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*20 Case-Based MCQs – US CMA Part 1: Section B. Internal Controls + Section A. AIS*  

*Topics*: AIS, Revenue Cycle, Expenditure Cycle, Payroll, Procurement, Conversion, Documents, Deliverables

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*Revenue & Sales Cycle*

*Case 1*:  

Customer orders 100 units by phone. Sales clerk creates sales order, but no credit check is done. Goods shipped, customer later defaults.  

*Q*: Which key document/control was missing?  

A. Bill of Lading  

B. *Approved Sales Order with credit authorization*  

C. Packing Slip  

D. Remittance Advice  

*Answer: B*  

*Why*: Revenue cycle: Order Entry → Credit Approval → Shipping. Credit approval prevents bad debt. Key doc = credit-approved sales order.

*Case 2*:  

Warehouse ships goods but shipping dept fails to send shipping notice to billing. Invoice never created.  

*Q*: Which document ensures billing occurs?  

A. Purchase Order  

B. *Bill of Lading/Shipping Document matched to Sales Order*  

C. Receiving Report  

D. Vendor Invoice  

*Answer: B*  

*Why*: AIS control: Shipping doc triggers billing. No ship notice = underbilling. Match S/O → B/L → Invoice.

*Case 3*:  

Customer sends check + remittance advice. Clerk steals check, destroys remittance advice, laps receivables.  

*Q*: Control to prevent?  

A. Sales Order  

B. *Segregation: Mailroom lists checks, separate person posts to AR*  

C. Invoice  

D. Bank Reconciliation  

*Answer: B*  

*Why*: Revenue cycle cash receipts: List checks immediately + separate custody vs recording. Key docs: prelist, remittance advice, deposit slip.

*Case 4*:  

Sales return approved by sales manager only. No receiving report. Inventory overstated.  

*Q*: Missing document in AIS?  

A. Credit Memo  

B. *Receiving Report for Sales Returns*  

C. Debit Memo  

D. Purchase Requisition  

*Answer: B*  

*Why*: Sales return cycle: RMA → Receiving Report → Credit Memo. Receiving confirms goods returned before inventory + AR adjusted.

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*Expenditure / Procurement Cycle*

*Case 5*:  

Dept manager emails vendor directly, vendor ships goods, invoice arrives. No PO issued. A/P pays.  

*Q*: Which AIS control violated + missing doc?  

A. Three-way match  

B. *Authorized Purchase Order before commitment*  

C. Receiving Report  

D. Vendor Statement  

*Answer: B*  

*Why*: Procurement cycle: Requisition → Approved PO → Receiving → Voucher. PO authorizes purchase, controls budget.

*Case 6*:  

A/P clerk pays invoice without matching to PO + Receiving Report. Goods never received.  

*Q*: Control failure?  

A. Authorization  

B. *Three-Way Match: PO + Receiving Report + Vendor Invoice*  

C. Segregation of Duties  

D. Physical Safeguards  

*Answer: B*  

*Why*: Expenditure cycle key control: Match PO, RR, Invoice before voucher. Prevents payment for non-receipt.

*Case 7*:  

Receiving clerk both counts goods and updates inventory records. Shortages occur.  

*Q*: AIS weakness?  

A. No PO  

B. *Lack of segregation: custody vs recordkeeping*  

C. No invoice  

D. No requisition  

*Answer: B*  

*Why*: Procurement: Receiving = custody. Inventory records = recording. Same person can hide theft.

*Case 8*:  

Vendor offers 2/10, n/30. A/P always pays day 30 to “save cash”.  

*Q*: AIS deliverable to improve?  

A. Vendor Statement  

B. *Cash Disbursement Schedule + Discount Lost Report*  

C. Aging Report  

D. Purchase Journal  

*Answer: B*  

*Why*: Expenditure cycle: System should flag discounts. Missing discount = 36% annual cost. Deliverable = report of discounts taken/missed.

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*Payroll Cycle*

*Case 9*:  

HR enters new employee, also approves timesheet, and distributes checks. Ghost employee found.  

*Q*: Violated control + missing docs?  

A. Time Card  

B. *Segregation: HR add employee, Supervisor approve time, Payroll process, Separate custody of checks*  

C. W-4 Form  

D. Payroll Register  

*Answer: B*  

*Why*: Payroll cycle: HR master file, Supervisor authorizes hours, Payroll calculates, Treasury signs/distributes. Key docs: W-4, timecard, payroll register, payroll checks.

*Case 10*:  

Overtime not approved. Payroll clerk pays based on timecards only.  

*Q*: Missing authorization doc?  

A. W-2  

B. *Approved Overtime Authorization Form*  

C. Earnings Record  

D. Direct Deposit Form  

*Answer: B*  

*Why*: Payroll: Hours must be authorized. Timecard + supervisor overtime approval = key docs before payroll run.

*Case 11*:  

Payroll tax deposits late. Penalty incurred.  

*Q*: AIS deliverable missing?  

A. Payroll Register  

B. *Payroll Tax Calendar + Exception Report*  

C. 941 Form  

D. Check Register  

*Answer: B*  

*Why*: Payroll cycle: System should generate tax due date alerts. Deliverable = compliance calendar.

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*Conversion / Production Cycle*

*Case 12*:  

Production starts without materials requisition. Materials taken from warehouse freely.  

*Q*: Key document missing?  

