IIA Certified Internal Auditor Part 2 (Practice of Internal Auditing CIA Part 2) Practice Test

CIA-II test Format | Course Contents | Course Outline | test Syllabus | test Objectives

2019 CIA test Syllabus- Part 2 – Practice of Internal Auditing
100 questions l 2.0 Hours (120 minutes)

The CIA test Part 2 includes four domains focused on managing the internal audit activity- planning the engagement- performing the engagement- and communicating engagement results and monitoring progress. Part 2 tests candidates knowledge- skills- and abilities particularly related to Performance Standards (series 2000- 2200- 2300- 2400- 2500- and 2600) and current internal audit practices.​

Domains Collapse All
I. Managing the Internal Audit Activity (20%)​
​ ​ ​Cognitive Level
​​1. Internal Audit Operations
A​ ​​​Describe policies and procedures for the planning- organizing- directing- and monitoring of internal audit operations Basic
​B ​Interpret administrative activities (budgeting- resourcing- recruiting- staffing- etc.) of the internal audit activity Basic
2. Establishing a Risk-based Internal Audit Plan
A ​Identify sources of potential engagements (audit universe- audit cycle requirements- management requests- regulatory mandates- relevant market and industry trends- emerging issues- etc.) Basic​
​B ​Identify a risk management framework to assess risks and prioritize audit engagements based on the results of a risk assessment Basic​​
​C ​Interpret the types of assurance engagements (risk and control assessments- audits of third parties and contract compliance- security and privacy- performance and quality audits- key performance indicators- operational audits- financial and regulatory compliance audits) ​Proficient
​D ​Interpret the types of consulting engagements (training- system design- system development- due diligence- privacy- benchmarking- internal control assessment- process mapping- etc.) designed to provide advice and insight Proficient​
​E ​Describe coordination of internal audit efforts with the external auditor- regulatory oversight bodies- and other internal assurance functions- and potential reliance on other assurance providers Basic​
​3. Communicating and Reporting to Senior Management and the Board
​A ​Recognize that the chief audit executive communicates the annual audit plan to senior management and the board and seeks the board's approval ​Basic
​B ​Identify significant risk exposures and control and governance issues for the chief audit executive to report to the board ​Basic
​C Recognize that the chief audit executive reports on the overall effectiveness of the organization's internal control and risk management processes to senior management and the board​ ​Basic
​D ​Recognize internal audit key performance indicators that the chief audit executive communicates to senior management and the board periodically Basic​
II. Planning the Engagement (20%)​
​ ​ ​Cognitive Level
​​1. Engagement Planning
A​ ​​​Determine engagement objectives- evaluation criteria- and the scope of the engagement Proficient
​B ​Plan the engagement to assure identification of key risks and controls Proficient
C​ ​Complete a detailed risk assessment of each audit area- including evaluating and prioritizing risk and control factors ​Proficient
D​ ​Determine engagement procedures and prepare the engagement work program ​​Proficient
​E ​Determine the level of staff and resources needed for the engagement ​​Proficient
III. Performing the Engagement (40%)
​ ​ ​Cognitive Level
​​1. Information Gathering
A​ Gather and examine relevant information (review previous audit reports and data- conduct walk-throughs and interviews- perform observations- etc.) as part of a preliminary survey of the engagement area Proficient
​B Develop checklists and risk-and-control questionnaires as part of a preliminary survey of the engagement area Proficient
C​ ​Apply appropriate sampling (nonstatistical- judgmental- discovery- etc.) and statistical analysis techniques ​Proficient
2. Analysis and Evaluation
A Use computerized audit tools and techniques (data mining and extraction- continuous monitoring- automated workpapers- embedded audit modules- etc.) Proficient
​B Evaluate the relevance- sufficiency- and reliability of potential sources of evidence Proficient
​C Apply appropriate analytical approaches and process mapping techniques (process identification- workflow analysis- process map generation and analysis- spaghetti maps- RACI diagrams- etc.) ​Proficient
​D Determine and apply analytical review techniques (ratio estimation- variance analysis- budget vs. actual- trend analysis- other reasonableness tests- benchmarking- etc.) Basic
​E Prepare workpapers and documentation of relevant information to support conclusions and engagement results Proficient
