Deck 3: Ethics, Fraud, and Internal Control

Question 1

Business ethics is the analysis of the nature and social impact of computer technology,and the corresponding formulation and justification of policies for the ethical use of such technology.

Answer 1

False

Question 2

Segregation of duties is an example of an internal control procedure.

Answer 2

True

Question 3

Of the three fraud factors (situational pressure,ethics,and opportunity),situational pressure is the factor that actually facilitates the act.

Answer 3

False

Question 4

Para computer ethics is the exposure to stories and reports found in the popular media regarding the good or bad ramifications of computer technology.

Question 5

Ethical issues and legal issues are essentially the same.

Question 6

Internal control systems are recommended but not required of firms subject to the Sarbanes-Oxley Act.

Question 7

Business bankruptcy cases always involve fraudulent behavior.

Question 8

The Sarbanes-Oxley Act requires only that a firm keep good records.

Question 9

Employees should be made aware of the firm's commitment to ethics.

Question 10

A key modifying assumption in internal control is that the internal control system is the responsibility of management.

Question 11

The external auditor is responsible for establishing and maintaining the internal control system.

Question 12

The ethical principle of informed consent suggests that the decision should be implemented so as to minimize all of the risks and to avoid any unnecessary risks.

Question 13

The ethical principle of justice asserts that the benefits of the decision should be distributed fairly to those who share the risks.

Question 14

Database management fraud includes altering,updating,and deleting an organization's data.

Question 15

Collusion among employees in the commission of a fraud is difficult to prevent but easy to detect.

Question 16

Copyright laws and computer industry standards have been developed jointly and rarely conflict.

Question 17

Defalcation is another word for financial fraud.

Question 18

Computer programs are intellectual property.

Question 19

Preventive controls are passive techniques designed to reduce fraud.

Question 20

The trend toward distributed data processing increases the exposure to fraud from remote locations.

Question 21

The objective of SAS 99 is to seamlessly blend the auditor's consideration of fraud into all phases of the audit process.

Question 22

One characteristic of employee fraud is that the fraud

A) is perpetrated at a level to which internal controls do not apply
B) involves misstating financial statements
C) involves the direct conversion of cash or other assets to the employee's personal benefit
D) involves misappropriating assets in a series of complex transactions involving third parties

Question 23

Who is responsible for establishing and maintaining the internal control system?

A) the internal auditor
B) the accountant
C) management
D) the external auditor

Question 24

Which of the following best describes lapping?

A) applying cash receipts to a different customer's account in an attempt to conceal previous thefts of funds
B) inflating bank balances by transferring money among different bank accounts
C) expensing an asset that has been stolen
D) creating a false transaction

Question 25

Skimming involves

A) stealing cash from an organization before it is recorded
B) Stealing cash from an organization after it has been recorded
C) manufacturing false purchase orders, receiving reports, and invoices
D) A clerk pays a vendor twice for the same products and cashes the reimbursement check issued by the vendor.

Question 26

The Sarbanes-Oxley Act requires the audit committee to hire and oversee the external auditors.

Question 27

The fraud triangle represents a geographic area in Southeast Asia where international fraud is prevalent.

Question 28

Skimming involves stealing cash from an organization after it is recorded on the organization's books and records

Question 29

For an action to be called fraudulent,all of the following conditions are required except

A) poor judgment
B) false representation
C) intent to deceive
D) injury or loss

Question 30

Individuals who acquire some level of skill and knowledge in the field of computer ethics are involved in which level of computer ethics?

A) para computer ethics
B) pop computer ethics
C) theoretical computer ethics
D) practical computer ethics

Question 31

Which ethical principle states that the benefit from a decision must outweigh the risks,and that there is no alternative decision that provides the same or greater benefit with less risk?

A) minimize risk
B) justice
C) informed consent
D) proportionality

Question 32

Situational pressure includes personal or job related stresses that could coerce an individual to act dishonestly.

Question 33

Opportunity involves direct access to assets and/or access to information that controls assets.

Question 34

All of the following are factors in the fraud triangle except

A) Ethical behavior of an individual
B) Pressure exerted on an individual at home and job related
C) Materiality of the assets
D) Opportunity to gain access to assets

Question 35

Which characteristic is not associated with software as intellectual property?

