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 INDEX
Preface……………………………………………………………………………………………………………………………….4
Certified Internal Auditor (CIA) – US Basic Information………………………………….…………………..5
Letter from Muhammad Zain…………………………………………..…………………………….………………..18
Section A – Business Acumen…………………….…………………..………………………………………………..22
Section B – Information Security…………………………………………………………………..……………….406
Section C – Information Technology…………………….…………………………………………………….....601
Section D – Financial Management………………………………….…………………………………………….884
Books Written By Muhammad Zain………………………………………………………………………………1655
Quotes That Will Change Your Life……………………………………………………………….…………......1661
About the Mentor………………………………………………………………………………..………………………1672
PREFACE
All the knowledge possessed by me is a gift from Almighty Allah. The Creator of the Heavens and the earth blessed
me with the success of passing Certified Public Accountant (CPA), Certified Management Accountant (CMA),
Certified Internal Auditor (CIA), and Masters of Business Administration (MBA) exams in 1st attempt. I am profoundly
grateful to my family for providing all the resources and time at their disposal for my enrichment morally, physically,
and spiritually. I am also thankful to my teachers, who delivered their knowledge, wisdom, and experience.
The knowledge, resources, views, facts, and information presented in this book are a voice from my heart bestowed
by Allah and my experience gained during my entire lifetime. I capitalized hours searching the Internet, Blogs, Social
media, and Wikipedia to update my knowledge and notebook as part of my continuous learning objective. I am
highly indebted to contributors to Google, Blogs, Social Media, and Wikipedia for presenting me with the ocean of
knowledge and insights. The more I dived deep into the ocean, the more I concluded that we human beings are only
given limited knowledge, which is unexplored and undiscovered entirely to this date. This curiosity of mankind is
bringing innovations, discoveries, and ideas. Any resemblance to any copyrighted material available on the planet is
purely coincidental and unintentional. I allow the readers of this book to use it for any related educational purpose
and reproduce the contents as long as the original text in this book is unaltered. I give reasonable assurance that the
information provided in this book is correct according to my knowledge and belief. There may be circumstances
where potential readers challenge the information presented. I welcome these challenges to correct me for future
updates.
May the Lord, Master of the day of Judgement and to whom the sovereignty belongs, bless me more and my
readers in this world and in particular in life hereafter (Ameen).
4
CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
Certified Internal Auditor (CIA) certification is offered by the Institute of Internal Auditors (IIA), US. It is a premium internal auditing
qualification having a global presence. CIA is a symbol of excellence in compliance reporting, risk management, and consultancy.
CIA has three parts. Part 1 is known as Essentials of Internal Auditing, Part 2 is known as Practice of Internal Auditing, and Part 3 is
known as Business Knowledge for Internal Auditing.
Zain Academy’s purpose is to create the best CIA Exam Prep materials at affordable pricing.
The IIA releases the profession's primary guidance, such as the International Professional Practices Framework (IPPF), Code of
Ethics, International Standards for the Professional Practice of Internal Auditing. Membership with IIA is not required to earn a CIA
designation. Candidates can save their earned money by not choosing the membership.
Chapters and affiliated institutes hold regular meetings, seminars, and conferences to develop networking, contacts, and social
bonding. It is advisable to attend these types of events to learn about the current practices in internal auditing.
Why Choose CIA
The Certified Internal Auditor (CIA) credential offers many benefits. CIA certification can help you move forward in a focused
direction. CIA certification gives a message that you are a proficient internal auditor who can bring valuable insights and
experience. CIA holders can be entrusted with significant responsibility. CIA also helps in increasing accounting knowledge and skill.
CIA holders earning potential is excellent as compared to non-certified peers. Companies retain talented individuals by giving them
market-based remuneration, bonuses, perks, fringe benefits, vacations. Qualified individuals earning is multiplied if he/she opens
consultancy, compliance or internal auditing firm. CIA certified deserves the respect of the peers.

5
CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
Way To Achieve CIA Credential
The candidates must meet the four Es requirements, i.e., Education, Ethics, Examination, and Experience for achieving the CIA
designation. Three years is provided by the Institute to get certified. However, the candidates can apply for one of the three types
of 1-year eligibility extension, i.e., hardship, non-hardship, and exam eligibility. Each type of extension has its procedures and fees.
Please refer to the CIA Candidate Handbook as available from the IIA website.
Education – At least a Bachelor’s degree from an accredited college or university. If the candidates do not have a bachelor’s degree,
then a verifiable seven years of internal auditing experience can be accepted.
Ethics – Reflect high moral and professional character and agree to abide by the IIA’s Code of Ethics. Submit a Character Reference
Form signed by a CIA certified or supervisor or professor.
Examination – This is the most important of all the requirements. Candidates spend considerable time clearing the three parts of
the CIA exam.
Experience – Bachelor's degree holder has to demonstrate two years of working experience. However, the requirement is reduced
to one year if the candidate is a Master's degree holder. The candidates can fulfill experience requirements even after passing the
CIA exams. The experience gained can be in the accounting, finance, or internal audit department.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
CIA Examination
Candidates have to pass three parts to become certified. If a candidate cannot pass all three parts within three
years’ time period, then the candidate will lose the credit for any part passed and will have to apply again to
the Institute. The table is necessary to become familiar with the CIA structure.
Part Title MCQs Time
1 Essentials of Internal Auditing 125 2.5 hours (150 mins)
2 Practice of Internal Auditing 100 2 hours (120 mins)
3 Business Knowledge for Internal Auditing 100 2 hours (120 mins)

IIA Retired Questions

Test Bank Questions available with all the publishers are retired questions by IIA. 75% of the questions are the
same with every publisher. The rest, 25%, is their creativity.
REMEMBER that actual CIA exam questions are non-disclosed and are not available to anyone.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
CIA Exam Scoring
The CIA exam is computer-graded. The candidate will receive the result within five minutes of finishing the exam. Scores are
determined by the difficulty level of questions asked and converting the value of questions answered correctly to a scale that
ranges between 250 to 750. A score of at least 600 is required to pass the exam, i.e., 80%. If the questions are of higher IQ level,
the passing score can go below 600, but if the items tested are easy, then passing criteria can go up from 600.
Whether the questions being asked are easy or difficult, I suggest you target achieving an overall 85% in exams by accurately
attempting the 85 correct questions out of 100 questions in CIA Part 3.
The trend analysis for several years of CIA exam passing ratio is between 40% to 44%.

CIA Exam Dates

CIA exam can be taken at any day and time of your choice subject to two conditions:
The day must be a normal working day except for weekends and public holidays; and
The time of the exam must be within regular working hours.
It is highly recommended to select your exam date and time as early as possible to get the preferred appointment.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
Documents Required By IIA
The following documents are required by the Institute when a candidate makes a profile at the Certification
Candidate Management System (CCMS):
A soft copy of an unexpired official passport or national candidate ID card;
A soft copy of degree and transcripts;
A soft copy of the character reference form duly attested;
A soft copy of the experience reference form verified by a CIA or supervisor.
Once the candidate registers for an exam part and gets the authorization to test email from IIA, he has 180
days to schedule and sit for the exam. This email from IIA must be printed and carried by the candidate when
he takes his exam.
Pearson VUE www.pearsonvue.com/iia conducts CIA examinations globally. Select the testing center location
that is easily reachable for you.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
Investment in CIA
Investment in the CIA is one time if the candidates pass all three parts in the first attempt. Investment in the CIA is advantageous
throughout life.
CIA exam fee is presented in the following table.
S.No Description Member Non-Member Student
1. Application fee $ 115 $ 230 $ 65
1. Part 1 fee $ 280 $ 395 $ 230
1. Part 2 fee $ 230 $ 345 $ 180
1. Part 3 fee $ 230 $ 345 $ 180
TOTAL $ 855 $ 1,315 $ 655

I highly recommend the candidates pay their dues through DEBIT CARD only. This way, you will be free from all claims of the bank
and will be much relieved. The target must be to clear the exams in 1st Attempt so that the examination fee is paid only once, and
benefits of opportunity costs can be derived.
Investment in study materials, test bank questions, and learning videos are separate and vary according to the candidate’s
preferences and study methods.
REMEMBER to subscribe to the study materials and test bank questions that are economical, comprehensive, updated, and
excellent.
ALSO, REMEMBER to subscribe for each part separately to get the time benefit.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
CIA Parts Selection Order
I recommend the candidates to begin their preparation with Part 1 first and then moving to Part 2 and Part 3. The candidates can pass all three parts easily in
seven months.
Difficulty Level of CIA Part 3
CIA Part 3 is the hardest of all three parts. CIA Part 3 exam can be passed quickly if the candidates can exhibit the traits of Excellency, Creativity, Passionate, and
Patience in their preparation and, in particular, on exam day.
The Candidates must have a clear vision of their future. They must be able to define their purpose of life. The will to win, the desire to succeed, the urge to reach
full potential – these are the keys that will unlock the door of CIA certification.
The reason that many candidates find it difficult to achieve the CIA is that they are not able to define their goals or ever seriously consider them as believable or
achievable. Champions can tell you where they are going, what they plan to do along the way, and with whom they will be sharing their adventure.
Keep looking for creativity, and don’t settle for the less. You have that potential. It is just a matter of time that you explore and discover yourself. Once you find
yourself and your capability, you will never be the same again.
CIA Part 3 – Syllabus
There are four sections in CIA Part 3.
a. Section A – Business Acumen – 35% weightage
b. Section B – Information Security – 25% weightage
c. Section C – Information Technology – 20% weightage
d. Section D – Financial Management – 20% weightage

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
CIA Part 3 Preparation Time
It is generally observed that many of the CIA candidates are working executives. They have to allocate time for work, family,
studies, and personal leisure. The candidates are ready for Part 3 exam if they can allocate at least 3 hours on weekdays and at
least 6 hours on weekends for three months continuously.
The candidates must follow the steps to understand the concepts being part of the syllabus of CIA Part 3.
Read a whole particular section from the study book first with the questioning mind approach. Mark or highlight only the
important paras or sentences in the book.
Attempt the True / False Questions of that particular section presented in the book to bring clarity on the already read topics.
Attempt the Multiple Choice Questions of that particular section from the Test Bank without any time constraints. Focus must be
on selecting the right answers in the first place.
If you attempt any question correctly, proceed to the next question. These questions do not need to be reviewed ever again
because a question once attempted successfully will always be correct in the future.
If any question attempted is wrong in the 1st place, then mark or highlight or flag those questions. Furthermore, there might be
instances in which you have selected the right answer, but you are in doubt about the outcome of the result if attempted later.
These questions also need to be marked or highlighted. These marked questions will form the basis of review, revision, and
rehearsal at a later stage.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
CIA Part 3 Preparation Time……(continued)
Read the explanation of the incorrect answers selected and try to understand the logic of the question and correct answer
explanation.
As you complete 80% of the total questions of a particular section, move to the next section, and repeat the steps from (a) to (d).
Revision of the already learned topics every week is warranted. Dedicate a particular day in a week in which you will only revise
the already learned topics. Read only those paras from the book which have been highlighted. Attempt only those questions from
Test Bank Questions, which have been marked or highlighted. Time Management must come into effect while re-attempting the
questions. Each MCQ has to be attempted in 1.2 minutes. This way you will revise the entire section smartly and anxiety level will
decrease.
As you complete all the sections of the CIA Part 3, then focus on completing the 100% of the MCQs from the Test Bank Questions.
REMEMBER that each topic has an equal chance of selection in the exam. So you have to be prepared for every concept.
ALSO REMEMBER that CIA Exams are of continuous 2 hour duration. Train your mind to be active for at least 3 hours during MCQs
preparation.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
The candidates must have updated study materials and test bank questions. The study materials must be simple, concise, and easy
to understand. The majority of finance graduates and working executives prefer self-studies. Select test bank questions of any
comprehensive publisher. Subscribing for more than one publisher’s test bank questions will not help as most of the questions will
be repetitive.
Video Lectures are of great aid. They increase the retention power of the candidates by at least 25%. Furthermore, the candidates
can view them later at their ease and convenience. Many of the candidates prefer live classes or online interactive sessions. This
can also increase the odds in your favor exponentially.
Recommended Study Approach
CIA exams are computer-based. It is recommended that all your preparation, highlighting, and practice must be on the computer or
laptop. The candidates must avoid the traditional method of studying and making notes via pen and paper. Pen and paper shall be
used only for calculation-related purposes while attempting the test bank questions.
The candidates can study at any time of day or night, but my preferable time is an early morning daily at 4:30 am. This is the time
where the human brain is at a high energy level. This is also the time of great silence.
You will be provided with earplugs in the center and must use them to avoid distractions from other candidates' noise. Silence also
has its voice, which you will agree with me on your exam day. Your mind needs to be accustomed to it. Therefore, use good quality
foam-based earplugs from day 1 of your preparation. You can find these earplugs from your local pharmacy.
You will be provided with black pens at the center and two sheets. Start using a black pen from day 1. Your mind must be able to
recognize and work in a black pen.
Please become familiar with the MCQ screens and navigation of the Pearson VUE Testing Environment before the exams. The tour
can be arranged from your computer. This will make you comfortable on your exam day. 14
CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
How to Answer the MCQs in preparation and exams?
My preferable way of approaching any MCQ is provided below. Ask yourself three bold phrases in every MCQ.
What are the requirements of the question? The requirements of the question are generally presented in the second last or last
line of the question. Read it thoroughly and then reread the whole question to filter out the extra information.
What is the answer? Read twice the answer choices carefully and then select the best answer. Numerical questions require
double-checking of formulas and calculations.
If you do not know the answer, make an educated guess. The educated guess is a technique in which you can filter out the two
options out of four based on your insights. Now the two options left to be paid attention to. Read the requirements of the question
again and then the remaining two answer choices. Select the best one. This way you will increase your odds in favor by 50%.
Attempt all the questions in exams even if the testlet is harder, and time management is crucial. You will not be penalized for any
incorrect choices being made. Your score is determined out of correct questions only. Mark or Flag all those questions which you
want to review in end if the time allows.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
Pearson VUE Testing Site Visit
After you schedule your appointment with Pearson VUE, visit the center at least three days before the exam to become familiar
with the location. If the center is in a building, make yourself familiar with the security perimeters of the building as well. Make
contingency plans to reach the exam center in case of any unexpected circumstances. Double-check the weather conditions in
advance of the exam day.
Day Before Exam Day
This day is also vital in the candidate’s life. Leave all the review, revisions, or attempting the test bank questions at least 24 hours
before the exam day. CIA is a professional paper and the candidate has to be ready at any time. You have done enough preparation.
Trust in Allah and have confidence in your abilities. You have done enough training. It is now time to showcase your talent.
You will be intimidated to see the materials or revise the test bank questions or watch the lecture videos. Keep aside all these
urges. Divert your mind to the most enjoyable activity. That enjoyable activity can be praying, meditating, walking in the garden, or
even watching a good movie. Arrange all the required documents, clothes, shoes, calculators, funds, and other items in advance.
Charge your cell phone if you plan to travel and navigate by Apps. Mobile Data Connection package must be active. Sleep for at
least 10 hours at night before the exam day.

