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Authorization controls ensure that users have appropriate access levels based on their roles and responsibilities. The primary concern arises when all users have uniform access, as it violates the principle of least privilege (PoLP) and increases the risk of unauthorized access and data breaches.

(A) Users can only see certain screens in the system.

Incorrect. This is a good security practice, as it limits user access based on job roles, preventing unauthorized access to sensitive information.

(B) Users are making frequent password change requests.

Incorrect. Frequent password resets might indicate poor password management but are not directly related to authorization controls.

(C) Users input incorrect passwords and get denied system access.

Incorrect. This indicates authentication issues, not an authorization control concern. If users are denied access due to incorrect passwords, the system’s authentication mechanisms are working correctly.

(D) Users are all permitted uniform access to the system. ✅

Correct. Authorization should be role-based, meaning different users should have different levels of access depending on their responsibilities. Uniform access violates security best practices and increases the risk of fraud, data misuse, and compliance violations.

IIA GTAG "Identity and Access Management" emphasizes that authorization controls should be based on job functions to prevent unnecessary exposure to sensitive data.

IIA Standard 2120 – Risk Management highlights the importance of access control policies to mitigate cybersecurity risks.

IIA GTAG – "Identity and Access Management"

IIA Standard 2120 – Risk Management

COBIT Framework – Access Control and Identity Management

Analysis of Answer Choices:IIA References:Thus, the correct answer is D, as uniform access across all users is a major security concern in authorization control.

A tape rotation schedule defines how often backup tapes are overwritten or archived, directly impacting data retention periods. This is essential for compliance, disaster recovery, and internal controls over data storage.

Correct Answer (C - The Tape Rotation Schedule Affects How Long Data is Retained)

Organizations use backup rotation schemes such as Grandfather-Father-Son (GFS), Tower of Hanoi, or FIFO (First-In-First-Out) to determine how long backups are kept before being overwritten.

This impacts data retention policies, regulatory compliance, and recovery capabilities.

The IIA’s GTAG 10: Business Continuity Management discusses backup strategies and retention management.

Why Other Options Are Incorrect:

Option A (System backups should always be performed real-time):

Real-time backups (continuous data protection) are useful but not always required. Many businesses use scheduled backups instead.

Option B (Backups should be stored in a secured location onsite for easy access):

Best practice recommends offsite or cloud storage to protect against disasters like fire or cyberattacks.

Option D (Backup media should be restored only in case of hardware or software failure):

Backups may also be restored for audit purposes, compliance checks, or business continuity testing.

GTAG 10: Business Continuity Management – Covers backup strategies, data retention, and disaster recovery.

IIA Practice Guide: IT Controls – Discusses backup policies and risks in data management.

Step-by-Step Explanation:IIA References for Validation:Thus, the tape rotation schedule (C) is correct because it determines how long data is retained.

Definition of a Firewall:

A firewall is a network security device (hardware or software) that monitors and controls incoming and outgoing network traffic.

It is designed to filter or prevent specific information from moving between internal and external networks, ensuring unauthorized access is blocked.

How a Firewall Works:

It uses rules and policies to determine whether to allow or block traffic.

Firewalls can be configured to prevent malware, hacking attempts, and unauthorized data transfers.

There are different types, including packet-filtering firewalls, stateful inspection firewalls, and next-generation firewalls (NGFWs).

Why Other Options Are Incorrect:

A. Authorization:

Authorization refers to user access control, ensuring users have the correct permissions, but it does not filter network traffic.

B. Architecture model:

An architecture model defines the structure of an IT system but does not actively prevent or filter data movement.

D. Virtual private network (VPN):

A VPN encrypts data and provides secure remote access but does not filter or block data movement between networks.

IIA’s Perspective on IT Security Controls:

IIA Standard 2110 – Governance emphasizes strong cybersecurity controls, including firewalls, to protect sensitive data.

IIA GTAG (Global Technology Audit Guide) on Information Security recommends using firewalls as a primary defense mechanism.

NIST Cybersecurity Framework and ISO 27001 Security Standards identify firewalls as critical tools for network security and data protection.

IIA References:

IIA Standard 2110 – Governance and IT Security

IIA GTAG – Information Security Risks

NIST Cybersecurity Framework

Understanding Management by Objectives (MBO):

MBO is a performance management approach where employees set clear, measurable goals aligned with organizational objectives.

Success depends on employee participation in goal-setting to increase motivation, commitment, and performance.

Why MBO Works Best with Employee Involvement:

Engagement and Accountability: Employees are more motivated and accountable when they help define their goals.

Alignment with Organizational Strategy: Ensures that goals at all levels support the company’s broader objectives.

Improved Communication: Encourages collaboration between management and employees, leading to better alignment of expectations.

Why Other Options Are Incorrect:

A. It is particularly helpful to management when the organization is facing rapid change:

MBO is not well-suited for rapidly changing environments, as predefined goals may become irrelevant quickly.

