Certified Internal Auditor (CIA) Part 2: Practice of Internal Auditing — Question 31

An internal auditor provided the following statement about division A's performance during the month: "Because supplies of raw material X were scarce, division
A's profits declined by 15 percent."
Which of the following can be validly concluded from the auditor's statement?
I. Division A's production level declined by 15 percent.
II. Division A could have sold more products than it produced.
III. Division A usually sells all of the products that it produces.

Answer options

• A. I only
• B. II only
• C. III only
• D. I and II only

Correct answer: B

Explanation

The correct conclusion is II because the decline in profits suggests that division A could have potentially sold more products had the raw materials been available. Conclusion I is incorrect as a profit decline does not necessarily equate to a 15 percent reduction in production levels. Conclusion III cannot be assumed without further evidence; just because profits declined does not mean all produced products were sold.