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CERTIFIED INTERNAL AUDITOR (CIA) - US BASIC INFORMATION
Activities on Exam Day
Take a good shower and wear comfortable clothing according to the weather conditions.
Have a comprehensive meal that is easily digestible and consume any necessary medicines.
Bring printouts of Authorization Letter / Confirmation Letter / Notice to Schedule received through email from Pearson VUE and Institute, mentioning
candidate’s name, section part, exam date, time, and venue.
Two original forms of non-expired identification with photograph and signature are required. Therefore, bring an unexpired and signed passport and
national identity card / driver’s license along with you.
Reach the exam center at least 60 minutes’ prior of your appointment time.
Drink coffee or tea before the exam so that you are charged enough.
Visit the washroom before the start of exam.
The mobile phone has to be switched off and placed in a locker along with wallets.
You will not be given any complimentary breaks during the 2 hour exam. However, you can take one for taking a slight break for recharging yourself, visiting
the washroom and having water. However, the clock will continue to run.
Do not make noise or stand up from the seat without permission. Raise your hand first. The invigilator will visit you, and then you can ask for pens, extra
sheets for working, or taking a break or any malfunction encountered in exams.
Once you finish your exam, review the mark or flagged questions and try to attempt in the remaining time period. Your score is based on the number of
questions you answer correctly. You are not penalized for selecting the wrong answer.
Make sure to submit your exam and watch for the incoming message from the system for acknowledging your submitted questions.
What To Do after Passing CIA Exams 17
Hats off to you for passing all three parts. Meet all other program requirements and complete the Certificate Order Form by logging into CCMS to get your
LETTER FROM MUHAMMAD ZAIN
13 September 2021
Dear CIA,
May Peace, Blessings, and Mercy of Allah be upon you, to all the Messengers of Allah and, in particular, on the Noble and
Final Messenger Prophet Muhammad (Peace Be Upon Him), his Family, and his Companions.
Be a symbol of excellence in your life. Always dream big and think beyond the dimensions of the Universe. Man is made to
conquer the seven Heavens. Explore the purpose of your existence and discover the enormous potential that is within
oneself. Having faith and trust in Creator will give you the light in the darkness and unchartered territories. There is always
a silver lining beneath the dark skies. A creative mindset makes life simple. Work on your passion by synchronizing your
soul, heart, and mind. We all will die one day, but only a few dare to live the life they wish for.
The Creator has created the entire Universe in six days. There is a great potential to discover the magnificent beauty that
remains unexplored to date. This is only possible by seeking knowledge and applying them in our daily lives.
We are living in end times and witnessing a moment that humanity has not ever experienced before. This is the digital
transformation age. Artificial Intelligence, Blockchain Technology, Cryptocurrency, Business Intelligence, and Big Data are
business norms.
All the information is available in the blink of an eye. Whatever we think in mind comes in front of our screens. These
advancements will change the dynamics of the whole world we live in today. All the traditional and so-called “modern”
methods of doing work will be replaced by cloud computing. The work of accountants, doctors, engineers, pilots will no
longer exist. The irredeemable paper money will be replaced by electronic money. Central Governments will only exist in
name only. Universal Government and a unified taxation system will emerge. Virtual reality will be ordinary. Blind will be
able to see, deaf will be able to hear, without limbs persons will be able to run, and mentally disabled people will utilize the
18
maximum brain capacity through mental chip implants. Teleportation of humans will be done in a blink of an eye.
LETTER FROM MUHAMMAD ZAIN
My advice to all readers around the world is to focus on entrepreneurship after the certification. This is the only way of
survival. Only those businesses are operational who have inelastic demand for their products or services and who are on
cloud computing / virtual workplaces. Furthermore, invest surplus funds in real assets such as Gold, Silver, and property.
They are the effective hedges against inflation and devaluation. They generate positive returns even in times of economic
distress.
I highly recommend that my potential readers pay their interest-bearing debt at the earliest to avoid the debt trap and
never go for this easy money for the foreseeable future, even in the form of credit cards. Housing loans are the blood-
sucking predator. These are all the means to enslave the human race to limit their thinking and imagination capability.
Always spend out of your realized income. Save some funds for your family as a contingency measure.
Allow me the opportunity to present to you the 2022 edition of CIA Part 3 Test Bank Questions. This Test Bank contains the
772 MCQs with explanation to the correct and incorrect choices to help you prepare for CIA exams conducted by IIA.
This CIA Exam Prep is ideal for all persons working in internal auditing, risk management and compliance reporting
positions. It also equally suitable for those candidates who wish to learn the concepts and principles of Internal Audit.
Aspiring entrepreneurs can also benefit from this CIA review course.
Study with complete dedication and commitment. Make the goal of learning something new and different each day.
Replace your fear with curiosity.

19
LETTER FROM MUHAMMAD ZAIN
Let’s work together towards the common goal of earning a Certified Internal Auditor (CIA) credential. My support and
guidance will be with you TILL YOU PASS THE EXAMS. Furthermore, you can ask as many questions as you wish to either
through WhatsApp (+92 311 222 4261) or email ([email protected] and [email protected]), and I will answer to the best
of my ability.
Your work is going to fill a large part of your life and the only way to be truly satisfied is to do what you believe is great
work. The only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with
all matters of the heart, you will know when you find it.
Have the courage to follow your heart and intuition. They somehow already know what you truly want to become.
Everything else is secondary.
Your imagination is everything. It is the preview of life’s coming attractions. Only those who believe anything is possible can
achieve things most would consider impossible.
Don’t let the noise of others’ opinions drown out your own inner voice.
Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You
are already naked. There is no reason not to follow your heart.

20
LETTER FROM MUHAMMAD ZAIN
Your time is limited, so don’t waste it living someone else’s life.
I dedicate this work to the Prophet Muhammad (Peace Be Upon Him), Mercy to all the Creation, who has been the source
of inspiration and guidance to humanity.
May the Knowledge delivered by me shall be a continuing blessing for me in the Life Hereafter (Ameen).

With Love and Care,

Muhammad Zain

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Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 26
Paul Cooper, shipping manager for DFG Distributors, is responsible for managing the staff and
all related transportation equipment to fill orders for bakery products from local retailers and
deliver the products to those retailers. Which one of the following groups of three
performance measures most likely would result in the highest level of goal congruence?

A. Orders completed per employee per day; employee injuries per hour worked; number of
vehicle accidents per year.
B. Customer satisfaction; elapsed time to complete an order; percentage of orders filled
accurately.
C. The percentage of orders filled on time; the percentage of orders filled accurately; average
cost to fill and deliver an order.
D. Labor cost per order; transportation cost per order; number of orders completed per day.

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Section A - Business Acumen
ANSWER TO QUESTION NO. 26
CORRECT ANSWER IS C. Its Explanation is

The shipping manager is responsible for filling customer orders efficiently and
accurately and delivering them quickly, at the lowest possible cost without negatively
impacting customer service.
Percentage of orders filled on time, percentage of orders filled accurately and average
cost to fill and deliver an order are determined by comparing actual performance with
established standards for those performance measures. These are appropriate
measurements for aligning the shipping manager's goals with those of the company,
because as the manager strives to attain those standards, he will be fulfilling his
responsibilities.

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Section A - Business Acumen
ANSWER TO QUESTION NO. 26
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
The shipping manager is responsible for filling customer orders efficiently and accurately and delivering them quickly, at the lowest
possible cost without negatively impacting customer service. Orders completed per employee per day is not meaningful because that can
be affected by the number of orders received, and the number of orders received is not something the shipping manager can control.
Though safety on the job is important, employee injuries per hour worked and number of vehicle accidents per year are not related to the
shipping manager's primary responsibilities.
Explanation for Choice B:
The shipping manager is responsible for filling customer orders efficiently and accurately and delivering them quickly, at the lowest
possible cost without negatively impacting customer service. Customer satisfaction could mean customer satisfaction with the product as
well as with the speed and accuracy of the delivery; and the shipping manager is not responsible for customer satisfaction with the
product and so should not be evaluated on that. Elapsed time to complete an order does relate to the speed with which an order is filled.
However, if there are no standards to compare the elapsed time against, the measurement is not meaningful.
Explanation for Choice D:
The shipping manager is responsible for filling customer orders efficiently and accurately and delivering them quickly, at the lowest
possible cost without negatively impacting customer service. Transportation cost per order is not something the shipping manager can
control, as decisions about delivery vehicles are made at another level and fuel costs are not controllable. Number of orders completed per
day is not meaningful because it does nothing to measure how quickly and accurately orders are filled after they are received.

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Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 27
If you were designing a new production-line position in an organization, which of the
following design techniques would you use to combat boredom and increase the
motivation of the person filling the position by adding responsibility and authority?

A. Job significance.
B. Job enlargement.
C. Job enrichment.
D. Job rotation.

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Section A - Business Acumen
ANSWER TO QUESTION NO. 27
CORRECT ANSWER IS C. Its Explanation is
Job enrichment can be used to motivate employees by not only adding more tasks to their jobs but also by allowing
them to make more decisions, thus giving them more control over the tasks they perform. According to Frederick
Herzberg's Dual-Structure (or Two-Factor) Theory, job enrichment can result in an employee's gaining a feeling of
achievement and recognition, leading to greater job satisfaction and thus greater employee motivation.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Job significance is not a job design technique that has been used to combat boredom and dissatisfaction on the part of
workers because of the monotony in the job.
Explanation for Choice B:
Job enlargement involves expanding a job's responsibilities horizontally, such as increasing the complexity or number of
tasks. However, as long as the tasks are easy to master, job enlargement does very little to decrease boredom or provide
job satisfaction or motivation.
Explanation for Choice D:
Job rotation may provide variety but it does not particularly decrease boredom or provide job satisfaction or motivation.
Instead of doing one boring job, workers work on several boring jobs. 77
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 28
Company A has recently acquired company B. In the process of the acquisition, the
manager of the engineering department of company B retired and has been replaced by a
new manager from company A. The new manager's employees are highly skilled, but they
are wary of and unwilling to work with the new manager. The most appropriate
management style for this manager to emphasize is the

A. Delegating style.
B. Directive style.
C. Selling style.
D. Participative style.

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Section A - Business Acumen
ANSWER TO QUESTION NO. 28
CORRECT ANSWER IS D. Its Explanation is
With a skilled workforce, the participative style of leadership is most effective due to low task emphasis
and high relationship emphasis.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The delegating style does not emphasize relationships which is what is required with this workforce.
Explanation for Choice B:
The workforce is able to do the job. The directive style focuses on specifics of tasks and is inappropriate.
Explanation for Choice C:
The selling style emphasizes both tasks and relationships. Task focus is not needed with this workforce.
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Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 29
People with a high need for achievement usually do not

A. Prefer frequent and unambiguous feedback.

B. Perform best when they perceive risks are high.
C. Function effectively as salespeople.
D. Seek situations in which they can attain personal responsibility for problem-
solving.

80
Section A - Business Acumen
ANSWER TO QUESTION NO. 29
CORRECT ANSWER IS B. Its Explanation is
People with a high need for achievement want success to be a result of their own actions and therefore
usually prefer tasks with intermediate difficulty. They tend to avoid difficult tasks because of the lower
probability for success and easy ones due to lack of sufficient challenge.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
High achievers can determine if they are improving based on frequent and unambiguous feedback.
Explanation for Choice C:
Sales positions offer personal responsibility, autonomy, rapid feedback and opportunities for moderate
challenges.
Explanation for Choice D:
Personal responsibility for problem solving is necessary to be recognized for achievement.
81
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 30
A preliminary survey of the purchasing function indicates that: Department managers initiate
purchase requests that must be approved by the plant superintendent, Purchase orders are typed
by the purchasing department using prenumbered and controlled forms, Buyers regularly update
the official vendor listing as new sources of supply become known, Rush orders can be placed with
a vendor by telephone but must be followed by a written purchase order before delivery can be
accepted, and Vendor invoice payment requests must be accompanied by a purchase order and
receiving report. One possible fault of this system is that

A. Purchases could be made from a vendor controlled by a buyer at prices higher than normal.
B. Payment can be made for supplies not received.
C. Payment can be made for supplies received but not ordered by the purchasing department.
D. Unnecessary supplies can be purchased by department managers.

82
Section A - Business Acumen
ANSWER TO QUESTION NO. 30
CORRECT ANSWER IS A. Its Explanation is
A general weakness in purchasing systems is the potential of conflict of interest between the
buyers and vendors where the result could be excessive prices being charged to the company.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Payment would not be able to be made without a receiving report. This is a proper control.
Explanation for Choice C:
Payments can only be made if supported by an approved purchased order.
Explanation for Choice D:
The requirement of purchase requests that must be approved by the plant superintendent is a proper control.
83
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 31
The following information applies to a project:
Activity Time (days) Immediate Predecessor
A 5 None
B 3 None
C 4 A
D 2 B
E 6 C,D
The earliest completion time for the project is:
A. 11 days.
B. 15 days.
C. 20 days.
D. 14 days.

84
Section A - Business Acumen
ANSWER TO QUESTION NO. 31
CORRECT ANSWER IS B. Its Explanation is
There are two paths: ACE and BDE. Path ACE takes 15 days (5 + 4 + 6) to complete and path BDE takes 11 days
(3 + 2 + 6) to complete. The earliest completion time for the project is determined by the longest path
through the network. Thus, the earliest completion time for the project is ACE, or 15 days.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
11 days is the time for completing activity BDE, and it is the shortest path through the network. However, the
shortest path through the network does not determine the earliest completion time for the project. The earliest
completion time for the project is determined by the longest path through the network.
Explanation for Choice C:
20 days is the sum of all of the activity times. The earliest completion time for the project is determined by the
longest path through the network.
Explanation for Choice D:
14 days is not a path of an activity. 85
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 32
Analyzing a company's technological capabilities, employee skills, and sales team
performance will provide

A. External factors that identify the company's strengths and weaknesses.

B. Internal factors that identify the company's strengths and opportunities.
C. External factors that identify the company's strengths and threats.
D. Internal factors that identify the company's strengths and weaknesses.

86
Section A - Business Acumen
ANSWER TO QUESTION NO. 32
CORRECT ANSWER IS D. Its Explanation is
Analyzing a company's technological capabilities, employee skills, and sales team performance is internal analysis.
The purpose of internal analysis is to identify strengths, weaknesses and limitations within the organization.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
External analysis is not used to identify a company's strengths and weaknesses. External analysis is used to identify
a company's threats and opportunities.
Explanation for Choice B:
Internal analysis is not used to identify a company's opportunities. Threats and opportunities are identified through
external analysis.
Explanation for Choice C:
Analyzing a company's technological capabilities, employee skills, and sales team performance is internal analysis,
not external analysis. Internal analysis is not used to identify a company's threats. Threats and opportunities are
identified through external analysis.
87
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 33
In a PERT or CPM network, the critical path is the

A. Shortest path through the network.

B. Longest path through the network.
C. Most costly path through the network.
D. Shortest path through the network with the least amount of slack.

88
Section A - Business Acumen
ANSWER TO QUESTION NO. 33
CORRECT ANSWER IS B. Its Explanation is
The critical path is the path that requires the most time, because if activities on that path are delayed
for any reason, the entire project will be delayed.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The shortest path through the network is not the critical path.
Explanation for Choice C:
The most costly path through the network is not the critical path.
Explanation for Choice D:
The shortest path through the network is not the critical path, no matter how much slack it has.
89
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 34
Residual income is a better measure for performance evaluation of an investment
center manager than return on investment because

A. Returns do not increase as assets are depreciated.

B. Only the gross book value of assets needs to be calculated.
C. The problems associated with measuring the asset base are eliminated.
D. Desirable investment decisions will not be neglected by high return divisions.

90
Section A - Business Acumen
ANSWER TO QUESTION NO. 34
CORRECT ANSWER IS D. Its Explanation is
Residual income (RI) is calculated as the amount of return (operating income of a business unit) that is in excess of a
targeted amount of return on the investments that are employed by that business unit (calculated as assets of the
business unit multiplied by the required rate of return). RI is focused on the monetary amount of income that is in excess
of a targeted amount. It is not focused on a percentage of return as ROI is. When using RI to evaluate investment
opportunities, any project that has a positive RI will be accepted even if it will reduce the overall company's or business
unit's ROI. Thus, desirable investment decisions will not be neglected by high return business units.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The asset base is total assets for both return on investment and residual income. As fixed assets are depreciated, both
methods will be affected.
Explanation for Choice B:
The asset base is total assets for both return on investment and residual income. Furthermore, total assets includes the
net book value of fixed assets, not the gross book value of fixed assets.
Explanation for Choice C:
The asset base is total assets for both return on investment and residual income, and measuring it is usually not a
problem. 91
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 35
The distinctive competencies of a company come from

A. Generic product production.

B. The company's prior strategic commitment.
C. The company's threats and opportunities.
D. The company's resources and capabilities.

92
Section A - Business Acumen
ANSWER TO QUESTION NO. 35
CORRECT ANSWER IS D. Its Explanation is
What an organization does better than the competition are its distinctive competencies, which emanate from its
resources and capabilities.
As in business process reengineering, the company must understand what activities are vital to its success by
clearly identifying them.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Generic product production is not a distinctive competency.
Explanation for Choice B:
The company's prior strategic commitment is a condition that may have impacted the company's current
competencies.
Explanation for Choice C:
Threats and opportunities are external.
93
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 36
The sources of a company's distinctive competencies are:

A. The company's threats and opportunities.

B. The company's resources and capabilities.
C. The company's prior strategic commitments.
D. High profitability and sustained profit growth.

94
Section A - Business Acumen
ANSWER TO QUESTION NO. 36
CORRECT ANSWER IS B. Its Explanation is
What an organization does better than the competition are its distinctive competencies.
Distinctive competencies are strengths that a company has that enable it to either (1)
have a differentiation advantage and/or (2) have a cost advantage. The source of a
company's distinctive competencies are its resources and capabilities.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Threats and opportunities are external.
Explanation for Choice C:
A company’s prior strategic commitments, such as investments, may limit its ability to respond to competitors'
actions and to be flexible, causing a competitive disadvantage.
Explanation for Choice D:
High profitability and sustained profit growth are means to achieving the goal of maximizing shareholder returns.
95
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 37
During the strategic planning process, which one of the following is an external
factor to be analyzed?