​F ​Summarize and develop engagement conclusions- including assessment of risks and controls Proficient​
​3. Engagement Supervision
​A Identify key activities in supervising engagements (coordinate work assignments- review workpapers- evaluate auditors' performance- etc.) ​Basic
IV. Communicating Engagement Results and Monitoring Progress (20%)
​ ​ ​Cognitive Level
​​1. Communicating Engagement Results and the Acceptance of Risk
A​ Arrange preliminary communication with engagement clients Proficient
​B Demonstrate communication quality (accurate- objective- clear- concise- constructive- complete- and timely) and elements (objectives- scope- conclusions- recommendations- and action plan) Proficient
​C ​Prepare interim reporting on the engagement progress ​Proficient
​D ​​Formulate recommendations to enhance and protect organizational value Proficient​
​E ​​Describe the audit engagement communication and reporting process- including holding the exit conference- developing the audit report (draft- review- approve- and distribute)- and obtaining management's response Basic​
​F ​​Describe the chief audit executive's responsibility for assessing residual risk ​Basic
​G ​​Describe the process for communicating risk acceptance (when management has accepted a level of risk that may be unacceptable to the organization) Basic​
2. Monitoring Progress
A ​Assess engagement outcomes- including the management action plan Proficient
​B ​Manage monitoring and follow-up of the disposition of audit engagement results communicated to management and the board Proficient
Additional noteworthy elements related to the revised CIA Part Two test syllabus:
The syllabus features greater alignment with The IIAs Performance Standards.
The test covers the chief audit executives responsibility for assessing residual risk and communicating risk acceptance.
The largest domain is “Performing the Engagement-” which makes up 40% of the exam.
A portion of the test requires candidates to demonstrate a basic comprehension of concepts; another portion requires candidates to demonstrate proficiency in their knowledge- skills- and abilities.

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QUESTION: 480
Confirmations are a highly regarded form of information. Confirmation is most effective
in addressing the existence assertion for the
A. Addition of a milling machine to a machine shop.
B. Sale of merchandise during regular course of business.
C. Inventory held on consignment.
D. Granting of a patent for a special process developed by the organization.
Answer: C
When inventories are held by an outside custodian, such as a consignee, the internal
auditor ordinarily obtains direct confirmation in writing from the custodian. Confirmation
of consigned goods is most likely to be effective for the existence and rights-and-
obligations assertions.
QUESTION: 481
Observation is considered a reliable engagement procedure, but one that is limited in
usefulness. However, it is used in a number of different engagement situations. Which of
the following statements is true regarding observation as an engagement technique?
A. It is the most effective engagement methodology to use in filling out internal control
questionnaires.
B. It is the most persuasive methodology to learn how transactions are really processed
during the period under review.
C. It is rarely sufficient to satisfy any assertion other than existence.
D. It is the most persuasive technique for determining if fraud has occurred.
Answer: C
Observation is effective for verifying whether particular assets such as inventory or
equipment exist at a given date. However, it is of limited use in addressing other
assertions. Thus, it provides less persuasive information about the assertions of
completeness, rights, valuation, and presentation and disclosure. For example, merely
observing inventory does not determine whether the engagement client has rights in it.
QUESTION: 482
One engagement procedure for an engagement to evaluate facilities and equipment is to
test the accuracy of recorded depreciation. Which of the following is the best source of
information that the equipment in question is in service?
A. A review of depreciation policies and procedures.
B. A comparison of depreciation schedules with a listing of insurance appraisals for the
same equipment.
C. A comparison of depreciation schedules with the maintenance and repair logs for the
same equipment.
D. A review of inventory documentation for the equipment.
Answer: C
The maintenance and repair records provide information that equipment exists and is in
use. Equipment in service is more likely to require maintenance than retired equipment.
However, the best information is the internal auditor's direct observation.
