View Full IIA IIA-CIA-Part2 Exam Dumps and Practice Test Dumps

 

Question 301.

What is the primary purpose of evaluating accounts receivable controls during an internal audit engagement?

1. Determine whether customer balances are authorized, accurate, collectible, and appropriately monitored
2. Eliminate all credit sales
3. Replace customer-service processes
4. Guarantee that every customer pays on time

Correct Answer: 1. Determine whether customer balances are authorized, accurate, collectible, and appropriately monitored

Explanation:

Accounts receivable controls help ensure that credit sales are legitimate, customer balances are recorded accurately, collections are monitored, and doubtful accounts are identified appropriately. Internal audit may review credit approval, billing, cash application, aging, write-offs, reconciliations, and collection procedures. Effective controls help reduce bad-debt risk, misstatement, and unauthorized adjustments.

Question 302.

Which control BEST reduces the risk of granting excessive credit to customers?

1. Allowing sales staff to approve all credit limits
2. Establishing independent credit approval based on defined criteria and customer risk
3. Eliminating credit reviews after account setup
4. Approving every customer for the same credit limit

Correct Answer: 2. Establishing independent credit approval based on defined criteria and customer risk

Explanation:

Independent credit approval helps reduce conflicts between sales objectives and credit risk management. Credit limits should be based on relevant factors such as payment history, financial condition, external information, and customer concentration. Internal audit may assess whether credit decisions are authorized, documented, periodically reviewed, and adjusted when customer risk changes.

Question 303.

What is the primary purpose of reviewing an accounts receivable aging report?

1. Identify overdue balances and assess collection and credit risk
2. Replace customer confirmations
3. Determine employee performance only
4. Guarantee that all old balances are uncollectible

Correct Answer: 1. Identify overdue balances and assess collection and credit risk

Explanation:

An aging report groups receivables according to how long they have been outstanding. Older balances may indicate collection problems, disputes, inaccurate records, or increased risk of nonpayment. Internal audit may evaluate whether aging information is accurate, whether overdue accounts receive appropriate follow-up, and whether allowances or write-offs are supported.

Question 304.

Which situation would MOST strongly indicate weakness in receivable collection controls?

1. Overdue balances are reviewed regularly
2. Collection responsibility is assigned clearly
3. Significant past-due balances remain unresolved for long periods without documented follow-up
4. Customer statements are issued periodically

Correct Answer: 3. Significant past-due balances remain unresolved for long periods without documented follow-up

Explanation:

Long-outstanding receivables without evidence of collection action may indicate weak accountability, unresolved disputes, inaccurate balances, or excessive credit risk. Internal audit should examine aging trends, collection notes, customer correspondence, credit holds, and write-off practices. Significant overdue balances may also affect financial reporting estimates.

Question 305.

What is the primary purpose of testing controls over customer credit notes?

1. Determine whether credits are valid, authorized, supported, and accurately recorded
2. Increase the number of customer adjustments
3. Replace billing controls
4. Guarantee that all customer disputes are resolved immediately

Correct Answer: 1. Determine whether credits are valid, authorized, supported, and accurately recorded

Explanation:

Credit notes reduce customer balances and may be used to correct billing errors, process returns, or resolve disputes. Weak controls can create opportunities for unauthorized reductions, concealment of cash theft, or revenue manipulation. Internal audit may review approval, supporting documentation, reason codes, user access, and unusual credit patterns.

Question 306.

Which analytical procedure would BEST help identify potentially unusual customer credit activity?

1. Reviewing only total annual revenue
2. Comparing credit-note frequency and value by customer, employee, reason, and time period
3. Examining only customer names alphabetically
4. Reviewing payroll expense

Correct Answer: 2. Comparing credit-note frequency and value by customer, employee, reason, and time period

Explanation:

Pattern analysis can reveal employees, customers, periods, or reason codes associated with unusually high credit activity. These anomalies may reflect legitimate business conditions or possible control issues. Internal audit should investigate significant exceptions using supporting documentation, authorization records, and customer information before reaching conclusions.

Question 307.

What is the primary purpose of cash-receipt segregation of duties?

1. Reduce the risk that one person can receive cash, record it, and conceal misappropriation
2. Eliminate all manual cash handling
3. Replace bank reconciliations
4. Ensure only managers can process receipts

Correct Answer: 1. Reduce the risk that one person can receive cash, record it, and conceal misappropriation

Explanation:

Separating custody of cash from recording and reconciliation duties helps reduce the opportunity for theft and concealment. Where complete segregation is impractical, management may use compensating controls such as independent deposit verification or supervisory review. Internal audit should consider both formal responsibilities and actual system access.