A. Employee morale.
B. Organizational culture.
C. Organizational structure.
D. Societal culture.

96
Section A - Business Acumen
ANSWER TO QUESTION NO. 37
CORRECT ANSWER IS D. Its Explanation is
In analyzing the external environment as part of the strategic planning process, three environments should be
examined:
1. The industry in which the company operates,
2. The country or the national environment in which the company operates as well as the international
environment, and
3. The wider environment, or macro-environment in which the company operates.

The macro-environment includes macroeconomic factors that will affect the entire industry or the economy as a
whole. The most important macroeconomic factors in planning and budgeting are:
1. Economic growth and economic recession.
2. The level of interest rates.
3. Changes in currency exchange rates.
4. Inflation and deflation.
The macro-environment also includes social and cultural factors such as environmental issues and government,
legal, international, and technological factors that affect the industry and the company.

97
Section A - Business Acumen
ANSWER TO QUESTION NO. 37
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Employee morale is not an external factor, because it is internal to the organization.
Explanation for Choice B:
Organizational culture is not an external factor, because it is internal to the organization.
Explanation for Choice C:
Organizational structure is not an external factor, because it is internal to the organization.

98
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 38
The method(s) that managers employ to attain one or more of the organization's
goals can be defined as:

A. Capital investments.
B. Choosing the company's organizational structure.
C. Determining the company's business model.
D. Strategy.

99
Section A - Business Acumen
ANSWER TO QUESTION NO. 38
CORRECT ANSWER IS D. Its Explanation is
Management uses strategy (strategies) to attain the company's goals and objectives.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Capital investments are long-term investments made by a business for the purpose of increasing capacity and shareholder
wealth. While they are an important part of a business's strategy, they are not the method that managers employ to attain
the organization's goals.
Explanation for Choice B:
Choosing the company's organizational structure is strategic in nature but is not the method that managers employ to
attain the organization's goals.
Explanation for Choice C:
A company's business model is its managers’ idea of how the set of strategies and capital investments that the company
makes should fit together to generate above-average profitability and, at the same time, profit growth. Determining the
company's business model is strategic in nature but is not the method that managers employ to attain the organization's
goals. 100
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 39
It could be argued that the reason a company has succeeded in a very competitive market
while its rivals have failed is because:

A. The company has adopted a strategy with a low propensity for risk-taking.
B. The strategies that the successful company pursues have a strong impact on its
performance relative to its rivals.
C. The successful company has adopted more steps to its formal strategic planning
process.
D. The company has evolved into a multi-divisional organization.

101
Section A - Business Acumen
ANSWER TO QUESTION NO. 39
CORRECT ANSWER IS B. Its Explanation is
The company in a leadership position has developed and pursued strategies that succeed in its own marketplace and that
build competitive advantage. The strategies that a company pursues can build new resources and capabilities or
strengthen existing ones and thus can enhance the company’s distinctive competencies. At the same time, a company's
distinctive competencies shape the strategies that the company uses, and those strategies in turn lead to a competitive
advantage and superior profitability. So the relationship between a company’s distinctive competencies and its strategies
is a circular one. Strategies help build and create distinctive competencies, and distinctive competencies in turn shape
strategies.
There are typically five steps in the strategic planning process:
1. Defining the company’s mission and addressing the key corporate goals;
2. Analyzing the organization’s external competitive environment in order to identify the opportunities and threats;
3. Analyzing the internal operating environment to identify the strengths and weaknesses of the organization;
4. Formulating and selecting strategies that, consistent with the organization’s mission and goals, will optimize the
organization’s strengths and correct its weaknesses for the purpose of taking advantage of external opportunities while
countering external threats (SWOT analysis); and
5. Developing and implementing the chosen strategies.

102
Section A - Business Acumen
ANSWER TO QUESTION NO. 39
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Although some successful companies adopt strategies that involve low risk, a company that does not take risks will
not be very innovative. Superior innovation is one of the four factors derived from a company's distinctive
competencies that create competitive advantage. (The four factors are superior efficiency, superior quality, superior
innovation, and superior customer responsiveness.) Innovation in products and processes is perhaps the most
important component of competitive advantage. Competition is driven by innovations. Product innovations give the
innovator something that is unique, and this uniqueness provides differentiation which in turn allows the company
to charge a premium price for its product. Process innovation can reduce unit costs below those of the competition.
Explanation for Choice C:
Success does not rest on adopting a formal strategic planning process with many steps (there are typically five steps
in the process).
Explanation for Choice D:
Success does not rest on becoming a multi-divisional organization.

103
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 40
A chief financial officer (CFO) has evaluated a subordinate as having the potential to move
up to a senior management position. Which approach is most likely to be effective in
developing the subordinate’s potential?

A. Announce that the subordinate is next in line for a senior management position, and
take every opportunity to praise the subordinate's work in front of the subordinate's
peers.
B. Hold the subordinate to a higher performance standard than the subordinate's peers.
C. Develop a performance contract, in which the CFO lists the specific actions the
subordinate must complete to move into a senior management position.
D. Communicate the CFO's evaluation to the subordinate and establish a mentoring
relationship with the subordinate.
104
Section A - Business Acumen
ANSWER TO QUESTION NO. 40
CORRECT ANSWER IS D. Its Explanation is
There is strong evidence that a mentoring relationship is the best way to develop potential, especially at
the senior management level.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This approach does not involve any actions to improve the subordinate’s current level of performance, and it would
most likely cause resentment among the subordinate’s peers.
Explanation for Choice B:
This approach could be perceived as unfair by the subordinate and have counter-productive results.
Explanation for Choice C:
Many of the skills needed at the senior management level are too broad and diverse to be reduced to a series of
steps. The subordinate could complete all the steps and still not be ready for the position. Or the subordinate could
complete all the steps, be ready, but not have such a position available.
105
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 41
Goal setting is an important component of motivating employees. The goal "we need to do much
better than before" would not be appropriate because it

A. Does not specify clear, measurable, and achievable objectives.

B. Is more a strategy than a goal.
C. Does not describe the process by which the goal will be achieved.
D. Does not take into consideration employee needs.

106
Section A - Business Acumen
ANSWER TO QUESTION NO. 41
CORRECT ANSWER IS A. Its Explanation is
A good goal should be clear, measurable, and achievable.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Strategies are general statements of the direction of a department or an organization. The statement is not a
strategy.
Explanation for Choice C:
The process of goal implementation is not one of components of the goal itself. A goal may be appropriate and still
poorly implemented.
Explanation for Choice D:
Employee needs are not an essential component of goal setting. 107
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 42
An auditor is looking at the following dates pulled from a set of data:
19 November, 2018
2020-02-05
January 31, 2019
June 4 2020
1st of March, 2018

In order for these dates to be useful in data analytics, they need to be:
A. Cleaned and Normalized
B. Cleaned
C. Neither cleaned nor normalized, it is fine as-is.
D. Normalized

108
Section A - Business Acumen
ANSWER TO QUESTION NO. 42
CORRECT ANSWER IS B. Its Explanation is
The dates all need to be in a consistent format in order to be used in data analytics. For example:
19 November, 2018
05 February, 2020
31 January, 2019
04 June, 2020
01 March, 2018
Normalization is not required because the dates are already consistent and all refer to existing dates. An example of an irregularity would
be a non-existent date such as January 32nd, which likely represents a data entry or processing error.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
The data does need to be cleaned, but it does not need to be normalized. An example of an irregularity requiring normalization would be a
non-existent date such as January 32nd, which likely represents a data entry or processing error.
Explanation for Choice C:
The mix of date formats is not going to be usable for data analytics, and the dates do need to be cleaned.
Explanation for Choice D:
All of the data in this data set is normal, meaning that it is consistent and does not contain any irregularities. An example of an irregularity
would be a non-existent date such as January 32nd, which likely represents a data entry or processing error.
109
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 43
The following question presents a scenario in which a manager needs to decide what leadership style to use to
obtain employee satisfaction and effective employee performance. For the purposes of this question, the manager
has a choice of four styles. The directive leader lets subordinates know what is expected of them, schedules work
to be done, and gives specific guidance on how to accomplish tasks.
The supportive leader is friendly and shows concern for the needs of the subordinates. The participative leader
consults with subordinates and uses their suggestions before making a decision. The achievement-oriented leader
encourages subordinates to set high goals and perform at high standards of excellence. A production team has
been together for several years and has worked well together. However, severe arguments have recently occurred
between two members of the group, and other members have begun to take sides. This problem has had a
negative effect on production performance. The best leadership style for the manager in this situation is

A. Directive.
B. Supportive.
C. Achievement-oriented.
D. Participative.
110
Section A - Business Acumen
ANSWER TO QUESTION NO. 43
CORRECT ANSWER IS A. Its Explanation is
The best leadership style for the manager in this case is directive because it provides the highest satisfaction when
teams encounter considerable internal conflict. It complements the environmental factors. The manager should
intervene to compensate for the stress brought about in the workplace by severe behavior.
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
A supportive leader is friendly and concerned about the needs of the subordinates. A supportive leader is most effective
when the work environment is physically or psychologically challenging such as highly stressful work, or when the work is
not intrinsically satisfying, as in repetitive work. That is not the situation in this scenario.
Explanation for Choice C:
An achievement-oriented leader expresses confidence in subordinates' capabilities and encourages them to set high goals
and perform at high standards of excellence. It is most effective when subordinates are professionals such as in technical
or scientific environments and the tasks are unstructured, complex, and ambiguous. That is not the situation in this
scenario.
Explanation for Choice D:
The participative leader consults with subordinates before making a decision and is most effective when employees 111
are
self-motivated, highly skilled, and prefer to work independently. That is not the situation in this scenario.
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 44
In PERT, slack is the

A. Uncertainty associated with time estimates.

B. Number of days an activity can be delayed without forcing a delay for the entire
project.
C. Path that has the largest amount of time associated with it.
D. Difference between the latest starting time and earliest finishing time.

112
Section A - Business Acumen
ANSWER TO QUESTION NO. 44
CORRECT ANSWER IS B. Its Explanation is
Slack is the amount of time that an activity can be delayed without putting the whole project behind
schedule. Paths that are not designated as critical paths are paths with slack time. Slack represents
unused resources that can be diverted to the critical path.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Uncertainty associated with time estimates is based on probabilistic estimates of completion times.
Explanation for Choice C:
The path that has the largest amount of time associated with it is the critical path.
Explanation for Choice D:
The difference between the latest starting time and earliest finishing time is not relevant.
113
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 45
An example of an item that would fall under the customer perspective on the balanced
scorecard of an airline is

A. three new in-flight meals will replace existing offerings that are unpopular with
customers.
B. 90% of the flights will arrive on time.
C. customers will have to wait no longer than 15 minutes to check their bags.
D. customer complaints will decrease by 10%.

114
Section A - Business Acumen
ANSWER TO QUESTION NO. 45
CORRECT ANSWER IS D. Its Explanation is
Decreasing customer complaints by 10% is an example of a Customer perspective key
performance indicator on a balanced scorecard for an airline.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Three new in-flight meals replacing existing offerings that are unpopular with customers is an example of an
Internal Process perspective key performance indicator on a balanced scorecard for an airline.
Explanation for Choice B:
Improving the percentage of flights that arrive on time is an example of an Internal Process perspective key
performance indicator on a balanced scorecard for an airline.
Explanation for Choice C:
Improving customer wait times to check bags is an example of an Internal Process perspective key
performance indicator on a balanced scorecard for an airline. 115
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 46
There are numerous factors that enhance or detract from a group's attractiveness
and cohesiveness. Select the factor that enhances cohesiveness.

A. A favorable view from the outside, looking in.

B. A common threat in the environment.
C. Moderately large size.
D. A wide variety of members.

116
Section A - Business Acumen
ANSWER TO QUESTION NO. 46
CORRECT ANSWER IS B. Its Explanation is
Cohesiveness of the group is enhanced if there is a common threat in the external environment.
Groups tend to resist outside influences.
Other factors that enhance cohesiveness are a cooperative relationship, the similarity of members
and small size of the group.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
A favorable view from the outside refers to the group's attractiveness.
Explanation for Choice C:
A relatively small size enhances cohesiveness.
Explanation for Choice D:
The similarity of members would enhance cohesiveness. A wide variety of members implies a lack of
similarity.
117
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 47
Which of the following statements about self-managed work teams is false?

A. The teams can take action on problems that develop and make operating
decisions.
B. The team has the authority to decide how its work will be done.
C. Self-managed work teams tend to be temporary.
D. Self-managed work teams do not work well in cultures that have strong respect
for hierarchical authority.

118
Section A - Business Acumen
ANSWER TO QUESTION NO. 47
CORRECT ANSWER IS C. Its Explanation is
This is a false statement concerning self-managed work teams. These self-managed work
teams are charged with doing the daily work, and thus, they tend to be permanent, not
temporary.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Self-managed work teams can take action on any problems that develop, make operating decisions, and work
directly with suppliers and customers.
Explanation for Choice B:
Self-managed work teams have the authority to decide how its work will be done in terms of planning and
scheduling and assigning tasks to members.
Explanation for Choice D:
Self-managed work teams tend not to work well in cultures with strong respect for hierarchical authority. 119
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 48
In a critical path analysis, if slack time in an activity exists, the activity

A. Could be delayed without delaying the overall project.

B. Is a backup activity to replace a main activity should it fail.
C. Is not essential to the overall project.
D. Involves essentially no time to complete.

120
Section A - Business Acumen
ANSWER TO QUESTION NO. 48
CORRECT ANSWER IS A. Its Explanation is
Slack time is the amount of time by which a step in the process could be delayed without
delaying the overall completion of the project.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Just because an activity has slack time does not mean that it is a backup activity to a main activity.
Explanation for Choice C:
Just because an activity has slack time does not mean that it is not essential to the project.
Explanation for Choice D:
Just because an activity has slack time does not mean that it takes essentially no time to complete.
121
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 49
Management of a company is attempting to build a reputation as a world-class
manufacturer of quality products. Which of the following measures would not be used by
the firm to measure quality?

A. The number of parts shipped per day.

B. The percentage of shipments returned by customers because of poor quality.
C. The percentage of products passing quality tests the first time.
D. The number of defective parts per million.

122
Section A - Business Acumen
ANSWER TO QUESTION NO. 49
CORRECT ANSWER IS A. Its Explanation is
The number of parts shipped per day does not measure the number of parts that are
defective. Thus, it would not be used to measure quality.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
The percentage of shipments returned by customers because of poor quality is a quality measurement.
Explanation for Choice C:
The percentage of products passing quality tests the first time is a quality measurement.
Explanation for Choice D:
The number of defective parts per million is a quality measurement.
123
Section A - Business Acumen
MULTIPLE CHOICE QUESTION NO. 50
A Gantt chart

A. Does not show the critical path through a network.

B. Shows the critical path for a project.
C. Shows only the activities along the critical path of a network.
D. Is used for determining an optimal product mix.

124
Section A - Business Acumen
ANSWER TO QUESTION NO. 50
CORRECT ANSWER IS A. Its Explanation is
Gantt charts show in graphic form when different steps of a project need to be completed. Gantt charts
are easy to complete and also provide a quick way to see if the project is on schedule or either ahead of
or behind schedule. A Gantt chart does not show the critical path through a network.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
The Gantt chart does not show the critical path for a project.
Explanation for Choice C:
The Gantt chart does not show the critical path for a project.
Explanation for Choice D:
Linear programming is used for determining an optimal product mix, not the Gantt chart.
125
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 26
Which of the following components of smart devices pose a security risk?
1. Cameras
2. Wi-Fi connections
3. GPS
4. Cellular connections
5. Bluetooth

A. 1, 2, and 4
B. All of the above
C. 3 and 4
D. 2 and 4

457
Section B - Information Security
ANSWER TO QUESTION NO. 26
CORRECT ANSWER IS B. Its Explanation is
1. Cameras can be used to record information to be taken or sent off-premises. 2. Wi-Fi connection
allow the device to send data or be accessed remotely. 3. GPS can be used to track the device or person
carrying it. 4. Cellular connections pose the same risk as Wi-Fi connections. 5. Bluetooth is also a
security risk, because data can be sent over Bluetooth.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
All of these features of smart devices pose security risks.
Explanation for Choice C:
All of these features of smart devices pose security risks.
Explanation for Choice D:
All of these features of smart devices pose security risks.

