IIA Updated IIA-CIA-Part2 Exam Questions and Answers by ava-mae

Diversion typically involves redirecting resources or assets for personal use, not just having an undisclosed interest.

Tax evasion involves deliberate falsification of financial information to avoid tax liabilities.

Skimming is taking cash before it is recorded in the accounting system, usually difficult to detect.

Disbursement fraud involves creating fictitious invoices or vendors to divert funds.

These definitions are aligned with common fraud schemes outlined in the ACFE (Association of Certified Fraud Examiners) Fraud Tree and various IIA practice guides.

The expectations and objectives of an assurance engagement are often determined in conjunction with the engagement client, aligning with the client's needs and the scope of the engagement. In consulting engagements, internal auditors provide advice and services tailored to the client's requests, which may not always follow a preliminary risk assessment process like in assurance engagements.

The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards) provide detailed guidance on this aspect of engagement planning, particularly in Standards 2200 and 2201.

In the context of the fraud triangle, the condition where a vice president’s unquestioned authority enabled the theft of funds is best described as "opportunity." Opportunity refers to the circumstances that allow fraud to occur, including the ability to override controls or exploit a lack of oversight. This is one of the three elements of the fraud triangle, which also includes rationalization and pressure. References: IIA Practice Guide – Fraud and Internal Audit, COSO Fraud Risk Management Guide

 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​​​​.