B. It is more successful when adopted by mechanistic organizations:

Mechanistic organizations (rigid structures, strict hierarchies) often struggle with MBO because it requires flexibility and employee participation.

D. It is particularly successful in environments that are prone to having poor employer-employee relations:

While MBO can improve communication, it is not a solution for poor employer-employee relations, as trust and collaboration are essential for its success.

IIA’s Perspective on Performance Management and Organizational Success:

IIA Standard 2120 – Risk Management emphasizes the need for effective goal-setting and employee involvement in performance assessment.

Balanced Scorecard Framework supports MBO principles by aligning employee performance with strategic objectives.

COSO ERM Framework highlights the importance of employee engagement in goal-setting to enhance decision-making and risk management.

IIA References:

IIA Standard 2120 – Risk Management & Employee Performance Assessment

COSO ERM – Performance & Risk Alignment

Balanced Scorecard Approach – Employee Participation in Goal Setting

Thus, the correct and verified answer is C. It is more successful when goal setting is performed not only by management, but by all team members, including lower-level staff.

Under the variable costing method, product costs include only costs that vary with production, such as direct materials, direct labor, and variable manufacturing overhead.

(1) Direct labor costs. ✅

Correct. Direct labor is a variable cost directly tied to production levels, making it a product cost under variable costing.

(2) Insurance on a factory. ❌

Incorrect. Factory insurance is a fixed manufacturing overhead cost, which is not treated as a product cost under variable costing. It is considered a period cost instead.

(3) Manufacturing supplies. ✅

Correct. Manufacturing supplies (e.g., lubricants, small tools) are variable costs that increase with production, making them product costs under variable costing.

(4) Packaging and shipping costs. ❌

Incorrect. Packaging and shipping are selling & distribution costs, which are classified as period costs, not product costs.

IIA GTAG – "Auditing Cost Accounting Systems"

IIA Standard 2130 – Control Activities (Cost Management)

GAAP and IFRS Guidelines on Variable Costing

Analysis of Answer Choices:IIA References:Thus, the correct answer is B (1 and 3 only) because direct labor and manufacturing supplies are considered product costs under the variable costing method.

A data privacy policy outlines how an organization collects, stores, processes, and protects personal data. It should comply with global data protection regulations such as GDPR, CCPA, and IIA guidelines on data security.

(1) Stipulations for deleting certain data after a specified period of time. ✅

Correct. Many data protection laws (e.g., GDPR Article 5) require organizations to delete personal data after a defined retention period to reduce data breach risks.

(2) Guidance on acceptable methods for collecting personal data. ✅

Correct. A privacy policy must define legal and ethical ways to collect personal data (e.g., user consent, lawful processing).

(3) A requirement to retain personal data indefinitely to ensure a complete audit trail. ❌

Incorrect. Retaining personal data indefinitely violates most data privacy regulations (e.g., GDPR Right to Be Forgotten). Data must be stored only for as long as necessary.

(4) A description of what constitutes appropriate use of personal data. ✅

Correct. A privacy policy should clearly define how collected data can and cannot be used to prevent misuse and ensure compliance.

IIA GTAG – "Auditing Privacy Risks"

IIA Standard 2110 – Governance (Data Protection & Privacy)

GDPR (General Data Protection Regulation) – Articles 5 & 17 (Data Retention & Deletion)

Analysis of Answer Choices:IIA References:Thus, the correct answer is C (1, 2, and 4 only) because data should not be retained indefinitely, and the policy must include data collection, retention, and appropriate usage guidelines.

Understanding the Accounting for Office Supplies:

The organization maintains an account for office supplies on hand, which represents unused office supplies at any given time.

The expense recorded during the year represents the cost of office supplies purchased.

At year-end, the adjusting entry is made to reflect the actual amount of supplies on hand and adjust the supplies expense accordingly.

Formula to Determine the Supplies Used:

Supplies Used=Beginning Balance+Purchases−Ending Balance\text{Supplies Used} = \text{Beginning Balance} + \text{Purchases} - \text{Ending Balance}Supplies Used=Beginning Balance+Purchases−Ending Balance

Plugging in the given values:

Supplies Used=9,000+45,000−11,500=42,500\text{Supplies Used} = 9,000 + 45,000 - 11,500 = 42,500Supplies Used=9,000+45,000−11,500=42,500

This amount ($42,500) represents the actual office supplies used and should be recorded as an expense.

The adjusting entry would include:

A debit to Office Supplies on Hand for $42,500

A credit to Office Supplies Expense for $42,500

Why Other Options Are Incorrect:

A. A debit to office supplies on hand for $2,500 – Incorrect, as this figure does not represent supplies used or purchased.

B. A debit to office supplies on hand for $11,500 – Incorrect, as this is the ending balance and not the adjustment amount.

C. A debit to office supplies on hand for $20,500 – Incorrect, as this does not align with the formula for calculating used supplies.

