Free Access to IIA.IIA-CIA-Part3.v2026-03-26.q303 with Valid Practice Test (Page 22)

Question 101

The amortization of intangible assets with finite useful lives is justified by the:

A.Economic entity assumption.
B.Going concern assumption.
C.Monetary unit assumption
D.Historical cost assumption

Question 102

Sales representatives for a manufacturing company are reimbursed for 100 percent of their cellular telephone bills. Cellular telephone costs vary significantly from representative to representative and from month to month, complicating the budgeting and forecasting processes. Management has requested that the internal auditors develop a method for controlling these costs. Which of the following would most appropriately be included in the scope of the consulting project?

A.Control self-assessment involving sales representatives.
B.Benchmarking with other cellular telephone users.
C.Business process review of procurement and payables routines.
D.Performance measurement and design of the budgeting and forecasting processes.

Question 103

The board of directors wants to implement an incentive program for senior management that is specifically tied to the long-term health of the organization. Which of the following methods of compensation would be best to achieve this goal?

A.Commissions.
B.Stock options
C.Gain-sharing bonuses.
D.Allowances

Correct Answer: B

The best method of compensation to align senior management incentives with the long-term health of the organization is stock options. Stock options encourage executives to focus on sustained growth and profitability rather than short-term gains, ensuring that their interests align with those of shareholders and stakeholders.
* Long-Term Value Creation:
* Stock options reward executives only if the company's stock price appreciates over time.
* This encourages leadership to focus on long-term profitability, operational efficiency, and sustainability.
* Alignment with Shareholder Interests:
* If the company performs well, stock prices rise, benefiting both shareholders and executives.
* Poor decision-making that harms long-term value results in devalued stock options, discouraging risky short-term strategies.
* Retention of Key Executives:
* Stock options typically have a vesting period (e.g., 3-5 years), which helps retain top management and ensures commitment to long-term objectives.
* Risk Management Considerations:
* Unlike cash bonuses or short-term commissions, stock options require executives to consider risks and ethical decision-making over an extended period.
* This supports the governance principles outlined by IIA's International Standards for the Professional Practice of Internal Auditing (IPPF) - Standard 2110 (Governance), which emphasizes aligning incentives with risk tolerance and long-term objectives.
* A. Commissions: These are typically tied to short-term sales performance rather than long-term strategic success.
* C. Gain-sharing bonuses: These provide short-term financial rewards based on operational performance but do not incentivize sustained value creation.
* D. Allowances: Fixed allowances do not fluctuate based on company performance and do not drive long-term strategic focus.
* IIA Standard 2110 - Governance: Ensures that management incentives align with the organization's mission and risk tolerance.
* IIA Practice Guide: Evaluating Corporate Governance: Emphasizes long-term incentive structures such as stock options to promote sustainable decision-making.
* COSO Enterprise Risk Management (ERM) Framework: Highlights how executive compensation should support long-term organizational strategy.
Step-by-Step Justification:Why Not the Other Options?IIA References:

Question 104

Which of the following is not required when ISO 9000 standards are adopted?

A.Organization of a quality management system.
B.Creation of an internal audit system.
C.Consistent high quality products.
D.On-site inspections by a registrar.

Question 105

An entity obtaining short-term financing with trade credit will pay a higher percentage financing cost, everything else being equal, when the:

A.Discount percentage is lower.
B.Items purchased have a higher price.
C.Items purchased have a lower price.
D.Supplier offers a longer discount period.

Question 101

Question 102

Question 103

Question 104

Question 105

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