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CIA-III test prep - The Certified Internal Auditor Part 3 Updated: 2024

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Exam Code: CIA-III The Certified Internal Auditor Part 3 test prep January 2024 by Killexams.com team

CIA-III The Certified Internal Auditor Part 3

2019 CIA test Syllabus, Part 3 – Business Knowledge for Internal Auditing

100 questions l 2.0 Hours (120 minutes)



The CIA test Part 3 includes four domains focused on business acumen, information security, information technology, and financial management. Part 3 is designed to test candidates knowledge, skills, and abilities particularly as they relate to these core business concepts.​



Domains Collapse All

I. Business Acumen (35%)

​ ​ ​Cognitive Level

​​1. Organizational Objectives, Behavior, and Performance

A​ ​Describe the strategic planning process and key activities (objective setting, globalization and competitive considerations, alignment to the organization's mission and values, etc.) Basic

​B ​Examine common performance measures (financial, operational, qualitative vs. quantitative, productivity, quality, efficiency, effectiveness, etc.) Proficient

​C ​​Explain organizational behavior (individuals in organizations, groups, and how organizations behave, etc.) and different performance management techniques (traits, organizational politics, motivation, job design, rewards, work schedules, etc.) ​Basic

​D ​​Describe managements effectiveness to lead, mentor, guide people, build organizational commitment, and demonstrate entrepreneurial ability ​Basic

2. Organizational Structure and Business Processes

A ​Appraise the risk and control implications of different organizational configuration structures (centralized vs. decentralized, flat structure vs. traditional, etc.) Basic​

​B ​Examine the risk and control implications of common business processes (human resources, procurement, product development, sales, marketing, logistics, management of outsourced processes, etc.) Proficient

​C ​Identify project management techniques (project plan and scope, time/team/resources/cost management, change management, etc.) ​Basic

​D Recognize the various forms and elements of contracts (formality, consideration, unilateral, bilateral, etc.) Basic

​3. Data Analytics

​A ​Describe data analytics, data types, data governance, and the value of using data analytics in internal auditing ​Basic

​B ​Explain the data analytics process (define questions, obtain relevant data, clean/normalize data, analyze data, communicate results) ​Basic

​C Recognize the application of data analytics methods in internal auditing (anomaly detection, diagnostic analysis, predictive analysis, network analysis, text analysis, etc.) ​Basic

II. Information Security (25%)

​ ​ ​Cognitive Level

​​1. Information Security

A​ ​Differentiate types of common physical security controls (cards, keys, biometrics, etc.) Basic

​B ​Differentiate the various forms of user authentication and authorization controls (password, two-level authentication, biometrics, digital signatures, etc.) and identify potential risks Basic

​C ​​Explain the purpose and use of various information security controls (encryption, firewalls, antivirus, etc.) ​Basic

D​ ​Recognize data privacy laws and their potential impact on data security policies and practices Basic​

​E ​​Recognize emerging technology practices and their impact on security (bring your own device [BYOD], smart devices, internet of things [IoT], etc.) Basic​

​F ​Recognize existing and emerging cybersecurity risks (hacking, piracy, tampering, ransomware attacks, phishing attacks, etc.) ​Basic

G​ ​​Describe cybersecurity and information security-related policies ​Basic

III. Information Technology (20%)

​ ​ ​Cognitive Level

​​1. Application and System Software

A​ Recognize core activities in the systems development lifecycle and delivery (requirements definition, design, developing, testing, debugging, deployment, maintenance, etc.) and the importance of change controls throughout the process Basic

​B ​Explain basic database terms (data, database, record, object, field, schema, etc.) and internet terms (HTML, HTTP, URL, domain name, browser, click-through, electronic data interchange [EDI], cookies, etc.) Basic

​C ​​Identify key characteristics of software systems (customer relationship management [CRM] systems; enterprise resource planning [ERP] systems; and governance, risk, and compliance [GRC] systems; etc.) ​Basic

2. IT Infrastructure and IT Control Frameworks

A ​Explain basic IT infrastructure and network concepts (server, mainframe, client-server configuration, gateways, routers, LAN, WAN, VPN, etc.) and identify potential risks Basic​

​B Define the operational roles of a network administrator, database administrator, and help desk Basic​​

​C Recognize the purpose and applications of IT control frameworks (COBIT, ISO 27000, ITIL, etc.) and basic IT controls ​Basic

​3. Disaster Recovery

​A Explain disaster recovery planning site concepts (hot, warm, cold, etc.) ​Basic

​B Explain the purpose of systems and data backup ​Basic

​C ​Explain the purpose of systems and data recovery procedures ​Basic

IV. Financial Management (20%)

​ ​ ​Cognitive Level

​​1. Financial Accounting and Finance

A​ ​Identify concepts and underlying principles of financial accounting (types of financial statements and terminologies such as bonds, leases, pensions, intangible assets, research and development, etc.) Basic

​B ​Recognize advanced and emerging financial accounting concepts (consolidation, investments, fair value, partnerships, foreign currency transactions, etc.) Basic

C​ ​​Interpret financial analysis (horizontal and vertical analysis and ratios related to activity, profitability, liquidity, leverage, etc.) Proficient​

