CIA Part 1

Table of Contents

Table of Contents
Exam Introduction ............................................................................................................. 1
HOCK Study Section Listing

Section A Introduction ................................................................................................... 2

The Development of Internal Auditing
Difference between External and Internal Auditors
The Definition of Internal Auditing
Professional Practices Framework
IIA Professional Standards

2
2
3
4
5

Comply with the IIAs Attribute Standards ...................................................................... 7

Purpose, Authority and Responsibility (Standard 1000) ................................................ 7
The Internal Audit Charter ................................................................................................ 9
The Audit Committee
Other Audit Committee Functions
Consulting Services

10
11
12

Independence and Objectivity (Standard 1100) ............................................................ 13

Organizational Independence (Standard 1110)
Direct Interaction with the Board (Standard 1111)
Individual Objectivity (Standard 1120)
Impairments to Independence or Objectivity (Standard 1130)

13
14
14
14

Proficiency and Due Professional Care (Standard 1200) ............................................. 16

Proficiency (Standard 1210)
Obtaining Services to Support or Complement the Internal Audit Activity
Due Professional Care (Standard 1220)
Continuing Professional Development (Standard 1230)

16
18
20
21

Quality Assurance and Improvement Program (Standard 1300) ................................. 22

Requirements of the Quality Assurance and Improvement Program (Standard 1310)
Internal Assessments (Standard 1311)
External Assessments (Standard 1312)
Reporting on the Quality Assurance and Improvement Program (Standard 1320)
Use of Conforms with the International Standards for the Professional Practice of Internal Auditing (Standard 1321)
Disclosure of Noncompliance (Standard 1322)

22
23
24
25
26
26

The IIAs Code of Ethics ................................................................................................. 28

Applicability and Enforcement
Principles
Rules of Conduct

28
28
29

Sample Internal Audit Charter ........................................................................................ 31

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Section B Introduction ................................................................................................. 33

Managing the Internal Audit Activity (Standard 2000).................................................. 34
Planning (Standard 2010) ............................................................................................... 34
Long-Range (Strategic) Planning

38

Communication and Approval (Standard 2020) ............................................................ 40

Resource Management (Standard 2030) ....................................................................... 40
Recruiting and Promoting
Training, Staff Development and Performance Evaluations

40
41

Policies and Procedures (Standard 2040) ..................................................................... 43

Coordination of Activities (Standard 2050) ................................................................... 43
Assurance Mapping
Coordination with External Auditor
Coordination with Regulatory Bodies
Coordination with Other Internal Assurance Functions

44
44
47
47

Reporting to Senior Management and the Board (Standard 2060) ............................. 48

Activity Reports
CAE Considerations on Reporting Significant Engagement Observations
Relationship with Audit Committee
Assisting the Audit Committee
Communications with the Audit Committee

49
50
50
50
51

External Service Provider and Organizational Responsibility for Internal Auditing (Standard 2070) .. 52
Sarbanes-Oxley Act......................................................................................................... 53
Section C Introduction ................................................................................................. 55
Nature of the Internal Auditors Work (Standard 2100) ................................................ 56
Governance (Standard 2110) .......................................................................................... 59
Defining Governance
Principles of Good Governance
Cornerstone of Good Corporate Governance
The Governance Process Relationship with Risk and Control
Role of the Internal Audit Activity in the Governance Assessment Process
Role of the Internal Audit Activity in the Ethical Culture of an Organization

59
59
60
61
61
62

Risk Management (Standard 2120) ................................................................................ 65

Roles in the Risk Management Process
Internal Audits Role in the Risk Management Process
Assessing the Adequacy of Risk Management Processes
Assessing the Adequacy of Risk Management Processes for Formal Consulting Services
Managing the Risk of the Internal Audit Activity

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Table of Contents

Other Internal Audit Roles and Responsibilities .......................................................... 72

Information and Physical Security
Legal Considerations in Evaluating Regulatory Compliance Programs
Control and Audit Implications of E-commerce Activities
Internal Audits Role in Identifying and Reporting Environmental Risks
The Internal Auditors Role in Evaluating an Organizations Privacy Framework
Internal Auditings Role in the Business Continuity Process