Question 308.

Which control BEST helps ensure that customer cash receipts are recorded completely?

1. Allowing one person to collect and post cash without review
2. Recording only large receipts
3. Reconciling bank deposits and receipt records to customer-account postings
4. Delaying posting until month-end

Correct Answer: 3. Reconciling bank deposits and receipt records to customer-account postings

Explanation:

Reconciliation helps identify receipts that were deposited but not posted, posted incorrectly, or omitted from customer accounts. Internal audit may examine whether reconciliations are timely, independently reviewed, and supported by reliable source records. Differences should be investigated promptly because unresolved items can conceal errors or misappropriation.

Question 309.

What is the primary purpose of reviewing unapplied cash balances?

1. Identify receipts that have not been matched appropriately to customer accounts or transactions
2. Eliminate the need for customer statements
3. Guarantee that all receipts are fraudulent
4. Replace billing procedures

Correct Answer: 1. Identify receipts that have not been matched appropriately to customer accounts or transactions

Explanation:

Unapplied cash may result from missing remittance information, incorrect customer identification, processing delays, or system problems. Large or aging balances can distort customer accounts and collection activity. Internal audit may analyze the age, amount, cause, and resolution of unapplied items and determine whether recurring problems indicate process weaknesses.

Question 310.

What is the primary purpose of reviewing bad-debt write-offs?

1. Determine whether uncollectible balances are appropriately supported, authorized, and recorded
2. Ensure all overdue balances are written off immediately
3. Replace collection efforts
4. Eliminate allowance estimates

Correct Answer: 1. Determine whether uncollectible balances are appropriately supported, authorized, and recorded

Explanation:

Write-offs remove receivables from active balances and can be susceptible to abuse if poorly controlled. Internal audit may review approval authority, collection history, supporting documentation, related customer activity, and whether accounts written off continue to be monitored where appropriate. Unusual write-offs may also warrant fraud-focused testing.

Question 311.

What is the primary purpose of evaluating treasury controls?

1. Determine whether cash, investments, financing, and liquidity activities are authorized, safeguarded, and monitored
2. Guarantee investment gains
3. Replace financial planning
4. Eliminate bank relationships

Correct Answer: 1. Determine whether cash, investments, financing, and liquidity activities are authorized, safeguarded, and monitored

Explanation:

Treasury functions often manage highly liquid assets and significant financial exposures. Internal audit may assess bank-account controls, payment authorization, investments, debt, liquidity forecasting, reconciliations, and access to banking platforms. Strong controls are important because treasury transactions may involve large values and opportunities for rapid asset movement.

Question 312.

Which control BEST reduces the risk of unauthorized electronic payments?

1. One user creates and approves every payment
2. Shared banking credentials
3. Dual authorization with appropriately segregated system access
4. Disabling payment logs

Correct Answer: 3. Dual authorization with appropriately segregated system access

Explanation:

Dual authorization helps ensure that no single individual can independently create and release a significant payment. Access should align with job responsibilities and be supported by strong authentication and monitoring. Internal audit may also review payment limits, privileged access, bank-account changes, and unusual transaction patterns.

Question 313.

What is the primary purpose of bank-account reconciliations?

1. Identify and resolve differences between bank records and the organization’s accounting records
2. Replace payment authorization
3. Eliminate all outstanding items
4. Guarantee that no fraud occurs

Correct Answer: 1. Identify and resolve differences between bank records and the organization’s accounting records

Explanation:

Bank reconciliations can detect missing entries, duplicate transactions, recording errors, unauthorized payments, or timing differences. Internal audit should evaluate whether reconciliations are timely, complete, independently reviewed, and whether unusual or long-outstanding items are investigated. A reconciliation provides control value only when differences are actually resolved.

Question 314.

Which factor is MOST important when reviewing long-outstanding bank reconciliation items?

1. Whether the reconciliation is printed
2. Whether unresolved items have valid explanations and receive timely investigation
3. Whether the bank account has existed for many years
4. Whether the account has a large balance

Correct Answer: 2. Whether unresolved items have valid explanations and receive timely investigation

Explanation:

Long-outstanding reconciling items may indicate errors, duplicate entries, stale checks, unrecorded transactions, or potentially inappropriate activity. Internal audit should assess the age, value, cause, and management follow-up for such items. Repeatedly carrying unexplained differences forward weakens the effectiveness of the reconciliation control.