A. Job Cost Sheet  

B. *Materials Requisition Form authorized*  

C. Bill of Materials  

D. Production Schedule  

*Answer: B*  

*Why*: Conversion cycle: BOM = standard, Materials Requisition = actual authorization to move inventory to WIP. Prevents theft.

*Case 13*:  

Labor costs posted to wrong job. Job cost overrun not detected.  

*Q*: AIS doc to ensure accuracy?  

A. Time Ticket  

B. *Job Time Ticket matched to Job Cost Sheet*  

C. Labor Distribution Report  

D. Payroll Register  

*Answer: B*  

*Why*: Conversion: Labor tracked by job via time ticket → posted to Job Cost Sheet. Deliverable: Job Cost Ledger.

*Case 14*:  

Completed goods transferred to FG warehouse but no document. Inventory shortage later.  

*Q*: Missing?  

A. Sales Order  

B. *Completed Production Report / Transfer Ticket*  

C. Materials Requisition  

D. Packing Slip  

*Answer: B*  

*Why*: Conversion cycle ends with transfer to FG. Completed goods ticket updates WIP to FG inventory.

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*AIS Controls & Deliverables*

*Case 15*:  

System allows sales clerk to enter order, approve credit, print invoice, and post to GL.  

*Q*: AIS principle violated?  

A. Audit Trail  

B. *Segregation of Duties in AIS*  

C. Input Controls  

D. Output Controls  

*Answer: B*  

*Why*: AIS: Order entry, credit, billing, GL should be separate modules/users. Prevents fraud.

*Case 16*:  

Month-end close takes 15 days because GL not reconciled to subledgers.  

*Q*: AIS deliverable needed?  

A. Chart of Accounts  

B. *Automated Subledger-to-GL Reconciliation Report + Exception Report*  

C. Journal Entry Log  

D. Trial Balance  

*Answer: B*  

*Why*: AIS should provide real-time reconciliation. Deliverable = auto-match AR/AP/Inv to GL, list differences.

*Case 17*:  

Unauthorized user changes vendor master file bank details. Fraud payment made.  

*Q*: Key AIS control?  

A. Input Mask  

B. *Access Controls + Vendor Master Change Report to A/P Manager*  

C. Backup  

D. Hash Total  

*Answer: B*  

*Why*: Expenditure: Vendor master file changes = high risk. Control = restricted access + audit trail report of changes.

*Case 18*:  

Invoice data entry: clerk types ₹10,000 as ₹100,000. No check.  

*Q*: AIS input control missing?  

A. Sequence Check  

B. *Limit/Reasonableness Check + Field Check*  

C. Validity Check  

D. Completeness Check  

*Answer: B*  

*Why*: Input controls: Limit check flags amount > normal PO. Reasonableness check: ₹100k vs avg ₹10k.

*Case 19*:  

CFO asks: “Which customers are over 90 days?”  

*Q*: AIS deliverable from revenue cycle?  

A. Sales Journal  

B. *Aged AR Trial Balance Report*  

C. Cash Receipts Journal  

D. Customer Statement  

*Answer: B*  

*Why*: Revenue cycle output: Aged AR = key deliverable for collections + allowance estimate.

*Case 20*:  

Company wants to know: “Cost per unit for Job 123”  

*Q*: AIS deliverable from conversion cycle?  

A. Materials Requisition  

B. *Job Cost Sheet / Cost Accounting Report*  

C. Production Schedule  

D. Labor Time Ticket  

*Answer: B*  

*Why*: Conversion cycle output: Job Cost Sheet accumulates DM, DL, OH. Deliverable = unit cost for pricing/decisions.

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*Summary Table – Key Documents by Cycle*

Cycle Key Documents Key Deliverable/Report

**Revenue** Sales Order, Credit Approval, Shipping Doc/BOL, Invoice, Remittance Advice Aged AR, Sales Analysis

**Expenditure/Procurement** Purchase Requisition, PO, Receiving Report, Vendor Invoice, Check AP Aging, Discounts Lost Report

**Payroll** W-4, Timecard, Approved OT, Payroll Register, Check/Direct Deposit Labor Distribution, 941 Tax Report

**Conversion** BOM, Materials Req, Job Time Ticket, Completed Goods Ticket Job Cost Sheet, Variance Report

*CMA Exam Tip*: For AIS, think “What triggers next step?” and “Who should NOT do both X and Y?” Segregation + 3-way match are tested heavily.

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Question answer on Bond valuation and amortization of premium or discounts

*US CMA Part 1: Bond Valuation & Amortization – Case-Based MCQs*  

Section A

1.

A bond issued at a price above its face value is issued at:

A. Discount

B. Par

C. Premium

D. Zero value

Answer: 

2.

When market interest rate is lower than coupon rate, bonds are issued at:

A. Discount

B. Premium

C. Par

D. Loss

Answer: 

3.

Bond discount occurs when:

A. Coupon rate = Market rate

B. Coupon rate > Market rate

C. Coupon rate < Market rate

D. Interest is unpaid

Answer: 

4.

The carrying value of a bond issued at discount will:

A. Decrease over time

B. Increase over time

C. Remain constant

D. Become zero

Answer: 

5.

The carrying value of a bond issued at premium will:

A. Increase over time

B. Decrease over time

C. Stay constant

D. Become negative

Answer: 

6.

Which method is preferred under US GAAP for amortization?

A. Straight-line

B. Effective interest method

C. Declining balance

D. FIFO method

Answer: 

7.

