IIA IIA-CIA-Part3 Exam Prep Guide: Prep guide for the IIA-CIA-Part3 Exam
2026 New Preparation Guide of IIA IIA-CIA-Part3 Exam
IIA-CIA-Part3 certification exam, also known as Business Knowledge for Internal Auditing, is one of the three exams required to earn the Certified Internal Auditor (CIA) designation. IIA-CIA-Part3 exam focuses on the fundamental business concepts and skills necessary for internal auditors to succeed in their roles. It consists of 125 multiple-choice questions and candidates have 2.5 hours to complete the exam.
IIA-CIA-Part3 exam is designed for internal auditors who want to enhance their knowledge and skills in business-related areas. It is also suitable for those who want to pursue a career in internal auditing or those who wish to enhance their knowledge in business management. IIA-CIA-Part3 exam is particularly relevant for internal auditors who work in industries such as finance, healthcare, and manufacturing, where business knowledge is essential.
NEW QUESTION # 267
Which of the following controls most likely could prevent computer personnel from
modifying programs to bypass programmed controls?
- A. Segregation of duties within computer for computer programming and computer operations.
- B. Physical security of computer facilities in limiting access to computer equipment.
- C. Participation of user department personnel in designing and approving new systems.
- D. Periodic management review of computer utilization reports and systems documentation.
Answer: A
Explanation:
Programmers and analysts can modify programs, data files, and controls. Thus, they II should have no access to programs used to process transactions. Segregation of programming and operations is a control necessary to prevent unauthorized modifications of programs.
NEW QUESTION # 268
An entity has been sued for US $100 million for producing and selling an unsafe product.
Attorneys for the entity cannot reliably predict the outcome of the litigation. In its financial statements, the entity should:
- A. Neither make a journal entry nor disclose the lawsuits in a note because bad publicity will hurt the entity.
- B. Make the following journal entry, and disclose the existence of the lawsuit in a note. Estimated loss from litigation US $100,000,000 Estimated provision for litigation loss US $100,000,000
- C. Disclose the existence of the lawsuit in a note without making a journal entry.
- D. Make the following journal entry, and disclose the existence of the lawsuit in a note. Cost of goods sold US $100,000,000 Estimated provision for litigation loss US $100,000,000
Answer: C
Explanation:
In the very rare case in which a reliable estimate of an obligation that otherwise qualifies for treatment as a provision cannot be determined, no liability is recognized. Instead, the existing liability is disclosed as a contingent liability unless the possibility of any outflow in settlement is remote).
NEW QUESTION # 269
The most difficult aspect of using Internet resources is:
- A. Obtaining the equipment required.
- B. Getting authorization for access.
- C. Making a physical connection.
B Locating the best information source.
Answer: A
Explanation:
The most difficult aspect of using Internet resources is locating the best information given the large number of information sources.
NEW QUESTION # 270
Which of the following security controls focuses most on prevention of unauthorized access to the power plant?
- A. An offboarding procedure is initiated monthly to determine redundant physical access rights
- B. Requests for additional access rights are sent for approval and validation by direct supervisors
- C. Logs generated by smart locks are automatically scanned to identify anomalies in access patterns
- D. Automatic notifications are sent to a central security unit when employees enter the premises during nonwork hours
Answer: B
NEW QUESTION # 271
Which of the following best describes a detective control designed to protect an organization from cyberthreats and attacks?
- A. Firewall and other network perimeter protection tools.
- B. Monitoring for vulnerabilities based on industry intelligence.
- C. Comprehensive service level agreements with vendors.
- D. A list of trustworthy, good traffic and a list of unauthorized, blocked traffic.
Answer: B
Explanation:
A detective control is a security measure that identifies and alerts an organization to potential cyberthreats after they occur but before they cause harm. Detective controls do not prevent attacks but help detect them in a timely manner.