Question 315.

What is the primary purpose of cash-flow forecasting controls?

1. Help management anticipate liquidity needs and available cash resources
2. Guarantee exact future cash balances
3. Replace treasury monitoring
4. Eliminate borrowing

Correct Answer: 1. Help management anticipate liquidity needs and available cash resources

Explanation:

Cash-flow forecasts support decisions about funding, investments, payments, and liquidity risk. Internal audit may evaluate whether forecasts use reasonable assumptions, reliable data, appropriate time horizons, and periodic comparison with actual results. Significant forecasting errors should be analyzed so that assumptions and processes can improve over time.

Question 316.

Which condition would MOST likely indicate weak liquidity-risk management?

1. Cash requirements are forecast regularly
2. Management monitors borrowing facilities
3. Significant near-term obligations exist without reliable funding plans or contingency arrangements
4. Forecast assumptions are updated periodically

Correct Answer: 3. Significant near-term obligations exist without reliable funding plans or contingency arrangements

Explanation:

Liquidity risk arises when an organization may be unable to meet obligations as they become due. Internal audit may assess cash-flow forecasting, borrowing capacity, funding concentration, covenant requirements, contingency plans, and management reporting. Significant obligations without realistic funding options can create substantial operational and financial risk.

Question 317.

What is the primary purpose of reviewing investment authorization controls?

1. Determine whether investments are made within approved authority, policy, and risk limits
2. Guarantee positive investment returns
3. Eliminate all market risk
4. Replace investment-performance monitoring

Correct Answer: 1. Determine whether investments are made within approved authority, policy, and risk limits

Explanation:

Investment policies often define permitted instruments, counterparties, maturity limits, credit quality, concentration, and approval authority. Internal audit may test whether transactions comply with these requirements and whether exceptions are appropriately authorized. Investment controls should balance return objectives with liquidity, credit, market, and concentration risks.

Question 318.

Which situation would MOST strongly indicate a treasury segregation-of-duties weakness?

1. One employee initiates a payment and another independently approves it
2. One person can initiate, approve, release, and reconcile significant cash transfers
3. Bank reconciliations are reviewed independently
4. Investment limits are established formally

Correct Answer: 2. One person can initiate, approve, release, and reconcile significant cash transfers

Explanation:

Combining initiation, approval, execution, and reconciliation provides one individual with excessive control over cash movement and the ability to conceal inappropriate transactions. Internal audit should evaluate whether duties and banking-system permissions are appropriately segregated. Compensating controls may be necessary in smaller organizations where full segregation is impractical.

Question 319.

What is the primary purpose of reviewing debt-covenant compliance?

1. Determine whether the organization is meeting contractual borrowing requirements and identifying potential breaches promptly
2. Eliminate all borrowing costs
3. Replace cash-flow forecasting
4. Guarantee lenders will renew financing

Correct Answer: 1. Determine whether the organization is meeting contractual borrowing requirements and identifying potential breaches promptly

Explanation:

Debt agreements may contain financial ratios, reporting requirements, restrictions, or other covenants. A breach can result in penalties, accelerated repayment, increased interest, or other consequences. Internal audit may review calculations, data reliability, monitoring frequency, management reporting, and whether emerging covenant issues are escalated in sufficient time for corrective action.

Question 320.

Which approach BEST supports effective internal audit assurance over receivables, cash, and treasury processes?

1. Focus only on year-end balances
2. Rely solely on management representations
3. Evaluate credit approval, collections, cash application, reconciliations, payment authorization, treasury access, liquidity, investments, and covenant monitoring using reliable evidence
4. Assume bank involvement eliminates financial-control risk

Correct Answer: 3. Evaluate credit approval, collections, cash application, reconciliations, payment authorization, treasury access, liquidity, investments, and covenant monitoring using reliable evidence

Explanation:

Receivables and treasury processes involve significant financial and fraud risks. Internal audit should assess the full control environment, including credit decisions, collection practices, receipt processing, bank reconciliations, payment access, cash forecasting, investments, and financing obligations. Reliable evidence and risk-based testing are essential because strong controls over one area do not compensate automatically for weaknesses elsewhere.