Free Access IIA IIA-CIA-Part3 New Release

An ethnocentric staffing policy fills key foreign subsidiary positions primarily with parent-country nationals. This can significantly raise costs because expatriate compensation, relocation, tax equalization, housing, education, and allowances are expensive. It may also create resentment among host-country employees who see limited promotion opportunities. In addition, it can lead to cultural myopia because parent-country managers may fail to understand local customs, employees, customers, and regulatory expectations. Statement 3 is incorrect because ethnocentric staffing generally expands, rather than limits, career mobility for parent-country nationals by giving them international assignments. Internal audit should consider these risks when reviewing global human resource strategy, compliance culture, and subsidiary control effectiveness. The disadvantages are items 1, 2, and 4 only. Therefore, Option D is correct.

The acid-test (quick) ratio is a more dependable liquidity indicator than working capital because it excludes inventory, which may not be easily converted to cash in the short term. This ratio measures a company’s ability to pay its short-term liabilities using only its most liquid assets (cash, marketable securities, and accounts receivable).

Formula for the Acid-Test Ratio:Acid-Test Ratio=Current Assets−InventoryCurrent Liabilities\text{Acid-Test Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}Acid-Test Ratio=Current LiabilitiesCurrent Assets−Inventory​

This ratio is more reliable than working capital since it removes inventory, which may be difficult to liquidate quickly in financial distress.

A. Acid-test (quick) ratio (Correct Answer) – This provides a stronger measure of liquidity because it excludes inventory, which might not be quickly converted to cash.

B. Average collection period – This measures the efficiency of accounts receivable collections, but it does not directly measure overall liquidity.

C. Current ratio – While this ratio is commonly used, it includes inventory, which can distort liquidity assessments if inventory is not easily sold.

D. Inventory turnover – This measures how quickly inventory is sold, but it does not directly assess liquidity.

IIA IPPF Standard 2130 – Control emphasizes liquidity monitoring as a key financial control.

COSO ERM Framework – Financial Performance Measures discusses acid-test ratio as a critical liquidity metric.

IFRS 7 – Financial Instruments Disclosures outlines the importance of liquidity risk assessments.

Explanation of Each Option:IIA References:

The most effective IT strategy for marketplace pressure is tighter linkage between organizational strategy and information. Competitive pressure requires timely, relevant, and actionable information for pricing, customer behavior, product performance, supply chain response, and strategic decision-making. IT should not simply automate existing processes; it should support business strategy and competitive positioning. Greater online access, enhanced application functionality, and automated controls may improve efficiency or control, but they are narrower operational responses. Internal audit should evaluate whether IT strategy is aligned with business objectives, risk appetite, competitive priorities, and performance measures. When information supports strategy, management can respond faster and more effectively to market threats and opportunities. Therefore, Option A is correct.