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IIA IIA-CFSA Certified Financial Services Auditor Exam Practice Test

Demo: 76 questions
Total 511 questions

Certified Financial Services Auditor Questions and Answers

Question 1

Major categories of loans include all of the following EXCEPT:

Options:

A.

Commercial loans

B.

Residential loans

C.

Consumer loans

D.

Agricultural loans

Question 2

The extent to which an organization has implemented controls to minimize the actual occurrences of the risk determines the vulnerability to the risk actually occurring, or the

“_______”

Options:

A.

Inherent Risk

B.

Understanding Risk

C.

Control Risk

D.

Disguised Risk

Question 3

Following statements define risk EXCEPT:

Options:

A.

Organization has knowledge of facts constituting a dangerous condition

B.

Organization voluntarily exposes itself to the danger

C.

The element of assurance in an undertaking

D.

Measured in terms of impact and likelihood

Question 4

Stock transfer agent, Bond registrar, stock registrar and dividend reinvestments agent are the additional duties of:

Options:

A.

Brokers/Brokerage houses

B.

Corporate trust departments

C.

Mutual funds agencies

D.

None of these

Question 5

A trust agreement is called:

Options:

A.

Trust paper

B.

Trust agreement document

C.

Both of these

D.

None of these

Question 6

Common type/s of installment loans is/are:

Options:

A.

Credit card loans

B.

Residential loans

C.

Mortgage loans

D.

All of these

Question 7

Low-risk scores are those with an average of scores:

Options:

A.

2.25 or less

B.

2.75 or less

C.

2.00 or less

D.

3.25 or less

Question 8

Five internal control components are:

Options:

A.

Control environment, Risk assessment, Control activities, Information and communication & Monitoring

B.

Control environment, Risk assessment, and Operational control, Information and communication & Monitoring

C.

Control environment, Risk Prioritization, Control activities, Information and communication & Monitoring

D.

Control environment, Risk Prioritization, Control activities, Information and communication & Monitoring

Question 9

“Audit management must decide whether to sample (judgment or statistical) or use the entire universe, and which specific quantitative and qualitative methodologies will provide sufficient, competent and relevant evidence to answer the questions posed in the audit objectives.” It is an example of:

Options:

A.

Determining appropriate audit methods and strategies

B.

Determining resources needed to conduct the audit

C.

Determining audit scope

D.

None of these

Question 10

Nature of internal audit activities and quality criteria against which the performance of these services can be evaluated is best portrayed by:

Options:

A.

Performance Standards

B.

Attribute Standards

C.

Implementation Standards

D.

Evaluation Standards

Question 11

___________ help bring performance back into compliance, or address problems that have been identified such as employee grievance system, employee performance approvals, or an administrative appeal’s process.

Options:

A.

Correction controls

B.

Detective controls

C.

Preventive controls

D.

None of These

Question 12

Which of the following is a limitation in an audit that affects auditors’ ability to detect material misstatements?

Options:

A.

Scope of an audit

B.

The use of testing

C.

Over- generalization

D.

Unidentifiable risks

Question 13

When a loan becomes delinquent or when collection seems unlikely, banks often suspend:

Options:

A.

Accrual of interest

B.

Deferral of interest

C.

Loan losses

D.

Loan prepayments

Question 14

The responsibility for preparing and presenting the audited financial statements is that of:

Options:

A.

Internal auditor

B.

Engagement client/ Management of the entity

C.

Process owner

D.

Auditing Agency

Question 15

The plans developed for the audit functions should be updated as circumstances dictate. Such specific types of plans include all EXCEPT:

Options:

A.

Activity Reports

B.

Target dates

C.

Opportunities and threats

D.

Staffing plans and financial budgets

Question 16

Carefully crafted audit objectives are important BECAUSE:

Options:

A.

Objectives provide direction

B.

Limit collection of unneeded information

C.

Control scope, methodology, timing and nature of audit work

D.

All of the above

Question 17

Which one of the following does NOT depicts a common indexing method?

Options:

A.

The annual ratchet

B.

The point to point method

C.

The high water mark method

D.

The low water mark method

Question 18

All members of a group insurance plan (group insureds) are covered under a single contract, known as a master group insurance contract. The employer or entity purchasing the group insurance is known as group policyholder. In _____________, group insureds do not pay any premium for the coverage.

Options:

A.

Noncontributory plan

B.

Contributory plan

C.

Life insurance

D.

Preexisting provision condition

Question 19

Cash on hand refers to:

Options:

A.

Funds in bank

B.

Funds at teller windows

C.

