IIA IIA-CIA-Part3 Actual Questions

Relevant cost refers to costs that will change depending on a specific business decision. It is crucial for decision-making as it helps management assess the financial impact of alternatives.

Relevant costs focus on future costs that differ between decision alternatives.

They help management analyze how different choices impact profitability.

This supports decision-making in areas such as pricing, outsourcing, and product discontinuation.

A. It explains the assumption that both costs and revenues are linear through the relevant range → Incorrect. While linear cost behavior is often assumed, it is not the primary purpose of relevant cost analysis.

B. It enables management to calculate a minimum number of units to produce and sell without having to incur a loss → Incorrect. This describes break-even analysis, not relevant cost analysis.

C. It enables management to predict how costs such as the depreciation of equipment will be affected by a change in business decisions → Incorrect. Depreciation is a sunk cost and is not considered relevant for decision-making.

The IIA’s Practice Guide: Financial Decision-Making and Internal Audit’s Role outlines how relevant cost analysis aids business strategy.

International Professional Practices Framework (IPPF) Standard 2120 states that internal auditors should assess management’s cost-analysis techniques.

Managerial Accounting Concepts (by IMA and COSO) emphasize relevant costs in strategic decision-making.

Why Option D is Correct?Explanation of the Other Options:IIA References & Best Practices:Thus, the correct answer is D. It enables management to make business decisions, as it explains the cost that will be incurred for a given course of action.

User-Developed Applications (UDAs) are software tools, typically spreadsheets or small databases, created by business users rather than IT professionals. These applications often lack formal security, documentation, and control measures, increasing the risk of data errors, unauthorized access, and compliance failures.

UDAs are often created quickly to meet immediate business needs, without following IT governance, security controls, or development standards.

Unlike traditional IT applications, UDAs lack structured testing, change management, and formal documentation.

The IIA’s GTAG 14 – Auditing User-Developed Applications states that UDAs present higher risks because they are not subject to the same controls as IT-managed applications.

A. UDAs and traditional IT applications typically follow a similar development life cycle → Incorrect. Traditional IT applications follow a formal Software Development Life Cycle (SDLC), whereas UDAs are developed informally by end-users.

B. A UDA usually includes system documentation to illustrate its functions, and IT-developed applications typically do not require such documentation. → Incorrect. IT applications require extensive documentation, whereas UDAs often lack documentation entirely.

D. IT testing personnel usually review both types of applications thoroughly to ensure they were developed properly. → Incorrect. IT applications undergo rigorous testing and quality assurance, while UDAs often bypass IT reviews altogether.

IIA GTAG 14 – Auditing User-Developed Applications highlights the risks of UDAs and emphasizes the need for internal controls.

COBIT Framework (Control Objectives for Information and Related Technologies) recommends IT governance measures for all business-critical applications.

ISO 27001 (Information Security Management System) warns against uncontrolled user-developed applications due to security risks.

Why Option C is Correct?Explanation of the Other Options:IIA References & Best Practices:Thus, the correct answer is C. Unlike traditional IT applications, UDAs typically are developed with little consideration of controls.

Understanding the Project Life Cycle:

The project life cycle consists of initiation, planning, execution, and closure.

Early stages involve planning and defining scope, while later stages focus on execution and completion.

Why Change Costs Increase Over Time:

In early stages, changes are relatively inexpensive as they mainly involve planning adjustments.

As the project progresses, modifications require rework, additional resources, and schedule delays, increasing costs.

Near project completion, changes can be very costly, requiring significant time and effort to correct.

Why Other Options Are Incorrect:

A. Risk and uncertainty increase over time – Incorrect; risk and uncertainty decrease as the project moves forward and becomes more defined.

B. Costs and staffing levels are high at project close – Incorrect; they are usually highest during execution, not closure.

D. Project life cycle = product life cycle – Incorrect; they are separate concepts. A product may exist long after the project ends.

IIA GTAG 12 – Auditing IT Projects: Discusses project life cycle and cost implications.

IIA Practice Guide on Project Risk Management: Highlights cost escalation risks in later project phases.

PMBOK (Project Management Body of Knowledge) Framework: Defines cost increase trends in project management.

Relevant IIA References:✅ Final Answer: Costs related to making changes increase as the project approaches completion (Option C).

Comprehensive and Detailed In-Depth Explanation:

A decentralized organizational structure distributes decision-making authority across multiple levels. This requires a strong organizational culture to guide decision-making in the absence of centralized control.

Option B (Clear expectations) – While true, this applies to both centralized and decentralized structures.

Option C (Electronic monitoring) – More common in centralized control environments.

Option D (Defined code of behavior) – Found in all organizations, not unique to decentralization.

Since decentralized organizations rely more on cultural alignment, Option A is correct.