* Why Option B (Monitoring for vulnerabilities based on industry intelligence) is Correct:
* Continuous monitoring for vulnerabilities helps detect emerging threats, security breaches, and weaknesses in IT systems.
* Uses threat intelligence feeds, security information and event management (SIEM) systems, and intrusion detection systems (IDS).
* Helps organizations respond quickly to cyberattacks by identifying patterns, suspicious activity, or known vulnerabilities.
* Why Other Options Are Incorrect:
* Option A (A list of trustworthy, good traffic and a list of unauthorized, blocked traffic):
* Incorrect because this describes a whitelisting/blacklisting technique, which is a preventive control, not a detective control.
* Option C (Comprehensive service level agreements with vendors):
* Incorrect because service level agreements (SLAs) ensure contractual obligations, but do not detect security threats.
* Option D (Firewall and other network perimeter protection tools):
* Incorrect because firewalls are preventive controls, designed to block unauthorized access, not detect threats after they occur.
* IIA GTAG - "Auditing Cybersecurity Risks": Discusses detective controls such as vulnerability monitoring and threat intelligence.
* COBIT 2019 - DSS05 (Manage Security Services): Recommends continuous monitoring for cyber threats as a detective control.
* NIST Cybersecurity Framework - Detect Function: Highlights vulnerability management and threat monitoring as key detective measures.
IIA References:Thus, the correct answer is B. Monitoring for vulnerabilities based on industry intelligence.
NEW QUESTION # 272
A company employs a process cost system using the first-in, first-out FIFO) method. The product passes through both Department 1 and Department 2 in order to be completed.
Units enter Department 2 upon completion in Department 1 Additional direct materials are added in Department 2 when the units have reached the 25% stage of completion with respect to conversion costs. Conversion costs are added proportionally in Department 2.
The production activity in Department 2 for the current month was as follows:
How many equivalent units for direct materials were added in Department 2 for the current month?
- A. 95.000 units.
- B. 80,000 units
- C. 70,000 units
- D. 85,000 units.
Answer: C
Explanation:
Beginning inventory is 40% complete. Hence, direct materials have already been added. Ending inventory has not reached the 25% stage of completion, so direct materials have not yet been added to these units. Thus, the equivalent units for direct materials calculated on a FIFO basis are equal to the units started and completed in the current period 85.000 units completed - 15,000 units in BWIP = 70,000 units started and completed). A manufacturing company employs a process cost system. The company's product passes through both Department 1 and Department 2 in order to be completed. Conversion costs are incurred uniformly throughout the process in Department 2. The direct material is added in Department 2 when conversion is 80% complete. This direct material is a preservative that not change the volume. Spoiled units are discovered at the final inspection and are recognized then for sting purposes. The physical flow of units for the current month is presented below.
NEW QUESTION # 273
An internal auditor was asked to review an equal equity partnership, in one sampled transaction. Partner A transferred equipment into the partnership with a Self-declared value of 510 ,000, and Partner B contributed equipment with a self-declared value of 515,000. The capital accounts reach partner were subsequently credited with $12,500. Which of the following statements Is true regarding this transection?
- A. No action is needed, as the capital account of each partner was increased by the correct amount,
- B. The capital accounts should be increased using a weighted average based by the current percentage of ownership.
- C. The capital accounts of the partners should be increased by she original cost of the contributed equipment.
- D. The capital accounts of the partners should be increased by She fair market value of their contribution.
Answer: D
Explanation:
In an equal equity partnership, partners' capital accounts should reflect the fair market value (FMV) of assets contributed, rather than self-declared values or historical cost. The fair market value ensures equitable ownership distribution and accurate financial reporting.
Let's analyze each option:
* Option A: The capital accounts of the partners should be increased by the original cost of the contributed equipment.
* Incorrect. The original cost (historical cost) of an asset is not relevant in partnership accounting. Instead, fair market value (FMV) is used to properly recognize each partner's contribution.
* Option B: The capital accounts should be increased using a weighted average based on the current percentage of ownership.