72
72
74
76
77
77

Section D Introduction ................................................................................................. 80

Control (Standard 2130) .................................................................................................. 81
The Internal Auditors Role in the Control Process
Using Control Self-Assessment for Assessing the Adequacy of Control Processes
Internal Audits Role in Quarterly Financial Reporting, Disclosures, and Management Certifications
Establishing the Control Process

83
84
86
87

Systems of Control .......................................................................................................... 88

Control and Technology
The Control Sequence

93
95

Means of Achieving Control ........................................................................................... 98

Internal Control Models
The COSO Model
The CoCo Model
Limitations of Internal Control

100
100
107
108

Management Control Techniques ................................................................................ 109

People in the Control System
Surveillance and Monitoring of Control Systems

113
114

Control Implications of Organizational Structure ....................................................... 115

Elements of the Organizational Structure
Structure of the Organization
Departmentation
Span of Control

115
118
122
124

Leadership ..................................................................................................................... 125

Path-goal Theory
Vroom-Yetton-Jago Model

126
127

Influence ......................................................................................................................... 128

Negotiation and Conflict Management ........................................................................ 128
Change Management .................................................................................................... 132
Section E Introduction ............................................................................................... 133
Engagement Planning (Standard 2200) ....................................................................... 134
The Planning Process

134
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Planning Considerations (Standard 2201) .................................................................. 135

Engagement Objectives (Standard 2210) .................................................................... 136
Risk Assessment in Engagement Planning
The Use of Surveys

137
137

Engagement Scope (Standard 2220) ........................................................................... 137

Engagement Resource Allocation (Standard 2230).................................................... 138
Engagement Work Program (Standard 2240) ............................................................. 138
The Preliminary Survey................................................................................................. 139
Documentation of the Preliminary Survey .................................................................. 142
Engagement Supervision (Standard 2340) .................................................................. 143
Engagement Procedures .............................................................................................. 145
Sufficiency of Evidence
Reliability of Evidence
Relevant Evidence
Useful Evidence
Sources of Evidence
Selected Engagement Procedures
Tracing and Vouching

145
145
146
146
146
146
148

Fraud .............................................................................................................................. 151

Consideration of Fraud in the Planning of a Financial Statement Audit
Detection and Prevention of Fraud

151
152

Appendix A.1 Standard Flowchart Symbols ............................................................ 154

Appendix A.2 Simple Example of a Vertical Flowchart ........................................... 156
Appendix A.3 Informal Flowchart.............................................................................. 157
Appendix B New Statutory Requirements ................................................................ 158
Appendix C 40 Common Forms of Fraud ................................................................. 159
Appendix D 20 Danger Signs of Embezzlement ...................................................... 161
Answers to Questions................................................................................................... 162

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CIA Part 2

Table of Contents

Table of Contents
Exam Introduction ............................................................................................................. 1
Section A Introduction ................................................................................................... 2
The IIA International Professional Practices Framework ............................................... 3
The IIA Professional Standards

Engagement Information .................................................................................................. 6

Performing the Engagement (Standard 2300) ................................................................. 6
Identifying Information (Standard 2310)
Analysis and Evaluation: (Standard 2320)
Engagement Supervision (Standard 2340)
Due Professional Care (Standard 1220)
Documenting Information (Standard 2330)

6
13
21
22
24

Communicating Results (Standard 2400) ....................................................................... 33

Criteria for Communicating (Standard 2410)
Quality of Communications (Standard 2420)
Errors and Omissions (Standard 2421)
Disseminating Results (Standard 2440)
Whistleblowing

33
37
38
39
40

Conduct Client Satisfaction Survey ............................................................................... 43

Complete Engagement Staff Performance Appraisals ................................................. 44
Monitoring Progress (Standard 2500) ............................................................................. 45
Resolution of Senior Managements Acceptance of Risks (Standard 2600) .............. 46
Section B Introduction ................................................................................................. 48
Types of Internal Audit Services .................................................................................... 49
Assurance Services ........................................................................................................ 49
Financial Audit Engagements ........................................................................................ 50
Compliance Audit Engagements.................................................................................... 58
Environmental Auditing

