Pearson IIA-CIA-Part3 New Attempt

A flatter organizational structure reduces hierarchical levels and promotes greater autonomy for employees. The primary benefit is cost reduction due to fewer management layers and streamlined decision-making.

Fewer Management Layers – Reduces the number of mid-level managers, decreasing salary expenses.

Increased Operational Efficiency – Less bureaucracy leads to faster decision-making, lowering administrative costs.

Encourages Employee Autonomy – Reduces dependence on supervision, improving productivity.

B. Slower decision-making at the senior executive level – Incorrect because flatter structures lead to faster decision-making due to fewer approval levels.

C. Limited creative freedom in lower-level managers – Incorrect because flatter structures provide more autonomy and innovation opportunities.

D. Senior-level executives more focused on short-term, routine decision-making – Incorrect because executives in a flatter structure focus on strategic, high-level decisions, delegating routine tasks.

IIA’s GTAG on Governance and Risk Management – Discusses the financial and operational impacts of different organizational structures.

COSO’s Enterprise Risk Management (ERM) Framework – Emphasizes how flatter structures reduce operational inefficiencies and costs.

COBIT 2019 (Governance Framework) – Highlights the impact of organizational structure on financial performance.

Why Lower Costs is the Correct Answer?Why Not the Other Options?IIA References:

Transfer pricing regulations aim to prevent tax evasion and ensure that intercompany transactions reflect fair market value, preventing profit shifting to low-tax jurisdictions. Selling inventory at fair value (arm’s length price) aligns with regulatory requirements, reducing the risk of non-compliance.

(A) Correct – The organization sells inventory to an overseas subsidiary at fair value.

Ensuring that transactions reflect fair market value prevents regulatory violations.

Adhering to the arm’s length principle minimizes transfer pricing risks and potential tax penalties.

(B) Incorrect – The local subsidiary purchases inventory at a discounted price.

A discounted price could be seen as an attempt to shift profits between entities, increasing regulatory scrutiny.

(C) Incorrect – The organization sells inventory to an overseas subsidiary at the original cost.

Selling at the original cost does not account for market conditions, potential markup, and fair valuation.

Regulators may view this as non-compliance with the arm’s length principle.

(D) Incorrect – The local subsidiary purchases inventory at the depreciated cost.

Depreciated cost may not represent fair market value and could be interpreted as a tax avoidance mechanism.

IIA’s Global Internal Audit Standards – Compliance with Tax and Transfer Pricing Regulations

Emphasizes fair pricing in intercompany transactions to prevent regulatory violations.

OECD Transfer Pricing Guidelines

Reinforces the arm’s length principle as the standard for pricing related-party transactions.

COSO’s ERM Framework – Compliance Risk Management

Highlights the need for adherence to tax laws and fair-value pricing in financial transactions.

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

Data governance refers to the policies, processes, and controls an organization implements to ensure data integrity, security, and compliance. When an organization has a weak data governance culture, the most compromised attribute of data is "veracity," which refers to the accuracy, reliability, and trustworthiness of data.

Why Option D (Veracity) is Correct:

Weak data governance leads to poor data quality, inconsistencies, and errors, reducing data veracity (trustworthiness and accuracy).

Without strong governance, data may be incomplete, outdated, or manipulated, leading to flawed decision-making.

Data veracity is critical for risk management, internal audit, and regulatory compliance, as unreliable data can lead to financial misstatements and operational risks.

Why Other Options Are Incorrect:

Option A (Variety):

Variety refers to different types and sources of data (structured, unstructured, semi-structured).

A weak data governance culture does not necessarily affect the diversity of data sources.

Option B (Velocity):

Velocity refers to the speed at which data is generated, processed, and analyzed.

Weak governance impacts data quality more than processing speed.

Option C (Volume):

Volume refers to the quantity of data being processed and stored.

Weak data governance might lead to data duplication or loss but does not directly impact data volume.

IIA GTAG – "Auditing Data Governance": Emphasizes the importance of data veracity in decision-making.

COSO Internal Control Framework: Highlights the role of data integrity in financial and operational controls.

IIA’s Global Technology Audit Guide on Data Analytics: Discusses the risks of poor data governance affecting veracity.

IIA References:

Depreciation is the systematic allocation of an asset’s cost over its useful life. It reflects how much of the asset’s value is used up in each accounting period.

Spreads Cost Over Time – Instead of expensing the total cost immediately, depreciation distributes it across multiple periods.

Matches Expenses with Revenue – Ensures that the cost of long-term assets is allocated in the periods they generate revenue.

Required for Financial Reporting – Compliance with GAAP and IFRS requires proper allocation of asset costs.

B. It is a process of asset valuation – Incorrect because depreciation does not determine market value; it only spreads cost over time.

C. It is a process of accumulating adequate funds to replace assets – Incorrect because depreciation is an accounting concept, not a savings mechanism.

D. It is a process of measuring decline in the value of assets because of obsolescence – Incorrect because depreciation allocates cost, not necessarily measuring value decline (which is impairment).

IIA’s GTAG on Financial Controls and Reporting – Defines depreciation as a cost allocation method.

International Financial Reporting Standards (IFRS 16) & US GAAP (ASC 360) – State that depreciation is used to allocate asset costs over time.

COSO’s Internal Control Framework – Covers accounting treatments for fixed assets.

Why Depreciation is an Allocation Process?Why Not the Other Options?IIA References:✅ Final Answer: A. It is a process of allocating cost of assets between periods.