* Incorrect. While ownership percentages influence profit and loss distribution, initial capital contributions should be recorded at FMV, not a weighted average.
* Option C: No action is needed, as the capital account of each partner was increased by the correct amount.
* Incorrect. Since the partners contributed different self-declared values, the capital accounts may not be correctly recorded unless verified against FMV. The partnership agreement typically requires capital contributions to be valued based on FMV, not self-declared estimates.
* Option D: The capital accounts of the partners should be increased by the fair market value of their contribution.
* Correct. Fair market value (FMV) ensures that capital contributions are recorded accurately. Using self-declared values without verification can lead to misstatements in capital accounts and potential disputes.
* IIA Reference: Internal auditors reviewing partnership accounting should ensure that capital accounts reflect fair market value to maintain financial accuracy. (IIA Practice Guide:
Auditing Fair Value Estimates)
Thus, the verified answer is D. The capital accounts of the partners should be increased by the fair market value of their contribution.
NEW QUESTION # 274
Which of the following financial statement analyses is most useful in determining whether the various expenses of a given entity are higher or lower than industry averages?
- A. Horizontal.
- B. Vertical.
- C. Activity ratio.
- D. Defensive-interval ratio.
Answer: B
Explanation:
Vertical analysis is the expression of each item on a financial statement in a given period in relation to a base figure. On the income statement, each item is stated as a percentage of sales. Thus, the percentages for the entity in question can be compared with industry norms.
NEW QUESTION # 275
Which of the following security controls would provide the most efficient and effective authentication for customers to access these online shopping account?
- A. 12-digit password feature.
- B. Voice recognition feature.
- C. Two-level sign-on feature
- D. Security question feature.
Answer: C
Explanation:
Two-level (or multi-factor) authentication (MFA) is the most efficient and effective security control for authenticating customers when accessing online shopping accounts. It provides an extra layer of security beyond just passwords, making it more difficult for unauthorized users to gain access.
* Stronger Authentication - It requires two independent verification methods, such as:
* Something you know (password, PIN)
* Something you have (one-time code, mobile device, smart card)
* Something you are (biometric feature)
* Reduces Risk of Credential Theft - Even if hackers obtain a user's password, they still need the second factor to gain access.
* Meets Regulatory Standards - Many cybersecurity frameworks (NIST, ISO 27001, PCI-DSS) recommend or mandate MFA for customer authentication.
* Enhanced Customer Trust - Provides users with better security, reducing risks of fraud or account takeovers.
* A. 12-digit password feature - Longer passwords improve security, but they can still be compromised through phishing or brute force attacks.
* B. Security question feature - These are often weak because users choose predictable answers (e.g., mother's maiden name).
* C. Voice recognition feature - Biometric authentication is useful, but voice recognition can be bypassed using deepfake or recorded audio.
* IIA's GTAG (Global Technology Audit Guide) on Information Security Management - Recommends multi-factor authentication for access control.
* IIA's International Professional Practices Framework (IPPF) - Standard 2110.A2 - Highlights the need for strong security controls to protect customer data.
* NIST SP 800-63 (Digital Identity Guidelines) - Encourages multi-factor authentication as a best practice for securing user accounts.
Why Two-Level Sign-On (MFA) Is the Best Choice?Why Not the Other Options?IIA References:# Final D). Two-level sign-on feature (Most effective for online customer authentication).
NEW QUESTION # 276
Much of the following authentication device credentials is the most difficult to revoke when an employee's access rights need to be removed?
- A. A proximity device
- B. A card-key system
- C. A traditional key lock
- D. A biometric device.
Answer: B
NEW QUESTION # 277
Before sending or receiving EDI messages, a company should:
- A. Execute a trading partner agreement with each of its customers and suppliers.
- B. Evaluate the effectiveness of its use of EDI transmissions.
- C. Reduce inventory levels in anticipation of receiving shipments.