58

Operational (Performance) Audit Engagements ........................................................... 61

Program-Result

62

Other types of Operational Engagements ..................................................................... 62

E-Commerce Engagements
Due Diligence Engagements
Business Continuity Planning Engagements
Quality Engagements
ISO 9000 Quality Standards Audits

63
66
68
70
73
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Physical Security Audit Engagements
Audits of Third Parties
Contract Auditing
Privacy Audit Engagements

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75
75
77

Consulting Services ........................................................................................................ 81

Principles Guiding the Performance of Consulting Activities of Internal Auditors
Considerations for Formal Consulting Engagements
Internal Control Testing Consulting Engagements
Business Process Review/Reengineering Consulting Engagements

81
83
85
86

Fraud Engagements ........................................................................................................ 87

Types of Fraud
Responsibilities of the Internal Auditor
Conducting Fraud Investigations
Responsibility for Fraud Detection
Management Fraud
Forensic Auditing

87
88
90
91
92
95

Control Self-Assessment ................................................................................................ 97

CSA Approaches
Role of the Internal Auditor in a CSA Program

97
100

Information Technology (IT) Audit Engagements....................................................... 101

General Controls
Application Controls
Systems Development
Computer Programs and Software
Organizing the Information Systems Function
Data Communications and Telecommunications Networks
The Internet
Electronic Commerce
Telecommunications and Network Auditing
System Security
Privacy
Contingency Planning
Information Security Engagements
Databases
Auditing Databases
Enterprise Resource Planning

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107
112
122
126
129
135
137
141
142
148
149
152
154
161
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Table of Contents

Section C Introduction ............................................................................................... 165

Sampling Fundamentals ............................................................................................... 166
Sampling Risk

166

Probability ...................................................................................................................... 185

Risk, Uncertainty and Expected Value

192

Data Gathering Tools .................................................................................................... 194

Interviewing

194

Analytical Review Techniques ..................................................................................... 201

Ratio Analysis

201

Variance Analysis .......................................................................................................... 210

Other Reasonableness Tests ....................................................................................... 223
The Decision-Making Process ...................................................................................... 226
Programmed and Nonprogrammed Decisions
Decision-Making Styles
The Steps of Decision Making
Decision Making Errors

226
226
227
231

Computerized Audit Tools and Techniques ................................................................ 232

Computer-Assisted Audit Techniques (CAAT)

237

Process Mapping ........................................................................................................... 239

Appendix A International Professional Practices Framework ................................ 241
Appendix B The IIA Code of Ethics ........................................................................... 243
Introduction
Applicability and Enforcement
Principles
Rules of Conduct

243
243
243
244

Appendix C Standard Flowchart Symbols ............................................................... 245

Answers to Questions ................................................................................................... 247

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CIA Part 3

Table of Contents

Table of Contents
Exam Introduction ............................................................................................................. 1
Section AIntroduction ..................................................................................................... 2
Business Planning ............................................................................................................ 4
Forecasting
Collecting the Data for a Forecast
Other Measures Used in Regression Analysis Forecasting
Inflation Adjustment in a Time Series Analysis
Learning Curves
Markov Analysis
Simulation Analysis & Sensitivity Analysis

4
4
13
13
19
25
25

Quality .............................................................................................................................. 28
Quality Management and Productivity
Total Quality Management (TQM)
Total Quality Cost
Measuring Quality
Monitoring Quality
The International Organization for Standards (ISO)
Benchmarking

28
28
30
31
31
33
34

Project Management Techniques................................................................................... 36

1) Gantt Charts
2) PERT/CPM
Other Project Management Techniques

36
37
44

Supply Chain Management ............................................................................................. 45

Logistics
Production
The Bullwhip Effect

45
46
47

Business Process Analysis ............................................................................................ 48

Tools for Analyzing Business Processes

48

Managing Resources ...................................................................................................... 56