D​ ​​Describe revenue cycle, current asset management activities and accounting, and supply chain management (including inventory valuation and accounts payable) Basic​

​E ​​Describe capital budgeting, capital structure, basic taxation, and transfer pricing Basic​

2. Managerial Accounting

A ​Explain general concepts of managerial accounting (cost-volume-profit analysis, budgeting, expense allocation, cost- benefit analysis, etc.) Basic​

​B ​Differentiate costing systems (absorption, variable, fixed, activity-based, standard, etc.) Basic​​

​C ​Distinguish various costs (relevant and irrelevant costs, incremental costs, etc.) and their use in decision making ​Basic
Additional noteworthy elements related to the revised CIA Part Three test syllabus:



The number of syllabus covered on the Part Three test has been greatly refocused to the core areas that are most critical for internal auditors.

The test syllabus features a new subdomain on data analytics.

The information security portion of the test has been expanded to include additional syllabus such as cybersecurity risks and emerging technology practices.

The largest domain is “Business Acumen,” which makes up 35% of the exam.

A portion of the test requires candidates to demonstrate a basic comprehension of concepts; another portion requires candidates to demonstrate proficiency in their knowledge, skills, and abilities.
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The Certified Internal Auditor Part 3
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Question: 307
Which of the following is an important senior management responsibility with regard to
information systems security?
A. Assessing exposures.
B. Assigning access privileges.
C. Identifying ownership of data.
D. Training employees in security matters.
Answer: A
Senior management is responsible for risk assessment, including identification of risks and
consideration of their significance, the likelihood of their occurrence, and how they should
be managed. Senior management is also responsible for establishing organizational
policies regarding computer security and implementing a compliance structure. Thus,
senior management should assess the risks to the integrity, confidentiality, and
availability of information systems data and resources.
Question: 308
Management's enthusiasm for computer security seems to vary with changes in the
environment, particularly the occurrence of other computer disasters. Which of the
following concepts should be addressed when making a comprehensive recommendation
regarding the costs and benefits of computer security?
Potential loss if security is not implemented
Probability of occurrences
Cost and effectiveness of the implementation and operation of computer security
A. I only.
B. I and II only.
C. III only.
B. I, Il, and Ill.
Answer: D
Potential loss is the amount of dollar damages associated with a security problem or loss
of assets. Potential loss times the probability of occurrence is an estimate expected value)
of the exposure associated with lack of security. It represents a potential benefit associated
with the implementation of security measures. To perform a cost-benefit analysis, the
costs should be considered. Thus, all three items need to be addressed.
Question: 309
Of the following, the greatest advantage of a database server) architecture is
A. Data redundancy can be reduced.
B. Conversion to a database system is inexpensive and can be accomplished quickly.
C. Multiple occurrences of data items are useful for consistency checking.
D. Backup and recovery procedures are minimized.
Answer: A
Data organized in files and used by the organization's various applications programs are
collectively known as a database. In a database system, storage structures are
created that render the applications programs independent of the physical or logical
arrangement of the data. Each data item has a standard definition, name, and format, and
related items are linked by a system of pointers. The programs therefore need only to
specify data items by name, not by location. A database management system handles
retrieval and storage. Because separate files for different applications programs are
unnecessary, data redundancy can be substantially reduced.
Question: 310
In an inventory system on a database management system DBMS), one stored record
contains part number, part name, part color, and part weight. These individual items are
called
A. Fields.
B. Stored files.
C. Bytes.
D. Occurrences.
Answer: A
A record is a collection of related data items fields). A field data item) is a group of
characters representing one unit of information.
Question: 311
An inventory clerk, using a computer terminal, views the following on screen part
number, part description, quantity on hand, quantity on order, order quantity, and reorder
point for a particular inventory item. Collectively, these data make up a
A. Field.
B. File.
C. Database.
D. Record.
Answer: D
A record is a collection of related data items fields). A field data item) is a group of
characters representing one unit of information. The part number, part description, etc.,
are represented by fields.
Question: 312
Which of the following is the elementary unit of data storage used to represent individual
attributes of an entity?
A. Database.
B. Data field.
C. File.
D. Record.
Answer: B
A data item or field) is a group of characters. It is used to represent individual attributes of
an entity, such as an employee's address. A field is an item in a record.
Question: 313
A file-oriented approach to data storage requires a primary record key for each file. Which
of the following is a primary record key?
A. The vendor number in an accounts payable master file.
B. The vendor number in a closed purchase order transaction file.
C. The vendor number in an open purchase order master file_
D. All of the answers are correct.
Answer: A
The primary record key uniquely identifies each record in a file. Because there is only one
record for each vendor in an accounts payable master file. the vendor number would be the
appropriate key.
Question: 314
A business is designing its storage for accounts receivable information. What data file
concepts should be used to provide the ability to answer customer inquiries as they are
received?
A. Sequential storage and chains.
B. Sequential storage and indexes.
C. Record keys, indexes, and pointers.
D. Inverted file structure indexes, and internal labels.
Answer: C
A record key is an attribute that uniquely identifies or distinguishes each record from the
others. An index is a table listing storage locations for attributes, often including those
other than the unique record key attribute. A pointer is a data item that indicates the
physical address of the next logically related record.
Question: 315
Auditors making database queries often need to combine several tables to get the
information they want. One approach to combining tables is known as
A. Extraction.
B. Joining.
C. Sorting.
D. Summarization.
Answer: B
In data management terminology, joining is the combining of data files based on a
common data element. For example, if rows in a table containing information about
specified parts have been selected, the result can be joined with a table that contains
information about suppliers. The join operation may combine the two tables using the
supplier number assuming both tables contained this element) to provide information
about the suppliers of particular parts.
Question: 316
Users making database queries often need to combine several tables to get the information
they want. One approach to combining tables is
A. Joining.
B. Merging.
C. Projecting.
D. Pointing.
Answer: A
Joining is the combining of two or more relational tables based on a common data
element. For example, if a supplier table contains information about suppliers and a parts
table contains information about parts, the two tables can be joined using the supplier
number assuming both tables contain this attribute) to provide information about the supplier
of particular parts.
Question: 317
All of the following are methods for distributing a relational database across multiple
servers except
A. Snapshot making a copy of the database for distribution).
B. Replication creating and maintaining replica copies at multiple locations)_
C. Normalization separating the database into logical tables for easier user processing).
D. Fragmentation separating the database into parts and distributing where they are
needed).
Answer: C
A distributed database is stored in two or more physical sites. The two basic methods of
distributing a database are partitioning and replication_ However. normalization is a
process of database design, not distribution. Normalization is the term for determining
how groups of data items in a relational structure are arranged in records in a database.
This process relies on "normal forms," that is. conceptual definitions of data records and
specified design rules_ Normalization is intended to prevent inconsistent updating of data
items. It is a process of breaking down a complex data structure by creating smaller,
more efficient relations, thereby minimizing or eliminating the repeating groups in each
relation.
Question: 318
In a database system, locking of data helps preserve data integrity by permitting
transactions to have control of all the data needed to complete the transactions. However,
implementing a locking procedure could lead to
A. Inconsistent processing.
B. Rollback failures.
C. Unrecoverable transactions.
D. Deadly embraces retrieval contention).
Answer: D
