IIA Updated IIA-CIA-Part2 Exam Questions and Answers by saoirse

Current ratio (A) measures general liquidity (Current Assets ÷ Current Liabilities).

Quick ratio (C) (Quick Assets ÷ Current Liabilities) excludes inventory and prepaid expenses, giving a more immediate liquidity measure.

Profit margin (B) measures profitability, and times interest earned (D) measures solvency.

Thus, the best measure of immediate liquidity is the quick ratio (C).

Control Self-Assessment (CSA) is a process through which employees at various levels of an organization can participate in assessing the effectiveness of risk management and control processes. The direct benefits of CSA include allowing process owners to identify, evaluate, and recommend improvements for control deficiencies (Option B), improving the control environment (Option C), and increasing control consciousness (Option D). However, allowing management to have input into the audit plan (Option A) is not a direct benefit of CSA. This involvement is more related to audit planning and risk assessment rather than the CSA process itself. References:

The IIA’s Practice Guide on Control Self-Assessment.

 Inventory Valuation Principles: Inventory valuation must accurately reflect the ownership of goods. The accounting treatment of inventory in transit depends on the shipping terms, specifically whether it is FOB (Free on Board) shipping point or FOB destination.

 FOB Shipping Point:

Ownership Transfer: When goods are shipped FOB shipping point, ownership transfers to the buyer as soon as the goods leave the seller ' s premises.

Impact on Inventory Valuation: If goods shipped FOB shipping point are in transit at the end of the reporting period, they should be included in the buyer ' s inventory, not the seller ' s.

 FOB Destination:

Ownership Transfer: When goods are shipped FOB destination, ownership transfers to the buyer only when the goods arrive at the buyer ' s premises.

Impact on Inventory Valuation: Goods in transit under FOB destination terms should remain in the seller ' s inventory until they reach the buyer.

 Consignment:

Goods Received on Consignment: Goods held on consignment should not be included in the inventory of the consignee (the holder) but remain in the inventory of the consignor (the owner).

Goods Sent on Consignment: Goods sent out on consignment should still be included in the inventory of the consignor until they are sold by the consignee.

 Correct and Incorrect Valuations:

Incorrect Valuation (Option C): Including goods in transit shipped FOB shipping point in the seller ' s inventory would be incorrect, as ownership has transferred to the buyer.

Correct Valuation (Option D): Including goods sent on consignment in the consignor ' s inventory is correct because ownership has not transferred.

 References:

Correct inventory valuation practices ensure that goods in transit are properly accounted for based on the shipping terms, thus providing an accurate financial picture of inventory​​​​.

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.