- D. Demand that all its suppliers implement EDI capabilities.
Answer: A
Explanation:
Before sending or receiving EDI messages, a company should execute a trading partner agreement with its customers and suppliers. All parries should understand their responsibilities, the messages each will initiate, how they will interpret messages, the means of authenticating and verifying the completeness and accuracy of messages, the moment when the contract between the parries is effective, the [required level of security, etc.
NEW QUESTION # 278
An entity has made all necessary adjusting entries and is now closing its accounts for the period. Dividends of US 1 ...x!.000 were declared and distributed during the year. The entry to close the dividends account would be
- A. Retained earnings US $30,000 Dividends US $30,000
- B. Dividends US $30,000 Income Summary US $30,000
- C. Income Summary US $30,000 Dividends US $30,000
- D. Dividends US $30,000 Retained earnings US $30,000
Answer: A
Explanation:
Assuming an account entitled "dividends" or "dividends declared" is debited when dividends payable is credited on the declaration date, it must be closed at the end of the period. The balance in this account is closed directly to retained earnings. The effect of declaring and paying dividends is to reduce retained earnings, so the entry is a debit to retained earnings and a credit to dividends.
NEW QUESTION # 279
The management and employees of a large household goods moving company decided to adopt total quality management (TQM) and continuous improvement (CI). The company believes that if it became nationally known as adhering to TQM and CI, one result would be an increase in the company's profits and market share.
The primary reason for adopting TQM was to achieve
- A. Reduced delivery charges.
- B. Reduced delivery time.
- C. Greater employee participation.
- D. Greater customer satisfaction.
Answer: D
Explanation:
TQM is an integrated system that anticipates, meets, and exceeds customers' needs, wants, and expectations.
NEW QUESTION # 280
Focus An organization has decided to have all employees work from home. Which of the following network types would securely enable this approach?
- A. A personal area network (PAN).
- B. A virtual private network (VPN)
- C. A wireless local area network (WLAN ).
- D. A wide area network (WAN).
Answer: B
Explanation:
When employees work from home, secure remote access to the organization's network is essential to protect data and ensure confidentiality. A Virtual Private Network (VPN) is the best option for enabling this securely.
* Correct Answer (D - A Virtual Private Network (VPN))
* A VPN creates a secure, encrypted connection between the employee's device and the organization's internal network.
* It prevents unauthorized access by ensuring that data is transmitted securely over the internet.
* The IIA GTAG 17: Auditing Network Security recommends VPNs for secure remote work environments to prevent cyber threats.
* Why Other Options Are Incorrect:
* Option A (A Wireless Local Area Network - WLAN):
* A WLAN is used within an office or home environment, but it does not provide secure remote access to an organization's network.
* Option B (A Personal Area Network - PAN):
* A PAN connects devices like smartphones and laptops within a short range (e.g., Bluetooth), but it is not suitable for secure remote access.
* Option C (A Wide Area Network - WAN):
* A WAN connects multiple locations, but it does not provide encryption or remote security like a VPN.
* IIA GTAG 17: Auditing Network Security - Recommends VPNs for secure remote access.
* IIA Practice Guide: Auditing IT Security Controls - Covers VPNs as a key security control for remote work.
Step-by-Step Explanation:IIA References for Validation:Thus, D is the correct answer because a VPN ensures secure, encrypted communication for employees working from home.
NEW QUESTION # 281
Because of inexact estimates of the service life and the residual value of a plant asset, a fully depreciated asset was sold in the current year at a material gain. This gain most likely should be reported:
- A. In the extraordinary item section of the current income statement.
D As an adjustment to prior periods' depreciation on the statement of changes in equity_ - B. As part of sales revenue on the current income statement
- C. In the other revenues and gains section of the current income statement
Answer: C
Explanation:
Income includes revenue and gains. Their essential nature is the same, and they are not treated as separate financial statement elements. Revenues occur in the course of ordinary activities. Gains may or may not occur in the course of ordinary activities. For example, gains may occur from the sale of noncurrent assets. Thus, the gain on the sale of a plant asset is not an operating item and should be classified in an income statement with separate operating and non operating sections in the other revenues and gains section.
