IIA CIA IIA-CIA-Part3 New Questions

Detecting an inventory fraud scheme requires analyzing patterns of inventory adjustments, particularly across different locations. Fraudulent activities often involve unauthorized write-offs, stock transfers, or misstatements of inventory levels.

(A) Analyze invoice payments just under individual authorization limits.

Incorrect: This technique is useful for detecting procurement fraud or invoice splitting, but not directly related to inventory fraud.

(B) Analyze stratification of inventory adjustments by warehouse location. (Correct Answer)

Fraudulent inventory write-offs often occur in specific warehouses or locations where controls are weak.

Stratifying inventory adjustments helps identify abnormal patterns, such as excessive losses in one location.

IIA Standard 2120 (Risk Management) recommends data analytics and trend analysis to detect anomalies.

COSO ERM – Control Activities emphasizes monitoring and review of inventory adjustments to prevent fraud.

(C) Analyze inventory invoice amounts and compare with approved contract amounts.

Incorrect: This technique is effective for detecting overbilling or procurement fraud, but not inventory fraud, which involves physical stock manipulation.

(D) Analyze differences discovered during duplicate payment testing.

Incorrect: Duplicate payment testing helps uncover billing fraud, not inventory fraud.

IIA Standard 2120 – Risk Management: Encourages fraud detection through trend analysis and data monitoring.

IIA Practice Guide – Auditing Inventory Management: Suggests stratification of inventory adjustments to identify fraud.

COSO ERM – Control Activities: Recommends monitoring inventory transactions to prevent fraud.

Analysis of Each Option:IIA References Supporting the Answer:Thus, the correct answer is (B) because analyzing stratification of inventory adjustments by warehouse location helps detect irregular patterns indicative of fraud.

Individual operational goals must align with an organization's overall strategy to ensure that employee efforts contribute to corporate success. Operational goals are specific, measurable objectives that support the broader strategic direction.

Why Option B (Alignment with organizational strategy) is Correct:

Organizational strategy defines the long-term vision, mission, and objectives.

Individual operational goals should align with this strategy to ensure consistency and effectiveness.

Strategic alignment ensures resources are used efficiently and performance contributes to corporate success.

Why Other Options Are Incorrect:

Option A (Individual skills and capabilities):

While important, skills alone do not define operational goals—they are tools to achieve goals.

Option C (Financial and human resources of the unit):

These resources support operational goals, but they do not serve as the foundation. Goals are set based on strategy first.

Option D (Targets of key performance indicators - KPIs):

KPIs measure performance but are not the basis for setting operational goals. Goals should align with strategy first, then KPIs track progress.

IIA Practice Guide – "Performance Management Auditing": Highlights strategic alignment as a basis for setting operational goals.

COSO ERM Framework – "Strategic and Performance Integration": Emphasizes aligning individual goals with organizational strategy.

IIA's Global Perspectives & Insights – "Auditing Organizational Performance": Discusses the role of strategy in goal-setting.

IIA References:Thus, the correct answer is B. Alignment with organizational strategy.

When performing data analytics, the process typically follows a structured approach. Once the internal auditor has determined the expected value from the review, the next logical step is to obtain the data. Without acquiring the necessary datasets, further actions such as normalization, risk identification, and analysis cannot be effectively carried out.

(A) Incorrect – Normalize the data.

Normalization is a preprocessing step that occurs after data has been obtained.

Before normalizing, the auditor must first access and collect relevant data sources.

(B) Correct – Obtain the data.

Data acquisition is a critical step in data analytics.

The auditor must gather relevant and reliable data from internal and external sources before proceeding with further steps such as cleansing, normalization, and analysis.

(C) Incorrect – Identify the risks.

Risk identification is an essential part of the audit process but typically comes after obtaining and reviewing data patterns.

Without data, identifying risks would be speculative rather than evidence-based.

(D) Incorrect – Analyze the data.

Data analysis comes after obtaining, cleaning, and structuring the data.

Jumping straight to analysis without ensuring data quality would lead to inaccurate conclusions.

IIA’s GTAG (Global Technology Audit Guide) – Data Analytics

Recommends obtaining data as the initial step in data-driven audits.

IIA’s Global Internal Audit Standards – Use of Data Analytics in Auditing

Stresses the importance of data acquisition before proceeding with normalization and analysis.

COSO’s ERM Framework – Data-Driven Decision Making

Highlights the importance of securing data for risk identification and mitigation.

Analysis of Answer Choices:IIA References and Internal Auditing Standards:

The Just-in-Time (JIT) method is a managerial accounting and inventory management strategy that focuses on reducing or eliminating excess inventory by receiving goods only as needed.

(A) Theory of constraints.

Incorrect: The theory of constraints focuses on identifying and managing bottlenecks in production, not reducing inventory levels.

(B) Just-in-time method. (Correct Answer)

JIT aims to reduce waste, lower storage costs, and improve efficiency by ensuring that materials and products arrive only when needed.

IIA GTAG 3 – Continuous Auditing suggests monitoring inventory controls to align with JIT principles.

(C) Activity-based costing.

Incorrect: Activity-based costing allocates costs to activities based on usage, not inventory reduction.

(D) Break-even analysis.

Incorrect: Break-even analysis calculates the level of sales needed to cover costs but does not focus on inventory management.

IIA Standard 2120 – Risk Management: Encourages auditors to assess cost-management strategies like JIT.

IIA GTAG 3 – Continuous Auditing: Supports real-time monitoring of inventory to minimize excess stock.

Analysis of Each Option:IIA References Supporting the Answer:Thus, the correct answer is (B) Just-in-Time (JIT) method, as it focuses on achieving low or no inventory to optimize efficiency and reduce costs.