Interest expense under effective interest method equals:

A. Coupon payment

B. Face value × coupon rate

C. Carrying value × market rate

D. Market value × coupon rate

Answer: 

8.

Bond interest payment is calculated on:

A. Carrying value

B. Market value

C. Face value

D. Discount value

Answer: 

9.

If bonds are issued at discount, interest expense is:

A. Less than cash paid

B. Equal to cash paid

C. Greater than cash paid

D. Zero

Answer: 

10.

If bonds are issued at premium, interest expense is:

A. Greater than cash paid

B. Less than cash paid

C. Equal to cash paid

D. Double the cash paid

Answer: 

11.

Amortization of bond discount:

A. Reduces interest expense

B. Increases interest expense

C. Has no effect

D. Eliminates liability

Answer: 

12.

Amortization of bond premium:

A. Increases interest expense

B. Reduces interest expense

C. No impact

D. Eliminates cash flow

Answer: 

13.

At maturity, carrying value of bond equals:

A. Market value

B. Issue price

C. Face value

D. Discount value

Answer: 

14.

Which component is NOT part of bond valuation?

A. Present value of principal

B. Present value of interest

C. Future market speculation

D. Discount rate

Answer: 

15.

Bond price equals:

A. FV + interest

B. PV of principal only

C. PV of interest + PV of principal

D. Coupon × years

Answer:

16.

Effective interest method results in:

A. Constant amortization amount

B. Variable amortization amount

C. Zero amortization

D. Fixed interest expense

Answer: 

17.

Straight-line method results in:

A. Variable interest expense

B. Constant amortization

C. Increasing carrying value always

D. No amortization

Answer: 

18.

Discount on bonds payable is classified as:

A. Asset

B. Liability

C. Contra liability

D. Revenue

Answer:

19.

Premium on bonds payable is classified as:

A. Asset

B. Liability addition

C. Contra liability

D. Expense

Answer: 

20.

If market rate equals coupon rate, bond is issued at:

A. Premium

B. Discount

C. Par

D. Loss

Answer: 

Section b: External Financial Reporting | Subtopic: Bonds Payable, Effective Interest Method ASC 835

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*Case 1: Bond Issued at Discount – Interest Expense*

*Case*: On 1/1/2026, GMSIsuccess LLP issues 5-year, 8% bonds with face value ₹10,00,000. Interest payable semiannually 6/30 and 12/31. Market rate = 10%. Proceeds = ₹9,22,780.  

*Q1*: What is the interest expense for 6/30/2026 using effective interest method?  

A. ₹40,000  

B. *₹46,139*  

C. ₹50,000  

D. ₹36,911  

*Answer: 

*Q2*: Bond carrying value at 12/31/2026 after 2 payments?  

A. ₹9,22,780  

B. ₹9,28,919  

C. *₹9,35,365*  

D. ₹10,00,000  

*Answer: 

*Case 2: Bond Issued at Premium – Amortization*

*Case*: 1/1/2026, 5-year, 10% bonds, Face ₹10,00,000. Market rate 8%. Proceeds = ₹10,81,110. Semiannual interest.  

*Q3*: Interest expense for 6/30/2026?  

A. ₹50,000  

B. *₹43,244*  

C. ₹40,000  

D. ₹54,056  

*Answer:

*Q4*: Bond carrying value at 12/31/2026?  

A. ₹10,81,110  

B. ₹10,74,354  

C. *₹10,67,327*  

D. ₹10,00,000  

*Answer: 

*Case 3: Straight-Line vs Effective Interest – CMA Trap*

*Case*: 3-year, 9% bonds, Face ₹5,00,000, issued at ₹4,71,697 when market = 11%. Straight-line method used for amortization.  

*Q5*: Interest expense for Year 1 using SL method?  

A. ₹45,000  

B. *₹54,434*  

C. ₹51,887  

D. ₹55,000  

*Answer:

*Q6*: Under US GAAP, which method must be used?  

A. Straight-line  

B. *Effective interest method*  

C. Either, if immaterial difference  

D. Market value method  

*Answer:

---

*Case 4: Bond Retirement Before Maturity*

*Case*: On 1/1/2028, after 2 years, GMSIsuccess retires the 10% premium bonds from Case 2. Carrying value 1/1/2028 = ₹10,52,296. Retired at 102 = ₹10,20,000.  

*Q7*: Gain or loss on retirement?  

A. Loss ₹32,296  

B. *Gain ₹32,296*  

C. Loss ₹20,000  

D. No gain/loss  

*Answer: 

---

*Case 5: Zero-Coupon Bond – Deep Discount*

*Case*: 5-year zero-coupon bond, Face ₹10,00,000, issued for ₹6,20,920 when market = 10%.  

*Q8*: Interest expense Year 1?  

A. ₹0  

B. ₹100,000  

C. *₹62,092*  

D. ₹75,816  

*Answer:

---

*Case 6: Bond Issue Costs – US GAAP*

*Case*: Issued ₹10,00,000 bonds at par. Paid ₹20,000 bond issue costs.  

*Q9*: How are issue costs reported under US GAAP?  

A. Expense immediately  

B. *Record as direct deduction from bond liability, amortize using effective interest*  

C. Record as asset, amortize SL  

D. Add to premium  

*Answer: 

*Q10*: If issued at par with ₹20k costs, initial net liability = ?  