458
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 27
A mortgage broker prepared sample mortgage payment schedules on a personal
computer to illustrate different payment plans to prospective loan customers. The
schedules were especially helpful for loans with variable rates because the schedules
illustrated how loan balances would fluctuate over multi-year horizons with different
interest rate trends. The mortgage company's literature was not nearly as helpful, and the
broker was convinced the schedules helped customers understand and appreciate the
sophisticated loan types, which led to more loans.
The potential risk of erroneous logic in the schedules could best be minimized by:

A. Adequate independent testing of the application.

B. Ensuring adequate backup procedures for the application.
C. Designing control procedures for sharing the schedules.
D. Requiring adequate documentation for the schedules. 459
Section B - Information Security
ANSWER TO QUESTION NO. 27
CORRECT ANSWER IS A. Its Explanation is
Any potential risk of erroneous logic in the schedules could be minimized by adequate independent testing of
the application to detect any errors that the broker could not recognize.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
The application should have adequate backup procedures, but that would not detect or correct logic
errors in the schedules.
Explanation for Choice C:
There should be adequate control procedures to the extent that the schedules are shared with other
brokers, but such controls would not detect or correct logic errors in the schedules.
Explanation for Choice D:
There should be adequate documentation for the schedules, but that would not detect or correct logic
errors in the schedules.
460
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 28
Which of the following is a physical security control?

A. Limiting access of certain functions to specific computers on the network.

B. Encryption
C. Requiring two-factor authentication for all devices.
D. Proxy server

461
Section B - Information Security
ANSWER TO QUESTION NO. 28
CORRECT ANSWER IS A. Its Explanation is
Adding limitations to access is a significant physical control by preventing
unauthorized remote access or access by unauthorized employees or vendors.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Encryption is a useful tool for protecting information, but it is not a physical security control.
Explanation for Choice C:
Two-factor authentication is a user authentication and authorization control, not a physical security
control.
Explanation for Choice D:
A proxy server is a gateway that controls the flow of information between the company's network and
the Internet.
462
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 29
An internal auditor is evaluating a company's security policies. Which of the
following would the auditor not expect to see in the security policies?

A. What customer data is considered to be private information.

B. When encryption should be used to send sensitive information to third parties.
C. Using the network file server to store documents that require collaboration.
D. Where mobile phones and devices with Internet capabilities may not be used.

463
Section B - Information Security
ANSWER TO QUESTION NO. 29
CORRECT ANSWER IS C. Its Explanation is
This would fall into the category of operating procedures, rather than security policies.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This would be part of the company's security policy in order to protect customer data from theft or misuse.
Explanation for Choice B:
This would be part of the company's security policy in order to protect the company's sensitive information
from falling into the wrong hands.
Explanation for Choice D:
This would be part of the company's security policy in order to prevent exposing sensitive equipment or data
to attacks via the Internet. 464
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 30
One of the internal auditor's laptops is running slowly and frequently crashing. Which of
the following would not explain this behavior?

A. Denial of Service (DOS)

B. Malware
C. Buffer overflows
D. Ransomware

465
Section B - Information Security
ANSWER TO QUESTION NO. 30
CORRECT ANSWER IS D. Its Explanation is
Ransomware would not cause a computer to crash or behave erratically. Ransomware will hold the
computer's files hostage until a ransom is paid.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A denial of service attack could very easily cause a computer to slow down because it is busy processing
an endless stream of data.
Explanation for Choice B:
Malware such as viruses can cause any number of erratic behaviors.
Explanation for Choice C:
A buffer overflow can cause crashes and other erratic behavior.

466
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 31
Because the backlog for the corporate information systems (IS) development group at a large telephone company was
longer than two years, the marketing department proposed to undertake its own development of queries and reporting
programs that would access the company's databases. For over a year, the marketing department had been making
progressively less accurate predictions about sales demand in its primary markets. The department attributed this to the
inability to access current data about customers, sales, service levels, and equipment maintenance histories. Because their
predictions were so inaccurate, there were frequent backlogs in production when sales demand was underestimated,
which resulted in customers buying service and equipment from other companies.
When sales demand was overestimated, there was excess inventory that became obsolete before it could be sold.
The marketing analysts became very comfortable using the query language and report writer. It became common for
individual analysts to design, write, and finish a report in an hour or less. The marketing manager was generally pleased
with this but found that the most complex reports never seemed to be correct. The most likely cause for the errors is
inadequate:
A. Access control.
B. Testing.
C. Change control.
D. Documentation.

467
Section B - Information Security
ANSWER TO QUESTION NO. 31
CORRECT ANSWER IS B. Its Explanation is
Inadequate testing is the most likely cause for the coding errors in the most complex reports. It is
difficult to design a test that will satisfy all data criteria in a complex environment.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
There may be inadequate access control, but that is not the reason for errors in the most complex reports.
Explanation for Choice C:
There may be inadequate change control, but that is not the reason for errors in the most complex reports.
Explanation for Choice D:
There may be inadequate documentation, but that is not the reason for errors in the most complex reports.

468
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 32
The security and privacy of data stored in the cloud is a significant concern for
individuals and companies alike. What is the single most effective way to protect
data stored in the cloud?

A. Regularly backup the cloud data offline.

B. Require very strong passwords to access the data.
C. Encrypt the data.
D. Avoid accessing the cloud storage over public Wi-Fi.

469
Section B - Information Security
ANSWER TO QUESTION NO. 32
CORRECT ANSWER IS C. Its Explanation is
Encryption is the single most effective way to ensure that data is kept private.
Encrypted data cannot be read by anyone, including employees of the cloud
storage company, who does not have the correct decryption key.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
While backups are important, they do not address the privacy and security of the data in the cloud.
Explanation for Choice B:
While strong passwords are important, they are not the most effective way to protect data stored in the
cloud.
Explanation for Choice D:
This is an effective precaution to take with cloud storage, but it is not the best choice.
470
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 33
Traditional information systems development procedures that ensure proper consideration of
controls may not be followed by users developing end-user computing (EUC) applications.
Which of the following is a prevalent risk in the development of EUC applications?

A. Management may place the same degree of reliance on reports produced by EUC
applications as it does on reports produced under traditional systems development
procedures.
B. Management may be less capable of reacting quickly to competitive pressures due to
increased application development time.
C. Management decision-making may be impaired due to diminished responsiveness to
management's requests for computerized information.
D. Management may incur increased application development and maintenance costs for EUC
systems, compared with traditional systems.
471
Section B - Information Security
ANSWER TO QUESTION NO. 33
CORRECT ANSWER IS A. Its Explanation is
The end-user program may not be reviewed by an outside party and therefore may lack appropriate
standards, controls, quality assurance procedures, and documentation.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
EUC systems typically reduce application development time.
Explanation for Choice C:
EUC systems typically increase management decision-making capability.
Explanation for Choice D:
EUC systems typically reduce application development and maintenance costs compared with
traditional systems.

472
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 34
Which of the following is not an example of a physical access control?

A. Shredding confidential documents when they are no longer needed.

B. Having the computer center be protected from natural disasters as much as
possible.
C. Having access to the computer center be controlled by a security guard who can
open the locked doors only by "buzzing in" authorized personnel.
D. Requiring scanning of magnetic ID cards to enter the computer center, with all
access being logged automatically.

473
Section B - Information Security
ANSWER TO QUESTION NO. 34
CORRECT ANSWER IS A. Its Explanation is

While shredding sensitive documents when they are no longer needed is a very important
output control, it does not pertain to the physical security of the computing equipment.
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
This is an example of a physical control because it pertains to keeping the computer
equipment safe from damage or loss due to natural disasters.
Explanation for Choice C:
This is an example of a physical control because it pertains to controlling physical access to the
computer equipment.
Explanation for Choice D:
This is an example of a physical control because it pertains to controlling physical access to the
computer equipment. 474
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 35
In the IIA's Assessing Cybersecurity Risk: Roles of the Three Lines of Defense, which
one of the following is not one of the three lines of defense?

A. Risk Management and Compliance Functions

B. Internal Audit
C. The Board of Directors
D. Operational Management

475
Section B - Information Security
ANSWER TO QUESTION NO. 35
CORRECT ANSWER IS C. Its Explanation is
The Board of Directors is not one of the lines of defense in the IIA's model.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:

The risk management function is the second line of defense and monitors the operational management,
intervening when necessary to add or modify controls.
Explanation for Choice B:
The internal audit is the third and final line of defense and provides the highest level of independence within
the organization.
Explanation for Choice D:
Operational managers are the first line of defense.
476
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 36
The best preventive measure against a computer virus is to:

A. Running anti-virus software on the system.

B. Compare software in use with authorized versions of the software.
C. Allow only authorized software from known sources to be used on the system.
D. Prepare and test a plan for recovering from a virus.

477
Section B - Information Security
ANSWER TO QUESTION NO. 36
CORRECT ANSWER IS C. Its Explanation is
The best preventive measure is to allow only authorized software from known sources to be on the
system. It is expected that authorized software will be virus-free.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Running anti-virus software is a detective measure, not a preventive measure.
Explanation for Choice B:
Comparing software in use with authorized versions of the software is a detective measure, not a
preventive measure.
Explanation for Choice D:
Preparing and testing a plan for recovering from the incidence of a virus is a corrective measure, not a
preventive measure.
478
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 37
A department purchased one copy of a word processing program for internal use.
The manager of the department installed the program on the manager’s office
computer and then made two complete copies on external hard drives. Copy
number 1 was solely for backup purposes. Copy number 2 was for use by another
member of the department. In terms of software licenses and copyright law, which
of the following is correct?

A. Both copies are legal.

B. Neither copy is legal.
C. Only copy number 2 is legal.
D. Only copy number 1 is legal.
479
Section B - Information Security
ANSWER TO QUESTION NO. 37
CORRECT ANSWER IS D. Its Explanation is
A backup copy is legal under the copyright law. However, any copy other than a backup copy is illegal
and is a license violation.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Only copy number 1 is legal.
Explanation for Choice B:
One of the copies is legal.
Explanation for Choice C:
Any copy other than a backup copy is illegal and is a license violation.
480
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 38
A department developed an integrated end user computing (EUC) application involving timekeeping,
payroll, and labor cost accounting. When the labor cost accounting component of the application was
first implemented, it did not meet certain business requirements in the department. Subsequently, the
department had to hire outside consultants to rewrite parts of the program.
Which one of the following risks associated with EUC application development could have led directly to
this result?

A. End-user applications may not be adequately documented to facilitate review.

B. Segregation of duties would be inadequate if the programmer and operator functions were
performed by the same person.
C. There may be insufficient review and analysis of user needs when user and analyst functions are not
separate.
D. End-user applications may not receive the independent testing associated with traditional
development.
481
Section B - Information Security
ANSWER TO QUESTION NO. 38
CORRECT ANSWER IS C. Its Explanation is
Without formal systems analysts, user-developed applications have no independent review. Also, it may
be difficult for users to specify complete requirements.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A poorly documented application is more difficult to turn over to another person to operate or change.
Explanation for Choice B:
Lack of segregation of duties is a risk associated with concealment of errors or fraud.
Explanation for Choice D:
While inadequate testing may fail to detect the missing or erroneous logic, it would not be the underlying cause of
the problem.

482
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 39
A company with several hundred stores has a network for the stores to transmit sales data to headquarters. The
network is also used for:
Vendors to submit reorders. Stores to transmit special orders to headquarters. Regional distribution centers to
communicate delivery and out-of-stock information to the stores. The national office to distribute training
materials.
Store, regional, and national personnel to share any information they think helpful. In order to accommodate the
large volume of transmissions, large stores have their own satellite receiving/transmitting stations. Small stores use
the Internet.
The information systems director is concerned that someone might be able to enter fictitious orders from store
computers. Of the following, the best control for minimizing the likelihood of such an occurrence is to:
A. Encrypt outbound transmissions from the stores.
B. Enforce strong password control procedures for users.
C. Encourage employees to report suspicious activity.
D. Require change control procedures for programs.
483
Section B - Information Security
ANSWER TO QUESTION NO. 39
CORRECT ANSWER IS B. Its Explanation is

Enforcing strong password control procedures would make it more difficult for an unauthorized person, such
as a competitor intending to disrupt the distribution patterns, to gain entry.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Encrypting transmissions from the stores would increase the difficulty of eavesdropping on the transmissions, but would
not deter someone from entering fictitious transactions.
Explanation for Choice C:
Encouraging store employees to report suspicious activity is a good practice, but it is not the best control for minimizing
the likelihood of someone entering fictitious orders from store computers.
Explanation for Choice D:
Requiring change control for programs ensures that program changes are authorized, tested, and documented, but would
not deter someone from entering fictitious transactions.
484
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 40
Which of the following is not one of the common standards in the Fair Information
Practice Codes?

A. Choice
B. Access
C. Encryption
D. Notice

485
Section B - Information Security
ANSWER TO QUESTION NO. 40
CORRECT ANSWER IS C. Its Explanation is
Encryption is not a common standard. The five common standards in the Fair Information Practice Codes are
Notice, Choice, Access, Security, and Enforcement.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The five common standards in the Fair Information Practice Codes are Notice, Choice, Access, Security and
Enforcement.
Explanation for Choice B:
The five common standards in the Fair Information Practice Codes are Notice, Choice, Access, Security, and
Enforcement.
Explanation for Choice D:
The five common standards in the Fair Information Practice Codes are Notice, Choice, Access, Security, and
Enforcement.
486
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 41
Pirated software obtained through the Internet may lead to civil lawsuits or criminal prosecution. Of the
following, which would reduce an organization's risk in this area?
I. Maintain a log of all software purchases.
II. Audit individual computers to identify software installed on the computers.
III. Establish a corporate software policy.
IV. Provide original software media to each user.

A. II and IV only.
B. I, II, and III only.
C. II and III only.
D. I and IV only.

487
Section B - Information Security
ANSWER TO QUESTION NO. 41
CORRECT ANSWER IS B. Its Explanation is
IV is incorrect because providing only original media does not guarantee that the users won't also install
software from other non-approved sources. The rest of the choices are all correct.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
See the correct answer for the explanation.
Explanation for Choice C:
See the correct answer for the explanation.
Explanation for Choice D:
See the correct answer for the explanation.
488
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 42
Which of the following is not part of the internal auditor's role with regards to
privacy?

A. Developing and running an employee training program about data privacy.

B. Consulting with legal counsel regarding compliance issues, if necessary.
C. Documenting the company's controls and compliance with privacy laws and
regulations.
D. Verifying that the organization is complying with all applicable privacy laws and
regulations.

489
Section B - Information Security
ANSWER TO QUESTION NO. 42
CORRECT ANSWER IS A. Its Explanation is
As with any other area of the organization, internal auditors should not develop and implement any
control-related programs, or they risk compromising their independence.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Internal auditors should consult with legal counsel when necessary.
Explanation for Choice C:
Documentation would be part of the auditor's role when verifying compliance.
Explanation for Choice D:
Verifying compliance is one of the most important roles of the auditor with regards to privacy.
490
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 43
Appropriate elements of a policy on email usage would include all of the following except:

A. Encrypting email messages.

B. Directing that personnel do not send highly sensitive or confidential messages using email.
C. Requiring users to change their password on a regular basis.
D. Erasing all employee's email immediately upon employment termination.

491
Section B - Information Security
ANSWER TO QUESTION NO. 43
CORRECT ANSWER IS D. Its Explanation is
The company should have access to the business-related email that is left behind because these email are
property of the company and may pertain to pertinent business operations or, in some cases, a criminal
investigation.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Encryption prevents eavesdropping by unauthorized persons trying to compromise email messages.
Explanation for Choice B:
Controlling the transmission of confidential information by email will help avoid loss of proprietary company
information.
Explanation for Choice C:
It is good practice to require users to regularly change their password in order to prevent unauthorized access to
computer systems. 492
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 44
In order to help reduce the risk from emerging technologies, the internal auditor should do all
of the following except:

A. Conduct risk assessments for unknown threats where policies do not exist.
B. Stay current with the latest technology trends.
C. Test all smart devices and wearables brought by employees for vulnerabilities.
D. Conduct risk assessments for known threats where policies do not exist.

493
Section B - Information Security
ANSWER TO QUESTION NO. 44
CORRECT ANSWER IS C. Its Explanation is
It would be neither possible nor practical for the auditor to test all devices, especially because the
presence of some devices may be hidden from the auditor. What the auditor should do instead is
conduct risk assessment on common devices so that management can be aware of the possible risks
and design policies and procedures to mitigate those risks.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Risk assessments are a primary function of the internal audit activity, even if there is no immediately known threat.
Explanation for Choice B:
In order to be vigilant about the risks a company faces from emerging technologies, internal auditors must be
familiar with the trends.
Explanation for Choice D:
Risk assessments are a primary function of the internal audit activity.

494
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 45
Which control, when implemented, would best assist in meeting the control objective that
a system have the capability to hold users accountable for functions performed?

