Certified Internal Auditor (CIA) Practice Test

Which technique is most likely to yield sufficient information regarding the quantity of fixed assets in a department?

1. Physical observation.

2. Analytical review of purchase requests and subsequent invoices.

3. Interviews with department management.

4. Examination of account balances in general and subsidiary ledgers.

The correct answer is: Physical observation.

The technique of physical observation is the most effective way to obtain accurate information about the quantity of fixed assets in a department. This approach entails directly inspecting the assets within the department to verify their existence, condition, and quantity. By physically counting or observing the assets, an internal auditor can ensure that all fixed assets are accounted for, and the information gathered is tangible and verifiable. While other methods like analytical reviews, interviews, and examinations of account balances provide valuable information, they may not capture the real-time status of the fixed assets. For instance, analytical reviews of purchase requests and invoices may reflect financial transactions but do not confirm the presence or physical condition of the assets. Similarly, interviews with department management can yield insights, but they are subject to the perspective of the interviewee and may not be entirely reliable. Examination of account balances may show how many fixed assets are recorded on the books but does not ensure that they physically exist, or they may be obsolete or in disrepair. Thus, physical observation stands out as the definitive technique for accurately assessing the quantity of fixed assets.