A. ₹10,00,000  

B. *₹9,80,000*  

C. ₹10,20,000  

D. ₹9,90,000  

*Answer: 

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*Key CMA Trigger Points for Bonds*

Trigger Word Means Impact on Interest Expense Carrying Value Trend

**Market > Stated** Discount Interest Exp > Cash Paid BV increases to Face

**Market < Stated** Premium Interest Exp < Cash Paid BV decreases to Face

**Effective Interest** Exp = BV × market rate Not constant Changes each period

**Straight-Line** Amort = Total Disc/Periods Constant + Cash CMA distractor – GAAP needs effective

**Retire > BV** Loss Dr. Loss BV < Cash paid

**Retire < BV** Gain Cr. Gain BV > Cash paid

**Zero-Coupon** All discount, no cash Exp = BV × rate BV grows fast

**Issue Costs** Contra-liability Increases effective rate Reduces initial BV

*CMA Exam Tip*: 80% of bond Qs use _semiannual_ payments. Always divide rates by 2. If they give annual market 10%, use 5% per period.

Answers Section A

Here are 20 MCQs with answers on Bond Valuation and Amortization (Premium/Discount) aligned with US CMA Part 1 level:

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1.

A bond issued at a price above its face value is issued at:

A. Discount

B. Par

C. Premium

D. Zero value

Answer: C

---

2.

When market interest rate is lower than coupon rate, bonds are issued at:

A. Discount

B. Premium

C. Par

D. Loss

Answer: B

---

3.

Bond discount occurs when:

A. Coupon rate = Market rate

B. Coupon rate > Market rate

C. Coupon rate < Market rate

D. Interest is unpaid

Answer: C

---

4.

The carrying value of a bond issued at discount will:

A. Decrease over time

B. Increase over time

C. Remain constant

D. Become zero

Answer: B

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5.

The carrying value of a bond issued at premium will:

A. Increase over time

B. Decrease over time

C. Stay constant

D. Become negative

Answer: B

---

6.

Which method is preferred under US GAAP for amortization?

A. Straight-line

B. Effective interest method

C. Declining balance

D. FIFO method

Answer: B

---

7.

Interest expense under effective interest method equals:

A. Coupon payment

B. Face value × coupon rate

C. Carrying value × market rate

D. Market value × coupon rate

Answer: C

---

8.

Bond interest payment is calculated on:

A. Carrying value

B. Market value

C. Face value

D. Discount value

Answer: C

---

9.

If bonds are issued at discount, interest expense is:

A. Less than cash paid

B. Equal to cash paid

C. Greater than cash paid

D. Zero

Answer: C

---

10.

If bonds are issued at premium, interest expense is:

A. Greater than cash paid

B. Less than cash paid

C. Equal to cash paid

D. Double the cash paid

Answer: B

---

11.

Amortization of bond discount:

A. Reduces interest expense

B. Increases interest expense

C. Has no effect

D. Eliminates liability

Answer: B

---

12.

Amortization of bond premium:

A. Increases interest expense

B. Reduces interest expense

C. No impact

D. Eliminates cash flow

Answer: B

---

13.

At maturity, carrying value of bond equals:

A. Market value

B. Issue price

C. Face value

D. Discount value

Answer: C

---

14.

Which component is NOT part of bond valuation?

A. Present value of principal

B. Present value of interest

C. Future market speculation

D. Discount rate

Answer: C

---

15.

Bond price equals:

A. FV + interest

B. PV of principal only

C. PV of interest + PV of principal

D. Coupon × years

Answer: C

---

16.

Effective interest method results in:

A. Constant amortization amount

B. Variable amortization amount

C. Zero amortization

D. Fixed interest expense

Answer: B

---

17.

Straight-line method results in:

A. Variable interest expense

B. Constant amortization

C. Increasing carrying value always

D. No amortization

Answer: B

---

18.

Discount on bonds payable is classified as:

A. Asset

B. Liability

C. Contra liability

D. Revenue

Answer: C

---

19.

Premium on bonds payable is classified as:

A. Asset

B. Liability addition

C. Contra liability

D. Expense

Answer: B

---

20.

If market rate equals coupon rate, bond is issued at:

A. Premium

B. Discount

C. Par

D. Loss

Answer: C

ANSWERS: Section b

*Case 1: Bond Issued at Discount – Interest Expense*

*Case*: On 1/1/2026, GMSIsuccess LLP issues 5-year, 8% bonds with face value ₹10,00,000. Interest payable semiannually 6/30 and 12/31. Market rate = 10%. Proceeds = ₹9,22,780.  

*Q1*: What is the interest expense for 6/30/2026 using effective interest method?  

A. ₹40,000  

B. *₹46,139*  

C. ₹50,000  

D. ₹36,911  

*Answer: B*  

*Why*: Issued at discount because market 10% > stated 8%.  

Book value 1/1 = ₹9,22,780.  

Effective rate per period = 10%/2 = 5%.  

Interest expense = 9,22,780 × 5% = *₹46,139*.  

Cash paid = 10,00,000 × 8%/2 = ₹40,000. Discount amortized = 6,139.

*Q2*: Bond carrying value at 12/31/2026 after 2 payments?  

A. ₹9,22,780  

B. ₹9,28,919  

C. *₹9,35,365*  

D. ₹10,00,000  

*Answer: C*  

*Why*: 6/30: BV = 9,22,780 + 6,139 = 9,28,919.  