In a distributed processing system, the data and resources a transaction may update or use
should be held in their current status until the transaction is complete. A deadly embrace
occurs when two transactions need the same resource at the same time. If the system does
not have a method to cope with the problem efficiently, response time worsens or the
system eventually fails. The system should have an algorithm for undoing the effects of
one transaction and releasing the resources it controls so that the other transaction can run
to completion.
Question: 319
One advantage of a database management system DBMS) is
A. That each organizational unit takes responsibility and control for its own data.
B. The cost of the data processing department decreases as users are now responsible for
establishing their own data handling techniques.
C A decreased vulnerability as the database management system has numerous security
controls to prevent disasters.
D The independence of the data from the application programs. which allows the
programs to be developed for the user's specific needs without concern for data capture
problems.
Answer: D
A fundamental characteristic of databases is that applications are independent of the
database structure; when writing programs or designing applications to use the database.
only the name of the desired item is necessary. Programs can be developed for the user's
specific needs without concern for data capture problems. Reference can be made to the
items using the data manipulation language, after which the DBMS takes care of locating
and retrieving the desired items. The physical or logical structure of the database can be
completely altered without having to change any of the programs using the data items,
only the schema requires alteration.
Question: 320
Which of the following is a false statement about a database management system
application environment?
A. Data are used concurrently by multiple users.
B. Data are shared by passing files between programs or systems.
C. The physical structure of the data is independent of user needs.
D. Data definition is independent of any one program.
Answer: B
In this kind of system, applications use the same database There is no need to pass files
between applications.
Question: 321
Which of the following should not be the responsibility of a database administrator?
A. Design the content and organization of the database.
B. Develop applications to access the database.
C. Protect the database and its software.
D. Monitor and Excellerate the efficiency of the database.
Answer: B
The database administrator DBA) is the person who has overall responsibility for
developing and maintaining the database. One primary responsibility is for
designing the content of the database. Another responsibility of the DBA is to protect
and control the database. A third responsibility is to monitor and Excellerate the efficiency of
the database. The responsibility of developing applications to access the database belongs
to systems analysts and programmers.
Question: 322
The responsibilities of a data administrator DA) include monitoring
A. The database industry.
B. The performance of the database.
C. Database security.
D. Backup of the system.
Answer: A
The DA handles administrative issues that arise regarding the database. The DA acts as an
advocate by suggesting new applications and standards. One of the DA's responsibilities is
to monitor the database industry for new developments. In contrast, the database
administrator DBA) deals with the technical aspects of the database
Question: 323
To trace data through several applies qti on programs, an auditor needs to know what
programs use the data, which files contain the data, and which print-td reports display the
data. If data exist only in a database system, the auditor could probably find all of this
information in a
A. Data dictionary.
B. Database schema.
C. Data encryptor.
D. Decision table.
Answer: A
The data dictionary is a file possibly manual but usually computerized) in which the
records relate to specified data items. It contains definitions of data items, the list of
programs used to process them, and the reports in which data are found. Only certain
persons or entities are permitted to retrieve data or to modify data items. Accordingly.
these access limitations are also found in the data dictionary.
Question: 324
Image processing systems have the potential to reduce the volume of paper
circulated throughout an organization. To reduce the likelihood of users relying on the
wrong images, management should ensure that appropriate controls exist to maintain the
A. Legibility of image data.
B. Accessibility of image data.
C. Integrity of index data.
D. Initial sequence of index data.
Answer: C
Data integrity is a protectibility objective. If index data for image processing systems are
corrupted, users will likely be relying on the wrong images.
Question: 325
What language interface would a database administrator use to establish the structure of
database tables?
A. Data definition language.
B. Data control language.
C. Data manipulation language.
D. Data query language.
Answer: A
The schema is a description of the overall logical structure of the database using data-
definition language DDL), which is the connection between the logical and physical
structure of the database. DDL is used to define, or determine, the database.
Question: 326
Query facilities for a database system would most likely include all of the following
except
A. Graphical output capability.
B. Data dictionary access.
C. A data validity checker.
D. A query-by-example interface.
Answer: C
The least likely feature of a query tool would be a data validity checker because the
database system has already enforced any validity constraints at the time the data were
inserted in the database. Any further data validity checking would be a function of a user
application program rather than a query.
Question: 327
Which of the following would be the most appropriate starting point for a compliance
evaluation of software licensing requirements for an organization with more than 15,000
computer workstations?
A. Determine if software installation is controlled centrally or distributed throughout the
organization.
B. Determine what software packages have been installed on the organization' s
computers and the number of each package installed.
C. Determine how many copies of each software package have been purchased by the
organization.
D. Determine what mechanisms have been installed for monitoring software usage.
Answer: A
The logical starting point is to determine the point(s) of control. Evidence of license
compliance can then be assessed. For example, to shorten the installation time for revised
software in a network, an organization may implement electronic software distribution
ESD), which is the computer-to-- computer installation of software on workstations.
Instead of weeks, software distribution can be accomplished in hours or days and can be
controlled centrally. Another advantage of ESD is that it permits tracking or metering of
PC program licenses.
Question: 328
Use of unlicensed software in an organization
I. Increases the risk of introducing viruses into the organization
II. Is not a serious exposure if only low-cost software is involved
III. Can be detected by software checking routines that run from a network server
A. I only.
B. I and II only.
C. I, II, and Ill.
D. I and Ill only.
Answer: D
Antivirus measures should include strict adherence to software acquisition policies.
Unlicensed software is less likely to have come from reputable vendors and to have been
carefully tested.Special software is available to test software in use to determine whether it
has been authorized.
Question: 329
The Internet consists of a series of networks that include
A. Gateways to allow personal computers to connect to mainframe computers.
B. Bridges to direct messages through the optimum data path_
C. Repeaters to physically connect separate local area networks LANs).
D. Routers to strengthen data signals between distant computers.
Answer: A
The Internet facilitates information transfer between computers. Gateways are hardware or
software products that allow translation between two different protocol families. For
example, a gateway can be used to exchange messages between different email systems.
Question: 330
Which of the following is true concerning HTML?
A. The acronym stands for HyperText Material Listing.
B. The language is among the most difficult to learn
C. The language is independent of hardware and software.
D. HTML is the only language that can be used for Internet documents.
Answer: C
HTML is the most popular language for authoring Web pages. It is hardware and software
independent, which means that it can be read by several different applications and on
many different kinds of computer operating systems. HTML uses tags to mark information
for proper display on Web pages.
Question: 331
Which of the following is a false statement about XBRL?
A. XBRL is freely licensed.
B. XBRL facilitates the automatic exchange of information
C. XBRL is used primarily in the U.S.
D. XBRL is designed to work with a variety of software applications.
Answer: C
XBRL stands for eXtensible Business Reporting Language. It is being developed for
business and accounting applications. It is an XML-based application used to create,
exchange, and analyze financial reporting information and is being developed for
worldwide use.
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73% of accounting students lack money for gaining CPA license

