IIA IIA-CIA-Part3 Exam With Confidence Using Practice Dumps

In accounting, the terms debit (Dr.) and credit (Cr.) refer to the two sides of an account in the double-entry accounting system.

Definition of Debit and Credit in Accounting:

Every financial transaction affects at least two accounts in a double-entry system: one account is debited, and another is credited.

Debits (Dr.) appear on the left side, while credits (Cr.) appear on the right side of an account.

Accounting Equation:

Step-by-Step Justification:Assets=Liabilities+Equity\text{Assets} = \text{Liabilities} + \text{Equity}Assets=Liabilities+Equity

Debits increase assets and expenses.

Credits increase liabilities, equity, and revenues.

Why the Other Options Are Incorrect:

A. Debit indicates the right side of an account and credit the left side ❌

Incorrect, as debits are always recorded on the left side, and credits are always on the right side.

B. Debit means an increase in an account and credit means a decrease. ❌

Partially incorrect; it depends on the type of account:

For assets and expenses, debits increase and credits decrease.

For liabilities, equity, and revenues, credits increase and debits decrease.

D. Credit means an increase in an account and debit means a decrease. ❌

Also incorrect because increases and decreases depend on the type of account (e.g., debits increase assets but decrease liabilities).

IIA Standard 1210.A1: Internal auditors must be familiar with fundamental accounting principles.

IIA Practice Guide: Auditing Financial Statements: Ensures proper understanding of debits and credits in financial reporting.

GAAP & IFRS Accounting Standards: Define how debits and credits are recorded in financial statements.

IIA References:Thus, the correct answer is C. Credit indicates the right side of an account and debit the left side. ✅

Capital budgeting techniques help organizations evaluate long-term investment decisions by assessing future cash flows and their present value. A present value of an annuity table is commonly used in methods that involve discounted cash flows over multiple periods.

Let's analyze the options:

A. Cash payback technique.

Incorrect. The payback period simply calculates the time needed to recover an investment and does not use discounting or present value tables.

B. Discounted cash flow technique: net present value (NPV).

Incorrect. While NPV involves discounting future cash flows, it does not specifically rely on the present value of an annuity table. Instead, NPV uses individual present values of cash flows at a specific discount rate.

C. Annual rate of return.

Incorrect. This method calculates return on investment based on accounting numbers and does not involve discounting future cash flows.

D. Discounted cash flow technique: internal rate of return (IRR). ✅ (Correct Answer)

Correct. The IRR method determines the discount rate that equates the present value of cash inflows to the initial investment (i.e., NPV = 0).

The present value of an annuity table is essential in IRR calculations, especially when future cash flows occur at regular intervals.

IRR is widely used in capital budgeting to compare different investment opportunities.

IIA GTAG (Global Technology Audit Guide) – Auditing Capital Budgeting Decisions – Discusses techniques used for investment evaluation.

COSO ERM Framework – Financial Decision-Making – Covers capital budgeting risks and techniques.

GAAP & IFRS – Investment Decision Guidelines – Explains the importance of present value calculations in investment evaluations.

IIA Standard 2130 – Control Over Capital Investments – Focuses on internal audit’s role in assessing capital budgeting techniques.

IIA References: