b. II and G onl.
c. I$ IG$ and G onl.
d. II$ III$ IG$ and G onl.
5. Dlobali.ation and locali.ation are shaping the competitive structure of industries. %he scenario
contributing to the most competitive environment is when(
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a. Dlobal forces dominate.
b. Cocal forces dominate.
c. 3i" of global and local forces dominate.
d. ,either global nor local forces dominate.
6. Which of the following is an e"ample of an efficienc measure?
a. %he rate of absenteeism.
b. %he goal of becoming a leading manufacturer.
c. %he number of insurance claims processed per da.
d. %he rate of customer complaints.
7. A pro1ect coordinator for a large capital pro1ect used a brainstorming session of the senior pro1ect
managers to decide how to get the pro1ect back on schedule. A disadvantage of this approach is that(
a. Responsibilit for the decision will be unclear.
b. 2nl situational factors will be addressed.
c. Creativit will be decreased.
d. >iversit of views will be decreased.
:. A production team has worked well together for several ears. <owever$ severe arguments have
recentl occurred between two members of the team$ and other members have begun to take sides$
causing a negative effect on production performance. %he best leadership stle for the manager in this
situation is(
a. >irective.
b. +upportive.
c. Participative.
d. Achievement&oriented.
;. When performing a successful negotiation$ a negotiator should(
a. Anderstand the implications for both sides if the negotiation fails.
b. Concentrate solel on the issues in the negotiation.
c. ,ot deviate from stated positions.
d. >epend on the initial research prepared for the negotiation.
1=. Which of the following statements regarding approaches to conflict resolution is correct?
a. @orcing is a stle of managing conflict where the relationship is given more importance than individual
goals$ and goals are conceded in order to preserve relationships.
b. Withdrawing is a stle of managing conflict where personal goals and relationships are relin/uished. It is
regarded as a temporar solution because the problem and conflict continue to reoccur.
c. +moothing occurs when goals are highl important while the relationship is of minor importance. Doals
are achieved at an cost.
d. Compromising highl values goals and relationships. Conflicts are viewed as problems to be solved$
and negotiators seek a solution that both achieves goals and improves relationships.
1. Solution = C (I' II' an( III only)
I$ II$ III Correct. %he government normall restricts trade in order to foster national securit$ develop new
industries$ and protect declining industries.
IG. Incorrect. Increasing ta" revenues would not be an impetus for governments to restrict trade$ because
ta" revenues would decrease with lessened trade.
2. Solution = %
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A. Incorrect. >ecline in inventor levels is not the first smptom of the decline stage as it will occur onl
when production need will decline as a result of decline in sales. Also$ a decline in inventor levels could
be a result of a change to 1ust&in&time production.
). Correct. %he sales of most product forms and brands eventuall drop. %he decline ma be slow or
rapid. %his is the first smptom of the decline stage.
C. Incorrect. >ecline in production ma be due to plant technological reasons or due to unavailabilit of
raw materials in an stage of the product life ccle.
>. Incorrect. Alteration in prices is a marketing decision. %his action ma be taken in the maturit stage in
order to compete in the market. It is not a smptom of the decline stage.
3. Solution = C
A. Incorrect. >uring the introduction stage$ there is little or no competition$ so prices are at their highest.
Also$ costs are high in the introduction stage.
). Incorrect. >uring the growth stage$ prices will be lower than during the introduction stage$ but not as low
as during the maturit stage. Costs are dropping and competitors are being added$ but costs are not at
their minimum and competitors are not at their ma"imum.
C. Correct. >uring the maturit stage$ competition is at its greatest$ and costs are at their lowestB thus$
prices would be at their lowest.
>. Incorrect. >uring the decline stage$ there are few competitors$ so prices can be raised. In addition$
costs are on the rise because volume is declining.
4. Solution = ! (II' III' I)' an( ) only)
I. Incorrect. Communication difficulties due to long distances separating senders and receivers have been
minimi.ed b electronic communication such as electronic mail$ fa"$ and teleconferencing.
II. Correct. )od language and other forms of non&verbal communication ma have different meanings in
different cultures.
III. Correct. Canguage is fre/uentl a cause of miscommunication because all parties ma not have
master of the language.
IG. Correct. Attitudes$ such as stereotpes$ ma cause misunderstandings.
G. Correct. %ime is a barrier to international communication because different cultures regard and use
time differentl.
5. Solution = C
A. Incorrect. When global forces dominate$ local adaptation and responsiveness are ignored.
). Incorrect. When local forces dominate$ efficienc$ speed$ arbitrage$ and learning are ignored.
C. Correct. Competitiveness cannot be achieved without achieving the benefits of global Integration and
coordination as well as the benefits of locali.ation$ which include fle"ibilit$ pro"imit$ and /uick response
time.
>. Incorrect. When neither of the forces dominates$ a competitive positioning cannot at all be attained.
6. Solution = C
A. Incorrect. %his is not an efficienc measure because there is not an comparison of input to output.
). Incorrect. %his is an e"ample of effectiveness$ not efficienc.
C. Correct. *fficienc is the ratio of effective output to the input re/uired to achieve it. Insurance claims
processed per da measures the output 8claims processed9 to the input 8a da!s work9.
>. Incorrect. %his is not an efficienc measure because there is not an comparison of input to output.
. Solution = A
A. Correct. %his is one of the ma1or disadvantages of group decision making.
). Incorrect. %his tendenc does not depend on the fact that the problem is approached through group
decision making.
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C. Incorrect. An advantage of group decision making through brainstorming is that creativit is increased.
>. Incorrect. An advantage of group decision making through brainstorming is that it increases the diversit
of views.
". Solution = A
A. Correct. >irective leadership provides the highest subordinate satisfaction when a team encounters
substantive internal conflict.
). Incorrect. +upportive stle is best when tasks are highl structured$ and there is a low level of stress
and strife.
C. Incorrect. Participative stle is most useful when subordinates feel that the control their own destinies.
>. Incorrect. Achievement&oriented stle is optimal for situations in which tasks are ambiguousl
structured.
#. Solution = A
A. Correct. ,egotiators should assess the best alternatives for both themselves and the other parties to
determine their relative strength in the negotiation process. If alternatives are not readil available or are
unattractive$ a part is under additional pressure to make the negotiation work.
). Incorrect. Issues outside of the conflict itself ma impact the negotiations.
C. Incorrect. @le"ibilit ma assist the negotiator in identifing alternatives.
>. Incorrect. Additional research ma be re/uired to full understand the other part!s alternatives to
negotiation.
1$. Solution = %
A. Incorrect. %his is the smoothing stle$ where goals are conceded in favor of harmon and because it is
believed that conflicts damage relationships.
). Correct. %he withdrawing or avoiding stle is viewed as staing awa from the issues over which the
conflict is taking place and from the people involved in the conflict. It is believed that it is hopeless to tr to
resolve conflicts and that it is easier to withdraw than face conflict.
C. Incorrect. %his is the forcing stle$ where opponents are forced to accept the solution. %here is no
concern with the needs of other people and the negotiation does not care if the solutions are acceptable or
not.
>. Incorrect. %his is the confronting stle$ where solutions are sought to satisf both parties and maintain
relationship. It is also described as a collaborating or win&win stle. It involves the conflicting parties
meeting face&to&face and collaborating to reach an agreement that satisfies both parties.
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