Dive Brief:

  • More than 73% of accounting students count on external financial support to gain a license as a certified public accountant, and many students view the 150-credit-hour requirement for certification as “not worth the time,” according to an association of CPAs.
  • Students seeking a CPA license expressed a need for a mentor, help finding their first job, support in test preparation and weak understanding of a CPA’s job opportunities, the Pennsylvania Institute of Certified Public Accountants found in a survey aimed at identifying the causes of a persistent CPA talent shortage.
  • “The pipeline of qualified candidates entering the CPA profession is running dangerously low,” PICPA said, reporting on a survey of 763 accounting students in 47 states. “Looking at the data overall, the PICPA believes that the human capital situation facing the profession will only worsen in the near term.”

Dive Insight:

The number of students who graduated at the end of the 2021-2022 academic year with a degree in accounting plunged 7.4% compared with the prior period, accelerating a six-year trend of declining entrants into the profession, according to the American Institute of Certified Public Accountants.

The number of graduates who received a bachelor’s degree fell 7.8% compared with the 2020-2021 period, while those earning a master’s degree declined 6.4%, the AICPA found.

Given the shortage of CPAs, “audits are more expensive and more difficult to complete in a timely manner,” PICPA CEO Jen Cryder said in an email response to questions. “Some firms are leaving the audit sector in bulk because of the risks and lack of staff.”