A. Transaction error logging.

B. Redundant hardware.
C. Programmed cutoff.
D. Activity logging.

495
Section B - Information Security
ANSWER TO QUESTION NO. 45
CORRECT ANSWER IS D. Its Explanation is
Activity logging provides an audit trail of user activity.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Transaction error logging controls transactions rather than user activity on a computer.
Explanation for Choice B:
Redundant hardware is a control over hardware malfunction or disruption from a disaster.
Explanation for Choice C:
Programmed cutoff controls mitigate the risk of recording transactions in the wrong period.
496
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 46
Which of the following exploits to information systems can occur over and over again
without any direct action after the initial exploit?

A. Data being stolen on removable storage devices (e.g. hard drive, USB drive).
B. Unauthorized modifications to software that skims transactions and diverts funds (e.g.
rounding fractions into an expense account for reimbursement).
C. Sabotaging the servers that run the data processing (e.g. unplugging the servers or
removing their hard drives).
D. Data input manipulation (e.g. intentionally mis-entering information).

497
Section B - Information Security
ANSWER TO QUESTION NO. 46
CORRECT ANSWER IS B. Its Explanation is
Once a skimming routine is inserted in the accounting system, it will run without any further intervention by
the programmer.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Stealing data on removable storage requires direct action each time data is stolen and removed from the company
premises.
Explanation for Choice C:
Physically sabotaging a system requires direct action and cannot be carried out repeatedly without repeated
sabotage efforts.
Explanation for Choice D:
This cannot occur repeatedly without direct action by the person mis-entering the data.

498
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 47
Because logon procedures may be cumbersome and tedious, users often store
login sequences on their personal computers and invoke them when they want to
access a server. A risk of this practice is that:

A. Backup procedures for data files would not be as effective.

B. Sensitive data on the personal computers would be more vulnerable to
exposure.
C. Anyone with access to the personal computers could access the server.
D. Two-factor authentication would become useless.

499
Section B - Information Security
ANSWER TO QUESTION NO. 47
CORRECT ANSWER IS C. Its Explanation is
Because storing the logon sequences makes logging on easier, anyone with access to the personal computer
could potentially log on to the server.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Keeping the logon sequences on the personal computers would not affect the effectiveness of backup procedures.
Explanation for Choice B:
Keeping the logon sequences on the personal computers would not make sensitive data on the personal
computers more vulnerable to exposure.
Explanation for Choice D:
Two-factor authentication would be less useful but not useless; the second factor such as a fob or biometric scan
would still be required for access and could not be stored in a file on the computer. 500
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 48
Methods to minimize the installation of unlicensed software include all of the
following except:

A. Employee awareness programs.

B. An organizational policy that includes software licensing requirements.
C. Regular monitoring of network access and start up scripts.
D. Regular audits for unlicensed software.

501
Section B - Information Security
ANSWER TO QUESTION NO. 48
CORRECT ANSWER IS C. Its Explanation is
While these are important controls, they will not prevent the introduction of unlicensed software.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This technique works.
Explanation for Choice B:
The basis for all good controls is a written policy.
Explanation for Choice D:
Such audits are important to test the effectiveness of the controls related to software licensing.

502
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 49
Which of the following is a technical computer crime that requires sophisticated
knowledge of computers and/or networks?

A. Dumpster diving.
B. Denial of service attack.
C. Social engineering.
D. Phishing.

503
Section B - Information Security
ANSWER TO QUESTION NO. 49
CORRECT ANSWER IS B. Its Explanation is
A denial of service (DOS) attack involves overwhelming a server or cluster of servers to the point that they are
unable to respond to legitimate requests, thereby making them unavailable. A DOS attack requires a reasonable
amount of technical and network skills to successfully execute.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Dumpster diving requires no computer knowledge.
Explanation for Choice C:
Social engineering refers to using social tactics to gain information. For example, an employee from one company may call
a competitor and pretend to be a coworker who forgot how to access certain files, hoping that the person who they are
talking to will reveal that information. Social skills, rather than technical skills, would be the most essential when
attempting to gain information through social engineering.
Explanation for Choice D:
Phishing refers to deceiving others into revealing personal and/or sensitive information such as credit card numbers, social
security numbers, passwords, etc., usually through an email message. Phishing requires no sophisticated technical
knowledge beyond being able to send an email. 504
Section B - Information Security
MULTIPLE CHOICE QUESTION NO. 50
Which of the following is not part of the role of the internal auditor when
evaluating the effective of physical controls and security?

A. Evaluating "worse case" scenarios.

B. Analyzing past incidents.
C. Reviewing industry-wide incident statistics.
D. Implementing controls to correct control gaps.

505
Section B - Information Security
ANSWER TO QUESTION NO. 50
CORRECT ANSWER IS D. Its Explanation is
While the auditor should report exposures due to control gaps and may even make recommendations
for how to close the gaps, the internal auditor should not implement the controls.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Physical security includes not only everyday situations but also worst case and disaster scenarios. Planning for
worst case scenarios requires identifying what the worst cases are.
Explanation for Choice B:
Analyzing past incidents is an effective way for the internal auditor to gain an understanding of the risks,
controls, and gaps in the controls.
Explanation for Choice C:
Risk cannot be completed eliminated, so it is helpful to know if controls and risk exposure are consistent with
similar companies.
506
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 26
The company’s senior management and information systems management have
worked hard to ensure that the information systems recovery plan supports the
business disaster recovery plan. A crucial aspect of recovery planning for the
company is ensuring that:

A. Organizational and operational changes are reflected in the recovery plans.

B. Capacity planning procedures accurately predict workload changes.
C. Management personnel can fill in for operations staff should the need arise.
D. Changes to systems are tested thoroughly before being placed into production.

652
Section C - Information Technology
ANSWER TO QUESTION NO. 26
CORRECT ANSWER IS A. Its Explanation is
A crucial aspect of recovery planning for the company is ensuring that organizational and
operational changes are incorporated in the plans because such changes have the potential to
make the recovery plans inapplicable.
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
Being able to predict workload changes accurately permits a company to minimize its information systems
facility costs, but that is not a part of recovery planning.
Explanation for Choice C:
A good recovery plan would specify how operational staff might be replaced should the need arise, but their
replacements might not be management personnel.
Explanation for Choice D:
It is vital that changes to systems be tested thoroughly before being placed into production, but that is not a
part of recovery planning. 653
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 27
In the systems development cycle, coding is:

A. A form of program maintenance.

B. Part of the detailed design phase.
C. A form of testing and debugging.
D. Part of the data flow diagram.

654
Section C - Information Technology
ANSWER TO QUESTION NO. 27
CORRECT ANSWER IS B. Its Explanation is
The systems design phase involves translating the conceptual design of the system into the physical design of
the system. The final step in the design phase is program development, which is the process of coding the
programs to meet the required specifications.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Program maintenance consists of auditing the system's performance to ensure that it continues to operate
properly and modifying it as necessary to adapt to changing needs.
Explanation for Choice C:
Testing and debugging takes place after coding.
Explanation for Choice D:
The data flow diagrams are completed before coding begins.
655
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 28
Which of the following statements about web browsers and browsing the Internet
is correct?

A. Data sent over http:// is encrypted using SSL.

B. Cookies are used to save web site passwords on your computer for convenience.
C. Connections between a web browser and server are stateless.
D. IP addresses are converted into domain names when browsing the Internet.

656
Section C - Information Technology
ANSWER TO QUESTION NO. 28
CORRECT ANSWER IS C. Its Explanation is
This statement is correct. Each connection between devices on the Internet is completely separate
("stateless"), even if those devices were just connected.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Data sent over http:// is sent as unencrypted plain text and is not secure. SSL is used to encrypt data when sending
over https://.
Explanation for Choice B:
Cookies are used to save information about your interactions with a server to enable stateful sessions with that
server, but cookies are not used to save passwords.
Explanation for Choice D:
This statement is backwards. Domain names are converted into IP addresses when browsing the Internet.

657
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 29
According to COBIT, who has primary responsibility for internal control?

A. Systems analysts
B. All employees
C. Management and the board
D. Internal auditors

658
Section C - Information Technology
ANSWER TO QUESTION NO. 29
CORRECT ANSWER IS C. Its Explanation is
COBIT is an IT governance tool that helps management implement adequate controls over IT
processes. The primary responsibility for internal control lies with management and the board.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Systems analysts are not responsible for internal control.
Explanation for Choice B:
All employees have a role in the company’s internal controls, but all employees are not primarily responsible.
Explanation for Choice D:
The IAA is responsible for auditing internal controls but is not primary responsible for internal control.
659
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 30
Most large-scale computer systems maintain at least three program libraries: production
library (for running programs), source code library (maintains original source coding), and
test library (for programs that are being changed). Which of the following statements is
correct regarding the implementation of controls over computer program libraries?

A. Only programmers should have access to the production library.

B. Only the program librarian should be allowed to make changes to the production
library.
C. Users should have access to the test library to determine whether all changes are
properly made.
D. The computer operator should have access to both the production library and the
source code library to assist in diagnosing computer crashes.
660
Section C - Information Technology
ANSWER TO QUESTION NO. 30
CORRECT ANSWER IS B. Its Explanation is
Program librarians are accountable for the programs in the production library. Thus, only the program
librarian should be allowed to make changes.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Proper control states that programmers should not have access to the production library.
Explanation for Choice C:
Users should not have access to the test library. Users may not have the proper skills to make necessary changes.
Explanation for Choice D:
The computer operator should not have access to both the production library and the source code library. If
computer operators did have access to both program libraries, they could make unauthorized changes to the
computer programs.

661
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 31
In a systems development life cycle, the process of learning how a current system
functions, determining the needs of users, and developing the logical requirements
of a proposed system is referred to as systems

A. Implementation.
B. Maintenance.
C. Analysis.
D. Design.

662
Section C - Information Technology
ANSWER TO QUESTION NO. 31
CORRECT ANSWER IS C. Its Explanation is
During the analysis phase of a systems development project, a systems survey is done to learn about the
organization, its management, its employees, its business, the other systems it deals with and its current system.
The users' information requirements and functional requirements are identified. Finally, the requirements for a
system that will fulfill the information needs of the users are identified.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Learning how a current system functions, determining the needs of users, and developing the logical requirements of a proposed system do not take place during the
implementation phase of the project. During the implementation phase, acquisition of resources for the new system and its initial operation take place. Data files are
converted, end users are trained, and follow-up occurs to determine whether previous weaknesses have been eliminated and whether or not any new problems have
arisen.
Explanation for Choice B:
Learning how a current system functions, determining the needs of users, and developing the logical requirements of a proposed system do not take place during the
maintenance phase of the project. During the maintenance phase, a post-implementation review is conducted to ensure that the new system meets the objectives
established for it. A maintenance process is utilized to correct errors. In addition to continual monitoring, the system will be audited to make sure it continues to
operate properly. Maintenance also includes modifying the system as necessary to adapt to changing needs.
Explanation for Choice D:
Learning how a current system functions, determining the needs of users, and developing the logical requirements of a proposed system do not take place during the
design phase of the project. During the design phase, detailed design specifications are developed, processing requirements are assessed, storage component needs
are evaluated, the database is designed, and data dictionaries are written. 663
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 32
A new product manager has proposed that the organization implement Electronic Data Interchange
(EDI) with its 15 largest vendors. Automated cash register information on products sold would go to the
vendors and the vendors would be allowed to ship products directly to the distribution center for
attachment of price tags and distribution to the stores.
Which of the following statements is true regarding this proposed change?
A. There is a greater probability that the company will have more obsolete inventory than it would have
under the previous system.
B. Control would be decreased because goods received could not always be matched with individual
purchase orders.
C. A long-term contract specifying prices, maximum delivery amounts, and timing of deliveries would
not be an acceptable substitute for individual purchase orders.
D. Profit and total sales should increase for the product lines involved.

664
Section C - Information Technology
ANSWER TO QUESTION NO. 32
CORRECT ANSWER IS D. Its Explanation is
Both profit and total sales should increase because the stores will be better matching their products
with customer demand.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
There should be less obsolete inventory because shipments are tied to immediate information on customer
demand.
Explanation for Choice B:
The long-term contract and the cash register information on quantity substitute for the individual purchase order.
Explanation for Choice C:
One of the key control procedures with EDI is the establishment of a long-term contract that guides both parties'
actions. 665
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 33
While the system development life cycle (SDLC) approach to information system
development has proven helpful, a major disadvantage of SDLC is

A. Inability to involve users in the process.

B. There is no necessary link between organizational strategy and system
requirements.
C. Difficulty in managing the development process.
D. Lack of feasibility studies.

666
Section C - Information Technology
ANSWER TO QUESTION NO. 33
CORRECT ANSWER IS B. Its Explanation is
An important reason for problems with the systems development life cycle approach to
systems development is that it does not require that there be any link between the
organizational strategy and system requirements. As a result, systems may be developed that
do not fulfill the needs of the organizational strategy.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The systems development life cycle approach to systems development specifies that users must be involved in the
development process.
Explanation for Choice C:
The systems development life cycle approach to systems development overcomes difficulties in managing the
development process.
Explanation for Choice D:
The systems development life cycle approach to systems development involves feasibility studies. 667
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 34
Which of the following is not one of the five principles listed in COBIT 5 for building
an effective governance and management framework?

A. Meeting shareholder needs.

B. Separating governance from management.
C. Applying a single integrated framework.
D. Enabling a holistic approach.

668
Section C - Information Technology
ANSWER TO QUESTION NO. 34
CORRECT ANSWER IS A. Its Explanation is

Meeting stakeholder needs is one of the five principles. While shareholders are an important stakeholder,
they are not the only stakeholder.
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
Governance is the responsibility of the board, while management is the responsibility of the company’s executives.
As long as the enterprise objectives are being met, management can organize the operations however they see fit.
Explanation for Choice C:
COBIT 5 can be used in conjunction with other enterprise and IT control frameworks and it can function as the
overarching control framework.
Explanation for Choice D:
Rather than just looking at one department or function at a time, COBIT 5 uses a series of seven enabler goals to
support the company’s IT goals, which in turn supports the enterprise goals, which can enable the company to
meet its stakeholders’ needs.
669
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 35
Securing client/server systems is a complex task because of all of the following factors
except:

A. Widespread data access and update capabilities.

B. The number of access points.
C. The use of relational databases.
D. Concurrent operation of multiple user sessions.

670
Section C - Information Technology
ANSWER TO QUESTION NO. 35
CORRECT ANSWER IS C. Its Explanation is
A client/server implementation does not necessarily use relational databases.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This is also a factor that makes client/server security complex.
Explanation for Choice B:
This is a factor that makes security complex in client/server environments.
Explanation for Choice D:
This is a factor that makes security complex in client/server environments.
671
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 36
A company’s management is aware that it cannot foresee every contingency even with the
best planning. Management believes, however, that a more thorough recovery plan
increases the ability to resume operations quickly after an interruption and thus to:

A. Fulfill its obligations to customers.

B. Receive the maximum benefit from planning.
C. Maintain the same level of employment.
D. Minimize the cost of facility repair.

672
Section C - Information Technology
ANSWER TO QUESTION NO. 36
CORRECT ANSWER IS A. Its Explanation is
The better the recovery plans, the more likely the company would be to resume operations quickly and
fulfill its obligations to customers.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
The maximum benefit from planning is that it prompts action to avoid the most likely or most devastating
events with the potential to interrupt business.
Explanation for Choice C:
The company may or may not maintain the same level of employment after a disaster. For example, a disaster
that destroys productive capacity in one plant may lead to layoffs.
Explanation for Choice D:
Thorough planning may or may not minimize the cost of facility repair. That is, the best approach may be to
undergo more expensive repair sooner in order to resume operations sooner.
673
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 37
Systems development audits include reviews at various points to ensure that development
is properly controlled and managed. The reviews should include all of the following
except:

A. Conducting a technical feasibility study on the available hardware, software, and

technical resources.
B. Verifying the use of controls and quality assurance techniques for program
development, conversion, and testing.
C. Determining if system, user, and operations documentation conforms to formal
standards.
D. Examining the level of user involvement at each stage of implementation.

674
Section C - Information Technology
ANSWER TO QUESTION NO. 37
CORRECT ANSWER IS A. Its Explanation is

A feasibility study should be conducted in the systems analysis stage.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
This ensures the quality in the development process at various points.
Explanation for Choice C:
Without good documentation, an information system may be difficult, if not impossible, to operate, maintain,
or use.
Explanation for Choice D:
The involvement of users in the development process at various points is important.
675
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 38
COBIT was designed for which three distinct audiences?

A. Information systems auditors, internal auditors, and external auditors.

B. Management, shareholders, and internal auditors.
C. Management, users, and information systems auditors.
D. Users, internal auditors, and the board.