NEW QUESTION # 282
Which of the following statements is true regarding the capital budgeting procedure known as discounted payback period?
- A. It calculates the overall value of a project
- B. It ignores the time value of money
- C. It calculates the time a project takes to break even.
- D. It begins at time zero for the project.
Answer: C
NEW QUESTION # 283
Queuing models are concerned with balancing the cost of waiting in the queue with the:
- A. Average waiting time in the queue.
- B. Number of customers in the queue.
- C. Usage rate for the service being rendered.
- D. Cost of providing service.
Answer: D
Explanation:
Queuing (waiting-line) models minimize, for a given rate of arrivals, the sum of (1) the cost of providing service (including facility costs and operating costs) and (2) the cost of idle resources waiting in line. The latter may be a direct cost, if paid employees are waiting, or an opportunity cost in the case of waiting customers. This minimization occurs at the point where the cost of waiting is balanced by the cost of providing service.
NEW QUESTION # 284
The failure to record an accrued expense at year-end will result in which of the following overstatement errors in the financial statements prepared at that date?
- A. Option A
- B. Option C
- C. Option B
- D. Option D
Answer: D
Explanation:
An accrued expense is an expense that has been incurred but not paid. The appropriate
adjusting entry to record an accrued expense will increase an expense account and increase a liability account. The failure to record an accrued expense will result in an understatement of expenses leading to an overstatement of profit. The failure to record the increase in a liability account will result in an understatement of current liabilities leading to an overstatement of working capital. There will be no effect on cash.
NEW QUESTION # 285
Which of the following represents an inventory costing technique that can be manipulated by management to boost net income by selling units purchased at a low cost?
- A. Specific identification method.
- B. Average-cost method
- C. First-in. first-out method (FIFO).
- D. Last-in, first-out method (LIFO).
Answer: C
NEW QUESTION # 286
Which of the following methods of employee evaluation is best used when employees are heavily involved in teamwork?
- A. Attribution method.
- B. 360-degree performance appraisal.
- C. Behaviorally anchored rating scales BARS)
- D. Critical incident technique.
Answer: B
Explanation:
The 360-degree performance appraisal is a model for employee assessment in the age of teamwork. It is based on giving workers feedback from peers, customers, supervisors, and those who work for the employee. Feedback is typically provided anonymously and is usually subjective.
NEW QUESTION # 287
Which of the following purchasing scenarios would gain the greatest benefit from implementing electronic data interchange?
- A. A currently inefficient purchasing process.
- B. A variable volume sensitive to material cost.
- C. A time-sensitive just-in-time purchase environment.
- D. A large volume of custom purchases.
Answer: C
Explanation:
Electronic data interchange provides the greatest benefit in a time-sensitive just-in-time purchasing environment because JIT depends on fast, accurate, and reliable communication between buyers and suppliers. EDI reduces manual processing, data entry errors, purchase order delays, invoice delays, and confirmation problems. Custom purchases may require negotiation or special specifications that reduce EDI standardization benefits. Variable volumes sensitive to material cost require procurement analysis but do not necessarily benefit most from EDI. An inefficient purchasing process may benefit from process redesign first; automating a poor process can simply accelerate errors. Internal audit should evaluate EDI controls over authorization, completeness, transmission security, acknowledgments, and vendor master data. Therefore, Option A is correct.
NEW QUESTION # 288
Which of the following best describes the benefit of an organization adopting a business continuity and disaster recovery plan for responding to natural disasters?
- A. It reduces the likelihood that events will disrupt operating activities.
- B. It eliminates the threat to the organization.
- C. It prevents economic impact to the organization.
- D. It enables the organization to predict when a natural disaster will occur.