Inventory Management ................................................................................................... 56
Inventory Costs
Other Inventory Terms
Methods of Inventory Cost Management
Other Inventory Systems

56
57
59
61

Human Resource Management ...................................................................................... 62

Human Resource Planning
Employee Recruitment

62
62
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Employee Selection
Career Development
Performance Evaluation
Organizing Jobs
Compensation and Benefits
Legal Issues Relating to Terminations
Centralization vs. Decentralization Decision-Making

CIA Part 3
63
66
66
68
70
71
72

Pricing Objectives and Policies ..................................................................................... 73

Product Life-cycle Strategies
Pricing Strategies

73
74

Balanced Scorecard ........................................................................................................ 80

Section B Introduction ................................................................................................. 82
Financial Accounting Concepts and Principles............................................................ 84
Basic Concepts and Principles of Financial Accounting
The International Accounting Standards Committee
Objectives of Accounting Information
Qualitative Characteristics of Accounting Information
Elements to the Financial Statements
Recognition of Financial Statement Elements
Measurement Attributes of Assets and Liabilities
Accrual Accounting
The Accounting Cycle

84
85
87
87
89
90
91
91
92

External Financial Statements ....................................................................................... 94

1) The Balance Sheet (Statement of Financial Position)
2) Statement of Comprehensive Income
Cost of Goods Sold
Classification of Expenses
3) Statement of Changes in Equity
4) The Statement of Cash Flows (IAS 7)
5) Notes to the Financial Statements

94
97
99
99
101
102
117

Revenue Recognition (IAS 18) ..................................................................................... 119

Revenue Recognition from the Sale of Goods
Revenue Recognition on Construction Contracts (IAS 11)
Installment Method of Profit Recognition
Cost Recovery Method of Profit Recognition

119
119
120
123

Interim Financial Reporting (IAS 34) ............................................................................ 126

Financial Accounting of Assets ................................................................................... 129
Cash Management ......................................................................................................... 129
The Operating Cycle
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The Cash Budget

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137

Marketable Securities Management ............................................................................. 137

Cash and Marketable Security Management Models

141

Receivables (IAS 39) ..................................................................................................... 142

Determining the Amount to Be Received and Valuing the Receivable

144

Inventory (IAS 2) ............................................................................................................ 150

Lower of Cost or Net Realizable Value

156

Property, Plant and Equipment (IAS 16) ...................................................................... 161

Measurement at Acquisition
Depreciation
Subsequent Expenditures
Revaluation and Impairment of Property, Plant and Equipment

161
163
166
167

Intangible Assets (IAS 38)............................................................................................. 168

Internally Generated Intangibles
Research & Development
Goodwill
Amortization and Impairment of Intangible Assets

169
169
170
170

Financial Accounting of Liabilities and Equity ........................................................... 171

Current Liabilities
Accounts Payable (A/P)
Notes Payable (N/P)
Other Determinable Liabilities
Estimated Liabilities
Provisions, Contingent Liabilities and Contingent Assets (IAS 37)

171
171
171
172
173
176

Long-Term Liabilities (Non-current Liabilities) ........................................................... 178

Long-term Notes Payable

178

Bonds ............................................................................................................................. 180

Issuance of the Bonds Calculating the Selling Price
Recording the Sale of the Bond in the Books
Amortizing the Premium or Discount
Straight-line Amortization of Bond Premium or Discount

181
184
186
190

Equity ............................................................................................................................. 192

Common Stock
Preferred Stock
Stock Rights
Stock Warrants
Dividends
Dividend Decisions
Stock Dividends and Stock Splits
Treasury Stock

192
194
195
195
195
197
200
201
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Retained Earnings

CIA Part 3
204

Financial Statement Analysis ....................................................................................... 206

Liquidity Ratios
Asset Management Ratios
Leverage (Solvency) Ratios
Profitability Ratios
Growth Ratios

207
209
212
214
217

Earnings per Share (IAS 33) ......................................................................................... 217

Basic EPS
The Impact of Dividends on IAC
Diluted EPS
Valuation Ratios
Limitations of Ratio Analysis