12/31: Interest exp = 9,28,919 × 5% = 46,446. Cash = 40,000. Amort = 6,446.  

New BV = 9,28,919 + 6,446 = *₹9,35,365*. Discount decreases, BV increases to face.

---

*Case 2: Bond Issued at Premium – Amortization*

*Case*: 1/1/2026, 5-year, 10% bonds, Face ₹10,00,000. Market rate 8%. Proceeds = ₹10,81,110. Semiannual interest.  

*Q3*: Interest expense for 6/30/2026?  

A. ₹50,000  

B. *₹43,244*  

C. ₹40,000  

D. ₹54,056  

*Answer: B*  

*Why*: Premium because market 8% < stated 10%.  

Effective rate = 8%/2 = 4%.  

Interest exp = 10,81,110 × 4% = *₹43,244*.  

Cash paid = 10,00,000 × 10%/2 = ₹50,000. Premium amortized = 6,756.

*Q4*: Bond carrying value at 12/31/2026?  

A. ₹10,81,110  

B. ₹10,74,354  

C. *₹10,67,327*  

D. ₹10,00,000  

*Answer: C*  

*Why*: 6/30: BV = 10,81,110 – 6,756 = 10,74,354.  

12/31: Interest exp = 10,74,354 × 4% = 42,974. Cash = 50,000. Amort = 7,026.  

New BV = 10,74,354 – 7,026 = *₹10,67,327*. Premium decreases, BV decreases to face.

---

*Case 3: Straight-Line vs Effective Interest – CMA Trap*

*Case*: 3-year, 9% bonds, Face ₹5,00,000, issued at ₹4,71,697 when market = 11%. Straight-line method used for amortization.  

*Q5*: Interest expense for Year 1 using SL method?  

A. ₹45,000  

B. *₹54,434*  

C. ₹51,887  

D. ₹55,000  

*Answer: B*  

*Why*: SL amortization = Total discount / periods. Discount = 500,000 – 471,697 = 28,303. 3 yrs = 28,303/3 = 9,434 per year.  

Cash interest = 500,000 × 9% = 45,000.  

SL Interest expense = 45,000 + 9,434 = *₹54,434*.  

Note: US GAAP requires effective interest for bonds, but CMA tests SL vs Effective concept.

*Q6*: Under US GAAP, which method must be used?  

A. Straight-line  

B. *Effective interest method*  

C. Either, if immaterial difference  

D. Market value method  

*Answer: B*  

*Why*: ASC 835-30: Effective interest required. SL allowed only if result not materially different.

---

*Case 4: Bond Retirement Before Maturity*

*Case*: On 1/1/2028, after 2 years, GMSIsuccess retires the 10% premium bonds from Case 2. Carrying value 1/1/2028 = ₹10,52,296. Retired at 102 = ₹10,20,000.  

*Q7*: Gain or loss on retirement?  

A. Loss ₹32,296  

B. *Gain ₹32,296*  

C. Loss ₹20,000  

D. No gain/loss  

*Answer: B*  

*Why*: BV 10,52,296 > Cash paid 10,20,000 → *Gain ₹32,296*.  

Entry: Dr. Bonds Payable 10,00,000, Dr. Premium 52,296, Cr. Cash 10,20,000, Cr. Gain 32,296.

---

*Case 5: Zero-Coupon Bond – Deep Discount*

*Case*: 5-year zero-coupon bond, Face ₹10,00,000, issued for ₹6,20,920 when market = 10%.  

*Q8*: Interest expense Year 1?  

A. ₹0  

B. ₹100,000  

C. *₹62,092*  

D. ₹75,816  

*Answer: C*  

*Why*: Zero-coupon = all discount. No cash interest.  

Effective rate 10%. Year 1 exp = 6,20,920 × 10% = *₹62,092*. All added to BV.  

BV end Year 1 = 6,20,920 + 62,092 = 6,83,012.

---

*Case 6: Bond Issue Costs – US GAAP*

*Case*: Issued ₹10,00,000 bonds at par. Paid ₹20,000 bond issue costs.  

*Q9*: How are issue costs reported under US GAAP?  

A. Expense immediately  

B. *Record as direct deduction from bond liability, amortize using effective interest*  

C. Record as asset, amortize SL  

D. Add to premium  

*Answer: B*  

*Why*: ASC 835-30: Issue costs = contra-liability. Net the bond proceeds. Amortize via effective interest. Not separate asset post-2015 ASU.

*Q10*: If issued at par with ₹20k costs, initial net liability = ?  

A. ₹10,00,000  

B. *₹9,80,000*  

C. ₹10,20,000  

D. ₹9,90,000  

*Answer: B*  

*Why*: Cash 9,80,000 = Dr. Cash 9,80,000, Dr. Discount on BP 20,000, Cr. Bonds Payable 10,00,000. Net BV = 9,80,000.

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*Key CMA Trigger Points for Bonds*

Trigger Word Means Impact on Interest Expense Carrying Value Trend

**Market > Stated** Discount Interest Exp > Cash Paid BV increases to Face

**Market < Stated** Premium Interest Exp < Cash Paid BV decreases to Face

**Effective Interest** Exp = BV × market rate Not constant Changes each period

**Straight-Line** Amort = Total Disc/Periods Constant + Cash CMA distractor – GAAP needs effective

**Retire > BV** Loss Dr. Loss BV < Cash paid

**Retire < BV** Gain Cr. Gain BV > Cash paid

**Zero-Coupon** All discount, no cash Exp = BV × rate BV grows fast

**Issue Costs** Contra-liability Increases effective rate Reduces initial BV

*CMA Exam Tip*: 80% of bond Qs use _semiannual_ payments. Always divide rates by 2. If they give annual market 10%, use 5% per period.

