Certified Internal Auditor (CIA) Part 1: Business Acumen — Question 7

If earnings on financial statements for internal use only have been manipulated in the past, an internal auditor is likely to focus on which of the following?

Answer options

• A. The proper accrual of payables at the end of the interim period.
• B. The timing of revenue recognition and the valuation of inventories.
• C. Whether accounting estimates are reasonable given past actual results.
• D. Whether there have been changes in accounting principles that materially affect the financial statements.

Correct answer: B

Explanation

The correct answer is B because the timing of revenue recognition and inventory valuation are critical areas where manipulation often occurs, particularly in internal financial statements. Options A, C, and D, while important, do not directly relate to the manipulation of earnings in the same way that revenue recognition and inventory valuation do.