IIA Updated IIA-CIA-Part3 Exam Questions and Answers by ariyan

Fixed manufacturing costs refer to costs that do not vary with the level of production activity within a relevant range. These costs include expenses such as depreciation, rent, property taxes, and salaries of permanent employees in the production facility. Their primary purpose is to ensure the availability and operational readiness of production facilities, regardless of fluctuations in production levels.

(A) Correct – To ensure availability of production facilitiesFixed manufacturing costs are incurred to maintain and operate production facilities, ensuring that they remain functional and available for production when needed. These costs exist even if no units are produced, emphasizing their role in sustaining the production infrastructure.

(B) Incorrect – To decrease direct expenses related to productionFixed manufacturing costs are unrelated to direct expenses, such as raw materials and labor, which vary with production volume. Instead, they remain constant regardless of output levels.

(C) Incorrect – To incur stable costs despite operating capacityWhile fixed costs remain stable within a relevant range, their primary purpose is not just cost stability but ensuring production facilities ' availability and functionality.

(D) Incorrect – To increase the total unit cost under absorption costingUnder absorption costing, fixed manufacturing costs are allocated to units produced, affecting per-unit cost calculations. However, this is an accounting treatment rather than the core purpose of fixed manufacturing costs.

IIA’s Global Internal Audit Standards – Managing Resources Effectively

Fixed manufacturing costs ensure operational resources are available and managed efficiently.

IIA’s Guide on Cost Management and Internal Control

Highlights the role of cost structures, including fixed costs, in ensuring business continuity.

IIA’s Practice Advisory on Cost Accounting Controls

Discusses the importance of maintaining production facilities to ensure operational readiness.

Breakdown of Answer Choices:IIA References and Internal Auditing Standards:Would you like further clarification on any point?

The net present value of receivables increases when expected cash collections improve or risk-adjusted losses decline. A tougher collections policy that reduces the bad debt loss ratio improves the amount of cash ultimately collected from credit sales. If everything else remains constant, lower bad debt losses increase the present value of receivable cash flows. Option B is incorrect because higher cost per unit sold reduces profitability and does not increase receivable value. Option C is wrong because a longer collection period delays cash inflows, lowering present value because money received later is worth less. Option D is also incorrect because a higher cost of capital increases the discount rate, which reduces present value. Therefore, reduced bad debt losses make Option A correct.

To identify very small control and transaction anomalies, internal auditors should analyze the entire dataset rather than a sample. Full population analysis increases the likelihood of detecting:

Unusual transaction patterns, including fraud, errors, and control weaknesses.

Rare or subtle anomalies that might be missed in sampling-based audits.

Machine-learning-based fraud detection and exception analysis.

A. Analysis of the full population of existing data. (Correct)

This approach ensures complete coverage, reduces sampling risk, and detects rare anomalies.

Modern data analytics tools allow auditors to analyze entire datasets efficiently.

B. Verification of the completeness and integrity of existing data. (Incorrect)

While data integrity checks ensure reliable data, they do not actively identify anomalies or suspicious patterns.

C. Continuous monitoring on a repetitive basis. (Incorrect, but relevant)

Continuous monitoring is useful for ongoing fraud detection, but it does not guarantee full anomaly detection unless it covers all transactions.

Full population analysis is more comprehensive for identifying small anomalies.

D. Analysis of the databases of partners, such as suppliers. (Incorrect)

While analyzing external data sources can uncover vendor fraud, it does not address internal control or transaction anomalies within the organization.

IIA GTAG 3 – Continuous Auditing recommends full population analysis as a best practice for anomaly detection.

IIA Standard 1220 – Due Professional Care requires auditors to use advanced analytical techniques to detect control weaknesses.

COSO Framework – Fraud Risk Management Guide suggests full transaction data analysis for effective fraud detection.

Explanation of Answer Choices:IIA References:Thus, the correct answer is A. Analysis of the full population of existing data.

The chief audit executive may assist the audit committee or board in the external auditor selection process by helping determine or recommend selection criteria. Relevant criteria may include independence, competence, industry experience, audit methodology, regulatory knowledge, staffing, technology capability, fee structure, and communication approach. The CAE should not independently acquire the external audit service because appointment is normally a board or audit committee responsibility. Assessing appraisal and actuarial services is too narrow and not the main selection role. Identifying regulatory requirements may be useful, but it is not as central as establishing selection criteria. Internal audit’s role should support governance without taking over the board’s responsibility. Therefore, Option C is correct.