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IIA Business Knowledge for Internal Auditing Sample Questions (Q103-Q108):

NEW QUESTION # 103
Lamar became homeless at a very young age and was taken in by Aunt and Uncle. Many years later, Lamar became a detective in the city police department. When Aunt disappeared and was not heard from for a month, the case was assigned to Lamar. Uncle also came to Lamar and asked him to promise to find Aunt in return for the years of support. Lamar agreed to Uncle's request. Which of the following is true?

• A. If Uncle had also promised Lamar US $1,000 for finding Aunt, he would be liable when Lamar found her.
• B. Lamar has no contractual duty to find Aunt.
• C. Lamar will be liable for breach of contract if he does not find Aunt.
• D. Lamar's contractual duty to find Aunt is based on past consideration.

Answer: B Explanation:
Lamar has a pre-existing legal duty to find Aunt Consideration does not exist if an existing duty was imposed by law or a person is already under a contractual agreement to render a specified performance. Lamar will suffer no new legal detriment by finding Aunt; thus, no contractual obligation exists.
NEW QUESTION # 104
Which of the following is the primary benefit of including end users in the system development process?

• A. Enhanced ongoing maintenance of the system.
• B. Reduced need for unexpected software changes.
• C. Improved integrity of programs and processing.
• D. Greater accuracy of the testing phase.

Answer: D
NEW QUESTION # 105
In creating a risk-based plan, which of the following best describes a top-down approach to understanding business processes?

• A. Analyzing the organization's strategic plan where the business processes are defined.
• B. Identifying the processes at the activity level.
• C. Identifying the risks affecting the organization, the objectives, and then the processes concerned.
• D. Analyzing the organization's objectives and identifying the processes needed to achieve the objectives.

Answer: D
NEW QUESTION # 106
The marginal cost of debt for an entity is defined as the interest rate on <List A> debt minus

• A. Option B
• B. Option C
• C. Option D
• D. Option A

Answer: B Explanation:
The marginal cost of debt as a rate) must equal the cost of new debt as a rate) minus the tax savings as a rate). Hence, marginal cost equals the cost of new debt times one minus the marginal tax rate, or ks(1 - T). This expression equals Ka - Kat. The marginal cost of debt financing is the interest rate on new debt minus the entity's marginal tax rate multiplied by the interest rate. Moreover, the marginal or incremental cost of debt to the entity is based on the cost of newly issued debt, not on the cost of outstanding debt.
NEW QUESTION # 107
A plot of land is acquired in exchange for US $250,000 cash and a noninterest-bearing note with a face amount of US $1,000.000 on January 1 of the current year. The US $1,000,000 is payable in installments of US $250,000 each, with the first installment due December 31 of the current year. With regard to imputing interest on this note what market rate should be used to account for interest for the current year and2) what should be done in future years when there is a change in prevailing interest rates?

• A. Option A
• B. Option B
• C. Option D
• D. Option C

Answer: A Explanation:
Determination of the imputed interest rate is made at the time the debt instrument is issued. Subsequent to initial recognition, most financial liabilities are measured at amortized cost using the effective interest method. Exceptions are those1) classified as at fair value through profit or loss or2) arising when a transfer of a financial asset does not qualify for derecognition or is accounted for on a continuing involvement basisIAS 39). Consequently, a change in the prevailing market rate does not affect the measurement of the noninterestbearing note given for the land.
NEW QUESTION # 108
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