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CIA Part 2 – Section C – 03 – Procedures, Red Flags and Indicators of Fraud – Quiz 05

1. Question ID: CIA.P2.C.PRFIF.05.04

An organization hired a highly qualified accounts payable manager who had been terminated from another organization for alleged wrongdoing. Six months later, the manager diverted $12,000 by sending duplicate payments of invoices to a relative. A control that might have prevented this situation is to
A.  
B.  
C.  
D.  

Question 1 of 10

2. Question ID: CIA.P2.C.PRFIF.05.03

Which of the following is an indicator of increased risk of fraud? The treasurer
A.  
B.  
C.  
D.  

Question 2 of 10

3. Question ID: CIA.P2.C.PRFIF.05.02

A common fraud against banks is drawing checks on accounts with insufficient funds and depositing the checks to other accounts. An engagement procedure that is probably the most helpful in detecting this form of fraud is to
A.  
B.  
C.  
D.  

Question 3 of 10

4. Question ID: CIA.P2.C.PRFIF.05.09

The internal audit activity (IAA) has been assigned to perform an engagement involving a division. Based on background review, the internal auditor knows the following about management policies:

  • Organizational policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than 3 years.
  • A significant portion of division management’s compensation comes in the form of bonuses based on the division’s profitability.

The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past 3 years and uses a standard cost system. During the preliminary review, the internal auditor notes the following changes in financial data compared with the prior year:

  • Sales have increased by 10%.
  • Cost of goods sold has increased by 2%.
  • Inventory has increased by 15%.
  • Divisional net profit has increased by 8%.

If the internal auditor decides that significant problems exist in the standard cost system, the next procedure to perform is to

A.  
B.  
C.  
D.  

Question 4 of 10

5. Question ID: CIA.P2.C.PRFIF.05.08

The internal audit activity (IAA) has been assigned to perform an engagement involving a division. Based on background review, the internal auditor knows the following about management policies:

  • Organizational policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than 3 years.
  • A significant portion of division management’s compensation comes in the form of bonuses based on the division’s profitability.

The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past 3 years and uses a standard cost system. During the preliminary review, the internal auditor notes the following changes in financial data compared with the prior year:

  • Sales have increased by 10%.
  • Cost of goods sold has increased by 2%.
  • Inventory has increased by 15%.
  • Divisional net profit has increased by 8%.

It is November and the internal auditing manager is finalizing plans for a year-end engagement at the division. Based on the data, the engagement procedure with highest priority is to

A.  
B.  
C.  
D.  

Question 5 of 10

6. Question ID: CIA.P2.C.PRFIF.05.07

The internal audit activity (IAA) has been assigned to perform an engagement involving a division. Based on background review, the internal auditor knows the following about management policies:

  • Organizational policy is to rapidly promote divisional managers who show significant success. Thus, successful managers rarely stay at a division for more than 3 years.
  • A significant portion of division management’s compensation comes in the form of bonuses based on the division’s profitability.

The division was identified by senior management as a turnaround opportunity. The division is growing, but is not scheduled for a full audit by the external auditors this year. The division has been growing about 7% per year for the past 3 years and uses a standard cost system. During the preliminary review, the internal auditor notes the following changes in financial data compared with the prior year:

  • Sales have increased by 10%.
  • Cost of goods sold has increased by 2%.
  • Inventory has increased by 15%.
  • Divisional net profit has increased by 8%.

Which of the following items might alert the internal auditor to the possibility of fraud in the division?

A.  
B.  
C.  
D.  

Question 6 of 10

7. Question ID: CIA.P2.C.PRFIF.05.05

A subsidiary president terminated a controller and hired a replacement without the required organizational approvals. Sales, cash flow, and profit statistics were then manipulated by the new controller and president via accelerated depreciation and sale of capital assets to obtain larger performance bonuses for the controller and the subsidiary president. An approach that might detect this fraudulent activity is
A.  
B.  
C.  
D.  

Question 7 of 10

8. Question ID: CIA.P2.C.PRFIF.05.06

An employee of an insurer processed a fraudulent policy loan application for an amount less than the established level requiring supervisory review. The employee then obtained the check and cashed it by forging the endorsement. To prevent the loan’s appearance on a subsequent policyholder statement, the loan amount was transferred to a "suspense" account. Which of the following should expose this situation at the earliest date?
A.  
B.  
C.  
D.  

Question 8 of 10

9. Question ID: CIA.P2.C.PRFIF.05.10

An internal auditor is investigating the performance of a division with an unusually large increase in sales, gross margin, and profit. Which of the following indicators is least likely to indicate the possibility of sales-related fraud in the division?
A.  
B.  
C.  
D.  

Question 9 of 10

10. Question ID: CIA.P2.C.PRFIF.05.01

One remote unit’s petty cash custodian, because of the small staff, also had responsibility for the imprest fund checking account reconciliation. The cashier concealed a diversion of funds by altering the beginning balance on the monthly reconciliations sent to the group office. A possible engagement procedure to detect this fraud is to
A.  
B.  
C.  
D.  

Question 10 of 10


 

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