IIA iia-cfsa practice test

Question 1

Not all misstatements will be material enough to affect the fair presentation of the financial
statement. A material misstatement is one that the auditors determine would change or influence
the option of a reasonable person relying on the financial statements for information. Ultimately,
auditors must exercise judgment to assess materiality based on the qualitative nature of the
misstatements and their quantitative extent. Materiality is also based on auditors assessment of
control risk levels in the organization. The following factors may influence the auditors assessment
of control risk EXCEPT:
A. Managements awareness or lack of awareness of applicable laws and regulations
B. Client policy regarding such matters as acceptable operating practices and codes of conduct
C. Assignment of responsibility and delegation of authority to deal with such matters as
organizational goals and objectives, operating functions, and regulatory requirements
D. None of these

Question 2

Major types of Real Estate Investment Trust (REITs) include all of the following EXCEPT:

• A. Equity REITs
• B. Mortgages REITs
• C. Hybrid REITs
• D. None of these

Question 3

Some objectives of an audit related to mutual funds might include determining that:

• A. Mutual fund checks are issued in accordance with firm policies and supported by valid trades
• B. Mutual fund purchases are confirmed on a timely basis
• C. Mutual fund switches are not authorized by the client
• D. All EXCEPT “C”

Question 4

Hedge funds:

• A. Seek to profit in all kinds of markets by pursuing leveraging and other speculative investment practices
• B. Are subject to very few regulatory controls
• C. Also have voluntarily restricted investment to wealthy investors through high investment minimums (e.g. $1 million)
• D. All of these

Question 5

There are different classes of mutual funds. Classes that typically do not have a front-end sales load.
Instead they may impose a contingent deferred sales load and a 12b-1 fee (along with other annual
expenses) is called:

• A. Class A
• B. Class B
• C. Class C
• D. Both B&C

Question 6

_____________ funds may specialize in a particular industry segment, such as technology or
consumer products stocks.

• A. Index
• B. Sector
• C. Growth
• D. Income

Question 7

Overall “market risk” poses the greatest potential danger for investors in ____________.

• A. Bonds funds
• B. Hedge funds
• C. Stock funds
• D. Growth funds

Question 8

If interest rates fall, a bond issuer may decide to pay off (or retire) its debt and issue new bonds
that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an
investment with a high return or yield. This is an example of:

• A. Credit risk in bond funds
• B. Prepayment risk in bond funds
• C. Interest rate risk in bond funds
• D. All of these

Question 9

Some of the risks associated with bond funds are all of the following EXCEPT:

• A. Credit Risk
• B. Interest Rate Risk
• C. Payment Risk
• D. Liquidity Risk

Question 10

Money market funds:

• A. Can invest in only certain high-quality, short-term investments issued by Federal State and local government
• B. Try to keep their NAV at a stable $1.00 per share
• C. Pay dividends that generally reflect short-term interest rates
• D. All of these

Question 11

___________ have relatively low risks, compared to other mutual funds.

• A. Stock funds
• B. Hedge funds
• C. Money funds
• D. Both B and C

Question 12

Money market funds bond funds (also called fixed income funds) , and stock funds (also called
equity funds) are the categories of:

• A. Mutual funds
• B. Professionally managed portfolio
• C. Hedge funds
• D. None of these

Question 13

End users need to hedge the prices at which they can purchase these commodities for instance:

• A. A University might want to lock in the price at which it purchases electricity to supply its air conditioning units for upcoming summer months
• B. An airline wants to lock in the price of the jet fuel it needs to purchase in order to satisfy the peak in seasonal demand for travel
• C. A cotton producer wants to hedge his exposure to changes in the price of fertilizers or his end product (cotton)
• D. Only A and B

Question 14

I- A gold producers wants to hedge his losses attributable to a fall in the price of gold for his
current gold inventory.
II- A cattle farmer wants to hedge his exposure to changes in the price of his livestock These are the
examples of __________ who need to manage their exposure to fluctuations in the prices of their
commodities.

• A. Hedgers
• B. Producers
• C. Speculators
• D. None of these

Question 15

Investors typically cannot ascertain the exact makeup of a funds portfolio at any given time, nor can
they directly influence which securities the fund manager buys and sells or the timing of those
trades. This is because of _______ in mutual funds.

• A. Price uncertainty
• B. Lack of control
• C. Costs despite negative returns
• D. All of these