Funds in vault and in ATM

D.

All of these

Question 20

A statement of cash flows in a financial report that shows incoming and outgoing money during a particular period (often monthly or quarterly). It does not include _________ items such as depreciation. The statement is a useful tool for determining the short-term viability of a company, particularly its ability to pay bills.

Options:

A.

Non-cash

B.

Depreciation related

C.

Depletion related

D.

Lon-term debt

Question 21

The financial institutions’ general ledger records activity on deposit accounts. Posting of time deposit transactions usually occurs on the day transaction occurs or the next day. The following audit objectives and steps should be considered when performing an audit of deposit accounts EXCEPT:

Options:

A.

Assess the adequacy of policies, procedures, and internal controls regarding deposit accounts

B.

Determine whether documentation exists to show that accounts are properly opened and closed in a timely manner and in accordance with establish policies. Ensure that applications and signature cards are on file. Send confirmations on a sample of accounts. If any confirmations are not received, compare the signature on recent checks or transactions to the signature card for the account

C.

Determine whether deposit transactions and any expense is posted properly

D.

Ensue that there is adequate separation of duties between the posting and reconciling functions. Recalculate a sample of reconciliations to verify accuracy. Note whether any nusual transactions were properly verified and authorized

Question 22

The balance sheet is the fundamental report of a company’s financial position. An examination of a balance sheet will assist in determining:

Options:

A.

If the company meets its financial obligations

B.

The amount of money invested in outside the company

C.

The company’s debt ratio

D.

The type of assets that company has purchased with its debt financing

Question 23

System tailoring is accomplished by setting optional system parameters and, therefore, has an impact on system performance and security. Control techniques for system’s software include:

Options:

A.

Setting appropriate system parameters and security options for operating system

B.

Verifying the accuracy of output through manual or automated reconciliation activities

C.

Using the security features of security software effectively

D.

Controlling procurement and maintainace of software licenses

Question 24

The purpose of audits of financial statements is to issue an opinion on the fairness of the financial statements and to evaluate all of the following assertions (explicit or implicit) by management EXCEPT:

Options:

A.

Existence or occurrence assertions address whether available information addresses actualtransactions, assets, and liabilities

B.

completeness assertions address whether all material financial information is included infinancial statements

C.

Rights and obligations assertions address whether the entity has legal rights to the assets andobligations to the liabilities disclosed on the financial statements

D.

Presentation and disclosure assertions address whether the elements of the financialstatements are properly organized, classified and disclosed

Question 25

These are used to speculate on the direction of interest rates. The trading of these contracts is limited. The future market is the main trading market for securities based on interest-rate movements. What are these?

Options:

A.

Put Options

B.

Call Options

C.

Interest rate options

D.

Index options

Question 26

Continuous auditing is a method used to automatically perform control and risk assessment more frequently. Technology is the key to enable such an approach. Continuous auditing changes the audit paradigm from periodic reviews of a sample to ongoing audit testing of ______ percent of transactions.

Options:

A.

Ninety

B.

Ninety nine

C.

Seventy

D.

Hundred

Question 27

Which of the following does NOT come under the consideration of systematic or interconnection risk?

Options:

A.

Risk management systems that include limits or controls on interconnection risk to which the entity is willing to expose itself.

B.

Provisions for monitoring systematic risk effectively

C.

Contingency plans setting forth actions to be taken when system-wise market disruptionsoccur

D.

Due diligence of enforcement activities

Question 28

COBIT (Control Objectives for Information and Related Technology) is based on existing Information Systems Audit and Control Foundation, control objectives enhanced with existing and emerging international technical, professional, regulatory, and industry-specific standards. COBIT has four domains or high-level classifications. Which is of the following is NOT out of those domains?

Options:

A.

Planning and organization

B.

Acquisition and implementation

C.

Delivery and support

D.

Evaluation

Question 29

Financial institutions regularly identify uncollectible and charge them off against the reserve for loan losses. Auditors should ensure that the institution has developed adequate criteria for charge-offs and select a sample of charged-off loans whether they are handled properly.

Another useful test is:

Options:

A.

To select a sample of loans that are significantly paid inorder to determine whether they meet the charge-off criteria and assess why they have not been charged off

B.

To select a sample of loans that are significantly paid in order to determine whether theymeet the past criteria and assess why they have not been charged off

C.

To select a sample of loans that are significantly paid in order to determine whether theymeet the charge-off criteria and assess why they have not been charged off

D.