Several trends crimp the talent pipeline: a decline in both the U.S. birth rate and college enrollment, the rising cost of college tuition, the falling number of students earning accounting degrees and the decreasing number of candidates taking the CPA exam, PICPA said.

In addition, the accounting industry faces a challenge recruiting so-called Generation Z, or those born between 1996 and 2010, the association said. They “have different concerns and priorities today, communicate differently and get their information from more varied sources than many currently in the accounting profession.”

Compared with millennials, Generation Z is more pragmatic, holds a less positive world view than earlier generations and lacks the social and emotional well-being of earlier generations, PICPA said, citing a study by McKinsey. The age group next year will make up 27% of the workforce.

“Younger generations hold different values than professionals who are farther into their careers,” Cryder said.

The accounting industry must try harder to understand the mindset of Generation Z and their communication habits, the association said.

“The current generation of students is looking for meaning and emotional connection in their work, and they are finding it elsewhere,” PICPA said.

More than one out of five students majoring in business administration said accounting is less appealing than other fields, and 14% said starting salaries are much lower compared with other careers, the association said.

The accounting industry needs to reach out to would-be CPAs in high school, before they select their college majors, according to PICPA.

“In order to reshape the narrative of the accounting profession, we have to find fun, engaging ways to appeal to high school students before they select majors in college,” Cryder said.

“There is an issue of perception with the younger generations who may view accounting as a less appealing career option because of a variety of reasons — primarily the pay is higher in other industries and the work is not as engaging,” she said.

Accounting firms that “are unwilling to adapt, refresh their culture and change the narrative on the accounting industry will struggle to bring in fresh talent,” according to Cryder.

The accounting industry cannot rely on just in-person events and mail to reach candidates, PICPA said.

“Social media, community engagement and unique educational events are going to be hugely important when recruiting at the high school level,” Cryder said.

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Digital Euro moves forward in ECB’s two-year preparation phase No result found, try new keyword!The European Central Bank (ECB) has entered a decisive stage in developing the digital euro, moving from the investigative phase to active preparation. This phase, which began in November 2023, marks ... Wed, 03 Jan 2024 22:11:31 -0600 en-us text/html https://www.msn.com/ Tax Prep Volunteering Is a Great Way to provide Back
GE Tax Prep volunteers at a 2023 event.

A few years ago, when Jeff Kuntz was newly retired and considering how to spend his free time, United Way of Greater Cincinnati’s Free Tax Prep service checked two important boxes: “I enjoy working with numbers. And I enjoy helping people,” the Alexandria resident says.

He now does both as one of the trained, IRS-certified volunteers who provide free tax preparation and filing services for low-to-moderate-income taxpayers—saving each client approximately $300 in tax preparation fees. During tax season, Kuntz volunteers at Free Tax Prep sites in Northern Kentucky. There are about 40 sites throughout the Greater Cincinnati region.

Kuntz has an accounting degree and a financial background, but neither is necessary to become a Free Tax Prep volunteer. Volunteers just need to be personable and friendly, comfortable working with diverse clients, willing to ask questions, able to use a computer, open to learning new skills, and willing to adhere to high ethical standards. UWGC provides training and ongoing support.

Before becoming a Free Tax Prep volunteer, Kuntz had prepared tax returns only for himself and his family. Helping others, however, brings its own rewards.

Dayle Newman (left) and volunteer Kenneth Bibb

He recalls reviewing the tax return of a couple who have a child with a disability. It was important they get the full refund they deserved. In fact, they were due a refund, but Kuntz noticed that federal taxes had been withheld from their Social Security payments. That figure had not been entered on their return.

“So, I entered it, and they got a [refund of a] couple thousand dollars more. Maybe it would have been caught by the IRS, but it just felt good that I was able to catch that,” Kuntz says.

Volunteer Doug Becker (left) and taxpayer Schone Walker.

Schone Walker, who has relied on Free Tax Prep for several years, takes comfort in knowing the volunteers are knowledgeable about the latest tax laws so she doesn’t have to be. “It takes the worry off your shoulders,” she says. “I trust the volunteers 100 percent.”

Walker’s taxes were prepared by Doug Becker, a retired airline pilot from Anderson Township who has been a Free Tax Prep volunteer for nearly a decade. “There are a zillion [volunteer] opportunities,” Becker says, “but sometimes you feel like you’re not really contributing. Free Tax Prep is direct, one-on-one. I know I’m helping this person.”

For the 2022 tax year, United Way volunteers assisted with 7,600 returns; refunds and savings totaled nearly $11 million.

If you’re interested in helping for the 2023 tax season, there is still time to sign up. To learn more about volunteering for UWGC’s Free Tax Prep program, click here.

Tue, 02 Jan 2024 09:59:00 -0600 CM Sales en-US text/html https://www.cincinnatimagazine.com/article/tax-prep-volunteering-is-a-great-way-to-give-back/
Corporate Transparency Act (CTA): Purpose, Implementation, and latest Changes

What Is the Corporate Transparency Act (CTA)?

The Corporate Transparency Act (CTA) is a federal law enacted on Jan. 1, 2021, with rules scheduled to go into effect on Jan. 1, 2024. It is “intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States,” according to the U.S. Department of the Treasury and its Financial Crimes Enforcement Network (FinCEN) bureau.

