Exam IIA-CIA-Part2 All QuestionsBrowse all questions from this exam
Go to Exam
Question 53

A company has recently incurred significant cost overruns on one of its construction projects. Management suspects that these overruns were caused by the contractor improperly accounting for costs related to contract change orders. Which of the following procedures would be appropriate for testing this suspicion?

I. Verify that the contractor has not charged change orders with costs that have already been billed to the original contract.

II. Determine if the contractor has billed for original contract work that was canceled as a result of change orders.

III. Verify that the change orders were properly approved by management.

    Correct Answer: C

    To test the suspicion that cost overruns were caused by the contractor improperly accounting for costs related to contract change orders, it is necessary to verify two key aspects: whether the contractor has charged change orders with costs that have already been billed to the original contract, and whether the contractor has billed for original contract work that was canceled as a result of change orders. These checks ensure that there is no duplication of costs and that costs are appropriately allocated between the original contract and change orders. Verifying that the change orders were properly approved by management (III) is not directly related to the cost accounting issue and thus is not as relevant for this specific suspicion.

Discussion
TibrewalOption: C

Auditor need to check "all 3". However, since we do not have option for "All 3" then most appropriate is option C assuming approval is properly sought (cz this is the safest assumption).

ekekOption: C

Why C?

CESSA

Objective is to check if overruns were caused by the contractor improperly accounting for costs related to contract change orders -; and not to assess if change orders are properly approved