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IIA Business Knowledge for Internal Auditing Sample Questions (Q140-Q145):

NEW QUESTION # 140
An antifraud law that prohibits trading on the basis of inside information about a business corporation's stock most likely applies to:

  • A. Officers and directors.
  • B. All officers, directors, and shareholders.
  • C. Anyone who bases his/her trading activities on the inside information.
  • D. Officers, directors, and holders of a large amount of the corporation's stock.

Answer: C Explanation:
Such antifraud provisions typically prohibit any person from engaging in manipulative or deceptive acts in the purchase or sale of any security. It prohibits trading on the basis of inside information and applies to anyone who has not made a full disclosure of the inside information. It may apply not only to officers, directors, and shareholders, but also to tippers, i.e., those who receive inside information from insiders.
NEW QUESTION # 141
The high cost of short-term financing has recently caused an entity to reevaluate the terms of credit it extends to its customers. The current policy is 1/10, net 60. If customers can borrow at the prime rate, at what prime rate must the entity change its terms of credit in order to avoid an undesirable extension in its collection of receivables?

  • A. 5%
  • B. 7%
  • C. 2%
  • D. 8%

Answer: D Explanation:
Terms of 1/10, net 60 mean that a buyer can save 1% of the purchase price by paying 50 days early. In essence, not taking the discount results in the buyer's borrowing 99% of the in price for 50 days at a total interest charge of 1% of the invoice price. Because a year has 7.3 50-day per periods 365 50), the credit terms 1/10, net 60 yield an effective annualized interest charge of approximately 7.371 [(I% 99%) 7.3]. If the prime rate were higher than 7.37%, the buyer would prefer to borrow from the vendor i.e., not pay within the discount period) rather than from a bank. Consequently, an 8% prime rate could cause the vendor's receivables to increase. An entity sells 10,000 skateboards a year at US $66 each. All sales are on credit, with terms of 3/10. net 30, which means three percent discount if percent it is made within 10 days; otherwise full payment is due at the end of 30 days. One half of the customers are expected to take advantage of the discount and pay on day 10. The other half are expected to pay on day 30. Sales are ,, ict id to be uniform throughout the year for both types of customers.
NEW QUESTION # 142
When reviewing application controls using the four-level model, which of the following processes are associated with level 4 of the business process method?

  • A. Subprocess
  • B. Major process
  • C. Mega process
  • D. Activity

Answer: D
NEW QUESTION # 143
A limitation of transfer prices based on actual cost is that they:

  • A. Can lead to suboptimal decisions for the company as a whole.
  • B. Charge inefficiencies to the department that is transferring the goods.
  • C. Must be adjusted by some markup.
  • D. Lack clarity and administrative convenience.

Answer: A Explanation:
The optimal transfer price of a selling division should be set at a point that will have the most desirable economic effect on the firm as a whole while at the same time continuing to motivate the management of every division to perform efficiently. Setting the transfer price based on actual costs rather than standard costs would give the selling division little incentive to control costs.
NEW QUESTION # 144
Which of the following would most likely be found in an organization that uses a decentralized organizational structured?

  • A. There is a higher reliance on organizational culture
  • B. There are clear expectations set for employees
  • C. There is a defined code for employee behavior
  • D. There are electronic monitoring techniques employed

Answer: B
NEW QUESTION # 145
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