QUESTION: 483
Which of the following documents provides the most persuasive information concerning
the existence and valuation of a receivable?
A. A credit approval document supported by the customer's audited financial statements.
B. A copy of a sales invoice to the customer in the engagement client's records.
C. A positive confirmation received directly from the customer.
D. A customer's purchase order in the engagement client's records related to the credit
sale.
Answer: C
A positive confirmation by the debtor is the most reliable information other than payment
that the receivable is a valid asset and that it is properly valued. This information is
especially reliable because the customer has no incentive to confirm a nonexistent
obligation and because the documentation has not been under the engagement client's
control.
QUESTION: 484
A bank internal auditor wanted to verify the accuracy of the general ledger balance of a
depository account. One engagement procedure used in this process was to mail positive
confirmations to statistically sampled depositors. However, the number of replies
received was not adequate to form a valid conclusion about the account's accuracy. What
action should the internal auditor take to accomplish this objective?
A. Assume that the no replies represent tacit agreements by the depositor, document the
results, and perform no further work on this engagement procedure.
B. Expand the original confirmation sample to include additional depositors.
C. Verify accuracy of the depositors' addresses. Retail confirmation requests a second
time with a notation indicating that it is a second request.
D. Mail negative confirmation requests to all non-replies and document results of testing.
If necessary, telephone depositors to inquire about any disagreement with balances
confirmed.
Answer: C
A positive confirmation asks the debtor for a reply. It may ask the respondent to state
whether (s)he agrees with the information given or request that the recipient fill in the
account balance or provide other information. The latter type of positive confirmation is
called a blank form. The negative confirmation asks for a response only when the debtor
disagrees. Positive confirmation is therefore useful when an internal auditor wants to
obtain documentary information to verify account balances. If the internal auditor fails to
receive positive confirmation, alternative procedures including second and third requests
should be employed.
QUESTION: 485
Which of the following statements describes an internal control questionnaire?
A. It provides detailed information regarding the substance of the control system.
B. It takes less of the engagement client's time to complete than other control evaluation
devices.
C. It requires that the internal auditor be in attendance to properly administer it.
D. It provides indirect information that might need corroboration.
Answer: D
An internal control questionnaire consists of a series of questions about the controls
designed to prevent or detect errors or irregularities. Answers to the questions help the
internal auditor to identify specific policies and procedures relevant to specific assertions.
They also help in the design of tests of controls to evaluate their effectiveness. The
questionnaire provides a framework to assure that specific concerns are not overlooked,
but it is not a sufficient means of understanding the entire system. Thus, the evidence
obtained is indirect and requires corroboration by means of observation, interviews,
flowcharting, examination of documents, etc.
QUESTION: 486
During interviews with the inventory management personnel, an internal auditor learned
that salespersons often order inventory for stock without receiving the approval of the
vice president of sales. Also, detail testing showed that there are no written approvals on
purchase orders for replacement parts. The results of detail testing are a good example of
A. Indirect information.
B. Circumstantial information.
C. Corroborative information.
D. Subjective information.
Answer: C
Corroborative information is evidence from a different source that supplements and
confirms other information. For example, oral testimony that a certain procedure was not
performed may be corroborated by the absence of documentation.
QUESTION: 487
Which of the following engagement objectives will be accomplished by tracing a sample
of accounts receivable debit entries to customer invoices and related shipping
documents?
A. Sales are properly recorded.
B. Sales are billed at the correct prices.
C. Accounts receivable represent valid sales.
D. Customer credit is approved.
Answer: C
By vouching sales transactions from the accounts receivable ledger back to the sales
invoices, the internal auditor verifies that these accounts receivable are properly
supported by sales. These sales should then be vouched back to related customer orders
and traced forward to shipping documents. The purpose is to detect fictitious sales and
assure that each sale is properly documented and posted to the accounts receivable
subsidiary ledger. The latter objective also requires sales invoices to be traced to the
accounts receivable subsidiary ledger.
QUESTION: 488
Management believes that some specific sales commissions for the year were too large.
