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IIA Business Knowledge for Internal Auditing Sample Questions (Q321-Q326):
NEW QUESTION # 321
A retail organization is considering acquiring a composite textile company. The retailer's due diligence team determined the value of the textile company to be $50 million. The financial experts forecasted net present value of future cash flows to be $60 million. Experts at the textile company determined their company's market value to be $55 million if purchased by another entity. However, the textile company could earn more than $70 million from the retail organization due to synergies. Therefore, the textile company is motivated to make the negotiation successful. Which of the following approaches is most likely to result in a successful negotiation?
- A. Develop a bargaining zone that lies between $50 million and $70 million and create sets of outcomes between $50 million and $70 million.
- B. Involve a mediator as a neutral party who can work with the textile company's management to determine a bargaining zone.
- C. Develop a bargaining zone that lies between $55 million and $60 million and create sets of outcomes between $55 million and $60 million.
- D. Adopt an added-value negotiating strategy, develop a bargaining zone between $50 million and $70 million, and create sets of outcomes between $50 million and $70 million.
Answer: C
NEW QUESTION # 322
The graph depicts the domestic supply of and demand for a product that is also sold in the domestic market by foreign producers. The domestic producers are protected by a tariff of the amount Pt minus Pw. Bt is the domestic price including the tariff, and Rw is the world price for the product. The effect of the tariff is to:
- A. Increase domestic production from Ob to Cc.
- B. Reduce foreign sales in the domestic market from ac to bc.
- C. Reduce the domestic price from ORw to ORt
- D. Increase domestic production from Oa to Ob.
Answer: D
Explanation:
Without the tariff, domestic production is determined by the intersection of the Pw line with the domestic supply curve at the quantity Oa. Domestic production increases from Oa to Ob as a result of the introduction of the tariff. Supply intersects the Pt line at a higher price and at a greater domestic quantity, Ob.
NEW QUESTION # 323
A company in the process of analyzing inventory safety stock levels is having difficulty because demand vanes widely from one week to the next. However, it has been discovered that demand occurs according to a probability distribution. Which of the following is a stochastic model that the company could use in this situation?
- A. Critical path network analysis.
- B. Regression analysis.
- C. Markov process.
- D. Linear programming.
Answer: C
Explanation:
A stochastic model is probabilistic. Markov processes quantify the likelihood of a future event based on the current state of the process.
NEW QUESTION # 324
Which of the following statements accurately describes the responsibility of the internal audit activity (IAA) regarding IT governance?
1. The IAA does not have any responsibility because IT governance is the responsibility of the board and senior management of the organization.
2. The IAA must assess whether the IT governance of the organization supports the organization's strategies and objectives.
3. The IAA may assess whether the IT governance of the organization supports the organization's strategies and objectives.
4. The IAA may accept requests from management to perform advisory services regarding how the IT governance of the organization supports the organization's strategies and objectives.
- A. 1 only
- B. 2 and 4
- C. 4 only
- D. 3 and 4
Answer: B
NEW QUESTION # 325
Which of the following best describes depreciation?
- A. It is a process of assets valuation.
- B. It is a process of accumulating adequate funds to replace assets.
- C. It is a process of measuring decline in the value of assets because of obsolescence
- D. It is a process of allocating cost of assets between periods.
Answer: D
Explanation:
Depreciation is the systematic allocation of an asset's cost over its useful life. It reflects how much of the asset's value is used up in each accounting period.
* Spreads Cost Over Time - Instead of expensing the total cost immediately, depreciation distributes it across multiple periods.
* Matches Expenses with Revenue - Ensures that the cost of long-term assets is allocated in the periods they generate revenue.
* Required for Financial Reporting - Compliance with GAAP and IFRS requires proper allocation of asset costs.
* B. It is a process of asset valuation - Incorrect because depreciation does not determine market value; it only spreads cost over time.
* C. It is a process of accumulating adequate funds to replace assets - Incorrect because depreciation is an accounting concept, not a savings mechanism.
* D. It is a process of measuring decline in the value of assets because of obsolescence - Incorrect because depreciation allocates cost, not necessarily measuring value decline (which is impairment).
* IIA's GTAG on Financial Controls and Reporting - Defines depreciation as a cost allocation method.
* International Financial Reporting Standards (IFRS 16) & US GAAP (ASC 360) - State that depreciation is used to allocate asset costs over time.
* COSO's Internal Control Framework - Covers accounting treatments for fixed assets.
Why Depreciation is an Allocation Process?Why Not the Other Options?IIA References:# Final Answer: A.
It is a process of allocating cost of assets between periods.
NEW QUESTION # 326
......
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