To select a sample of loans that are significantly paid in order to determine whether theymeet the charge-off criteria to meet the current requirements

Question 30

Information technology general controls set the foundation for effective control over computerized information system assets. General controls apply to the entire computer operation. Which of the following is/are NOT out of these controls?

Options:

A.

Administrative controls

B.

Security controls

C.

Security administration

D.

Input controls

Question 31

Which of the following is/are included in the specific steps for auditing short-term investments?

Options:

A.

Ensure that policies and procedures for short-term trading activities exist, are periodically reviewed for changes, and are properly approved

B.

Review to ensure that trading policies include allowed and restricted trading instruments, approved traders

C.

Review the short-term trading activity to ensure compliance with trading policies and procedures and applicable regulatory environment

D.

All of the above

Question 32

The actual amount of payment the annuitant pays is based on:

Options:

A.

Amount of money invested and interest rate

B.

Length of the time principle has been invested

C.

No of annuity payment to be made

D.

All of the above

Question 33

Following are the examples of illegal sales practice EXCEPT:

Options:

A.

Twisting occurs when an agent purposefully misguides and individual into canceling one policy and purchasing a new one

B.

Rebating occurs when an agent agree to give an individual the share of the commission as an incentive to buy a policy

C.

Misrepresentation occurs when agent makes false and misleading statements, but they are allowed to guarantee policy dividends

D.

None of these

Question 34

If investment returns are very poor, this could lead to:

Options:

A.

Down in the market share of that particular investment

B.

Policy Lapsing

C.

Stock exchange collapse

D.

Minimum premium

Question 35

There may be instances of massive losses, in case of derivatives, most notably by __________________, these have not had repercussions.

Options:

A.

Long-Term Capital Management

B.

Short term capital Management

C.

Capital Management

D.

Risk and investment Management

Question 36

The primary component of the McCarran-Ferguson Act is/are:

Options:

A.

To allow states to retain the right to regulate the insurance industry

B.

To allow the federal government to assume regulation of the insurance industry if Congress feels that the state regulation is inadequate or does not serve the public interest

C.

Both of these

D.

None of these

Question 37

Which of the following are typical information system controls that are used to ensure properly authorized transaction?

I. Online validation routines that check dollar authority limits.

II. Online user access controls.

III. Automated balancing and reconciliation routine.

IV. Edits that validate full completion of data input fields.

Options:

A.

I and II only

B.

II and III only

C.

III and IV only

D.

I, II, and IV only

Question 38

Which premium life insurance is flexible enough under which policy holder may change the death benefit from time to time?

Options:

A.

Variable life insurance

B.

Universal life insurance

C.

Term life insurance

D.

Straight life insurance

Question 39

Time deposit transactions are recorded in:

Options:

A.

Computer-generated ledger sheets and customer pass books

B.

Computer-generated ledger sheets

C.

Repos

D.

Reverse Repos

Question 40

“An incoming wire transfer with instruction to pay the beneficiary upon presentment of proper identification. The beneficiary usually does not maintain a checking or savings account with the paying financial institution.” This definition refers to:

Options:

A.

Receiving Bank

B.

Remitter

C.

PUPID

D.

Repetitive transfer

Question 41

All the activities, mentioned below, cause rise in interest rate EXCEPT:

Options:

A.

High inflation

B.

When government borrows money

C.

When government prints money

D.

None of these

Question 42

Banks also serves as “registrar” for stocks and bond issues. The registrar accounts for all shares issued, certificates outstanding, and Certificates cancelled. The role/s of the registrar is/are:

Options:

A.

To ensure that the transfer agent does not issue too many shares

B.

That old certificates are properly cancelled

C.

That new certificates are properly issued in the correct numerical sequence

D.

All of these

Question 43

Insurance Brokers work for:

Options:

A.

Insured and insurance company

B.

Insured rather than an insurance company

C.

Brokerage houses

D.

None of them

Question 44

Which of the following is/ are the responsibility /ies of state insurance commission:

Options:

A.

Making the State’s insurance rules and regulations

B.

Authorizing companies to operate in the state through the issuance rules and regulations

C.

Authorizing companies to operate in the state through the issuance of licenses andcertificates of authority

D.

Both of these

E.

None of these

Question 45

Which statement is correct concerning commercial letters of credit?

Options:

A.

A letter of credit is not a negotiable instrument, and the contract of sale between the buyer and seller is independent of the letter of credit

B.

A letter of credit is not a negotiable instrument, and the contract of sale between the buyer and seller is dependent of the letter of credit

C.

A letter of credit is a negotiable instrument, and the contract of sale between the buyer and seller is independent of the letter of credit

D.

