QUESTION: 69

Which of the following methods is most closely associated to year over year trends?

Horizontal analysts
Vertical analysis.
Common-size analysis.
Ratio analysis.

Answer(s): A

Explanation:

Introduction:
Horizontal analysis involves comparing financial data across multiple periods to identify trends and patterns over time.
Year-over-Year Trends:
This method helps in understanding changes in financial performance and position year-over-year.
Options Analysis:
Option A: Horizontal analysis is directly related to comparing data year-over-year. Option B: Vertical analysis involves comparing items on a financial statement as a percentage of a base figure within the same period.
Option C: Common-size analysis is a type of vertical analysis where all items are expressed as a percentage of a common base.
Option D: Ratio analysis evaluates relationships between different financial statement items but is not primarily focused on year-over-year trends.
Conclusion:
Horizontal analysis is most closely associated with year-over-year trends as it involves reviewing financial data across periods.

Reference:

Financial Analysis and Reporting Guidelines

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QUESTION: 70

Which of the following statements is true regarding the management-by-objectives method?

Management by objectives is most helpful in organizations that have rapid changes
Management by objectives is most helpful in mechanistic organizations with rigidly defined tasks.
Management by objectives helps organizations to keep employees motivated.
Management by objectives helps organizations to distinguish clearly strategic goals from operational goals

Answer(s): C

Explanation:

Definition of Management by Objectives (MBO): Management by Objectives is a performance management approach where managers and employees work together to identify, plan, organize, and communicate objectives. This method involves setting clear, measurable goals with defined timelines.
Key Benefits:
Employee Motivation: MBO aligns individual goals with organizational objectives, fostering a sense of ownership and engagement among employees. By participating in goal-setting, employees are more motivated to achieve these objectives, as they see a direct link between their efforts and organizational success.
Performance Measurement: Clear objectives allow for effective performance measurement and provide a basis for performance appraisals and feedback.
Comparison with Other Options:

Rapid Changes: Option A is incorrect because MBO is not necessarily best suited for environments with rapid changes, as it relies on predefined objectives that may quickly become outdated. Mechanistic Organizations: Option B is incorrect because MBO is more effective in flexible, dynamic organizations rather than rigid, mechanistic ones.
Strategic vs. Operational Goals: Option D is incorrect because MBO does not inherently distinguish between strategic and operational goals; it focuses on achieving specific measurable objectives.

Reference:

MBO helps in increasing employee motivation by involving them in the goal-setting process and aligning their objectives with the organization's goals, which enhances engagement and performance.

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QUESTION: 71

Which of the following is an example of a properly supervised engagement?

Auditors are asked to keep a daily record of their activity for review by the auditor in charge following the engagement.
The senior internal auditor requires each auditor to review and initial colleagues' workpapers for completeness and format
A new internal auditor is accompanied by an experienced auditor during a highly sensitive fraud investigation.
The auditor in charge provides reasonable assurance that engagement objectives were met

Answer(s): D

Explanation:

Supervision in Internal Audit: Effective supervision ensures that the engagement is carried out according to plan, objectives are met, and quality standards are maintained. It involves guiding, mentoring, and reviewing the work of auditors throughout the engagement.
IIA Standards:
Standard 2340 Engagement Supervision: Internal audit engagements must be properly supervised to ensure objectives are achieved, quality is maintained, and staff are developed. Proper supervision includes overseeing the engagement, providing direction, and ensuring that work complies with standards and achieves engagement objectives.
Examples of Proper Supervision:
Reasonable Assurance: The auditor in charge providing reasonable assurance that engagement objectives were met is a fundamental aspect of effective supervision. It ensures that the engagement delivers the intended outcomes and adheres to quality standards. Daily Records and Workpaper Review: Options A and B involve administrative tasks and peer review, which are supportive but do not alone constitute comprehensive supervision. Accompanied Training: Option C involves on-the-job training, which is beneficial but not the primary aspect of engagement supervision.

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QUESTION: 72

According to IIA guidance, which of the following objectives was most likely formulated for a non- assurance engagement?

The internal audit activity will assess the effects of changes in maintenance strategy on the availability of production equipment
The internal audit activity will inform management on the possible risks of moving the data warehouse to a cloud server maintained by a third party.
The internal audit activity will ascertain whether the data center security arrangements are compliant with agreed terms
The internal audit activity will ensure equipment downtime risks have been managed in accordance with the internal policy.

Answer(s): B

Explanation:

Non-Assurance Engagements: Non-assurance engagements focus on advisory and consulting services rather than providing an independent assessment. These engagements aim to add value by offering insights and recommendations to management.
Objective Characteristics:
Informing Management: Providing information on potential risks and advising on risk management strategies is typical for non-assurance engagements. This helps management make informed decisions and manage risks effectively.
Assessment and Compliance: Options A, C, and D are more aligned with assurance engagements, where the internal audit activity provides an independent assessment or ensures compliance with policies and procedures.
IIA Guidance:
Standard 2120 Risk Management: Internal auditors must evaluate and contribute to the improvement of risk management processes, often through advisory services in non-assurance roles.

Reference:

Non-assurance engagements focus on informing and advising management about risks, improvements, and strategic decisions, as exemplified by informing management about risks related to moving the data warehouse to a third-party cloud server.

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