Answer: A
Explanation:
A business continuity and disaster recovery plan does not prevent natural disasters, predict when they will occur, or eliminate the threat. Its value is that it reduces the likelihood that such events will severely disrupt operating activities by preparing recovery strategies, alternate procedures, communication protocols, backup arrangements, and restoration priorities. Natural disasters may still occur, but an effective plan helps the organization continue critical services or recover them within acceptable timeframes. Option A is too absolute because economic impact may still occur. Option B is incorrect because continuity planning does not forecast disasters. Option D is also incorrect because threats cannot be eliminated. Internal audit should assess whether continuity and recovery plans align with business impact analysis, recovery time objectives, and recovery point objectives. Therefore, Option C is correct.
NEW QUESTION # 289
According to Maslow's hierarchy of needs theory, which of the following best describes a strategy where a manager offers an assignment to a subordinate specifically to support his professional growth and future advancement?
- A. Esteem by colleagues.
- B. Self-fulfillment
- C. Series of belonging in the organization
- D. Job security
Answer: B
Explanation:
Understanding Maslow's Hierarchy of Needs
Maslow's theory categorizes human needs into five levels:
Physiological Needs (Basic survival: food, water, shelter)
Safety Needs (Job security, stability, financial security)
Social Needs (Belonging, relationships, team interactions)
Esteem Needs (Recognition, achievement, respect)
Self-Actualization (Self-Fulfillment) - Reaching one's full potential, professional growth, and personal development Why Option B is Correct?
Offering an assignment for professional growth and advancement supports self-actualization (self-fulfillment).
This aligns with Maslow's highest level, where individuals seek to maximize their potential and achieve personal excellence.
IIA Standard 1100 - Independence and Objectivity emphasizes the importance of professional growth in auditing and management roles.
Why Other Options Are Incorrect?
Option A (Esteem by colleagues):
Professional growth may increase esteem, but the focus here is on self-fulfillment, not external recognition.
Option C (Sense of belonging in the organization):
Belonging is a lower-level need (social level), while professional growth aligns with self-actualization.
Option D (Job security):
Job security falls under safety needs, which is a lower-tier concern.
Professional development aligns with self-actualization, the highest level in Maslow's hierarchy, which focuses on maximizing potential.
IIA Standard 1100 supports professional growth as part of career advancement in internal auditing.
Final Justification:IIA References:
Maslow's Hierarchy of Needs (Self-Actualization Level)
IPPF Standard 1100 - Independence and Objectivity
NEW QUESTION # 290
To trace data through several applies qti on programs, an auditor needs to know what programs use the data, which files contain the data, and which print-td reports display the data. If data exist only in a database system, the auditor could probably find all of this information in a
- A. Decision table.
- B. Database schema.
- C. Data encryptor.
- D. Data dictionary.
Answer: D
Explanation:
The data dictionary is a file possibly manual but usually computerized) in which the records relate to specified data items. It contains definitions of data items, the list of programs used to process them, and the reports in which data are found. Only certain persons or entities are permitted to retrieve data or to modify data items. Accordingly, these access limitations are also found in the data dictionary.
NEW QUESTION # 291
The company uses a planning system that focuses first on the amount and timing of finished goods demanded and then determines the derived demand for raw material, components, and subassemblies at each of the prior stages of production. This system is referred to as:
- A. Economic order quantity.
- B. Just-in-time purchasing.
- C. Linear programming.
- D. Materials requirements planning.
Answer: D
Explanation:
Materials requirements planning (MRP) is usually a computer-based information system designed to plan and control raw materials used in a production setting. It assumes that estimated demand for materials is reasonably accurate and that suppliers can deliver based upon this accurate schedule. It is crucial that delivery delays be avoided because, under MRP, production delays are almost unavoidable if the materials are not on hand. An MRP system uses a parts list, often called a bill of materials, and lead times for each type of material to obtain materials just as they are needed for planned production.
NEW QUESTION # 292
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