676
Section C - Information Technology
ANSWER TO QUESTION NO. 38
CORRECT ANSWER IS C. Its Explanation is
These are the three intended audiences for COBIT.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Among the different types of auditors, only information systems auditors are an intended audience for
COBIT.
Explanation for Choice B:
Shareholders and internal auditors are not among the intended audiences for COBIT.
Explanation for Choice D:
Among these three choices, only users are one of the intended audiences for COBIT. 677
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 39
Which of the following procedures would enhance the control structure of a computer operations
department?
I. Periodic rotation of operators.
II. Mandatory vacations.
III. Controlled access to the facility.
IV. Segregation of personnel who are responsible for controlling input and output.

A. I, II.
B. III, IV.
C. All of the choices would enhance the control structure.
D. I, II, III.
678
Section C - Information Technology
ANSWER TO QUESTION NO. 39
CORRECT ANSWER IS C. Its Explanation is
All of the practices given are effective general control measures. Periodic rotation and mandatory
vacations provide other personnel with the ability to detect operator problems. Controlled access and
segregation of duties allow for the separation of incompatible functions.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
Periodic rotation of operators and mandatory vacations would enhance the control structure of a computer
operations department. However, these are not the only procedures listed that would do so.
Explanation for Choice B:
Controlled access to the facility and segregation of personnel who are responsible for controlling input and output
would enhance the control structure of a computer operations department. However, these are not the only
procedures listed that would do so.
Explanation for Choice D:
Periodic rotation of operators, mandatory vacations and controlled access to the facility would enhance the control
structure of a computer operations department. However, these are not the only procedures listed that would do
679
so.
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 40
Which of the following statements about CRM systems is false?

A. CRM systems can be integrated with social media.

B. CRM systems minimize the amount of data stored about each customer.
C. CRM systems can be installed on a company server or run in the cloud.
D. CRM systems can automate many common customer-relations tasks.

680
Section C - Information Technology
ANSWER TO QUESTION NO. 40
CORRECT ANSWER IS B. Its Explanation is

The opposite is true. CRM systems can generate enormous amounts of data, which
is one of the significant challenges when implementing a successful CRM:
managing and effectively using all of the data.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
This is a true statement. CRM systems can be designed to integrate with social media services like Facebook,
Twitter, Instagram, and others to provide customer service across multiple platforms.
Explanation for Choice C:
This is a true statement. Larger companies may prefer to have their own CRM system, while smaller companies may
prefer to have a CRM system in the cloud that they are not responsible for maintaining.
Explanation for Choice D:
This is a true statement. CRM systems can easily automate tasks such as sending shipment notifications, invoices,
payment reminders, follow-up surveys, and more. 681
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 41
A company’s management has expressed concern over the varied system
architectures that the organization uses. Potential security and control concerns
would include all of the following except:

A. Having data distributed across many computers throughout the organization

increases the risk that a single disaster would destroy large portions of the
organization's data.
B. Backup file storage administration is often decentralized.
C. There are difficulties in developing uniform security standards for the various
platforms.
D. Users may have different user IDs and passwords to remember for the several
systems that they use. 682
Section C - Information Technology
ANSWER TO QUESTION NO. 41
CORRECT ANSWER IS A. Its Explanation is
Distribution of data across multiple systems means that a single failure would result in less
data loss, not more. The risk of loss from a single failure is the highest for systems built
around a single central server.
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
Under centralized control, management can feel more confident that backup file storage is being uniformly
controlled. Decentralization of this function may lead to lack of consistency and difficulty in monitoring compliance.
Explanation for Choice C:
Consistent security across varied platforms is often challenging because of the different security features of the
various systems and the decentralized nature of those controlling security administration.
Explanation for Choice D:
Password proliferation is a considerable security concern because users will be tempted to write their passwords
down or make them overly simplistic. 683
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 42
An inventory clerk, using a computer, views the following on screen: part number,
part description, quantity on-hand, quantity on-order, order quantity, and reorder
point for a particular inventory item. Collectively, these data make up a

A. Database.
B. Field.
C. Record.
D. File.

684
Section C - Information Technology
ANSWER TO QUESTION NO. 42
CORRECT ANSWER IS C. Its Explanation is

A record is a group of fields related to the same item.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A database is a collection of tables, records within those tables, and fields within the
records.
Explanation for Choice B:
A field is an item within a record (such as address, phone number, or account number).
Explanation for Choice D:
A file is a logical collection of records.
685
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 43
A major disadvantage of the life cycle approach to system development is that it is
not well-suited for projects that are

A. Unstructured.
B. Complex.
C. Structured.
D. Large.

686
Section C - Information Technology
ANSWER TO QUESTION NO. 43
CORRECT ANSWER IS A. Its Explanation is
At times, the strict application of structured development is not appropriate due to the nature of the
application being developed. For example, the systems development life cycle approach may not be
appropriate if user specifications are changing frequently.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
The systems development life cycle approach to systems development is well suited for complex projects.
Explanation for Choice C:
The systems development life cycle approach to systems development is well suited for structured projects.
Explanation for Choice D:
The systems development life cycle approach to systems development is well suited for large projects
687
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 44
Which of the following statements about the structure of the Internet is correct?

A. The Internet is controlled by a small number of central servers.

B. The Internet is based on a series of universally agreed standards and protocols.
C. Connecting a device to the Internet requires a connection directly into a
"backbone."
D. Flow of data in the Internet is easily disrupted through the failure of a single
"backbone."

688
Section C - Information Technology
ANSWER TO QUESTION NO. 44
CORRECT ANSWER IS B. Its Explanation is

This is correct; standards and protocols are the key to the functionality of the Internet and all of the devices
on the Internet being able to communicate with each other.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The Internet has no central servers nor a central communication system.
Explanation for Choice C:
Access to the Internet goes through a serious of progressively larger networks, and individual devices are not corrected
directly to a backbone. For example, your home PC connects to a local Internet Service Provider (ISP), which connects to a
regional ISP, which connects to a larger ISP, which might then connect to one of the Internet backbones. The backbones
provide connections between the largest ISPs.
Explanation for Choice D:
The failure of a single backbone, or even several backbones, will not significantly impact data on the Internet because the
data can be easily re-routed in real-time. 689
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 45
A disaster plan should specify all of the following except:

A. The employees who will participate in disaster recovery.

B. Where in the office the disaster recovery plan is stored.
C. The priority of the services that need to be restored.
D. What facilities will be used in the course of recovery.

690
Section C - Information Technology
ANSWER TO QUESTION NO. 45
CORRECT ANSWER IS B. Its Explanation is
In the event of a disaster, the office may not be accessible, or may not even exist anymore. Each
member of the disaster recovery team should keep a current copy of the plan at home.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This is a part of a disaster recovery plan. In addition to specifying who should participate, the plan should also
outline each person's responsibilities and should designate a first and second in command.
Explanation for Choice C:
This is part of a disaster recovery plan.
Explanation for Choice D:
This is part of a disaster recovery plan.

691
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 46
A retail company has been using prototyping to accelerate the development of
point-of-sale systems. The approach has been so successful that a system, which
was essentially a prototype, was implemented. In response to recommendations
from users, changes are being made daily to the on-line system. A risk associated
with this practice is that of:

A. Increased system development time.

B. All of the above.
C. Failure to consider alternative approaches.
D. Difficulties in maintaining the system.

692
Section C - Information Technology
ANSWER TO QUESTION NO. 46
CORRECT ANSWER IS D. Its Explanation is
Daily changes to the system make it difficult to adequately document. As a result, future changes
to the system may be delayed because system maintainers have to spend time trying to understand
the system.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
In general, prototyping as a system development approach is associated with faster development.
Explanation for Choice B:
Not all of the choices are correct.
Explanation for Choice C:
Instead of failing to consider alternative approaches, using prototyping tends to encourage experimentation to
consider alternative approaches.

693
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 47
Which of the following is the elementary unit of data storage used to represent
individual attributes of an entity?

A. File.
B. Database.
C. Record.
D. Data field.

694
Section C - Information Technology
ANSWER TO QUESTION NO. 47
CORRECT ANSWER IS D. Its Explanation is
A data field is an item within a record. It is used to represent an individual attribute of an entity, such as
an address, phone number, or account number.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A file is a logical collection of records. It is not the elementary unit of data storage used to represent individual
attributes of an entity.
Explanation for Choice B:
A database is a collection of tables, records within those tables, and fields within the records. It is not the
elementary unit of data storage used to represent individual attributes of an entity.
Explanation for Choice C:
A record is a group of fields related to the same item. It is not the elementary unit of data storage used to represent
individual attributes of an entity.
695
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 48
Sprouts Company recently hired a new staff auditor who was discussing with the CAE about a
framework that she had used at her previous employer. The framework had a focus on governance
of technology at an enterprise-wide level and separating governance from management. Which
framework was the new auditor most likely describing?

A. ISO 27000
B. COBIT 5
C. COSO
D. ITIL 4

696
Section C - Information Technology
ANSWER TO QUESTION NO. 48
CORRECT ANSWER IS B. Its Explanation is
The description provided most closely matches with the characteristics of COBIT 5.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The ISO 27000 family’s focus is on providing a model for creating policies and procedures for IT controls.
Explanation for Choice C:
COSO is more focused on controls than on governance.
Explanation for Choice D:
ITIL is more focused on aligning a company’s IT services with its business needs.
697
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 49
What is the most significant audit concern for internal auditors with regards to
CRM systems?

A. Employees may not be properly trained on using the CRM system.

B. CRM systems may be costly to purchase and install.
C. CRM systems can produce large amounts of data.
D. CRM systems can be large and complex systems.

698
Section C - Information Technology
ANSWER TO QUESTION NO. 49
CORRECT ANSWER IS C. Its Explanation is
The internal auditor must have the tools and expertise necessary to deal with the volumes of data
produced by and stored in a CRM.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This is a legitimate concern when implementing a CRM system, but it is not a concern of the internal auditor.
Explanation for Choice B:
This is a legitimate concern when purchasing a CRM system, but it is not a concern of the internal auditor.
Explanation for Choice D:
This is a true statement, but itself is not a significant audit concern.

699
Section C - Information Technology
MULTIPLE CHOICE QUESTION NO. 50
Which of the following should not be the responsibility of a database
administrator?

A. Design the content and organization of the database.

B. Develop applications to access the database.
C. Protect the database and its software.
D. Monitor and improve the efficiency of the database.

700
Section C - Information Technology
ANSWER TO QUESTION NO. 50
CORRECT ANSWER IS B. Its Explanation is
The database administrator (DBA) is the person who has the overall responsibility for developing
and maintaining the database and developing the controls needed to maintain the integrity and
security of the database. However, the responsibility of developing applications to access the
database belongs to the systems analysts and programmers, not the database administrator.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The responsibilities of the database administrator are database design and organization, database operation,
and database security.
Explanation for Choice C:
Protecting the database and its software is part of the responsibility of the database administrator.
Explanation for Choice D:
Monitoring and improving the efficiency of the database is part of the database administrator's responsibility.
701
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 26
A corporation provides management consulting services to hospitals. Consulting
engagements vary widely from hospital to hospital, both in terms of the nature of
the consulting services provided and the scope of the consulting engagements. The
most appropriate product costing system for the corporation is a:

A. Operations costing system.

B. Just-in-time costing system.
C. Process costing system.
D. Job-order costing system.

939
Section D - Financial Management
ANSWER TO QUESTION NO. 26
CORRECT ANSWER IS D. Its Explanation is
Job-order costing is used when the item (or in this case service) produced is unique, as is the case in a
consulting company.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Operations costing is used when the items produced share some, but not all costs and materials.
Explanation for Choice B:
Just-in-time costing would be used together with a JIT inventory system, which is not in use here.
Explanation for Choice C:
Process costing is used when the units produced (or services provided) are similar.
940
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 27
An accounting system that collects financial and operating data on the basis of the
underlying nature and extent of the cost drivers is

A. Cycle-time costing.
B. Direct costing.
C. Activity-based costing.
D. Variable costing.

941
Section D - Financial Management
ANSWER TO QUESTION NO. 27
CORRECT ANSWER IS C. Its Explanation is
Activity-based costing is the system that uses cost drivers to allocate costs.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Cycle-time is the amount of time that the customer must wait for their order after the order has been placed.
Explanation for Choice B:
In direct costing, fixed overheads are expensed in the period that they are incurred and cost drivers are not
used. This is the same method as variable costing.
Explanation for Choice D:
In variable costing, fixed overheads are expensed in the period that they are incurred and cost drivers are not
used. This is the same method as direct costing.

942
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 28
Depoole Company is a manufacturer of industrial products and employs a calendar
year for financial reporting purposes. Assume that total quick assets exceeded total
current liabilities both before and after the transaction described. Further assume
that Depoole has positive profits during the year and a credit balance throughout
the year in its retained earnings account.
The collection of a current accounts receivable of 29,000 would
A. Not affect the current or quick ratios.
B. Increase the current ratio.
C. Decrease the current ratio and the quick ratio.
D. Increase the quick ratio.

943
Section D - Financial Management
ANSWER TO QUESTION NO. 28
CORRECT ANSWER IS A. Its Explanation is
When a receivable is collected, there is no change in the quick or the current ratios. This is because this transaction
does not change the level of current assets or current liabilities. When a receivable is collected, the company is
simply exchanging one current and quick asset (receivables) for another current and quick asset (cash) of the same
amount. Therefore, the current and quick ratios do not change.
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
The collection of a receivable will not change the current ratio. Cash will increase by the same amount that
receivables decrease, so current assets will be unchanged. See the correct answer for a complete explanation.
Explanation for Choice C:
The collection of a receivable will not change the current or quick ratios. Cash will increase by the same amount
that receivables decrease, so both current assets and quick assets will be unchanged. See the correct answer for a
complete explanation.
Explanation for Choice D:
The collection of a receivable will not change the quick ratio. Cash will increase by the same amount that
receivables decrease, so quick assets will be unchanged. See the correct answer for a complete explanation. 944
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 29
A reader of a statement of cash flows wishes to analyze the major classes of cash
receipts and cash payments from operating activities. Which methods of reporting
cash flows from operating activities will supply that information?

A. Only the indirect method.

B. Neither method.
C. Only the direct method.
D. Both the direct and indirect methods.

945
Section D - Financial Management
ANSWER TO QUESTION NO. 29
CORRECT ANSWER IS C. Its Explanation is
Only the direct method provides specific information about the cash inflows or outflows from different
operating activities (such as cash received from customers and cash paid to suppliers).

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The indirect method does not provide specific information about cash inflows and outflows from specific
operating activities.
Explanation for Choice B:
One of the methods of reporting cash flows from operating activities does provide specific information about
cash inflows and outflows from specific operating activities.
Explanation for Choice D:
The indirect method does not provide specific information about cash inflows and outflows from specific
operating activities 946
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 30
In a just-in-time-inventory (JIT) system, which statement is false:

A. JIT is a pull system.

B. Because JIT is a push system, production is not driven by the expected demand for the
product.
C. The main idea in a JIT system is that the company does not produce anything until the
next process requires it.
D. JIT combines purchasing, production and inventory control into one function.

947
Section D - Financial Management
ANSWER TO QUESTION NO. 30
CORRECT ANSWER IS B. Its Explanation is
The main idea of JIT is that nothing is produced until the next process in the assembly line needs it. JIT is a "pull system"
rather than a "push system.“ In a push system, a department produces and sends all that it can to the next step for further
processing, which means that the manufacturer is producing something without understanding consumer demand. This
can result in large, useless stocks of inventory. Because the idea of JIT is that nothing will be produced until the next
process needs it, technically this means that nothing will be produced until a customer orders it. However, this may not
actually be possible in some industries, so in those industries, production is driven by the expected demand for the
product.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
This is a true statement. JIT is a pull system, which is based on a manufacturing philosophy that combines purchasing, production
and inventory control into one function. This reduces the level of inventory that is held within the company at all stages of
production, and lowers the cost of carrying the inventory.
Explanation for Choice C:
This is a true statement.
Explanation for Choice D:
This is a true statement.
948
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 31
The following account balances represent the end-of-year statement of financial position of a company.
Accounts payable 67,000
Accounts receivable (net) 115,000
Accumulated depreciation - building 298,500
Accumulated depreciation - equipment 50,500
Cash 27,500
Common stock (10 par value) 100,000
Deferred tax liabilities 37,500
Equipment 136,000
Income taxes payable 70,000
Inventory 257,000
Land and building 752,000
Long-term notes payable 123,000
Marketable securities 64,000
Notes payable within 1 year 54,000
Other current liabilities 22,500
Paid-in capital in excess of par 150,000
Prepaid expenses 27,000
Retained earnings 403,500
The company's quick ratio is:
A. 0.82
B. 1.44
C. 1.09
D. 0.97
949
Section D - Financial Management
ANSWER TO QUESTION NO. 31
CORRECT ANSWER IS D. Its Explanation is
The quick ratio is calculated as follows: [(cash + receivables + marketable securities) ÷ current liabilities]. The
current liabilities include accounts payable (67,000), income taxes payable (70,000), notes payable within 1 year
(54,000) and other current liabilities (22,500). These total 213,500. The current assets included in the quick ratio
are cash (27,500), receivables (115,000) and marketable securities (64,000). These total 206,500 giving a quick ratio
of 0.97 (206,500 ÷ 213,500).
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
The quick ratio is calculated as follows: [(cash + receivables + marketable securities) ÷ current liabilities]. This answer includes
deferred tax liabilities as a current liability. All deferred tax assets and deferred tax liabilities are classified as non-current.
Explanation for Choice B:
The quick ratio is calculated as follows: [(cash + receivables + marketable securities) ÷ current liabilities]. This answer does not
include income taxes payable as a current liability. See the correct answer for a complete explanation.
Explanation for Choice C:
The quick ratio is calculated as follows: [(cash + receivables + marketable securities) ÷ current liabilities]. This answer includes
prepaid expenses as part of the numerator of the quick ratio. Prepaid expenses are not included in the numerator of the quick
ratio. Prepaid expenses are not current assets that can be liquidated to pay current liabilities, so they should not be included. 950
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 32
Which of the industries listed is most likely to use process costing in accounting for
production costs?