219
219
220
221
225

Financial & Capital Structure ....................................................................................... 226

Financial Structure ........................................................................................................ 226
Short-Term Financing
Trade Credit
Intermediate-Term Financing
Long Term Financing
Debt Bonds

226
226
231
232
233

Capital Structure............................................................................................................ 236

Cost of Capital
Models for Valuation of the Cost of Retained Earnings

236
241

Capital Structure Decisions .......................................................................................... 245

The Marginal Cost of Capital

245

Leverage ......................................................................................................................... 245

Operating Leverage
Financial Leverage
Total Leverage

246
246
246

Accounting for Investments ......................................................................................... 248

Business Combinations................................................................................................ 249
Different types of Business Combinations
Leveraged Buyout (LBO)
Reasons for Combinations
Opposition to Combinations
Valuation and Pricing of the Combination

249
251
252
253
255

Accounting for Business Combinations (IFRS 3) ....................................................... 256

Recording Assets and Liabilities
Recording Equity

256
256

Consolidation of Financial Statements (IAS 27) ......................................................... 258

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CIA Part 3
The Elimination of Intercompany Receivables and Payables
The Elimination of the Effect of Intercompany Sales of Inventory
The Elimination of the Effect of Intercompany Sales of Fixed Assets
Elimination of the Parents Investment Account
Minority Interests
Other Eliminations

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258
259
259
259
259

Other Special Topic of Financial Accounting ............................................................. 260

Leases (IAS 17) .............................................................................................................. 260
Types of Leases
Accounting for Finance Leases
The Accounting for Operating Leases
Accounting for Leases by the Lessor
Sale-Leaseback Transactions

260
260
262
263
264

Employee Benefits (IAS 19) .......................................................................................... 265

Short-Term Benefits
Post-Employment Benefits

265
266

Accounting for Income Taxes (IAS 12) ........................................................................ 268

Presentation on the Income Statement
Calculation of Current Income Tax Expense
Calculation of Deferred Income Tax Expense
Temporary Timing Differences
Deferred Tax Assets
Deferred Tax Liabilities
Calculation of the Deferred Tax Expense or Benefit
Calculation of a Valuation Allowance

269
269
270
271
272
272
274
274

Accounting Changes (IAS 8) ........................................................................................ 276

Changes in Accounting Policy
Change in Accounting Estimate
Correction of Errors

276
277
277

Accounting for Foreign Operations ............................................................................. 280

Restatement of Foreign Currency Financial Statements
Consolidating Foreign Operations
Foreign Currency Transactions

280
280
282

Financial Instruments (IAS 39) ..................................................................................... 284

Derivative Instruments
Categories of Derivatives

284
285

Business Development Life Cycles ............................................................................. 289

1. Start-up Stage
Growth Stage
Maturity Stage
Decline Stage

290
290
291
291
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Answers to Questions................................................................................................... 293

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CIA Part 3

Table of Contents

Table of Contents
Section C Introduction ................................................................................................... 1
Costing Concepts and Systems ....................................................................................... 3
Costs Based on Level of Production
Product vs. Period Costs
Cost of Goods Sold (COGS) and Cost of Goods Manufactured (COGM)

3
4
8

Manufacturing Overhead Allocation .............................................................................. 10

Standard (Traditional) Allocation Method

10

The Process of Accounting for Factory Overhead ....................................................... 16

Overapplied and Underapplied Manufacturing Overhead
Activity-based Costing

17
20

Process Costing .............................................................................................................. 24

Process Costing Summary
Spoilage in Process Costing

35
41

Job-Order Costing ........................................................................................................... 46

Operation Costing ........................................................................................................... 46
Life-cycle Costing............................................................................................................ 47
Service Cost Allocation .................................................................................................. 48
The Direct Method
The Step Method
The Reciprocal Method

48
49
49

Joint Products ................................................................................................................. 53

By-products ..................................................................................................................... 56
Variable and Absorption Costing ................................................................................... 58
Effects of Changing Inventory Levels
Income Statement Presentation
Answer to the Variable/Absorption Costing Example

