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IIA CIA Exam
Certified Internal Auditor Exam (Page 39 )

Updated On: 12-Jan-2026
Page 39 of 342
PDF with 1702 Questions

For the year just ended, the entity had a rate of return on equity, rounded to two decimals, of

  1. 31.21%
  2. 58.06%
  3. 67.50%
  4. 71.68%

Answer(s): A

Explanation:

Rate of return on equity, a profitability ratio, measures the rate of return on investment. The ratio equals profit minus any preference dividends) divided by average ordinary equity.



If A has 60 ordinary shares outstanding, it has a book value per share of approximately.

  1. US $1.67
  2. US $2.50
  3. US $4.17
  4. US $5.00

Answer(s): C

Explanation:

The book value per share for A equals the sum of ordinary shares and retained earnings, divided by the number of shares, or US $4.17 [($100 - $150) - 60].



During the growth stage of a product's life cycle,

  1. The quality of products is poor.
  2. New product models and features are introduced.
  3. There is little difference between competing products.
  4. The quality of the products becomes more variable and products are less differentiated.

Answer(s): B

Explanation:

In the growth stage, sales and profits increase rapidly, cost per customer decreases, customers are early adopters, new competitors enter an expanding market, new product models and features are introduced, and promotion spending declines or remains stable. The entity enters new market segments and distribution channels and attempts
to build brand loyalty and achieve the maximum share of the market. Thus, prices are set to penetrate the market, distribution channels are extended, and the mass market is targeted through advertising. The strategy is to advance by these means and by achieving economies of productive scale.



In a diluted earnings-per-share computation, outstanding options issued by the reporting entity are assumed to be exercised. If the exercise price of these options exceeds the average market price, the computation would

  1. Fairly present diluted earnings per share on a prospective basis.
  2. Fairly present the maximum potential dilution of diluted earnings per share on a prospective basis.
  3. Reflect the excess of the number of shares assumed issued at the average market price over the number of shares assumed issued at the exercise price.
  4. Be antidilutive.

Answer(s): D

Explanation:

Options and warrants instruments that give the holders the right to purchase ordinary shares of the entity) issued by the reporting entity are assumed to be exercised at the beginning of the period or at time of issuance, if later. The proceeds are assumed to be from an issuance at the average market price for the period. The difference between 1) the shares issued and 2) the shares that would have been issued at the average market price is an issue for no consideration. If the options are in the money exercise price is less than average market price), they are dilutive because 1) exceeds 2), and the excess will be added to the BEPS denominator. However, when the exercise price exceeds the average market price, the result is antidilutive.



When an entity reports amounts for basic and diluted earnings per share,

  1. The entity should be presented with equal prominence on the face of the income statement.
  2. The entity need not be shown on the face of the income statement but must be disclosed in the notes to the financial statements.
  3. The entity need to be reported for profit or loss only.
  4. BEPS should be presented on the face of the income statement. DEPS may be disclosed either on the face of the income statement or in the notes.

Answer(s): A

Explanation:

A public entity or any entity that discloses EPS must report EPS information on the face of the income statement for both profit or loss from continuing operations and profit or loss. In addition, EPS data for any discontinued operation must be presented on the face
of the income statement or in a note. The entity must present BEPS and DEPS with equal prominence.



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