The accuracy of the recorded commission expense for specific salespersons is best
determined by
A. Computation of selected sales commissions.
B. Calculating commission ratios.
C. Use of analytical procedures.
D. Tests of overall reasonableness.
Answer: A
Sales commission is based on the application of a ratio to the amount of the sale. The best
information about the accuracy of sales commission expense for specific individuals is to
recomputed the amounts derived from a sample of transactions. These tests should be
done at the same time as procedures testing accrued liabilities.
QUESTION: 489
An internal auditor traces copies of sales invoices to shipping documents to determine
that
A. Customer shipments were billed.
B. Sales that are billed were also shipped.
C. Shipments to customers were also recorded as receivables.
D. The subsidiary accounts receivable ledger was updated.
Answer: B
If the invoices in the sample can be correctly matched with shipping documents, some
assurance is given that items billed are also shipped.
QUESTION: 490
A large manufacturer has a transportation division that supplies gasoline for the
organization's vehicles. Gasoline is dispensed by an attendant who records the amount
issued on a serially prenumbered gasoline disbursement form, which is then given to the
accounting department for proper recording. When the quantity of gasoline falls to a
certain level, the service station attendant prepares a purchase requisition and sends it to
the purchasing department where a purchase order is prepared and recorded in a gasoline
purchases journal. Which of the following engagement procedures best determines
whether gasoline disbursements are fully recorded?
A. Compare the gasoline purchase requisitions with the gasoline disbursement records.
B. Select a number of gasoline purchases from the gasoline purchases journal and
compare them with their corresponding purchase orders. Ascertain that the purchases are
serially prenumbered, are matched with purchase requisitions, and are authorized by
someone independent of employees of the service station.
C. Perform analytical procedures comparing this period's gasoline consumption with
prior periods.
D. Match the quantity of gasoline disbursed according to disbursement forms with an
independent memorizing of quantity disbursed at the pump.
Answer: D
Physical information is best obtained through direct observation or inspection by the
internal auditor. Because the gasoline disbursement forms are prenumbered, the internal
auditor is able to match them with the independent memorizing of quantity disbursed at the
pump to test the completeness of disbursement records.
QUESTION: 491
To control daily operating costs, an organization decreased the number of times a
messenger service was used each day. Despite those measures, the monthly bill continued
to increase. What procedure should the internal auditor use to detect whether improper
services were being billed?
A. Reconcile a sample of messenger invoices to pickup receipts.
B. Test the mathematical accuracy of a sample of messenger invoices.
C. Scan ledger accounts and messenger invoices.
D. Observe daily use of the messenger service.
Answer: A
When the amount charged for a service increases as an entity reduces its use of the
service, the possibility exists that the entity is being charged for service not received. The
internal auditor should reconcile a sample of messenger invoices to pickup receipts. By
multiplying the number of trips authorized by the charge per trip, any discrepancy can be
identified.
QUESTION: 492
To determine whether credit controls are inconsistently applied, preventing valid sales to
creditworthy customers, the internal auditor should
A. Confirm current accounts receivable.
B. Trace postings on the accounts receivable ledger.
C. Analyze collection rates and credit histories.
D. Compare credit histories for those receiving credit and for those denied credit.
Answer: D
Credit policy should maximize profits by balancing bad debt losses and the increase in
sales derived from granting credit. One concern in an engagement to review credit
management is whether credit policies and procedures are fairly administered.
QUESTION: 493
To test whether debits to accounts receivable represent valid transactions, the internal
auditor should trace entries from the
A. Sales journal to the accounts receivable ledger.
B. Accounts receivable ledger to the cash receipts journal.
C. Accounts receivable ledger to sales documentation.
D. Cash receipts documentation to the accounts receivable ledger.
Answer: C
By vouching sales transactions from the accounts receivable ledger back to the sales
invoices, the internal auditor verifies that these accounts receivable are properly
supported by sales. These sales should then be vouched back to related customer orders
and traced forward to shipping documents. The purpose is to detect fictitious sales and
assure that each sale is properly documented and posted to the accounts receivable
subsidiary ledger. The latter objective also requires sales invoices to be traced to the
accounts receivable subsidiary ledger.
