IIA-CIA-Part3 Exam Dumps - IIA CIA Questions and Answers

After upgrading to a new accounting software, it is critical to ensure that the system is functioning correctly and meets the organization's operational, compliance, and security requirements. The immediate priority should be software testing and validation to confirm that:

The upgrade was successfully implemented.

The system is free from major bugs or functionality errors.

Financial data integrity is maintained.

Compliance with accounting and regulatory standards is ensured.

(A) Market analysis to identify trends:

This is unrelated to post-upgrade activities. Market analysis is a strategic function typically handled by business intelligence or marketing teams, not IT software vendors.

(B) Services to manage and maintain the IT infrastructure:

While IT infrastructure maintenance is important, it is typically an ongoing operational task rather than an immediate post-upgrade activity.

(C) Backup and restoration:

While data backup should be completed before the software upgrade, restoration would only be necessary if the upgrade fails. However, this is a contingency plan, not a standard immediate post-upgrade activity.

(D) Software testing and validation (Correct Answer):

Immediately after an upgrade, software testing is critical to ensure that financial transactions, reporting, and other accounting functions operate correctly.

This includes user acceptance testing (UAT), integration testing, and validation against financial reporting requirements.

IIA Global Technology Audit Guide (GTAG) 8: Auditing Application Controls – Emphasizes the importance of testing and validating application functionality after implementation or upgrades.

IIA Standard 2110 - Governance – Requires internal auditors to assess whether IT governance supports the organization's strategic objectives, including testing new software for operational effectiveness.

COBIT (Control Objectives for Information and Related Technologies) Framework – Highlights the importance of post-implementation review to confirm that IT systems perform as expected.

Analysis of Each Option:IIA References:Conclusion:To ensure that the accounting software upgrade is successful and operationally sound, software testing and validation must be performed immediately. Therefore, option (D) is the correct answer.

According to Maslow’s hierarchy of needs, once an individual’s lower-level needs (physiological, safety, and social needs) are met, they seek higher-level motivators such as esteem and self-actualization. Recognition falls under esteem needs, which include respect, status, and appreciation. Employees who feel valued and recognized are more likely to stay with an organization.

A. Social benefits – These are lower-level needs (belongingness/social needs), which have already been met in this scenario.

B. Compensation – While salary is important, it primarily addresses physiological and security needs, which are lower on Maslow’s hierarchy. Once these are met, higher-level motivators like recognition become more influential.

C. Job safety – Safety and security are lower-level needs, and in this scenario, they are already met.

D. Recognition (Correct Answer) – Falls under esteem needs, which are crucial for employee retention once basic needs are satisfied.

IIA IPPF Standard 2120 – Risk Management includes talent management as part of organizational sustainability.

COSO ERM Framework – Human Capital Risk highlights employee motivation as a key factor in risk management.

IIA GTAG 7 – Managing IT Security Risks discusses employee satisfaction and its impact on organizational security and retention.

Explanation of Each Option:IIA References:

Data extraction involves retrieving data from various sources for processing or storage. Among the options provided, the database system is the component that facilitates data extraction from an application. Here's why:

A. Application Program Code:

While the application program code defines the logic and functionality of an application, it doesn't inherently provide mechanisms for data extraction. Instead, it interacts with databases to perform operations like data retrieval, insertion, or modification.

B. Database System:

A database system is designed to store, manage, and retrieve data efficiently. It offers structured methods, such as querying with SQL, to extract specific data as needed. Applications rely on the database system to access and extract the required data for various operations. For instance, in a relational database, data extraction is performed using SQL queries that retrieve data based on specified criteria. This process is fundamental to operations like reporting, analytics, and data migration.

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C. Operating System:

The operating system manages hardware resources and provides services for application execution but doesn't directly handle data extraction from applications. It ensures that applications have the necessary environment to run but delegates data management tasks to the database systems.

D. Networks:

Networks facilitate data transmission between systems but don't directly extract data from applications. They provide the pathways for data to travel between clients and servers or between different systems but aren't responsible for the extraction process within an application.

In summary, the database system is the component that provides the necessary tools and methods for data extraction within an application, making option B the correct answer.

Preventing security breaches requires proactive security controls, and the approval of identity requests ensures that only authorized individuals gain access to systems and data.

Types of Security Controls:

Preventive Controls (Stop security incidents before they happen)

Detective Controls (Identify security breaches after they occur)

Corrective Controls (Address security issues after detection)

Why Identity Request Approval is the Most Effective Preventive Control?

User access approval ensures that only verified personnel receive credentials.

According to IIA GTAG on Identity and Access Management, user provisioning must follow strict approval workflows to prevent unauthorized access.