59
60
63

Variance Analysis ............................................................................................................ 69

Standard Costs
Determining the Level of Activity
Direct Materials Variance
The Labor Rate Variance
Factory Overhead Variances
Sales Variances

69
69
71
74
76
79

Capital Budgeting ............................................................................................................ 83

Terms Used in Capital Budgeting
Taxes

84
85

Present Value and Future Value of Money .................................................................... 85

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Identifying and Calculating the Relevant Cash Flows
Irrelevant Cash Flows

CIA Part 3
88
91

Capital Budgeting Evaluation Methods ......................................................................... 95

Payback Method
Discounted Payback Method

95
97

Discounted Cash Flow Methods .................................................................................. 100

Net Present Value (NPV)
Internal Rate-of-Return (IRR)
The Accounting Rate of Return
Capital Budgeting Decisions
The Profitability (or Excess Present Value) Index
Use of the Profitability Index

101
107
109
110
110
112

Capital Rationing in Capital Budgeting ....................................................................... 115

Operations Budgeting ................................................................................................... 120
The Different Budgets
Operating and Financial Budgets
Flexible Budgeting
Other Types of Budgets
Budget Reports

121
124
126
127
128

Transfer Pricing ............................................................................................................. 129

Relevant Information for Decision-making ................................................................. 135
Marginal Analysis .......................................................................................................... 137
Make-or-Buy Decisions
Special Order Situations
Sell or Process Further Decisions
Disinvestment Decisions

137
141
145
146

Cost-Volume-Profit (CVP) Analysis ............................................................................. 149

Contribution Margin
Breakeven Analysis
Contribution Margin Method
Profit Requirement
Specific Dollar Amount Profit Requirement
Profit as a Percentage of Sales
Specific Dollar Amount of After-Tax Profit
Specific Percentage of Revenue as After-Tax Net Income
Using Breakeven Analysis in Decision-Making
Breakeven Analysis and Sensitivity Analysis

150
152
154
157
157
158
159
160
163
166

Breakeven Analysis when More than One Product Is Sold ....................................... 166
Sales Quantity Mix
Sales Revenue Mix
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CIA Part 3
Effect of Changes in Sales Mix

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170

CVP and Conditions of Risk and Uncertainty ............................................................. 172

Sensitivity Analysis
Expected Value
Deterministic Approach

172
172
173

Responsibility Centers and Responsibility Accounting ............................................ 177

The Contribution Income Statement Approach to Evaluation

182

Section D Introduction ............................................................................................... 185

Governmental Regulations ........................................................................................... 186
Government and the Economy..................................................................................... 190
Monetary Policy in the U.S............................................................................................ 190
Federal Reserve System
Controlling the Nations Money Supply and Short-Term Interest Rates
Strengths and Weaknesses of Monetary Policy
Banker for Commercial Banks
Banker for the Federal Government

190
191
194
195
196

Money and the Economy .............................................................................................. 197

Definitions of Money
The Liquidity Preference Function

197
199

Fiscal Policy ................................................................................................................... 200

Demand-Side Fiscal Policy
Government Funding
Taxation

200
204
205

International Business Law .......................................................................................... 211

Sources of International Law
International Tax Law

211
211

Forms of Business Organization ................................................................................. 212

Contracts ........................................................................................................................ 214
Elements of Valid Contracts

214

Legal Evidence .............................................................................................................. 221

Standards of Legal Evidence

221

Basic Concepts of Economics ..................................................................................... 223

Demand .......................................................................................................................... 223
The Law of Demand
The Demand Schedule
Changes in Demand and the Demand Curve
Determinants of Demand

224
224
224
226

Elasticity of Demand ..................................................................................................... 229

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Classifications of Levels of Elasticity
Factors Affecting the Elasticity of Demand

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230
230

Supply ............................................................................................................................ 232

The Law of Supply
Supply Schedule
Determinants of Supply
Elasticity of Supply

232
232
233
234

Market Equilibrium and Pricing .................................................................................... 235

Price Fixing

236

Macroeconomics ........................................................................................................... 239