IIA’s Perspective on Financial Reporting and Adjusting Entries:

IIA Standard 1220 – Due Professional Care emphasizes accurate financial reporting and proper adjustments for year-end entries.

GAAP Accounting Principles require accrual-based adjustments to ensure that expenses are recognized in the period they are incurred.

COSO Internal Control Framework supports proper inventory and expense adjustments to avoid misstated financials.

IIA References:

IIA Standard 1220 – Due Professional Care (Financial Reporting Accuracy)

GAAP Accounting Standards – Adjusting Entries for Supplies and Inventory

COSO Internal Control – Accurate Expense Recognition

Thus, the correct and verified answer is D. A debit to office supplies on hand for $42,500.

The internal rate of return (IRR) is a measure used to evaluate the profitability of an investment. The project is considered acceptable if its IRR is greater than or equal to the required rate of return (RRR), which is the minimum return an organization expects from an investment.

Correct Answer (C - Compare to the Required Rate of Return)

The required rate of return (RRR) represents the minimum acceptable return for the project.

If IRR ≥ RRR, the project is acceptable. If IRR < RRR, the project is rejected.

The IIA Practice Guide: Auditing Capital Investments suggests comparing IRR to the RRR to ensure financial feasibility.

Why Other Options Are Incorrect:

Option A (Compare to the annual cost of capital):

The cost of capital (WACC - Weighted Average Cost of Capital) is an important factor, but RRR is the direct benchmark for IRR comparison.

Option B (Compare to the annual interest rate):

Interest rates do not determine project feasibility—they only affect financing costs.

Option D (Compare to the net present value - NPV):

NPV and IRR are related, but they serve different purposes.

IRR is compared against RRR, while NPV measures absolute profitability in dollar terms.

IIA Practice Guide: Auditing Capital Investments – Discusses IRR, RRR, and investment decision-making.

IIA GTAG 3: Business Case Development – Explains how financial metrics like IRR and RRR are used in decision-making.

Step-by-Step Explanation:IIA References for Validation:Thus, C is the correct answer because IRR should be compared to the required rate of return to determine project acceptability.

When selling products to a foreign subsidiary, pricing must comply with international tax laws and transfer pricing regulations.

Correct Answer (C - Charge at the Arm’s Length Price)

Arm’s length pricing ensures that transactions between related parties (e.g., parent company and subsidiary) are priced as if they were between unrelated entities.

This helps comply with tax regulations and avoid penalties for manipulating transfer prices to reduce import tariffs.

The OECD Transfer Pricing Guidelines and the IIA Practice Guide: Auditing Global Business Risks recommend using arm’s length pricing to ensure compliance with tax authorities.

Why Other Options Are Incorrect:

Option A (Decrease the transfer price):

Lowering the transfer price may reduce import tariffs but could violate tax laws, leading to legal and financial penalties.

Option B (Increase the transfer price):

Increasing prices may help shift profits but could trigger regulatory scrutiny and additional taxes.

Option D (Charge at the optimal transfer price):

"Optimal" pricing is vague and may not comply with legal transfer pricing standards.

IIA Practice Guide: Auditing Global Business Risks – Covers compliance with international tax and transfer pricing regulations.

OECD Transfer Pricing Guidelines – Establishes arm’s length pricing as the best practice.

Step-by-Step Explanation:IIA References for Validation:Thus, C is the correct answer because arm’s length pricing ensures compliance with tax regulations while minimizing tariff risks.

Herzberg’s Two-Factor Theory of Motivation identifies two categories of workplace factors:

Hygiene Factors – Prevent dissatisfaction but do not create motivation (e.g., salary, job security, work conditions).

Motivational Factors – Lead to job satisfaction and motivation (e.g., achievement, responsibility, advancement, recognition).

(A) Salary and status. ❌ Incorrect.

Salary is a hygiene factor, meaning it prevents dissatisfaction but does not directly drive job satisfaction.

Status is also not a strong motivator under Herzberg’s theory.

(B) Responsibility and advancement. ✅ Correct.

These are motivational factors in Herzberg’s theory.

Employees feel satisfied when they have responsibility, career growth, and promotion opportunities.

IIA GTAG "Auditing Human Resource Management" highlights career development as a key driver of employee motivation and retention.

(C) Work conditions and security. ❌ Incorrect.

These are hygiene factors, which help avoid dissatisfaction but do not actively motivate employees.

(D) Peer relationships and personal life. ❌ Incorrect.

Good relationships with coworkers help, but they are not primary motivators under Herzberg’s theory.

IIA GTAG – "Auditing Human Resource Management"

IIA Standard 2110 – Governance (Employee Motivation & Engagement)

Herzberg’s Two-Factor Theory of Motivation (Workplace Psychology Research)

Analysis of Answer Choices:IIA References:Thus, the correct answer is B, as responsibility and advancement are the key motivational factors leading to employee satisfaction.