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NEW QUESTION # 107
Which of the following offers the best evidence that the internal audit activity has achieved organizational independence?
- A. The mission statement and strategy of the internal audit activity demonstrates alignment to organizational objectives.
- B. The chief audit executive reports both functionally and administratively to the CEO.
- C. The internal audit charter is drafted properly and approved by the appropriate parties.
- D. An independent third party has assessed the organization's system of internal controls to be adequate and effective.
Answer: B
NEW QUESTION # 108
Which of the following best explains why integrity is a necessary personal quality for internal auditors at all levels?
- A. Internal auditor integrity enables stakeholders to constantly question the work of the internal audit activity.
- B. Internal auditor integrity enables users of internal auditors' work to make important business decisions.
- C. Internal auditor integrity enables the internal audit activity to be able to demonstrate independence.
- D. Internal auditor integrity enables the internal auditor to avoid being challenged by any party in the organization.
Answer: B
NEW QUESTION # 109
During an engagement, an internal auditor decided to use variance analysis as an auditing techniques. Which of the following steps should the auditor pursue if he discovers unexpected deviations of actual results from budget?
- A. Report the deviations immediately to the audit committee.
- B. Perform alternative forms of analytical procedures which provide no deviations.
- C. Conclude that the budget was unreasonably set and accept the deviations.
- D. Gather additional information to determine the cause of the deviations.
Answer: D
NEW QUESTION # 110
Which of the following is an example of a transaction-level control?
- A. Reconciliations of primary accounts.
- B. Human resource policies.
- C. Tone at the top.
- D. Inventory counts.
Answer: A
NEW QUESTION # 111
After being terminated due to downsizing, an internal auditor finds a different job with an organization in the same industry. Which of the following actions would violate the IIA Code of Ethics?
- A. At the new organization, the auditor is asked to develop forms to implement probability-proportional-to-size sampling. Although unsure of how to perform this type of sampling, the auditor proceeds without asking for assistance.
- B. To determine audit priorities in the new job, the auditor uses the audit risk approach that the auditor's previous employer used, without receiving permission to do so.
- C. In the first week at the new organization, the auditor discovers a high fraud risk surrounding the organization's database and suggests that the information technology department implement a new password system to prevent fraudulent actions before they occur.
- D. In preparing for an audit at the previous organization, the auditor had conducted a great deal of research on the Internet at home to identify best practices for the management of a treasury function. The auditor has retained much of the research and uses it to conduct an audit of the new employer's treasury function.
Answer: A
NEW QUESTION # 112
According to The IIA's Code of Ethics, which of the following is true?
- A. Objectivity requires that auditors perform their work with honesty, diligence, and responsibility.
- B. Integrity requires that auditors perform internal audit services in accordance with the Standards.
- C. Confidentiality requires that auditors be prudent in the use and protection of client information.
- D. Confidentiality requires that auditors disclose all material facts known to them.
Answer: C
NEW QUESTION # 113
Which of the following is most likely to function as a directive control?
- A. Cycle counts.
- B. Insurance claims.
- C. Alert employees.
- D. Security dogs.
Answer: C
NEW QUESTION # 114
Management is developing and implementing a risk and control framework for use throughout the organization. Which of the following elements should be included in the organization's control framework?
1. Appropriate levels of authority and responsibility.
2. Supervision of staff and appropriate review of work.
3. The seniority of management in the organization.
4. The ability to trace each transaction to an accountable and responsible individual.
- A. 1,2, and 3.
- B. 2, 3, and 4.
- C. 1.2, and 4.
- D. 1.3, and 4.
Answer: B
NEW QUESTION # 115
An internal auditor is using a spreadsheet application to review a cash flow forecast prepared by management.
Which of the following correctly identifies the type of evidence this information represents?
- A. Sufficient, analytical evidence of the cash flow position at a given point of time in the future.
- B. Sufficient, circumstantial evidence of the future solvency of the organization.
- C. Competent, corroborative evidence of future working capital requirements.
- D. Competent, documentary evidence of future cash flow changes within the organization.
Answer: D
NEW QUESTION # 116
During the course of an audit, an internal auditor discovers that a valuable employee in the research department has been patenting new developments in the employee's name that are unrelated to the basic business of the organization.
The organization does not have a policy addressing this specific issue, but does have a general policy that all important new discoveries by employees are the property of the organization.
Division management views the employee's actions as extra incentive to retain the employee.
A decision to include the employee's action in the engagement final communication would be:
1. A violation of the IIA Code of Ethics.
2. A violation of the reporting requirements in the Standards.
3. Justified and necessary, according to the IIA Code of Ethics and Standards.
- A. 1 and 2 only
- B. 1 only
- C. 3 only
- D. 2 only
Answer: C
NEW QUESTION # 117
The internal audit supervisor is reviewing the workpapers prepared by the staff. According to the Standards, which of the following statements regarding workpaper supervision is not true?
- A. Workpaper review allows for staff training and development.
- B. Workpapers may be amended during the review process.
- C. Review notes of questions that arise during the review process must be retained.
- D. Dating and initialing each workpaper provides evidence of review.
Answer: C
NEW QUESTION # 118
Which of the following would provide the best evidence of errors in the quantities of items received from suppliers?