A) uniqueness of the product
B) possibility of exact replication
C) automated monitoring to detect intruders
D) ease of dissemination

Question 36

Section 302 requires the management of public companies to assess and formally report on the effectiveness of their organization's internal controls.

Question 37

While the Sarbanes-Oxley Act prohibits auditors from providing non-accounting services to their audit clients,they are not prohibited from performing such services for non-audit clients or privately held companies.

Question 38

Section 404 requires that corporate management (including the CEO)certify their organization's internal controls on a quarterly and annual basis.

Question 39

Forces which may permit fraud to occur do not include

A) a gambling addiction
B) lack of segregation of duties
C) centralized decision making environment
D) questionable integrity of employees

Question 40

Cash larceny involves stealing cash from an organization before it is recorded on the organization's books and records.

Question 41

Which of the following is the best reason to separate duties in a manual system?

A) to avoid collusion between the programmer and the computer operator
B) to ensure that supervision is not required
C) to prevent the record keeper from authorizing transactions
D) to enable the firm to function more efficiently

Question 42

Which of the following indicates a strong internal control environment?

A) the internal audit group reports to the audit committee of the board of directors
B) there is no segregation of duties between organization functions
C) there are questions about the integrity of management
D) adverse business conditions exist in the industry

Question 43

Which of the following is a preventive control?

A) credit check before approving a sale on account
B) bank reconciliation
C) physical inventory count
D) comparing the accounts receivable subsidiary ledger to the control account

Question 44

A physical inventory count is an example of a

A) preventive control
B) detective control
C) corrective control
D) feedforward control

Question 45

The concept of reasonable assurance suggests that

A) the cost of an internal control should be less than the benefit it provides
B) a well-designed system of internal controls will detect all fraudulent activity
C) the objectives achieved by an internal control system vary depending on the data processing method
D) the effectiveness of internal controls is a function of the industry environment

Question 46

Cash larceny involves

A) stealing cash from an organization before it is recorded
B) stealing cash from an organization after it has been recorded
C) manufacturing false purchase orders, receiving reports, and invoices
D) A clerk pays a vendor twice for the same products and cashes the reimbursement check issued by the vendor.

Question 47

Which of the following is not an example of independent verification?

A) comparing fixed assets on hand to the accounting records
B) performing a bank reconciliation
C) comparing the accounts payable subsidiary ledger to the control account
D) permitting authorized users only to access the accounting system

Question 48

Employee fraud involves three steps.Of the following,which is not involved?

A) concealing the crime to avoid detection
B) stealing something of value
C) misstating financial statements
D) converting the asset to a usable form

Question 49

The decision to extend credit beyond the normal credit limit is an example of

A) independent verification
B) authorization
C) segregation of functions
D) supervision

Question 50

Which of the following is not an element of the internal control environment?

A) management philosophy and operating style
B) organizational structure of the firm
C) well-designed documents and records
D) the functioning of the board of directors and the audit committee

Question 51

The most cost-effective type of internal control is

A) preventive control
B) accounting control
C) detective control
D) corrective control

Question 52

Which of the following is not a limitation of the internal control system?

A) errors are made due to employee fatigue
B) fraud occurs because of collusion between two employees
C) the industry is inherently risky
D) management instructs the bookkeeper to make fraudulent journal entries

Question 53

When duties cannot be segregated,the most important internal control procedure is

A) supervision
B) independent verification
C) access controls
D) accounting records

Question 54

In balancing the risks and benefits that are part of every ethical decision,managers receive guidance from each of the following except

A) justice
B) self interest
C) risk minimization
D) proportionality

Question 55

According to SAS 78,an effective accounting system performs all of the following except

A) identifies and records all valid financial transactions
B) records financial transactions in the appropriate accounting period
C) separates the duties of data entry and report generation
D) records all financial transactions promptly

Question 56

Which of the following suggests a weakness in the internal control environment?

A) the firm has an up-to-date organizational chart
B) monthly reports comparing actual performance to budget are distributed to managers
C) performance evaluations are prepared every three years
D) the audit committee meets quarterly with the external auditors

Question 57

The bank reconciliation uncovered a transposition error in the books.This is an example of a

A) preventive control
B) detective control
C) corrective control
D) none of the above

Question 58

Which of the following is not an internal control procedure?

