QUESTION: 33

An organization's health-care insurance costs have been rising approximately 10 percent per year for several years Which of the following analytical review procedures would best evaluate the reasonableness of the increase in health-care costs?

Develop a comparison of the costs incurred with similar costs incurred by other organizations
Obtain the government index of health-care costs for the comparable period of time and compare the rate of increase with that of the cost per employee incurred by the organization.
Obtain a bid from another health-care administrator to provide the same administrative services as the current health-care administrator.
Review all claims and compare with appropriate procedures to ensure that overpayments have not occurred

Answer(s): B

Explanation:

Analytical review procedures involve evaluating financial information by studying plausible relationships among financial and non-financial data. Government Index Comparison: Comparing the organization's increase in health-care costs with a relevant government index provides a benchmark to assess whether the cost increases are in line with broader economic trends.
Claims Review: While reviewing all claims could help identify specific overpayments, it is more labor- intensive and less effective for evaluating overall reasonableness. Competitive Bids: Obtaining bids from other health-care administrators might control future costs but does not evaluate the reasonableness of past cost increases. Industry Comparison: Comparing costs with those incurred by similar organizations could be useful but might not provide a standardized measure like a government index.

Reference:

"Auditing and Assurance Services: An Integrated Approach," which details the use of analytical procedures in evaluating financial data.

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QUESTION: 34

Which of the following offers the best evidence that the internal audit activity has achieved organizational independence?

An independent third party has assessed the organization's system of internal controls to be adequate and effective.
The chief audit executive reports both functionally and administratively to the CEO
The internal audit charter is drafted properly and approved by the appropriate parties.
The mission statement and strategy of the internal audit activity demonstrates alignment to organizational objectives

Answer(s): C

Explanation:

The internal audit charter is a formal document that defines the internal audit activity's purpose, authority, and responsibility. It is crucial for establishing the internal audit function's independence and objectivity.
When the internal audit charter is properly drafted and approved by the appropriate parties, it provides a clear mandate for the internal audit activity and sets the foundation for its operations. This ensures that the internal audit activity can function independently without undue influence from management.

Reference:

According to the IIA's International Standards for the Professional Practice of Internal

Auditing (Standards), specifically Standard 1000 (Purpose, Authority, and Responsibility), the internal audit charter is essential in defining the internal audit activity's role and ensuring its independence.

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QUESTION: 35

With regard to project management, which of the following statements about project crashing is true?

It leads to an increase in risk and often results in rework.
It is an optimization technique where activities are performed in parallel rather than sequentially
It involves a revaluation of project requirements and/or scope.
It is a compression technique in which resources are added to the project

Answer(s): D

Explanation:

Project crashing is a schedule compression technique used in project management to shorten the project duration without changing the project scope. It involves adding additional resources to critical path activities to complete them faster. This method can lead to increased costs but aims to reduce the project timeline effectively. Crashing is often used when project deadlines are tight and time is more critical than budget.

Reference:

Project Management Institute (PMI) defines project crashing as a technique used to shorten the schedule duration for the least incremental cost by adding resources. This is detailed in the PMBOK Guide (Project Management Body of Knowledge).

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QUESTION: 36

When is an organic organizational structure likely to be more successful than a mechanistic organizational structure?

When a manufacturing organization has stable demand for its products.
When an organization is subjected to strong political and social pressures
When a manufacturer has reliable resources and suppliers.
When an organization is infrequently affected by technological advances

Answer(s): B

Explanation:

An organic organizational structure is more flexible and adaptive compared to a mechanistic structure. It is characterized by less formalization, decentralized decision-making, and a greater reliance on lateral communication. This type of structure is beneficial in environments that are dynamic and uncertain, such as when an organization faces strong political and social pressures. The flexibility of an organic structure allows the organization to respond more effectively to external changes and pressures.

Reference:

This concept is supported by organizational theory literature, which suggests that organic structures are better suited for turbulent and changing environments where quick adaptation is necessary.

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