Key Takeaways

  • The Corporate Transparency Act (CTA) is a federal law that aims to curtail money laundering and other illegal activities.
  • Companies will be required to report beneficial ownership information, starting on Jan. 1, 2024.
  • Noncompliance with the Corporate Transparency Act may result in penalties.
  • The law excludes many types of businesses, but small businesses may face a particular burden in complying.

Overview of the Corporate Transparency Act

The Corporate Transparency Act (CTA) was introduced as part of the Anti-Money Laundering Act of 2020, which was itself part of the National Defense Authorization Act (NDAA). Although then-President Donald Trump vetoed the NDAA, Congress overrode the veto on Jan. 1, 2021.

“Through the CTA,” the American Bar Association explains, “Congress directs the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national registry of beneficial owners of entities that are deemed ‘reporting companies.’”

As to the rationale for the new law, the bar association continues, “Congress stated that bad actors seek to conceal their ownership of business entities through the use of shell companies in order to facilitate illicit activities, including money laundering, the financing of terrorism, human and drug trafficking, and securities fraud.”

Reporting Under the Corporate Transparency Act 

After the law goes into effect in January 2024, “reporting companies” will have until Jan. 1, 2025, to file their initial report with FinCEN. Companies formed after Jan. 1, 2025, will be required to file their first report within 30 days.

In late November 2023, FinCEN extended the deadline for companies created or registered in 2024, giving them 90 calendar days “from the date of receiving real or public notice of their creation or registration becoming effective to file their initial reports.”

 A “reporting company,” according to Harvard Law School’s Forum on Corporate Governance, can include “(1) any corporation, LLC, limited partnership or similar entity created by filing a document with any U.S. state, territory, or Indian tribe (domestic reporting companies), and (2) any non-U.S. entity that registers to do business with any U.S. state, territory, or Indian tribe (foreign reporting companies).”

The law requires that companies report information about the company itself, including its name, any “doing business as” (DBA) name, its address, and its employer identification number (EIN)

The company must also identify every individual who qualifies as a beneficial owner (as defined below), including their “full legal name, date of birth, current residential address (or business address for a company applicant if in the business of forming entities), and an ‘identifying number’ and ‘image’ from documents like a U.S. passport, U.S. driver’s license, U.S. identification card or, if no U.S.-issued document is available, a foreign passport,” the Harvard Law School Forum on Corporate Governance notes.

In addition, if the company was created or registered on or after Jan. 1, 2024, it must identify up to two “company applicants” (also defined below).

However, the law provides exemptions for 23 types of businesses, including banks, credit unions, insurance companies, and what it calls “large operating” companies.

To qualify as a large operating company, a business must have more than 20 full-time employees in the United States and an operating physical office in the U.S. In addition, it must have reported more than $5 million in gross receipts or sales on its tax forms for the previous year.

Who Is a Beneficial Owner?

A beneficial owner, as defined by FinCEN, “is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.”

FinCEN says a person exercises “substantial control” if they are any of the following:

  • A senior officer (“president, chief financial officer, general counsel, chief executive office[r], chief operating officer, or any other officer who performs a similar function”)
  • An individual with “authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company”
  • An “important decision-maker for the reporting company”
  • Or someone who would otherwise qualify under the rules spelled out in FinCEN’s Small Entity Compliance Guide

According to the American Bar Association, “The CTA marks a seismic shift in the legal landscape for businesses operating in the United States. Prior to the CTA, entity beneficial owner disclosure was solely (if at all) the purview of state or tribal law. Now it is a focus and purview of federal law enforcement agencies.”

Who Is a Company Applicant?

Company applicants under the CTA rules are “the individual who directly files the document that creates or registers the company,” as well as “the individual who is primarily responsible for directing or controlling the filing” if more than one person was involved.

As noted above, companies can report up to two company applicants, and they don’t have to report any company applicant if the company was created or registered on or after Jan. 1, 2024.

FinCEN’s Fraudulent Correspondence Warning 

The new requirements being imposed by the CTA have created an opportunity for scam artists to cash in. The FinCEN website now includes an alert that the agency “has been notified of latest fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled ‘Important Compliance Notice’ and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests.”

FinCEN’s advice: “Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.”

Implementation and Compliance 

As mentioned, reporting companies will generally have until Jan. 1, 2025, to file their initial report with FinCEN. However, companies formed after Jan. 1, 2025, will be required to file their first report within 30 days, and those created or registered in 2024 will have 90 calendar days to file.

If you are required to report your company’s beneficial ownership information (BOI) to FinCEN, there will be a form on the FinCEN BOI webpage to file electronically through a secure filing system now being developed.

Companies that fail to comply with the law by “willfully” failing to report or update their beneficial ownership information or provide false BOI information can be subject to both civil and criminal penalties. Those include fines of $500 a day, up to a maximum of $10,000, and up to two years in prison.

The Harvard Law School Forum on Corporate Governance notes, “The CTA does not contain any provision for non-willful or negligence penalties.”

Impact on Small Businesses

The CTA has been criticized as putting an undue burden on small businesses, in particular because most of them won’t qualify for the large operating company exclusion described above.