A) authorization
B) management's operating style
C) independent verification
D) accounting records

Question 59

A well-designed purchase order is an example of a

A) preventive control
B) detective control
C) corrective control
D) none of the above

Question 60

An accounting system that maintains an adequate audit trail is implementing which internal control procedure?

A) access controls
=b)
Segregation of functions
C) independent verification
D) accounting records

Question 61

When certain customers made cash payments to reduce their accounts receivable,the bookkeeper embezzled the cash and wrote off the accounts as uncollectible.Which control procedure would most likely prevent this irregularity?

A) segregation of duties
B) accounting records
C) accounting system
D) access controls

Question 62

Explain the purpose of the PCAOB

Question 63

What are the main issues to be addressed in a business code of ethics required by the SEC?

Question 64

Management can expect various benefits to follow from implementing a system of strong internal control.Which of the following benefits is least likely to occur?

A) reduced cost of an external audit.
B) prevents employee collusion to commit fraud.
C) availability of reliable data for decision-making purposes.
D) some assurance of compliance with the Foreign Corrupt Practices Act of 1977.
E) some assurance that important documents and records are protected.

Question 65

What are the five internal control components described in the SAS 78 / COSO framework

Question 66

The four principal types of fraud include all of the following except

A) bribery
B) gratuities
C) conflict of interest
D) economic extortion

Question 67

A shell company fraud involves

A) stealing cash from an organization before it is recorded
B) Stealing cash from an organization after it has been recorded
C) manufacturing false purchase orders, receiving reports, and invoices
D) A clerk pays a vendor twice for the same products and cashes the reimbursement check issued by the vendor.

Question 68

List the four broad objectives of the internal control system.

Question 69

The board of directors consists entirely of personal friends of the chief executive officer.This indicates a weakness in

A) the accounting system
B) the control environment
C) control procedures
D) this is not a weakness

Question 70

Which of the following is not an issue to be addressed in a business code of ethics required by the SEC?

A) Conflicts of interest
B) Full and Fair Disclosures
C) Legal Compliance
D) Internal Reporting of Code Violations
E) All of the above are issues to be addressed

Question 71

All of the following are conditions for fraud except

A) false representation
B) injury or loss
C) intent
D) material reliance

Question 72

Internal control system have limitations.These include all of the following except

A) possibility of honest error
B) circumvention
C) management override
D) stability of systems

Question 73

Identify to indicate whether each procedure is a preventive or detective control.
a.authorizing a credit sale
Preventive
Detective
b.preparing a bank reconciliation
Preventive
Detective
c.locking the warehouse
Preventive
Detective
d.preparing a trial balance
Preventive
Detective
e.counting inventory
Preventive
Detective

Question 74

The importance to the accounting profession of the Sarbanes-Oxley Act is that

A) bribery will be eliminated
B) management will not override the company's internal controls
C) management are required to certify their internal control system
D) firms will not be exposed to lawsuits

Question 75

What are management responsibilities under section 302 and 404?

Question 76

Use the internal control procedures listed below to complete the statements.

A clerk reorders 250 items when the inventory falls below 25 items.This is an example of __________________________.

Question 77

Business ethics involves

A) how managers decide on what is right in conducting business
B) how managers achieve what they decide is right for the business
C) both a and b
D) none of the above

Question 78

Control activities under SA 78/COSO include

A) IT Controls, preventative controls, and Corrective controls
B) physical controls, preventative controls, and corrective controls.
C) general controls, application controls, and physical controls.
D) transaction authorizations, segregation of duties, and risk assessment

Question 79

Which of the following situations is not a segregation of duties violation?

A) The treasurer has the authority to sign checks but gives the signature block to the assistant treasurer to run the check-signing machine.
B) The warehouse clerk, who has the custodial responsibility over inventory in the warehouse, selects the vendor and authorizes purchases when inventories are low.
C) The sales manager has the responsibility to approve credit and the authority to write off accounts.
D) The department time clerk is given the undistributed payroll checks to mail to absent employees.
E) The accounting clerk who shares the record keeping responsibility for the accounts receivable subsidiary ledger performs the monthly reconciliation of the subsidiary ledger and the control account.

Question 80

The office manager forgot to record in the accounting records the daily bank deposit.Which control procedure would most likely prevent or detect this error?

A) segregation of duties
B) independent verification
C) accounting records
D) supervision