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CIA Part 1 important points trigger points

 

CIA Part 1 – New 2024 Syllabus: Trigger Points & Key Terms

Effective Jan 2024 | Domains: I. Internal Audit Fundamentals 35% | II. Ethics & Professionalism 20% | III. Governance, Risk, Control 30% | IV. Fraud Risks 15%

IIA rewrote Part 1 in 2024. Less “Standards numbers”, more “concepts + application”. Here are the exact triggers.

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*Domain I: Internal Audit Fundamentals – 35%*  

*Old 1000-1300 Series → Now Integrated Concepts*

**2024 Topic** **Trigger Words in MCQ** **Right Answer = This Concept** **Red Flag = Wrong**

**IA Mandate** “Charter”, “authority”, “unrestricted access”, “scope” Board-approved charter defining purpose, authority, responsibility. Right to access all records/personnel CEO only approved charter, denied access to payroll

**Organizational Independence** “CAE reports to”, “who sets CAE salary/budget?” CAE reports functionally to Board/Audit Committee. Admin to CEO ok Functional to CFO/COO = impairment

**Individual Objectivity** “Prior role”, “family member”, “scope limitation”, “gift”, “pressure” No conflict. Disclose impairment. 1-yr cooling off if audited own work Audited AP after being AP Manager 6 months ago

**Due Professional Care** “Skipped steps”, “relied on prior year”, “red flag ignored” Consider adequacy, fraud risk, cost vs benefit. Use professional skepticism “Due care = zero errors” = wrong

**Quality Assurance** “No QAIP”, “last external review 7 years ago” QAIP required for ALL. Internal assessment ongoing + periodic. External by independent outsiders ≤5 yrs “Small dept exempt” = wrong. “Generally Conforms” without EQA = wrong

**Proficiency** “Assigned IT audit, no IT skills”, “no CPE” Collective team competence + 40 CPE hrs/yr each. CAE ensures Single auditor must know all = wrong

*New 2024 Wording*: Instead of “Standard 1110”, Q will say “organizational independence”. Same concept, less numbers.

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*Domain II: Ethics & Professionalism – 20%*  

*Code of Ethics + IIA Core Principles*

**Trigger** **Principle** **Violation Example** **Correct Action**

**“Accepted tickets from auditee”** Integrity Gifts that impair judgment Refuse if >nominal. Disclose if doubt

**“Deleted finding after CEO pressure”** Objectivity + Integrity Subordination of judgment Document, escalate to Board if unresolved

**“Posted audit issue on LinkedIn”** Confidentiality Unauthorized disclosure Share only in final report to authorized parties

**“Copied prior workpapers without understanding”** Competency + Due Care Lack of proficiency Must understand procedures + adapt to risk

**“Core Principle: Aligns with strategies”** Core Principles IA must add value + improve ops Work must support org objectives

*2024 Emphasis*: Ethics scenarios now test _dilemma resolution_. Trigger: “What should CAE do FIRST?” → Answer = Apply Code + Escalate per charter.

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*Domain III: Governance, Risk Management, Control – 30%*  

*Biggest weight. COSO + ISO 31000 integrated*

**Concept** **Trigger Words** **IA Role – Pick This** **Wrong Answer**

**Governance** “Board oversight”, “tone at top”, “ESG reporting”, “strategy alignment” IA *assesses* governance processes. Provides assurance on ethics, performance mgmt IA *establishes* governance = wrong. That’s Board/Mgmt

**Risk Management** “Risk appetite”, “risk register”, “inherent vs residual”, “ERM”, “third-party risk” IA *evaluates effectiveness* of risk mgmt. Gives assurance risk responses work IA *owns* risks or *sets* appetite = wrong

**COSO 2013 Internal Control** “Control environment”, “risk assessment”, “control activities”, “info & comm”, “monitoring” 5 components, 17 principles. IA *assesses design + operating effectiveness* “Controls = only procedures” = wrong. It’s framework

**Control Types** “Preventive”, “Detective”, “Corrective”, “ITGC vs Application” Preventive = approve PO. Detective = bank rec. ITGC = access control Mix up preventive/detective = common trap

**IT & Data Analytics** “CAATs”, “100% population”, “anomaly detection”, “continuous auditing”, “cybersecurity” IA uses data analytics for effectiveness + efficiency. Must assess ITGC “IT audits only for IT auditors” = wrong. All auditors need IT awareness

*New 2024 Adds*: ESG, Cybersecurity, Third-Party Risk, Data Privacy. Trigger: “IA should evaluate…” → Yes, these are in scope now.