National Income Accounting ........................................................................................ 239
Gross Domestic Product (GDP)
Methods of Calculating GDP

239
241

Economic Growth .......................................................................................................... 245

Investment Expenditure in the Economy .................................................................... 247
Business Cycles ............................................................................................................ 248
Economic Indicators

250

Measurements of Inflation ............................................................................................ 253

Real vs. Nominal Variables

254

Unemployment and the Economy ................................................................................ 255

Types of Unemployment
Costs of Unemployment
Full Employment and the Natural Rate of Unemployment

255
256
256

Inflation and the Economy ............................................................................................ 257

Costs of Inflation
Redistribution Effects of Inflation
Inflation vs. Unemployment

257
258
259

International Trade ........................................................................................................ 260

Trade Barriers
Economic Effects of Trade Barriers
Measures to Avoid Trade Barriers

260
261
261

Absolute and Comparative Advantage ........................................................................ 262

Comparative Advantage ............................................................................................... 263
Terms of Trade The Exchange Rate

264

International Accounts and the Balance of Payments ............................................... 271

Principal Accounts
Official Reserves
The Overall Balance of Payments
Corrective Measures for Balance of Payments

271
273
274
276

Foreign Currency Markets and Currency Rates ......................................................... 277

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CIA Part 3
Exchange Rates

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277

Determination of Exchange Rates ............................................................................... 280

Floating (Flexible) Exchange Rate
Fixed Exchange Rate
Managed Float Exchange Rate
Foreign Currency Markets

280
285
288
288

Section E Information Technology (IT) ..................................................................... 291

Information Technology (IT) ......................................................................................... 292
General Controls
Application Controls

293
298

Control Frameworks ...................................................................................................... 303

COBIT Components
Functional Areas of Information Operations

305
306

Systems Development .................................................................................................. 307

Program Development and Documentation Controls

315

Computer Programs and Software .............................................................................. 317

Systems Software.......................................................................................................... 317
Operating Systems
Evaluation and Selection of Vendor-Supplied software
Software Piracy
End-User Computing
Organizing the Information Systems Function

317
318
319
319
321

Data Communications and Telecommunications Networks ...................................... 324

Voice over Internet Protocol (VoIP)
Types of Networks
Client/Server Networking

325
325
328

The Internet .................................................................................................................... 330

Electronic Commerce .................................................................................................... 332
Business-To-Business (B2B)
Electronic Data Interchange (EDI)
Business-To-Consumer (B2C)
Consumer-To-Consumer (C2C)
Online Transaction Processing (OLTP)
Telecommunications and Network Auditing

332
332
334
334
334
336

System Security............................................................................................................. 337

Viruses, Trojan Horses and Worms
Cybercrime and Defenses Against Cybercrime
Encryption
Privacy

338
339
342
343

Contingency Planning ................................................................................................... 344

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Disaster Recovery

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345

Information Security Engagements ............................................................................. 347

Databases ...................................................................................................................... 349
Accessing Files
History of Database Development
Entity-Relationship Modeling
Database Structure
Distributed Databases
Deadly Embrace
Database Management System (DBMS)
Database Development
Database Use and Maintenance
The Database Administrator
Auditing Databases

349
350
350
351
352
352
353
353
354
355
356

Enterprise Resource Planning ..................................................................................... 358

Appendix A - 34 IT Processes ...................................................................................... 360
Answers to Questions................................................................................................... 361

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CIA Part 4

Table of Contents

Table of Contents
Exam Introduction ............................................................................................................. 1
Section A Strategic Management .................................................................................. 2
Strategic Management ...................................................................................................... 3
The Strategy Hierarchy
Business Portfolio Concepts
Synergy

4
6
6

Structural Analysis of Industries ..................................................................................... 8

Competitive Structure of Industries
Porters Five Forces Model
Strategic Groups
SWOT Analysis

8
11
14
16

Competitive Strategies .................................................................................................... 18

Generic Strategy Model
Marketing-Based Strategies

18
21

Competitive Analysis ...................................................................................................... 27

Competitive Intelligence
Portfolio Techniques of Competitive Analysis

27
30

Market Signals ................................................................................................................. 34