By restricting access before a breach occurs, organizations reduce risks related to insider threats, phishing attacks, and credential misuse.

Why Not Other Options?

B. Access Logging:

Access logs record activity but do not prevent security breaches.

C. Monitoring Privileged Accounts:

Monitoring privileged accounts helps detect suspicious activity but does not stop unauthorized access beforehand.

D. Audit of Access Rights:

Regular audits ensure compliance but do not actively prevent unauthorized access in real-time.

IIA GTAG – Identity and Access Management

IIA Standard 2120 – Risk Management and IT Controls

COBIT 2019 – Access Control and Security Management

Step-by-Step Justification:IIA References:Thus, the correct and verified answer is A. Approval of identity request.

A partnership is a business structure where two or more individuals share ownership, responsibilities, and profits or losses. The accounting treatment of a partnership follows GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards).

Let’s analyze each option:

A. The initial investment of each partner should be recorded at book value.

Incorrect. The initial investment is recorded at fair market value (FMV) at the time of contribution, not at book value. This ensures that all assets contributed by partners reflect their current worth.

B. The ownership ratio identifies the basis for dividing net income and net loss. ✅ (Correct Answer)

Correct. A partnership agreement typically specifies profit and loss-sharing ratios based on ownership percentages. If no agreement exists, profits and losses are divided equally among partners.

Example: If Partner A owns 60% and Partner B owns 40%, they will split net income or loss in this ratio.

C. A partner's capital only changes due to net income or net loss.

Incorrect. A partner’s capital account changes due to additional investments, withdrawals, revaluations of assets, and profit/loss allocations.

D. The basis for sharing net income or net losses must be fixed.

Incorrect. Partners can change the allocation method over time through a revised partnership agreement. It is not required to remain fixed.

IIA Practice Guide – Assessing Financial Statement Risk – Covers partnership accounting risks.

GAAP & IFRS – Partnership Accounting Standards – Explain the treatment of capital accounts and income distribution.

COSO Internal Control Framework – Financial Reporting Risk – Discusses financial treatment of equity structures.

IIA Standard 2120 – Risk Management – Highlights financial statement risks, including partnerships.

IIA References:

Understanding The IIA’s Three Lines Model:

The Three Lines Model defines responsibilities for risk management and control across different organizational functions:

First Line: Operational management (owns and manages risks).

Second Line: Risk and compliance functions (monitors and facilitates risk management).

Third Line: Internal audit (provides independent assurance).

Why Third-Party and Supplier Assessments Are Shared Across All Three Lines:

First Line (Operational Teams & IT Security): Ensures that vendors comply with security standards.

Second Line (Risk & Compliance Teams): Conducts due diligence and ensures compliance with cybersecurity regulations.

Third Line (Internal Audit): Independently evaluates supplier risk management processes.

Why Other Options Are Less Relevant:

B. Recruitment and retention of certified IT talent – Primarily a first-line management responsibility (HR and IT departments).

C. Classification of data and design of access privileges – Typically a first-line IT security function, with oversight from the second line.

D. Creation and maintenance of secure network configurations – Falls under first-line IT operations with oversight but not shared by all three lines.

IIA’s Three Lines Model (2020 Update): Emphasizes shared responsibilities in areas like third-party risk.

IIA Practice Guide on Third-Party Risk Management: Internal audit must assess supplier security and compliance.

COSO ERM Framework: Highlights vendor risk management as a cross-functional responsibility.

Relevant IIA References:✅ Final Answer: Assessments of third parties and suppliers (Option A).

Understanding Predictive Analytics:

Predictive analytics involves using historical data, statistical algorithms, and machine learning techniques to forecast future trends and behaviors.

It applies assumptions and models patterns to predict outcomes, helping businesses make proactive decisions.

Why Option B is Correct:

Predictive analytics is forward-looking and uses assumptions (e.g., weather conditions) to predict where stock levels would decrease more quickly.

This aligns with the goal of predictive analytics: forecasting potential events before they occur.

Why Other Options Are Incorrect:

A. Analyzed instances where parts were out of stock before scheduled deliveries: This is descriptive analytics, as it looks at past data without making future predictions.

C. Analyzed past stockouts and found a correlation with stormy weather: This is diagnostic analytics, as it identifies past correlations but does not predict future trends.

D. Modeled different scenarios for stock reordering and delivery decisions: This is prescriptive analytics, which focuses on decision-making rather than predictions.

IIA Standards and References:

IIA GTAG on Data Analytics (2017): Highlights predictive analytics as a tool for forecasting risks and operational inefficiencies.

IIA Standard 1220 – Due Professional Care: Encourages auditors to use analytical techniques to anticipate potential issues.