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*Domain IV: Fraud Risks – 15%*  

*Heavily tested since 2024 update*

**Trigger** **Concept** **IA Responsibility** **Trap Answer**

**Fraud Triangle** “Pressure + Opportunity + Rationalization” IA must have sufficient knowledge to *evaluate fraud risk* IA *detects all fraud* = wrong. Not responsible for prevention

**Fraud Risk Assessment** “No fraud risk in annual plan”, “management override” Must be in audit universe. Test mgmt override controls “External auditor handles fraud” = wrong

**Red Flags** “Lifestyle > salary”, “no vacations”, “excess voids”, “related party” Exercise professional skepticism. Expand testing “Ignore if immaterial” = wrong

**Investigation Role** “Who investigates?”, “IA found fraud” IA may investigate if competent + independent. Or refer to specialists IA *always* investigates = wrong. Depends on charter

**Anti-Fraud Controls** “Hotline”, “surprise audits”, “job rotation” IA assesses design/operating effectiveness of anti-fraud program IA *implements* hotline = wrong. Mgmt does

*Key 2024 Phrase*: “IA must have sufficient knowledge of fraud schemes and red flags” – but not be fraud expert.

---

*2024 Exam Elimination Hacks – Based on New Syllabus Wording*

If MCQ Option Says… It’s Wrong Because…

**“IA establishes risk appetite”** Domain III: IA *assesses*, Board/Mgmt *establishes*

**“Independence not required for consulting”** Domain I: Objectivity required for ALL services

**“QAIP not needed if <5 auditors”** Domain I: QAIP mandatory for ALL IA activities

**“Confidentiality waived for public interest”** Domain II: Only if legal requirement. Not judgment call

**“IA guarantees no fraud”** Domain IV: Reasonable assurance, not absolute

**“Cybersecurity is IT dept only”** Domain III: IA must assess IT risks as part of GRC

**“ESG out of scope”** Domain III New: ESG governance is in scope

**“Due care means tick all boxes”** Domain I: Professional judgment, not checklist

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*Top 25 Must-Memorize Triggers for 2024 Exam*

1. *Charter + Board Approval + Unrestricted Access* = Mandate  

2. *Functional to Board* = Independence  

3. *1-Year Cooling Off* = Prior role impairment  

4. *Subordination* = Objectivity breach  

5. *40 CPE Hours* = Competency  

6. *QAIP Always Required* = Quality  

7. *External Assessment ≤5 Yrs + Outside Org* = Conforms  

8. *COSO 5/17* = Internal Control framework  

9. *IA Assesses, Not Owns* = GRC roles  

10. *Fraud Triangle* = Pressure, Opportunity, Rationalization  

11. *Preventive vs Detective* = Control types  

12. *Data Analytics/CAATs* = Due care + efficiency  

13. *Third-Party Risk* = Part of risk universe now  

14. *ESG Governance* = New IA scope  

15. *Cybersecurity* = IA must assess  

16. *Tone at Top* = Control Environment  

17. *Residual Risk* = After controls  

18. *Professional Skepticism* = Fraud + Due care  

19. *Conflict of Interest* = Disclose or don’t audit  

20. *Segregation of Duties* = Custody vs Recording vs Authorization  

21. *Audit Trail* = Workpapers document evidence  

22. *Risk-Based Planning* = Annual plan driver  

23. *Follow-Up Required* = IA monitors corrective action  

24. *Ethics > Personal Gain* = Integrity always wins  

25. *“Reasonable Assurance”* = Not absolute, not guarantee  

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*How to Use in Exam*:  

Q: “CAE reports to CFO who approves bonus. CAE deleted finding after CFO pressure.”  

Trigger 1: “Reports to CFO” → Independence issue = Domain I  

Trigger 2: “Deleted finding” → Objectivity + Integrity = Domain II  

Answer: Violates mandate + ethics. Escalate to Board.

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Mocktest.Accounting Information System AIS

20 Case-Based MCQs .Internal Controls + Accounting Information System.AIS

*Topics*: AIS, Revenue Cycle, Expenditure Cycle, Payroll, Procurement, Conversion, Documents, Deliverables

*Revenue & Sales Cycle*

*Case 1*:  

Customer orders 100 units by phone. Sales clerk creates sales order, but no credit check is done. Goods shipped, customer later defaults.  

*Q*: Which key document/control was missing?  

A. Bill of Lading  

B. *Approved Sales Order with credit authorization*  

C. Packing Slip  

D. Remittance Advice  

*Answer: 

*Why*: 

*Case 2*:  

Warehouse ships goods but shipping dept fails to send shipping notice to billing. Invoice never created.  

*Q*: Which document ensures billing occurs?  

A. Purchase Order  

B. *Bill of Lading/Shipping Document matched to Sales Order*  

C. Receiving Report  

D. Vendor Invoice  

*Answer

*Why*:

*Case 3*:  

Customer sends check + remittance advice. Clerk steals check, destroys remittance advice, laps receivables.  

*Q*: Control to prevent?  

A. Sales Order  

B. *Segregation: Mailroom lists checks, separate person posts to AR*  

C. Invoice  

D. Bank Reconciliation  

*Answer: 

*Why*:

*Case 4*:  

Sales return approved by sales manager only. No receiving report. Inventory overstated.  

*Q*: Missing document in AIS?  

A. Credit Memo  

B. *Receiving Report for Sales Returns*  

C. Debit Memo  

D. Purchase Requisition  

*Answer:

*Why*:

---

*Expenditure / Procurement Cycle*

*Case 5*:  

Dept manager emails vendor directly, vendor ships goods, invoice arrives. No PO issued. A/P pays.  

*Q*: Which AIS control violated + missing doc?  

A. Three-way match  

B. *Authorized Purchase Order before commitment*  

C. Receiving Report  

D. Vendor Statement  

*Answer:

*Why*: 

*Case 6*:  

A/P clerk pays invoice without matching to PO + Receiving Report. Goods never received.  