A Wall Street Journal editorial warned in November 2023 that “millions of small businesses may soon be snared by onerous reporting requirements and fines for noncompliance.”

While arguing that small businesses have no choice but to comply with the new law, an article on the American Bar Association’s website observed, “The Act is designed to cast a broad net to ‘catch’ a small niche of nefarious actors hiding behind the ‘corporate veil.’ Unfortunately, the vast majority of business entities that now must comply with the CTA, including most small businesses, are unwitting and innocent bycatch in the CTA’s net.”

Recent Changes to the Corporate Transparency Act

In addition to extending the deadline for companies formed in 2024, FinCEN amended its rules on BOI reporting in November 2023, specifying how businesses could substitute FinCEN identifiers for information on individual beneficial owners.

The identifiers are numbers that individuals and companies can obtain from FinCEN once they have supplied the information normally required as part of BOI reporting. FinCEN identifiers are meant to simplify the reporting process.

What Is the Purpose of the Corporate Transparency Act?

The principal purpose of the Corporate Transparency Act is to deter money laundering and other crimes by making it clear who the individuals behind a particular business entity are.

What Are the New Reporting Requirements Imposed by the Corporate Transparency Act?

The Corporate Transparency Act requires that companies identify their owners or others who exercise a significant degree of control over the business.

How Can Companies Comply with the Corporate Transparency Act?

Companies can comply with the Corporate Transparency Act by filing the required information with FinCEN, the Treasury Department bureau responsible for administering the law. Deadlines differ depending on when the company was formed, and many types of companies are exempt from the law.

What Are the Potential Penalties for Noncompliance with the Corporate Transparency Act?

The potential penalties for “willful” noncompliance with the law include fines and possible prison terms.

What Challenges Do Small Businesses Face in Complying with the Corporate Transparency Act?

The first challenge many small businesses face in complying with the law is simply becoming aware of it and the relevant deadlines. FinCEN has a 50-page guide to the rules on its website.

The Bottom Line

The Corporate Transparency Act represents an attempt by the U.S. Congress to curtail money laundering, the financing of terrorist activities, and other crimes. Critics say it imposes an undue burden on millions of small businesses in order to catch the tiny fraction of them that may be breaking the law.

Wed, 03 Jan 2024 10:00:00 -0600 en text/html https://www.investopedia.com/corporate-transparency-act-8413903
Five financial New Year’s resolutions for millenials

The new year is upon us, and it's a great time to plan for your financial future. Here are five financial resolutions to consider for 2024.

Get a high-interest savings account

Interest rates are still high on savings accounts right now, especially high-yield online savings accounts.

Some accounts are offering more than 5 percent annual percentage yield, which is 10 times more than the national average on savings accounts. Take advantage of this "free" money by opening a new account with a high rate or upgrading your current one.

Just make sure you avoid fees as much as possible, and choose a bank or credit union that is easy for you to access, either through remote customer service or in person.

Focus on student loan repayment

For many, student loan payments resumed in 2023. If you're feeling anxious or uncertain about how much you owe, it's best to face the numbers head-on and see if there's any way you can reduce your payments.

For example, if you earn less money now than you did before student loan payments were paused, then updating your income in your student loan portal may change the amount of your income-driven repayment.

There's another way you might be able to reduce your payment if you're on an income-driven repayment plan: If you have a retirement fund, you may want to consider putting some money away as a way to reduce your student loan payment.

"If you put your money in a pre-tax retirement account, that lowers your taxable income for the year," said Jen Mayer, an accredited financial counselor and founder of the Brooklyn, New York-based firm Fully Funded. "The percentage that you're paying for income-driven repayment is going to be lower."

Build your financial knowledge and set some goals

Though personal finance isn't a standard part of an American education, there are plenty of ways to learn more about budgeting, saving and investing.

Whether you browse reputable sites online, check out finance books from your library, or talk to a certified financial planner or other licensed expert, there are lots of people who are eager to impart their financial know-how.

As you learn more about personal finance, you might find yourself getting inspired to create your own financial goals. Perhaps you want to retire early, save for a down payment on a house or build a healthy emergency fund. Once you've nailed down your goals, you can determine how much money you'll need, then set a timeline for saving it.

Try using AI for your finances

In 2023, artificial intelligence chatbots such as ChatGPT and Bard became popular tools for research and advice. In 2024, you can experiment with using them for your finances.

You can provide a bot specific prompts, such as "My salary is $50,000, and I want to save $5,000 by the end of the year. How can I do that?" and it can do the math for you, calculating what you need to save and suggesting how to cut back on different expenses.

You can also instruct a chatbot to find you good deals for things like groceries, school supplies, gifts and more.

Just remember that AI pulls information from various sources, and those sources may not always be accurate. Be sure to double-check any information you receive by doing the math yourself, checking with an expert or going to a reputable website to learn more.

Set up recurring donations to a nonprofit

Recurring donations provide reliable income to nonprofit organizations, which allows them to plan their budgets more easily. If you're interested in setting up recurring donations for a particular nonprofit, there are several ways you can do this.

Check with your employer to see if they match donations and if they have an online portal to do so. This can be an easy way to make your donations go further.