QUESTION: 494
Cash receipts should be deposited on the day of receipt or the following business day.
Select the most appropriate engagement procedure to determine that cash is promptly
deposited.
A. Review cash register tapes prepared for each sale.
B. Review the functions of cash handling and maintaining accounting records for proper
separation of duties.
C. Compare the daily cash receipts totals with the bank deposits.
D. Review the functions of cash receiving and disbursing for proper separation of duties.
Answer: C
A standard control over the cash receipts function is to require that daily cash receipts be
deposited promptly and intact. Hence, the total of cash receipts for a day should equal the
bank deposit because no cash disbursements are made from the daily receipts. To
determine whether cash receipts are promptly deposited, the internal auditor should
compare the daily cash receipts totals with bank deposits.
QUESTION: 495
Which of the following engagement procedures will provide the least relevant
information for determining that payroll payments were made to bona fide employees?
A. Reconcile time cards in use to employees on the job.
B. Examine canceled checks for proper endorsement and compare to personal records.
C. Test for segregation of the authorization for payment from the hire/fire authorization.
D. Test the payroll account bank reconciliation by tracing outstanding checks to the
payroll register.
Answer: D
A payroll account proof tests the completeness assertion. However, it has no bearing on
the validity of the transactions.
QUESTION: 496
Which of the tests provides the least significant information when testing for suspected
fraudulent sales?
A. Tracing a sample of inventory removal slips from inventory through billing to the
sales journal.
B. Performing analytical tests of sales by comparing sales and gross margins overtime.
C. Performing analysis of write-offs and sales returns, and comparing the amounts over
the past several years.
D. Confirming sales transactions with customers and investigating nonresponses.
Answer: A
Tracing a sample of inventory removal slips is least likely to provide evidence of
fraudulent sales because it applies to transactions that have apparently been properly
authorized and documented.
QUESTION: 497
The most reliable information an internal auditor can assess when determining an
organization's legal title to inventories is
A. Monthly gross profit and inventory levels.
B. Purchase orders.
C. Paid vendor invoices.
D. Records of inventories stored at off-site locations.
Answer: C
Mere possession of inventory does not signify that another party does not have a claim to
it. For example, the inventory may be held on consignment. Payment of vendor invoices
is the culmination of the purchases-payables cycle. The paid invoice evidences the
purchaser's ownership of the inventory.
QUESTION: 498
An internal auditor has set an engagement objective of ascertaining the reasonableness of
the increases in rental revenue resulting from operating costs passed on to the lessee by
the landlord. The internal auditor has already inspected the lease contract to determine
that such costs are allowed. Which of the following engagement procedures will best
meet this objective?
A. Inspection of documents.
B. Observation.
C. Inquiry.
D. Analytical review.
Answer: D
Computation of the rates of increase in operating costs passed through to the lessee from
period to period in relation to inflation rates provides an initial view of the reasonableness
of the increases.
QUESTION: 499
An internal auditor has set an engagement objective of determining whether the planned
rate of return on investment in international operations has been achieved. Which of the
following engagement procedures will best meet this objective?
A. Inspection of documents.
B. Observation.
C. Inquiry.
D. Analytical review.
Answer: D
By comparing the rate of return achieved with the budget for international operations for
the last several time periods, the internal auditor can determine the variances from budget
and determine the adequacy of the return on the investment.
QUESTION: 500
Which of the following is the most appropriate engagement procedure to test the
processing of interbank transfers?
A. Analyze a sample of interbank transfers throughout the period including period-end
reconciliations.
B. Obtain cutoff bank statements for each bank account and reconcile them to accounting
records.
C. Send bank confirmation requests to each bank in which accounts are maintained and
reconcile the completed forms to accounting records.
D. Trace all bank deposits recorded in accounting records near the end of the fiscal period
to supporting documentation and to bank statements.
Answer: A
If the engagement objective is to test compliance with processing procedures, the
appropriate procedure is to examine a sample of transfers and trace them to the
accounting records, including the period-end bank reconciliation for each account.
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