*Q*: Control failure?  

A. Authorization  

B. *Three-Way Match: PO + Receiving Report + Vendor Invoice*  

C. Segregation of Duties  

D. Physical Safeguards  

*Answer: 

*Why*: 

*Case 7*:  

Receiving clerk both counts goods and updates inventory records. Shortages occur.  

*Q*: AIS weakness?  

A. No PO  

B. *Lack of segregation: custody vs recordkeeping*  

C. No invoice  

D. No requisition  

*Answer:

*Why*

*Case 8*:  

Vendor offers 2/10, n/30. A/P always pays day 30 to “save cash”.  

*Q*: AIS deliverable to improve?  

A. Vendor Statement  

B. *Cash Disbursement Schedule + Discount Lost Report*  

C. Aging Report  

D. Purchase Journal  

*Answer: 

*Why*

---

*Payroll Cycle*

*Case 9*:  

HR enters new employee, also approves timesheet, and distributes checks. Ghost employee found.  

*Q*: Violated control + missing docs?  

A. Time Card  

B. *Segregation: HR add employee, Supervisor approve time, Payroll process, Separate custody of checks*  

C. W-4 Form  

D. Payroll Register  

*Answer: 

*Why*:

*Case 10*:  

Overtime not approved. Payroll clerk pays based on timecards only.  

*Q*: Missing authorization doc?  

A. W-2  

B. *Approved Overtime Authorization Form*  

C. Earnings Record  

D. Direct Deposit Form  

*Answer: 

*Why*: 

*Case 11*:  

Payroll tax deposits late. Penalty incurred.  

*Q*: AIS deliverable missing?  

A. Payroll Register  

B. *Payroll Tax Calendar + Exception Report*  

C. 941 Form  

D. Check Register  

*Answer:

*Why*:

---

*Conversion / Production Cycle*

*Case 12*:  

Production starts without materials requisition. Materials taken from warehouse freely.  

*Q*: Key document missing?  

A. Job Cost Sheet  

B. *Materials Requisition Form authorized*  

C. Bill of Materials  

D. Production Schedule  

*Answer

*Why*

*Case 13*:  

Labor costs posted to wrong job. Job cost overrun not detected.  

*Q*: AIS doc to ensure accuracy?  

A. Time Ticket  

B. *Job Time Ticket matched to Job Cost Sheet*  

C. Labor Distribution Report  

D. Payroll Register  

*Answer:

*Why*:

*Case 14*:  

Completed goods transferred to FG warehouse but no document. Inventory shortage later.  

*Q*: Missing?  

A. Sales Order  

B. *Completed Production Report / Transfer Ticket*  

C. Materials Requisition  

D. Packing Slip  

*Answer

*Why*

---

*AIS Controls & Deliverables*

*Case 15*:  

System allows sales clerk to enter order, approve credit, print invoice, and post to GL.  

*Q*: AIS principle violated?  

A. Audit Trail  

B. *Segregation of Duties in AIS*  

C. Input Controls  

D. Output Controls  

*Answe

*Why*: 

*Case 16*:  

Month-end close takes 15 days because GL not reconciled to subledgers.  

*Q*: AIS deliverable needed?  

A. Chart of Accounts  

B. *Automated Subledger-to-GL Reconciliation Report + Exception Report*  

C. Journal Entry Log  

D. Trial Balance  

*Answer: 

*Why*

*Case 17*:  

Unauthorized user changes vendor master file bank details. Fraud payment made.  

*Q*: Key AIS control?  

A. Input Mask  

B. *Access Controls + Vendor Master Change Report to A/P Manager*  

C. Backup  

D. Hash Total  

*Answer: 

*Why*:

*Case 18*:  

Invoice data entry: clerk types ₹10,000 as ₹100,000. No check.  

*Q*: AIS input control missing?  

A. Sequence Check  

B. *Limit/Reasonableness Check + Field Check*  

C. Validity Check  

D. Completeness Check  

*Answer

*Why*

*Case 19*:  

CFO asks: “Which customers are over 90 days?”  

*Q*: AIS deliverable from revenue cycle?  

A. Sales Journal  

B. *Aged AR Trial Balance Report*  

C. Cash Receipts Journal  

D. Customer Statement  

*Answer: 

*Why*

*Case 20*:  

Company wants to know: “Cost per unit for Job 123”  

*Q*: AIS deliverable from conversion cycle?  

A. Materials Requisition  

B. *Job Cost Sheet / Cost Accounting Report*  

C. Production Schedule  

D. Labor Time Ticket  

*Answer: 

*Why

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*Summary Table – Key Documents by Cycle*

Cycle Key Documents Key Deliverable/Report

**Revenue** Sales Order, Credit Approval, Shipping Doc/BOL, Invoice, Remittance Advice Aged AR, Sales Analysis

**Expenditure/Procurement** Purchase Requisition, PO, Receiving Report, Vendor Invoice, Check AP Aging, Discounts Lost Report

**Payroll** W-4, Timecard, Approved OT, Payroll Register, Check/Direct Deposit Labor Distribution, 941 Tax Report

**Conversion** BOM, Materials Req, Job Time Ticket, Completed Goods Ticket Job Cost Sheet, Variance Report

*CMA Exam Tip*: For AIS, think “What triggers next step?” and “Who should NOT do both X and Y?” Segregation + 3-way match are tested heavily.

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