If you're donating on your own, you can typically do so through a nonprofit's website, but Shavon Roman, a personal finance expert and founder of Heal. Plan. Invest., says there are ways to make it even easier.

"Most charities will provide out their information so that you can wire donations from your bank account or send them through Zelle," Roman said. "You can automatically transfer a certain amount of money on a regular basis, and it's within a system that you control. During tax season, you can also see exactly how much money you donated when you want to file a tax deduction."

Before you make any donations, you may want to do an internet search for the organization to confirm that it is a 501(c)(3). These organizations are considered tax-exempt by the U.S. government, so you'll be eligible to write off these donations when you do your taxes.

This column was provided to the Associated Press by the personal finance website NerdWallet. Chanelle Bessette is a writer at NerdWallet. Email: cbessettenerdwallet.com. Twitter: crbessette.

Sat, 23 Dec 2023 20:01:00 -0600 en text/html https://www.newstribune.com/news/2023/dec/24/five-financial-new-years-resolutions-for/
5 financial New Year's resolutions for 2024

The new year is upon us, and it's a great time to plan for your financial future. Here are five financial resolutions to consider for 2024.

1. GET A HIGH-INTEREST SAVINGS ACCOUNT

Interest rates are still high on savings accounts right now, especially high-yield online savings accounts. Some accounts are offering more than 5% annual percentage yield, which is 10 times more than the national average on savings accounts. Take advantage of this "free" money by opening a new account with a high rate or upgrading your current one. Just make sure you avoid fees as much as possible, and choose a bank or credit union that is easy for you to access, either through remote customer service or in person.

FILE - The likeness of Benjamin Franklin is seen on U.S. $100 bills, Thursday, July 14, 2022, in Marple Township, Pa. In preparation for 2024, you can shore up your finances by creating some financial New Year’s resolutions for yourself. (AP Photo/Matt Slocum, File)

2. FOCUS ON STUDENT LOAN REPAYMENT

For many, student loan payments resumed in 2023. If you're feeling anxious or uncertain about how much you owe, it's best to face the numbers head-on and see if there's any way you can reduce your payments. For example, if you earn less money now than you did before student loan payments were paused, then updating your income in your student loan portal may change the amount of your income-driven repayment. There's another way you might be able to reduce your payment if you're on an income-driven repayment plan: If you have a retirement fund, you may want to consider putting some money away as a way to reduce your student loan payment.

People are also reading…

"If you put your money in a pre-tax retirement account, that lowers your taxable income for the year," saysJen Mayer, an accredited financial counselor and founder of the Brooklyn, New York-based firm Fully Funded. "The percentage that you're paying for income-driven repayment is going to be lower."

3. BUILD YOUR FINANCIAL KNOWLEDGE AND SET SOME GOALS

Though personal finance isn't a standard part of an American education, there are plenty of ways to learn more about budgeting, saving and investing. Whether you browse reputable sites online, check out finance books from your library, or talk to a certified financial planner or other licensed expert, there are lots of people who are eager to impart their financial know-how.

As you learn more about personal finance, you might find yourself getting inspired to create your own financial goals. Perhaps you want to retire early, save for a down payment on a house or build a healthy emergency fund. Once you've nailed down your goals, you can determine how much money you'll need, then set a timeline for saving it.

4. TRY USING AI FOR YOUR FINANCES

In 2023, artificial intelligence chatbots such as ChatGPT and Bard became popular tools for research and advice. In 2024, you can experiment with using them for your finances. You can provide a bot specific prompts, such as "My salary is $50,000, and I want to save $5,000 by the end of the year. How can I do that?" and it can do the math for you, calculating what you need to save and suggesting how to cut back on different expenses. You can also instruct a chatbot to find you good deals for things like groceries, school supplies, gifts and more. Just remember that AI pulls information from various sources, and those sources may not always be accurate. Be sure to double-check any information you receive by doing the math yourself, checking with an expert or going to a reputable website to learn more.

5. SET UP RECURRING DONATIONS TO A NONPROFIT

Recurring donations provide reliable income to nonprofit organizations, which allows them to plan their budgets more easily. If you're interested in setting up recurring donations for a particular nonprofit, there are several ways you can do this.

Check with your employer to see if they match donations and if they have an online portal to do so. This can be an easy way to make your donations go further.

If you're donating on your own, you can typically do so through a nonprofit's website, but Shavon Roman, a personal finance expert and founder of Heal. Plan. Invest., says there are ways to make it even easier.

"Most charities will provide out their information so that you can wire donations from your bank account or send them through Zelle," Roman said. "You can automatically transfer a certain amount of money on a regular basis, and it's within a system that you control. During tax season, you can also see exactly how much money you donated when you want to file a tax deduction."

Before you make any donations, you may want to do an internet search for the organization to confirm that it is a 501(c)(3). These organizations are considered tax-exempt by the U.S. government, so you'll be eligible to write off these donations when you do your taxes.

Sun, 24 Dec 2023 06:30:00 -0600 en text/html https://omaha.com/news/nation-world/business/personal-finance/2024-finance-money-new-years-resolutions/article_cf33eddc-d757-52db-9911-74b7d7fdfcf9.html




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