ADA - Audit Data Analytics Diagnostic Analytics for Audits Questions and Answers

Question 1

An internal auditor uses diagnostic analytics to examine a full year of accounts payable transactions.
The analysis reveals a significant spike in payments to a new vendor in the last quarter, coinciding with a drop in gross profit.
Which of the following is the PRIMARY purpose of this type of analysis?

Accepted Answer

To understand the root cause of the observed financial anomalies.

Answer

To predict which vendors are likely to be high-risk in the future.

Answer

To summarize the total payments made to all vendors throughout the year.

Answer

To prescribe the necessary internal control changes to prevent future occurrences.

Question 2

An auditor is analyzing a large dataset of journal entries to identify potential fraud. They apply a technique that compares the frequency distribution of the first digits of the entry amounts to a known logarithmic distribution. Deviations from this expected pattern are flagged for further investigation. Which diagnostic technique is being used?

Accepted Answer

Benford's Law

Answer

Regression Analysis

Answer

Clustering Analysis

Answer

Sequence Check

Question 3

Which of the following scenarios is the BEST application for using outlier detection as a diagnostic analytic technique in an audit?

Accepted Answer

Identifying payroll payments that are significantly higher or lower than an employee's average salary.

Answer

Forecasting the allowance for doubtful accounts for the next fiscal year.

Answer

Summarizing the total number of approved purchase orders by department.

Answer

Validating the sequence of all issued invoice numbers to find any missing documents.

Question 4

An audit team wants to understand the relationship between a company's advertising expenditures and its sales revenue to identify any unusual variances. They plan to use a statistical method to model the strength and direction of this relationship based on several years of historical data. What diagnostic technique should they employ?

Accepted Answer

Regression Analysis

Answer

Drill-Down Analysis

Answer

Duplicate Detection

Answer

Process Mining

Question 5

During a review of a procure-to-pay process, an auditor uses diagnostic analytics to identify transactions with similar characteristics, grouping them together. The auditor discovers a small cluster of transactions with unusual payment terms and delivery locations, which are inconsistent with the vast majority of other transactions. This approach is an example of:

Accepted Answer

Clustering Analysis

Answer

Time Series Analysis

Answer

Benford's Law

Answer

Sequence Analysis

Question 6

An auditor is examining a dataset of sequentially numbered documents, such as checks or invoices, to identify control weaknesses. The primary diagnostic goal is to find any breaks in the numerical order. Which of the following techniques would be most effective for this specific purpose?

Accepted Answer

Sequence Analysis

Answer

Regression Analysis

Answer

Outlier Detection

Answer

Correlation Analysis