A. Clothing manufacturing.
B. Road builder.
C. Newspaper publisher.
D. Electrical contractor.

951
Section D - Financial Management
ANSWER TO QUESTION NO. 32
CORRECT ANSWER IS C. Its Explanation is
Process costing is best used when similar items are produced in large quantities. Of the choices
given, this is the industry most likely to use process costing.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A clothing manufacturer would probably use operation costing since the jobs are similar in their execution, but
have different materials in them.
Explanation for Choice B:
A road builder would probably use job-order costing since each road is unique.
Explanation for Choice D:
An electrical contractor would probably use job-order costing since each job is unique.

952
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 33
The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments such as Quality Control and
Maintenance to the production departments. To aid them in this discussion, the controller has provided the following information:
Quality Control Maintenance Machining Assembly Total
Budgeted overhead
costs before allocation $350,000 $200,000 $400,000 $300,000 $1,250,000
Budgeted machine hours 50,000 50,000
Budgeted direct labor hours 25,000 25,000
Budgeted hours of service:
Quality control 7,000 21,000 7,000 35,000
Maintenance 10,000 18,000 12,000 40,000
If Rochester Manufacturing decides not to allocate service costs to the production departments, the overhead allocated to each direct
labor hour in the Assembly Department would be:
A. $3.50.
B. $12.00.
C. $3.20.
D. $16.00.

953
Section D - Financial Management
ANSWER TO QUESTION NO. 33
CORRECT ANSWER IS B. Its Explanation is
This is a very simple question, but we need to recognize it as simple. We simply need to divide the
assembly costs by the number of direct labor hours. $300,000 ÷ 25,000 = $12.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
This is not the correct answer. Please see the correct answer for a complete explanation.
Explanation for Choice C:
This is not the correct answer. Please see the correct answer for a complete explanation.
Explanation for Choice D:
This is the machining department's budgeted overhead cost divided by the assembly department's budgeted direct
labor hours.

954
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 34
The loan department of a financial corporation makes loans to businesses. The costs of
processing these loans are often several thousand dollars.
The costs for each loan, which include labor, telephone, and travel, are significantly
different across loans. Some loans require the use of outside services such as appraisals,
legal services, and consulting services, whereas other loans do not require these services.
The most appropriate cost accumulation method for the loan department of the
corporation is

A. Joint product costing.

B. Job-order costing.
C. Process costing.
D. Differential costing.
955
Section D - Financial Management
ANSWER TO QUESTION NO. 34
CORRECT ANSWER IS B. Its Explanation is
Job-order costing is used when each item is unique. Since each loan has different costs associated with it, job-
order costing should be used.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Joint product costing is used when more than one product is produced sharing the same production process. This is
not the case in this question.
Explanation for Choice C:
Process costing is often used in an assembly line when similar products are being used. This is not the situation in
this question.
Explanation for Choice D:
Differential costing is used in decision making to compare the differences between two or more options. This is not
appropriate in this situation
956
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 35
The following are the January 1 and June 30 statements of financial position of a company, in millions:
January 1 June 30
Fixed assets 10 11
Inventories 8 10
Accounts receivable 5 4
Cash 3 4
Total assets 26 29
Stockholders' equity 10 10
Long-term debt 9 11
Accounts payable 2 3
Notes payable 4 3
Accrued wages 1 2
Total equity and liabilities 26 29
From January 1 to June 30, the net working capital:
A. Increased by 1 million.
B. Increased by 2 million.
C. Decreased by 1 million.
D. Stayed the same. 957
Section D - Financial Management
ANSWER TO QUESTION NO. 35
CORRECT ANSWER IS A. Its Explanation is
Net working capital is calculated as current assets minus current liabilities. At January 1, current assets were 16
million and current liabilities were 7 million, giving a net working capital of 9 million. At June 30, current assets
were 18 million and current liabilities were 8 million, giving a net working capital of 10 million. Thus, during the
period, net working capital increased by 1 million.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Net working capital is current assets minus current liabilities. This answer does not include accrued wages as a current
liability in the net working capital calculation. See the correct answer for a complete explanation.
Explanation for Choice C:
Net working capital is current assets minus current liabilities. This answer does not include inventory as a current asset in
the net working capital calculation. See the correct answer for a complete explanation.
Explanation for Choice D:
Net working capital is current assets minus current liabilities. Total assets minus total liabilities, which is equal to
stockholders' equity, stayed the same. But net working capital did not stay the same.
958
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 36
A manufacturer has been approached by a new customer who wants to place a one-time order for a component similar to one that the
manufacturer makes for another customer. Existing sales will not be affected by acceptance of this order. The manufacturer has a policy of setting
its targeted selling price at 60% over full manufacturing cost. The manufacturing costs and the targeted selling price for the existing product are
presented as follows.
Direct materials 2.30
Direct labor 3.60
Variable manufacturing overhead (applied at 75% of direct labor cost) 2.70
Fixed manufacturing overhead (applied at 150% of direct labor cost) 5.40
Total manufacturing cost 14.00
Markup (60% of full manufacturing cost) 8.40
Targeted selling price 22.40
The manufacturer has excess capacity to produce the quantity of the component desired by the new customer. The direct materials used in the
component for the new customer would cost the manufacturer 0.25 less than those used in the component currently being made. The variable
selling expenses (packaging and shipping) would be the same, or 0.90 per unit.
Under these circumstances, the minimum unit price at which the manufacturer would accept the special order is one exceeding:
A. 9.25
B. 8.35
C. 14.00
D. 14.80

959
Section D - Financial Management
ANSWER TO QUESTION NO. 36
CORRECT ANSWER IS A. Its Explanation is
The minimum unit price will be the sum of the relevant variable costs of the process, as follows:
Direct materials = 2.30 − 0.25 = 2.05
Direct labor = 3.60
Variable manufacturing overhead = 2.70
Variable selling expenses = 0.90
Total variable cost = 2.05 + 3.60 + 2.70 + 0.90 = 9.25
Note that the question asks only for the minimum unit price at which the manufacturer would accept the special order.
At any price over 9.25, total profit for the company will be increased, but this is so only because the manufacturer has
excess unused capacity. If the manufacturer did not have excess capacity, it would have to not manufacture something
else in order to accept this order. Not manufacturing something else would cause the company to incur an opportunity
cost in taking the new order equal to the contribution margin lost because of not having the other product available to
sell. That opportunity cost would need to be included as a variable cost of the special order product in calculating the
minimum unit price at which the manufacturer would accept the special order.

960
Section D - Financial Management
ANSWER TO QUESTION NO. 36
INCORRECT CHOICES EXPLANATION
Explanation for Choice B:
The answer 8.35 does not include the additional selling expense of 0.90.
Explanation for Choice C:
The answer 14.00 includes all manufacturing cost (fixed and variable) but does not include the additional selling
and marketing cost that would be incurred. It also does not include the revised cost of material (2.30 − 0.25).
Explanation for Choice D:
This answer includes the 60% markup over the full manufacturing cost. The question asks for the minimum unit
price at which the manufacturer would accept the special order. The minimum price does not include the markup.

961
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 37
Which one of the following transactions would increase the current ratio and decrease net
profit?

A. Vacant land is sold for cash for less than the net book value.
B. A stock dividend is declared.
C. Uncollectible accounts receivable are written off against the allowance account.
D. A federal income tax payment due from the previous year is paid.

962
Section D - Financial Management
ANSWER TO QUESTION NO. 37
CORRECT ANSWER IS A. Its Explanation is
Land being sold for less than the book value will create a loss, and the fact that the land was sold for cash
causes an increase in the current assets of the company, which will increase the current ratio.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:

The declaration of a stock dividend would not affect net income for the current period, nor would it affect the
current ratio. See the correct answer for a complete explanation.
Explanation for Choice C:
The writing off of receivables against the allowance account does not affect net income of the current period
or the current ratio. See the correct answer for a complete explanation.
Explanation for Choice D:
The payment of last year's taxes does not impact the net profit in the current period. See the correct answer
for a complete explanation. 963
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 38
Dudley Products is given terms of 2/10, net 45 by its suppliers. If Dudley forgoes the cash discount and
instead pays the suppliers 5 days after the net due date, what is the annual interest rate cost (using a
360-day year)?

A. 24.5%.
B. 18.0%.
C. 18.4%.
D. 21.0%.

964
Section D - Financial Management
ANSWER TO QUESTION NO. 38
CORRECT ANSWER IS C. Its Explanation is
This is solved using the formula for the cost of not taking the discount, but it has a twist to it. The formula for the
cost of not taking the discount is
[360 / (Total period for payment − Period for discount payment)] × [Discount % / (100% − Discount %)]
Instead of using the number of days Dudley is allowed to take to pay according to the terms (45 days) as the total
period for payment, we must use the number of days the company would actually take to pay. The problem says
Dudley would pay the suppliers 5 days after the net due date. Since the net due date is 45 days, we must use 50
days in the formula as the total period for payment. Note that the question does not mention anything about
Dudley incurring any interest by paying 5 days late, so we assume Dudley does not incur any interest by paying 5
days late. Inputting the information from the question into the formula, we get 18.4%, as follows:
[360 / (50 − 10)] × [0.02 / (1.00 − 0.02)] = 9 × 0.020408 = 0.184 or 18.4%.

965
Section D - Financial Management
ANSWER TO QUESTION NO. 38
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
This answer results from using 30 days as the denominator of the first part of the formula for calculating the cost of not
taking a cash discount that is offered for early payment. The denominator of the first part of the formula should be Total
Period for Payment − Period for Discount Payment. However, instead of using the number of days Dudley is allowed to take
to pay according to the terms (45 days) as the total period for payment, we must use the number of days the company
would actually take to pay. The problem says Dudley would pay the suppliers 5 days after the net due date. Since the net
due date is 45 days, we must use 50 days in the formula as the total period for payment. So the denominator needs to be
50 − 10, or 40.
Explanation for Choice B:
This answer results from using 100% (or 1.00) in the denominator of the second part of the formula for calculating the cost
of not taking a cash discount that is offered for early payment. The denominator should be 100% (or 1.00) minus the
discount % (or the discount % in decimal form).
Explanation for Choice D:
This answer results from using the number of days Dudley is allowed to take to pay (45 days) as the total period for
payment in the formula. However, the problem says Dudley would pay the suppliers 5 days after the net due date. Since
the net due date is 45 days, 5 days after the due date would be 50 days; so we must use 50 days in the formula as the total
period for payment. 966
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 39
When allocating service department costs to production departments, the method that does
not consider different cost behavior patterns is the

A. Reciprocal method.
B. Direct method.
C. Single-rate method.
D. Step method.

967
Section D - Financial Management
ANSWER TO QUESTION NO. 39
CORRECT ANSWER IS C. Its Explanation is
When a single rate of overhead allocation is used, it does not take into account the different usage of the
service departments by the different production departments. Though this method is simple and easy, it is
not very accurate and should only be used if all of the production departments use the service departments
equally.
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
The reciprocal method is able to use different methods of allocating the costs of the service departments to the
production departments.
Explanation for Choice B:
The direct method is able to use different methods of allocating the costs of the service departments to the
production departments.
Explanation for Choice D:
The step method is able to use different methods of allocating the costs of the service departments to the
production departments. 968
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 40
Parkside Inc. has several divisions that operate as decentralized profit centers. Parkside's Entertainment Division manufactures video arcade
equipment using the products of two of Parkside's other divisions. The Plastics Division manufactures plastic components, one type that is made
exclusively for the Entertainment Division, while other less complex components are sold to outside markets. The products of the Video Cards
Division are sold in a competitive market; however, one video card model is also used by the Entertainment Division. The actual costs per unit
used by the Entertainment Division are presented below.
Plastic Components Video Cards
Direct material 1.25 2.40
Direct labor 2.35 3.00
Variable overhead 1.00 1.50
Fixed overhead 0.40 2.25
Total cost 5.00 9.15
The Plastics Division sells its commercial products at full cost plus a 25% markup and believes the proprietary plastic component made for the
Entertainment Division would sell for 6.25 per unit on the open market. The market price of the video card used by the Entertainment Division is
10.98 per unit.
Assume that the Entertainment Division is able to purchase a large quantity of video cards from an outside source at 8.70 per unit. The Video
Cards Division, having excess capacity, agrees to lower its transfer price to 8.70 per unit. This action would
A. Optimize the profit goals of the Entertainment Division while subverting the profit goals of Parkside Inc.
B. Subvert the profit goals of the Video Cards Division while optimizing the profit goals of the Entertainment Division.
C. Optimize the overall profit goals of Parkside Inc.
D. Allow evaluation of both divisions on the same basis.

969
Section D - Financial Management
ANSWER TO QUESTION NO. 40
CORRECT ANSWER IS C. Its Explanation is
This action is goal congruent. The Entertainment Division is indifferent as to where to buy video cards, since the external price is
the same as the internal price. The overall profit goals of Parkside Inc. would be optimized because the variable cost of production
of the Video Cards division is less than the suggested discounted price. Thus, the use of idle capacity enhances profits.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The Entertainment Division's profit goals are not optimized because the Entertainment Division is indifferent as to where to buy the video cards, since the
external price is the same as the internal price. The profit goals of Parkside Inc. would not be subverted because this action would be congruent with overall
profit goals of the company. The suggested discounted price is above the variable cost of production for the Video Cards Division; thus, the use of idle capacity
enhances profits.
Explanation for Choice B:
The profit goals of the Video Cards Division would be subverted in this case. However, the Entertainment Division's profit goals are not optimized because the
Entertainment Division is indifferent as to where to buy the video cards, since the external price is the same as the internal price.
Explanation for Choice D:
A transfer price of 8.70 per unit is less than the Video Cards Division's total cost of production, whereas the price is the Entertainment Division's market price.
This would not allow the evaluation of both divisions on the same basis.

970
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 41
Total production costs of prior periods for a company are listed as follows. Assume that the same cost behavior patterns
can be extended linearly over the range of 3,000 to 35,000 units and that the cost driver for each cost is the number of
units produced.
Production (units/month): 3,000 9,000 16,000 35,000
Cost X: 23,700 52,680 86,490 178,260
Cost Y: 47,280 141,840 252,160 551,600
The company is concerned about its current operating performance that is summarized as follows:
Sales (12.50 per unit) 300,000
Variable costs 180,000
Net operating loss (40,000)
How many additional units should have been sold in order for the company to break even?
A. 32,000
B. 16,000
C. 12,800
D. 8,000

971
Section D - Financial Management
ANSWER TO QUESTION NO. 41
CORRECT ANSWER IS D. Its Explanation is
At the current loss position of 40,000, 24,000 units are sold (300,000 of revenue ÷ 12.50 selling price). This means
that the variable costs per unit are 7.50 (180,000 ÷ 24,000), and the contribution is 5 per unit (12.50 − 7.50). To
cover the 40,000 loss the company needs to sell 8,000 additional units (40,000 ÷ 5 per unit).

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
32,000 is the total units needed in order for the company to break even. However, the question asks for the
additional units needed in order for the company to break even. So the correct answer is the difference between
the number of units that actually were sold and the breakeven volume.
Explanation for Choice B:
This is 80,000 in fixed costs divided by the contribution margin per unit of 5. Fixed costs are not 80,000; they are
160,000. And dividing the fixed costs by the contribution margin results in the breakeven volume, not the
additional units needed to be sold in order for the company to break even.
Explanation for Choice C:
This is not the correct answer. Please see the correct answer for an explanation. 972
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 42
An individual had taxable income of 23,000 per year and paid 8,000 in income tax.
The individual's taxable income then increased to 30,000 per year resulting in a
10,000 income tax liability. The personal tax system being applied to this individual
is

A. Proportional.
B. Marginal.
C. Progressive.
D. Regressive.

973
Section D - Financial Management
ANSWER TO QUESTION NO. 42
CORRECT ANSWER IS D. Its Explanation is
Under a regressive tax system, the average tax rate falls as income rises, although the amount of tax paid
might rise. In this case, the average tax rate decreased from 34.8% (8,000 ÷ 23,000) to 33.3% (10,000 ÷
30,000).