COSO ERM Framework: Supports the use of predictive models to improve risk management and strategic planning.

Thus, the correct answer is B: A supplier of electrical parts analyzed sales, applied assumptions related to weather conditions, and identified locations where stock levels would decrease more quickly.

Physical controls are security measures that prevent unauthorized physical access to critical assets, such as IT infrastructure, sensitive documents, or restricted areas.

(A) Preventing database administrators from initiating program changes:

This is a logical (IT) control rather than a physical control. Logical controls manage access permissions and prevent unauthorized software changes.

(B) Blocking technicians from getting into the network room (Correct Answer):

This is a physical control because it prevents unauthorized personnel from physically accessing critical IT infrastructure, such as servers and networking devices.

Unauthorized access to a network room could lead to data breaches, hardware manipulation, or cyberattacks.

(C) Restricting system programmers' access to database facilities:

This is an access control measure, which can be either logical (permissions, role-based access) or physical. However, it primarily refers to IT access controls rather than a physical security measure.

(D) Using encryption for data transmitted over the public internet:

This is a technical control, not a physical one. Encryption protects data but does not prevent physical breaches.

IIA GTAG 17: Auditing IT Security – Emphasizes the role of physical security in protecting IT infrastructure.

COBIT Framework – DSS05 (Manage Security Services) – Highlights physical access restrictions as a key security measure.

ISO/IEC 27001: Information Security Management System – Identifies physical security as a fundamental control for IT risk management.

Analysis of Each Option:IIA References:Conclusion:Since physical security controls prevent unauthorized physical access, option (B) is the correct answer.

Working capital = Current Assets – Current Liabilities

A high amount of working capital compared to industry averages suggests that the organization may not be efficiently using its resources. This could mean that:

Excess cash is invested in inventory or accounts receivable, instead of being used for growth, investment, or shareholder returns.

The company may be holding too much inventory, which could lead to obsolescence or additional storage costs.

The business may have slow turnover in receivables, meaning cash is not being collected efficiently.

A. Settlement of short-term obligations may become difficult. (Incorrect)

A high working capital means the organization has sufficient assets to cover short-term obligations, so liquidity issues are unlikely.

B. Cash may be tied up in items not generating financial value. (Correct)

High working capital may indicate inefficient use of assets, such as excess inventory, high accounts receivable, or idle cash.

This can negatively impact return on assets (ROA) and overall financial performance.

C. Collection policies of the organization are ineffective. (Incorrect)

While high receivables can be a factor, working capital includes all current assets and liabilities, not just accounts receivable.

The issue could be inventory mismanagement or excess liquidity, not just collection policies.

D. The organization is efficient in using assets to generate revenue. (Incorrect)

A high working capital does not necessarily mean efficiency. In fact, it may indicate underutilized resources rather than optimized performance.

IIA GTAG 3 – Continuous Auditing: Implications for Internal Auditors highlights the importance of monitoring key financial metrics such as working capital.

IIA Practice Advisory 2130-1 – Assessing Organizational Performance emphasizes that internal auditors should assess whether financial resources are being used efficiently.

Financial Management Principles (IIA Guidance) discuss the impact of excessive working capital on liquidity and return on investment.

Explanation of Answer Choices:IIA References:Thus, the correct answer is B. Cash may be tied up in items not generating financial value.

When an organization buys equity securities for trading purposes, it means that these securities are classified as trading securities. According to International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP):

Trading securities are measured at fair value.

Unrealized gains and losses from changes in fair value are recognized in net income, not in shareholders' equity.

A. At fair value with changes reported in the shareholders' equity section. (Incorrect)

This treatment applies to available-for-sale (AFS) securities under previous GAAP rules, but not to trading securities.

Under IFRS 9, AFS classification has been removed, and most equity investments are recorded at fair value through profit or loss (FVTPL).

B. At fair value with changes reported in net income. (Correct)

This is the correct treatment for trading securities, as per IFRS 9 and ASC 320 (FASB).

C. At amortized cost in the income statement. (Incorrect)

Amortized cost is used for held-to-maturity (HTM) debt securities, not for equity securities held for trading.

D. As current assets in the balance sheet. (Partially Correct but Incomplete)

While trading securities are usually classified as current assets, this answer does not address valuation and reporting of changes in fair value.

IIA Practice Guide: Auditing Investments highlights the importance of correctly valuing securities based on accounting standards.

IFRS 9 – Financial Instruments mandates fair value measurement for trading securities with gains/losses reported in profit or loss.

GAAP ASC 320 – Investments – Debt and Equity Securities aligns with IFRS, requiring fair value reporting through net income.

Explanation of Answer Choices:IIA References:Thus, the correct answer is B. At fair value with changes reported in net income.