Industry Evolution ........................................................................................................... 36
Evolutionary Processes
Product Life Cycle

36
39

Industry Environment ..................................................................................................... 42

Fragmented Industries
Emerging Industries
Declining Industries
Competition in Global Industries
Evolution of Global Markets
Types of Global Strategies
Trends affecting Competition

42
46
49
52
54
55
55

Integration Strategies ...................................................................................................... 57

Horizontal Integration
Vertical Integration

57
58

Capacity Expansion ........................................................................................................ 60

Capacity Overbuilding

61

Entry into New Businesses............................................................................................. 62

Entry through Internal Development
Entry through Acquisition

62
63
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CIA Part 4

Section B Global Business .......................................................................................... 64

International Marketing ................................................................................................... 65
The Decision Whether to Market Internationally
Evaluating Alternatives for International Operations
Establishing a Marketing Organization
Designing an International Marketing Program
Successful Global Marketing

65
66
67
68
70

Comparative and Competitive Advantages ................................................................... 72

Competitive Advantage of Nations
Global Marketing Strategies
Transnational Corporations
Leadership in Global Organizations
Attitudes Toward Global Operations

73
75
75
76
77

Human Resource Issues ................................................................................................. 78

Cultures and their Differences
Other Cultural Factors
National Culture Differences
Training and Working in a Foreign Country

78
79
80
81

Section C Organizational Behavior ............................................................................. 83

Motivation Theories......................................................................................................... 84
Needs-based Theories of Motivation
Process-Based Motivational Theories
Other Motivational Theories
Designing Jobs

84
87
89
91

Communication ............................................................................................................... 93
The Communication Process
Interpersonal Communication
Channels of Communication in Organizations
Problems in Communication
Methods to Improve Communication
Listening
Electronic Communications

93
94
95
99
102
102
104

Performance .................................................................................................................. 107

Criteria Used in Performance Evaluations

108

Organization Structure.................................................................................................. 111

Chain of Command
Organization Chart

111
111

Sample Organization Chart (for a Hospital) ................................................................ 112

Theories of Organization Structure
Organizational Effectiveness
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113
116

CIA Part 4

Table of Contents

The Contingency Approach to Organization Design .................................................. 119

Mechanistic versus Organic Organizations
Differentiation and Integration: The Lawrence and Lorsch Study

119
119

Departmentation ............................................................................................................ 120

Matrix Organization
Lean Production
Reengineering
Outsourcing

122
123
124
124

Line and Staff Organizations ........................................................................................ 125

Line and Staff Positions
Line and Staff Authority
Line and Staff Conflicts

125
125
126

Span of Control.............................................................................................................. 126

Elements of Organizational Structure ......................................................................... 128
Complexity
Formalization
Centralization
Delegation

128
128
128
129

The Changing Shape of Organizations ........................................................................ 131

Hourglass Organization
Cluster Organizations
Network Organizations
Strategic Partnering and Virtual Organizations

131
132
132
132

Section D Management Skills .................................................................................... 133

Group Dynamics ............................................................................................................ 134
Traits of Group Dynamics
Stages of Group Development
Organizational Politics

134
138
139

Team Building ................................................................................................................ 141

Participative Management
Teams and Work Groups
Team Effectiveness

141
142
143

Influence and Power ...................................................................................................... 145

Leadership ..................................................................................................................... 148
Leader vs. Manager
Studies on Leadership

148
148

Time Management ......................................................................................................... 154

Workflow Management
Project Management Techniques
PERT/CPM

155
156
159
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Network Models
Management by Objectives (MBO)

CIA Part 4
166
167

Section E Negotiating ................................................................................................ 169

Managing Conflict ......................................................................................................... 170
Conflict Triggers
Resolving Conflicts

170
171

Negotiation ..................................................................................................................... 174

Approaches to Negotiations
Effective Negotiations
Overcoming Resistance
Added Value Negotiating
Principled Negotiation
Third Party Negotiations

174
174
175
176
176
177

Answers to Questions................................................................................................... 179

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