- A. Purchase requisitions and purchase orders.
- B. Suppliers' reports of over shipments.
- C. Observation and inspection of inventory.
- D. Warehouse receiving logs.
Answer: D
NEW QUESTION # 119
During an internal audit, the internal auditor compares the employee turnover rate in the area being audited with the employee turnover rate in the organization as a whole.
This is an example of which of the following analytical auditing procedures?
- A. Regression analysis.
- B. Benchmarking.
- C. Reasonableness test.
- D. Trend analysis.
Answer: B
NEW QUESTION # 120
While preparing for an audit of senior management expenses, the chief audit executive (CAE) learns that management is unable to locate a number of original expense claims to support the related disbursements. She decides to defer the engagement until they can be located. Which of the following principles likely guided the CAE's decision?
- A. Independence.
- B. Objectivity.
- C. Due professional care.
- D. Proficiency.
Answer: C
NEW QUESTION # 121
According to IIA guidance, which of the following external groups is most likely to represent a liability risk, based on activities associated with the organization's corporate social responsibility program?
- A. Suppliers.
- B. Activists.
- C. Investors.
- D. Consumers.
Answer: B
NEW QUESTION # 122
According to IIA guidance, which of the following best describes processes and tools typically used in ongoing internal assessments?
- A. Benchmarking of the internal audit activity's practices and performance.
- B. Analysis of performance metrics such as cycle times.
- C. Report of internal assessment results, response plans, and outcomes.
- D. Self-assessments and surveys of stakeholder groups.
Answer: B
NEW QUESTION # 123
A furniture manufacturer has installed a new fire sprinkler system at its central warehouse and canceled the existing fire insurance policy on that property. What change of risk response strategy does this course of action most likely reflect?
- A. From acceptance to reduction.
- B. From acceptance to avoidance.
- C. From sharing to avoidance.
- D. From sharing to reduction.
Answer: D
NEW QUESTION # 124
A new director was hired to lead the internal audit activity at a small start-up company. Which of the following assignments would impair the director's independence?
- A. Providing the COBIT framework as a possible IT management tool.
- B. Preparing the financial statements for the company's defined contribution plan.
- C. Reviewing the company's policy for foreign currency translation adjustments for compliance with accounting standards.
- D. Performing a pre-implementation review of the company's payroll application.
Answer: B
NEW QUESTION # 125
According to IIA guidance, when preparing the charter for the internal audit activity, the chief audit executive (CAE), board, and senior management should agree on which of the following?
1. The standards to be used by the internal audit activity.
2. The internal audit activity's code of ethics.
3. The CAE's reporting line.
4. The internal audit activity's responsibilities.
- A. 1,2, and 3.
- B. 4 only.
- C. 3 and 4.
- D. 1 and 2 only.
Answer: C
NEW QUESTION # 126
The manager for an organization's accounts payable department resigned her post in that capacity. Three months later, she was recruited to the internal audit activity and has been working with the audit team for the last eight months. Which of the following assignments would the newly hired internal auditor be able to execute without any impairments to independence or objectivity?
- A. A review of the employees' sports club finances, which are overseen by the chief audit executive.
- B. An assurance review for a sales program on which she previously provided consultation.
- C. An operations audit of the accounts payable department.
- D. A consulting engagement related to a new accounts payable optimization initiative.
Answer: A
NEW QUESTION # 127
According to IIA guidance, which of the following statements is true when an internal auditor performs consulting services that improve an organization's operations?
- A. The services must not be performed by the same internal auditor who performed assurance services, in order to maintain objectivity.
- B. The services may preclude assurance services from the consulting engagement.
- C. The services impose no responsibility to communicate information other than to the engagement client.
- D. The services must be aligned with those defined in the internal audit charter.
Answer: A
NEW QUESTION # 128
Which of the following is not an appropriate activity for internal auditors to perform?
- A. Implement solutions for specific organizational problems.
- B. Highlight matters that require management's attention.
- C. Recommend management seek a consulting firm to advise on outsourcing.
- D. Accumulate data, obtain varying views, and report information to senior management.
Answer: A
NEW QUESTION # 129
An internal auditor is conducting an assessment of the organization's fraud prevention program using the COSO enterprise risk management framework. According to this framework, which of the following activities would fall under the control environment component for preventing fraud?
1. The organization uses an automated authority approval matrix to control payments.
2. The organization has a whistleblower hotline that is available to employees.
3. Annually, every manager completes a comprehensive fraud assessment of his or her department.
4. Annually, the organization reviews and communicates the code of expected behavior.
- A. 2 and 4.
- B. 1 and 3.
- C. 1 and 2.
- D. 2 and 3.
Answer: A
NEW QUESTION # 130
A chief audit executive (CAE) is selecting an internal audit team to perform an audit engagement that requires a high level of knowledge in the areas of finance, investment portfolio management, and taxation. If neither the CAE nor the existing internal audit staff possess the required knowledge, which of the following actions should the CAE take?
- A. Select the most experienced auditors in the department to perform the engagement.
- B. Ask the audit committee to decide the course of action.
- C. Postpone the audit until the CAE hires internal audit staff with the required knowledge.
- D. Hire consultants who possess the required knowledge to perform the engagement.
Answer: D
NEW QUESTION # 131
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