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Under the proportional income tax system, the average tax rate is the same for all levels of income. The average tax
rate of this individual falls as income rises.
Explanation for Choice B:
The marginal tax rate is the tax rate paid on the incremental income.
Explanation for Choice C:
Under a progressive tax system, both the amount of tax paid and the percentage of income paid in tax (the average
tax rate) increase as income increases. In this case, the amount of tax paid increased, but the percentage
decreased.
974
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 43
Companies characterized by the production of heterogeneous products will most
likely use which of the following methods for the purpose of averaging costs and
providing management with unit cost data?

A. Relevant costing.
B. Direct costing.
C. Process costing.
D. Job-order costing.

975
Section D - Financial Management
ANSWER TO QUESTION NO. 43
CORRECT ANSWER IS D. Its Explanation is
Job-order costing would most likely be used in the production of heterogeneous
(dissimilar) units.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
Relevant costing is not used to provide management cost data. Relevant costing would be related to
future decision making.
Explanation for Choice B:
Direct costing includes only the direct costs of production and would not be used by management in
unit costing.
Explanation for Choice C:
Heterogeneous means dissimilar and in the production of dissimilar products, job-order costing is
usually the best choice. Process costing is used in the production of similar products. 976
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 44
When preparing consolidated financial statements, the entity being accounted for
is the

A. parent.
B. legal entity.
C. non-controlling interest.
D. economic entity.

977
Section D - Financial Management
ANSWER TO QUESTION NO. 44
CORRECT ANSWER IS D. Its Explanation is
Consolidated financial statements are prepared as though the parent (the investor corporation) and the
subsidiary or subsidiaries (the investee) are a single economic entity, not the legal entities that exist.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
When consolidated financial statements are prepared and presented, they include not only the parent company's
financial results but also those of the subsidiaries.
Explanation for Choice B:
When consolidated financial statements are prepared and presented, the parent company and the subsidiaries
represent separate legal entities.
Explanation for Choice C:
Any non-controlling interests are reported as such in the consolidated financial statements, but non-controlling
interests are not the entity being accounted for. 978
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 45
A decrease in inventory order costs will

A. Decrease the carrying cost.

B. Increase the reorder point.
C. Decrease the economic order quantity.
D. Increase the economic order quantity.

979
Section D - Financial Management
ANSWER TO QUESTION NO. 45
CORRECT ANSWER IS C. Its Explanation is
A decrease in inventory order costs will decrease the EOQ. Based on the EOQ formula, order cost is a
numerator value so any decrease in a numerator will cause the EOQ to decrease.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A decrease in inventory ordering costs will not affect the carrying cost.
Explanation for Choice B:
The reorder point is not part of the EOQ formula.
Explanation for Choice D:
A decrease in inventory order costs will decrease, not increase the EOQ.

980
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 46
The data presented below shows actual figures for selected accounts of McKeon Company for the fiscal year ended May 31, 20X0, and selected budget figures for the 20X1 fiscal year. McKeon's controller is in
the process of reviewing the 20X1 budget and calculating some key ratios based on the budget. McKeon Company monitors yield or return ratios using the average financial position of the company. (Round all
calculations to three decimal places if necessary.)
May 31, 20X1 May 31, 20X0
Current assets 210,000 180,000
Noncurrent assets 275,000 255,000
Current liabilities 78,000 85,000
Long-term debt 75,000 30,000
Common stock (30 par value) 300,000 300,000
Retained earnings 32,000 20,000
20X1 Operations
Sales* 350,000
Cost of goods sold 160,000
Interest expense 3,000
Income taxes (40% rate) 48,000
Dividends declared and paid in 20X1 60,000
Administrative expense 67,000
*All sales are credit sales.
Composition of Current Assets
May 31, 20X1 May 31, 20X0
Inventory 70,000 80,000
Other current assets 20,000 20,000
Accounts receivable 100,000 70,000
Cash 20,000 10,000
210,000 180,000
The 20X1 return on total assets for McKeon Company is
A. 0.156
B. 0.166
C. 0.148
D. 0.261

981
Section D - Financial Management
ANSWER TO QUESTION NO. 46
CORRECT ANSWER IS A. Its Explanation is
Return on total assets is net income after interest and taxes divided by average total assets of 460,000, the average of 485,000
[275,000 + 210,000] budgeted for 20X1 and 435,000 actual [255,000 + 180,000] for 20X0. Net income budgeted for 20X1 is 72,000
[350,000 − 160,000 − 3,000 − 48,000 − 67,000]. Therefore, return on total assets is 72,000 ÷ 460,000 = 0.156. Dividends are not
included in the calculation of net income because they are a distribution of that income.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
Return on total assets is net income after interest and taxes divided by average total assets. This answer is net income after interest and taxes divided by beginning total
assets. (The beginning balance of total assets for 20X1 is the same as the ending balance of total for 20X0.) Average balances of balance sheet items are used instead of
beginning or ending balances whenever a ratio calculation is relating an income statement amount to the balance sheet amount. This average balance amount should be the
average balance of the balance sheet item during the same period of time as the income statement amount covers in order to make the relationship of the two amounts
meaningful. The average balance is usually calculated as the average of the beginning and ending balances of the period.
Explanation for Choice C:
Return on total assets is net income after interest and taxes divided by average total assets. This is net income after interest and taxes divided by yearend total assets.
Average balances of balance sheet items are used instead of ending balances whenever a ratio calculation is relating an income statement amount to the balance sheet
amount. This average balance amount should be the average balance of the balance sheet item during the same period of time as the income statement amount covers in
order to make the relationship of the two amounts meaningful. The average balance is usually calculated as the average of the beginning and ending balances of the period.
The beginning balance of total assets for 20X1 is the same as the ending balance of total assets for 20X0.
Explanation for Choice D:
Return on total assets is net income after interest and taxes divided by average total assets. This answer is net income after interest but before taxes divided by average total
assets. 982
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 47
The Eastern division sells goods internally to the Western division of the same company.
The quoted external price in industry publications from a supplier near Eastern is 200 per
ton plus transportation. It costs 20 per ton to transport the goods to Western. Eastern's
actual market cost per ton to buy the direct materials to make the transferred product is
100. Actual per ton direct labor is 50. Other actual costs of storage and handling are 40.
The company president selects a 220 transfer price. This is an example of

A. market-based transfer pricing.

B. cost plus 20% transfer pricing.
C. negotiated transfer pricing.
D. cost-based transfer pricing.

983
Section D - Financial Management
ANSWER TO QUESTION NO. 47
CORRECT ANSWER IS A. Its Explanation is
The market price, including transportation, is 220. Since the transfer price that has been set is the market
price, this is market based transfer pricing.

INCORRECT CHOICES EXPLANATION

Explanation for Choice B:
This is not an example of cost plus 20% transfer pricing. A cost plus 20% transfer price would be based on the cost
of 190.
Explanation for Choice C:
This is not an example of negotiated transfer pricing. A negotiated transfer price would be one somewhere
between 190 and 220 that is agreed on by the parties involved.
Explanation for Choice D:
This is not an example of cost-based transfer pricing. A cost-based transfer price would be 190.
984
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 48
A public accounting firm has two departments, Auditing Services (AS) and Tax Services (TS). These two
departments use the services of two service departments, Computer Programming (CP) and Computer
Operations (CO). The percentages of each service used by each department for a typical period are:
CP CO AS TS
CP 30% 50% 20%
CO 25% 45% 30%
The company prices its auditing services and tax services on the basis of estimated costs of providing
those services. Based upon this information, the most appropriate method for allocating service
department costs is the:
A. Step-down method.
B. Physical-units method.
C. Massachusetts Formula.
D. Reciprocal method.

985
Section D - Financial Management
ANSWER TO QUESTION NO. 48
CORRECT ANSWER IS D. Its Explanation is
Because the service departments use each other, the best method of allocating the service department
overhead is the reciprocal method. This allocates costs from the service departments to each other, and then
to the production departments.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
The step down method would be appropriate if one of the service departments did not use the services of
the other service department. However, since both service departments use each other, this method is not
the most appropriate.
Explanation for Choice B:
This is a method for allocating joint costs, not for allocating the overhead of service departments.
Explanation for Choice C:
The Massachusetts Formula is not covered on the exam.
986
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 49
A company has budgeted sales for the upcoming quarter as follows:
January February March
Units 15,000 18,000 16,500
The ending finished goods inventory for each month equals 50% of the next month's budgeted sales. Additionally, 3
pounds of raw materials are required for each finished unit produced. The ending raw materials inventory for each
month equals 200% of the next month's production requirements.
If the raw materials cost 4.00 per pound and must be paid for in the month purchased, the budgeted raw materials
purchases for January are:
A. 207,000
B. 216,000
C. 198,000
D. 180,000

987
Section D - Financial Management
ANSWER TO QUESTION NO. 49
CORRECT ANSWER IS B. Its Explanation is
First use the sales, along with beginning and ending FG inventory, to calculate the production needed. Then use the production needed, along with beginning and
ending RM inventory, to calculate the purchases of raw materials needed to support that production. Determine the production needed for January and February by
using the formula for the physical flow of finished goods: Beginning Inventory + Units Produced − Units Sold = Ending Inventory.
Beginning FG Inventory for January will be 50% of January's sales, or 0.50 × 15,000. Ending FG Inventory for January will be 50% of February's sales, or 0.50 × 18,000.
Therefore, the formula for January production is:
7,500 + Units Produced − 15,000 = 9,000
January Units Produced = 16,500
Beginning FG Inventory for February will be 50% of February's sales, already calculated as 9,000. Ending FG Inventory for February will be 50% of March's sales, or
0.50 × 16,500. The formula for February production is:
9,000 + Units Produced − 18,000 = 8,250
February Units Produced = 17,250
Three pounds of raw materials are needed for each unit produced, and the ending RM inventory each month is 200% of the next month's production requirement.
Beginning RM inventory for January is 99,000 lb. (16,500 units produced in January × 3 pounds per unit × 200%). Ending RM inventory for January is
103,500 lb. (17,250 units produced in February × 3 × 200%). The raw materials used during January is equal to the January production of 16,500 × 3 pounds per unit,
or 49,500 pounds. Plugging these numbers into the formula of the physical flow of goods results in the following:
99,000 + Purchases − 49,500 = 103,500
Purchases = 54,000 pounds of raw material to be purchased in January. Multiplying this quantity by the 4.00 price per pound of raw material equals the cost of
January purchases: 4.00 × 54,000 = 216,000.

988
Section D - Financial Management
ANSWER TO QUESTION NO. 49
INCORRECT CHOICES EXPLANATION
Explanation for Choice A:
This is the cost of materials required for February production (4.00 × 3 × 17,250).
Explanation for Choice C:
This is the cost of materials required for January production (4.00 × 3 × 16,500), not for purchases of materials.
Explanation for Choice D:
This is the cost of materials required for January sales (4.00 × 3 × 15,000).

989
Section D - Financial Management
MULTIPLE CHOICE QUESTION NO. 50
A company develops a budget that is based on the behavior of costs and revenues over a range of
sales for the upcoming year. This is an example of a

A. cash budget.
B. capital budget.
C. production budget.
D. flexible budget.

990
Section D - Financial Management
ANSWER TO QUESTION NO. 50
CORRECT ANSWER IS D. Its Explanation is
The flexible budget is the budget that is prepared for different levels of activity (sales). The budget that is
based on the behavior of costs and revenues over a range of sales is an example of a flexible budget.

INCORRECT CHOICES EXPLANATION

Explanation for Choice A:
A cash budget does not include non-cash revenues and costs.
Explanation for Choice B:
The capital budget does not include revenues and costs.
Explanation for Choice C:
A production budget does not include revenues.

991
BOOKS WRITTEN BY
MUHAMMAD ZAIN

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CIA Test Bank Questions (13 September 2021)
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CIA Part 2 Practice of Internal Auditing 2020 (25 September 2019)
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CIA Part 1 Essentials of Internal Auditing 2019 (17 February 2019)
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1663
1664
QUOTES THAT WILL CHANGE YOUR LIFE
These are the quotes that have made me what I am today. You can also be the one in your
Universe:
• We are born in one day. We die in one day. We can change in one day. And we can fall in love in
one day Anything can happen in just one day.

The finest of the brains are in an extreme level of slavery. For them, career and job are
important than financial freedom and peace of soul. You will be replaced in a day or two when
you leave this world for eternal life. Not understanding this point will lead to a dead-end tunnel.
Seek certification to change your world, well-being, and, most important yourself.
• Excellence, Creativity, Passion, and Patience are key ingredients to become a Star.
• Get up and Hustle. Chase your dreams. Turn your dreams into reality by showing up every day.

1665
QUOTES THAT WILL CHANGE YOUR LIFE
• Have Confidence. You can do it. You have the capacity and potential to reach the top. Just
believe in your abilities and chase your dream.
• Dream is what seen by an open eye, not with the closed one.
• Dreams don’t work unless you do.
• What we learn becomes a part of who we are.
• The right way to start your day is to focus on end goal.
• Sometimes the bad things that happen in our lives put us directly on the path to the best things
that will ever happen to us.
• A creative man is motivated by the desire to achieve, not by the desire to beat others.
• Twenty years from now you will be more disappointed by the things that you didn’t do than by
the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade
winds in your sails. Explore. Dream. Discover.

1666
QUOTES THAT WILL CHANGE YOUR LIFE
• It does not matter how slow you go. So long as you don’t stop.
• It is never too late to begin.
• If it scares you, it might be a good thing to try.
• There is only you and your camera. The limitations in your photography are in yourself, for what
we see is what we are.
• Creativity is Intelligence having fun.
• All progress takes place out of comfort zone, so when are you starting.
• Everything you have ever wanted is on the other side of fear.
• When everything seems to be going against you, remember that the airplane takes off against
the wind, not with it.

1667
QUOTES THAT WILL CHANGE YOUR LIFE
• Unexpected kindness is the most powerful, least costly, and most underrated agent of human
change.
• Sometimes courage is the quiet voice at the end of the day saying I will try again tomorrow.
• Sometimes you win, sometimes you learn.
• Do something today that your future self will thank you for.
• The past has no power over the present moment. So forget about your failures and start a new
day.
• Most of the important things in the world have been accomplished by people who have kept on
trying when there seemed to be no help at all.
• Your imagination is everything. It is the preview of life’s coming attractions. Only those who
believe anything is possible can achieve things most would consider impossible.
• Don’t let the noise of others’ opinions drown out your own inner voice.
• Have the courage to follow your heart and intuition. They somehow already know what you
truly want to become. Everything else is secondary.
1668
QUOTES THAT WILL CHANGE YOUR LIFE
• Your time is limited, so don’t waste it living someone else’s life.
• Remembering that you are going to die is the best way I know to avoid the trap of thinking you
have something to lose. You are already naked. There is no reason not to follow your heart.
• Your work is going to fill large part of your life and the only way to be truly satisfied is to do
what you believe is great work. The only way to do great work is to love what you do. If you
haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you will know
when you find it.
• Success doesn’t come from what you do occasionally. It comes from what you do consistently.
• If opportunity doesn’t knock, build a door.
• The things you regret most in life are the risks you didn’t take.
• Every successful person was once an unknown person that refused to give up on their dream.
• Life is too short to be working for someone else’s dream.

1669
QUOTES THAT WILL CHANGE YOUR LIFE
• It always seems impossible until it’s done.
• Innovation distinguishes between a leader and a follower.
• Success is not final; failure is not fatal. It is the courage to continue that counts.
• Every problem is a gift. Without problems, we would not grow.
• There is no shortage of remarkable ideas, what’s missing is the will to execute them.
• Forget past mistakes. Forget failures. Forget everything except what you are going to do now
and do it.
• Many of life’s failure are people who did not realize how close they were to success when they
gave up.
• If something is important enough, or you believe something is important enough, even if you
are scared, you will keep going.

1670
QUOTES THAT WILL CHANGE YOUR LIFE
• The best way to predict the future is to create it.
• The only strategy that is guaranteed to fail is not taking risks.
• Only those who will risk going too far can possibly find out how far one can go.
• Don’t waste words on people who deserve your silence. Sometimes the most powerful thing
you can say is nothing at all.

1671