A letter of credit is a negotiable instrument, and the contract of sale between the buyer and seller is dependent on the letter of credit

Question 46

Pension plans that an Employer establishes for retired or disabled employees, regardless of whether an employee contributes, are known as:

Options:

A.

Defined benefit plans

B.

Guaranteed Pension benefits

C.

Pre-Pension Schemes

D.

None of the above

Question 47

A contract whereby one undertakes to indemnify another or pay a specified amount upon determinable contingencies is called:

Options:

A.

Demand draft

B.

Loan

C.

Insurance

D.

Term deposit

Question 48

A major function of NAIC is to encourage __________ among state insurance departments through the development of model bills and regulations.

Options:

A.

Consistency

B.

Uniformity

C.

Regularity

D.

All of these

Question 49

The EU saving Directive is aimed at effective taxation of saving income in the form of:

Options:

A.

Interest payments

B.

Inflation

C.

Both of these

D.

None of these

Question 50

Examples of illegal sales practices may be:

Options:

A.

Misrepresentation occurs when agents make false or misleading statements in an attempt to encourage an individual to buy a policy. Agents are also forbidden from guaranteeing policy dividends.

B.

Twisting occurs when an agent purposefully misguides an individual into canceling onepolicy and purchasing a new one

C.

Rebating occurs when an agent agrees to give an individual a share of the commission as an incentive to buy a policy

D.

All of these

Question 51

Insurance companies decide on a _________ whether an investigation is necessary

Options:

A.

Claims review basis

B.

Case-by-Case basis

C.

Claim investigation basis

D.

All of these

Question 52

Purchasers of universal life policies specify the policy’s face amount and whether the death benefit will be level or vary as the policy’s cash value changes. Under level death benefit policies the death benefit payable:

Options:

A.

Equals the policy’s face amount

B.

More than the policy’s face amount

C.

Less than the policy’s face amount

D.

Is policy’s face value plus any accumulated cash value

Question 53

__________ agency system uses agents who sell the policies of a group of affiliated companies.

Options:

A.

Multiple-line (or all lines) agency system

B.

Personal selling distribution system

C.

Career agency system

D.

None of these

Question 54

Known limitations of VaR methodology include the fact that changes in market may not tend to normal distribution (specifically, that very large movements are more likely than predicated by the normal distribution assumption); BECAUSE:

Options:

A.

Correlation between market movement can vary (especially during periods of stress in themarket)

B.

The changes in present values are not perfectly linearly related to changes market rates.

C.

The use of one day horizon does not fully capture the market risk of positions that cannot be liquidated in one day.

D.

All of these

Question 55

Insurance companies assist individuals in managing personal risk through risk pooling. Risk pooling is based on fact that the probability of any one type of loss occurring for a given individual is small. Therefore insurers can insure:

Options:

A.

A large number of people against a given peril, based on the knowledge that only a smallpercentage of those insured will ever file a claim for the particular peril

B.

Only few people against a given peril, based on the knowledge that only a small percentage of those insured will ever file a claim for the particular peril

C.

A large number of people against a given peril, based on the knowledge that a largepercentage of those insured will ever file a claim for the particular peril

D.

None of these

Question 56

Once the underwriter has reviewed all of the file documentation provided, he or she will be issued a written decision .The decision may be one of the following:

Options:

A.

Approved

B.

Suspended

C.

Denied

D.

Any one of these

Question 57

Sarbanes Oxley and bases are:

Options:

A.

Financial service institutes

B.

Customer agencies

C.

Fraud detecting companies

D.

Regulatory reporting requirements

Question 58

When a bank charges off a loan as a loss, it reduces an account called the”_____________”

Options:

A.

Lease payable

B.

Lease Expense

C.

Allowance of loans and lease losses

D.

Prepaid loans and lease

Question 59

Which one of the following is common misinterpretation during the calculation of VaR

Options:

A.

The VaR calculation is based on an assumption that the portfolio is held constant over the

time interval in practice are actively managed so that as adverse condition develop actions will be taken to mitigate losses As a result the true probability of a lose as large as that predicted may be much less then Fore cast

B.

The VaR Forecast is based on what has happened in the past If the future is not like the past the realized losses may be the lager (or smaller then predicted)

C.

There is a tendency to interpret VaR as the largest loss that has on X percent probability of being exceeded. The largest that loss that may occur will not be too much larger than the aR, while for other portfolios (particularly those including highly levered derivatives), it may be many times greater than the VaR.

D.

All of the above.

