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IIA CIA Exam
Certified Internal Auditor Exam (Page 64 )

Updated On: 12-Jan-2026
Page 64 of 342
PDF with 1702 Questions

Subsequent to their initial recognition, which financial assets with quoted market prices in an active market are measured at fair value?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Subsequent measurement of financial assets is normally at fair value. Thus, derivative, available-for-sale, and held-for-trading financial assets are measured at fair value. Loans and receivables and held-to-maturity investments are measured at amortized cost using the effective interest rate method. Unquoted equity instruments whose fair value is not reliably measurable are reported at cost.



Derivatives that are not hedging instruments are always classified in which category of financial instruments?

  1. Financial assets or liabilities held for trading
  2. Held-to-maturity investments.
  3. Loans and receivables.
  4. Available-for-sale financial assets.

Answer(s): A

Explanation:

Financial assets or liabilities at fair value through profit or loss include those held for trading. Regardless of intent, a financial asset is held for trading if it is included in a portfolio with a recent pattern of short-term profit taking. Derivatives also are deemed to be held for trading unless they are designated and effective as hedging instruments.



A transferor entity most likely should continue to recognize a transferred financial asset if the

  1. Transferor may reacquire the asset, and the asset is readily obtainable in the market
  2. Transferee may sell the full fair value of the asset
  3. Transferor has an option to reacquire the asset, and the reacquisition price is fair value
  4. Transferor is entitled and obligated to repurchase the asset, and the transferee receives a lender's return.

Answer(s): D

Explanation:

An entity derecognizes a financial asset if it has transferred substantially all of the risks and rewards of ownership. Derecognition also is appropriate when the entity neither has transferred nor retained substantially all the risks and rewards of ownership, providing the entity does not have control. A transferor does not derecognizes the financial asset if it is entitled and obligated to repurchase or redeem the asset, and the terms of this transaction in effect allow the transferee to obtain a lender's return on the assets it receives in exchange ft r the transferred financial asset.



If receivables transferred with recourse qualify for derecognition, the proceeds from the transfer are

  1. Accounted for as a collateralized borrowing.
  2. Recorded at fair value for the assets obtained and liabilities incur, d.
  3. Recorded at the historical cost of the assets obtained.
  4. Reduced by the fair value of the recourse obligation.

Answer(s): D

Explanation:

The entity derecognizes financial assets if it has transferred substantially all of the risks and rewards of ownership. Derecognition also is appropriate when the entity neither has transferred nor retained substantially all the risks and rewards of ownership, providing the entity does not have control. After derecognition, periodic profit or loss will include the difference between the carrying amount transferred and the proceeds, plus or minus any prior adjustment r fl ling the fair value of the asset that had been reported in equity. If a new financial asset is created or a financial liability is assumed, the calculation is adjusted for the fair value of the asset or liability. Thus, the proceeds of the sale are reduced by the fair value of the resource obligationa new financial liability). When the transfer does not meet these criteria, the transfer is accounted for as a collateralized borrowing.



When a right of return exists, an entity may recognize revenue from a sale of goods at the time of sale only if

  1. The amount of future returns can be reliably estimated.
  2. The seller retains the risks and rewards of ownership.
  3. The buyer resells the goods.
  4. The seller believes returns will not be material.

Answer(s): A

Explanation:

One condition for condition of revenue from the sale of goods is the transfer of the significant risks and rewards of ownership. Retention of significant risk may occur when, for example, the buyer may rescind the purchase for a reason stipulated in the contract and the buy, is uncertain about the probability of return. However if the entity can reliably estimate future returns and recognize a liability for returns based on experience and other pertinent information, revenue may be recognized at the time of sale if the other conditions for revenue recognition are also met.



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