Question 60

Which of the following best suits in place of question mark?

Options:

A.

Risk spectrum

B.

Risk platform

C.

Risk levels

D.

All of these

Question 61

Underwriting decisions are more influenced by what underwriters think they can sell to the public than _____________.

Options:

A.

Quality of the company

B.

Judgment in picking the IPO

C.

Estimated profit/gains

D.

Both A&C

Question 62

Insurance is a method of transferring, for a fee, the financing responsibility for the risk to another party. Insurance polices are legal contracts. There are four elements that constitute a legal, binding contract. Which of the following is NOT out of those elements?

Options:

A.

Agreement

B.

Periodic review

C.

Competent parties

D.

Legal purpose

Question 63

Historical simulation and model based approach are the methods to calculate:

Options:

Question 64

Securities lending refers to the practice of temporarily transferring securities to a borrower with the intent that the lender will buy them back at a future date. The borrower is required to return the securities to the lender, either on demand or at a specified time. A major reason for securities lending is:

Options:

A.

To circulate the issued capital

B.

To facilitate short sale

C.

To facilitate over the counter trade

D.

To fasten secondary market trading

Question 65

Adequate procedures and controls associated with swap transactions should exist to help minimize the risks inherent in transaction process. Example/s of these controls may include:

Options:

A.

A daily reconciliation of traders’ positions should be performed

B.

To minimize market risk in hedge transactions:

There should be independent sign-off procedures for hedging models

All hedge strategies should be clearly defined

All software and products should be secure and temper resistant

C.

All transactions should be authorized and affirmed

D.

All of these

Question 66

To server as family and/or financial planning tool

To provide for retirement

To obtain favorable tax treatment

These are the primary reasons

Options:

A.

For establishing a trust

B.

For naming an institution as trustee

C.

of Safekeeping

D.

of Custodial

Question 67

I – In term life insurance premium increase with age no cash value.

II- In whole life insurance high cost is involved if you surrender early. Usually no cash value for at least three to five years. So, may not meet short-term needs.

III – Universal life insurance is also same a whole life and buyer assumes greater risk due to program flexibility. Low interest rates can affect cash value and premiums.

These are the __________ of different types of life insurances.

Options:

A.

Policy benefit

B.

Protections

C.

Disadvantages

D.

Premiums

Question 68

Managed care health techniques are most often practical by organizations and professionals that assume risk for a/an:

Options:

A.

Infinite population

B.

Finite or defined population

C.

None of these

D.

Any one of these

Question 69

Which one of the following is not commonly granted trustee’s powers?

Options:

A.

Pertaining to the retention, purchase and sale of assets

B.

Those pertaining to distributions of principal

C.

Those pertaining to make dealings

D.

None of these

Question 70

Recent activities in the marketplace have caused your company to comply with requests from 50 percent of your policyholders to cancel their policies. The company complies and refunds them amounts due. Your audit of this should ensure these refunds were charged against what account?

Options:

A.

Incurred but not reported (IBNR)

B.

Unearned premium reserve

C.

Goodwill

D.

Allocation for uncollectible accounts

Question 71

Close-end funds:

Options:

A.

Are not redeemable

B.

The investment portfolios generally are managed by separate entities

C.

Are permitted to invest in a greater amount of “illiquid” securities than mutual funds.

D.

All of these

Question 72

Deductibles for dental insurance plans are _________

Options:

A.

Negligible

B.

Non-existent

C.

Not negotiable (fixed)

D.

Either A or B

Question 73

When one buys a cash instrument, for example 100 shares of ABC Inc., the payoff is linear (disregarding the impact of dividends). If share are purchased at $50 and the price appreciated to $75, we have ________ on a mark-to-mark basis.

Options:

A.

Made $2500

B.

Lost $2500

C.

Made $2500

D.

None of these

Question 74

The administration of personal trust accounts is primarily controlled by all of the following EXCEPT:

Options:

A.

Terms of Governing instrument

B.

A will

C.

Trust agreement

D.

Court order

Question 75

When purchasing a flood insurance policy, there is a standard 30-day waiting period for new applications and endorsements for coverage. Exclusions of flood insurance are all EXCEPT:

Options:

A.

Boat houses (Buildings located)

B.

Structures entirely over water buildings (fences, retaining walls underground structures)

C.

Walkways, decks, driveways, patios

D.

None of these

Question 76

Liability insurance is a part of general insurance system of _________.

Options:

A.

Risk involvement

B.

Risk transference

C.

Risk management

D.

Self-help funds

Demo: 76 questions
Total 511 questions