Deck 7: Control and Accounting Information Systems

Question 1

Which of the following statements is true?

A) Internal auditors, rather than external auditors, can conduct evaluations of effectiveness of Enterprise Risk Management processes.
B) Re-adding the total of a batch of invoices and comparing the total with the first total you calculated is an example of an independent check.
C) Requiring two signatures on checks over $20,000 is an example of segregation of duties.
D) Although forensic specialists utilize computers, only people can accurately identify fraud.

Answer 1

A

Question 2

Which of the following suggests a weakness in a company's internal environment?

A) The audit committee regularly meets with the external auditors.
B) The Board of Directors is primarily independent directors.
C) The company has an up-to-date organizational chart.
D) Formal employee performance evaluations are prepared every three years.

Answer 2

D

Question 3

Which of the following statements about internal environment is false?

A) Management's attitudes toward internal control and ethical behavior have only minimal impact on employee beliefs or actions.
B) Supervision is especially important in organizations that cannot afford elaborate responsibility reporting or are too small to have adequate segregation of duties.
C) An overly complex or unclear organizational structure may be indicative of more serious problems.
D) A written policy and procedures manual is an important tool for assigning authority and responsibility.

Answer 3

A

Question 4

Which of the following is not a factor of internal environment according to the COSO Enterprise Risk Management Framework?

A) Analyzing past financial performance and reporting
B) Providing sufficient resources to knowledgeable employees to carry out duties
C) Disciplining employees for violations of expected behavior
D) Setting realistic targets for long-term performance

Question 5

Which of the following is an example of a preventive control?

A) approving customer credit prior to approving a sales order
B) reconciling the bank statement to the cash control account
C) counting inventory on hand and comparing counts to the perpetual inventory records
D) maintaining frequent backup records to prevent loss of data

Question 6

What is one reason why AIS threats are increasing?

A) LANs and client/server systems are easier to control than centralized, mainframe systems.
B) Many companies do not realize that data security is crucial to their survival.
C) Computer control problems are often overestimated and overly emphasized by management.
D) Many companies believe that protecting information is a strategic requirement.

Question 7

A computer operator is allowed to work as a programmer on a new payroll software project.Does this create a potential internal control problem?

A) Yes, the computer operator could alter the payroll program to increase her salary.
B) Yes, this is a potential problem unless the computer operator is supervised by the payroll manager.
C) No, ideal segregation of duties is not usually possible, and operators are often the best at programming changes and updates.
D) No, as long as the computer operator separately accounts for hours worked in programming and in operations.

Question 8

At a movie theater box office,all tickets are sequentially prenumbered.At the end of each day,the beginning ticket number is subtracted from the ending number to calculate the number of tickets sold.Cash is counted and compared with the number of tickets sold.Which of the following situations does this control detect?

A) Some customers presented tickets purchased on a previous day when there wasn't a ticket taker at the theater entrance (so the tickets didn't get torn.)
B) A group of kids snuck into the theater through a back door when customers left after a show.
C) The box office cashier accidentally gives too much change to a customer.
D) The ticket taker admits his friends without tickets.

Question 9

Which of the following is not one of the risk responses identified in the COSO Enterprise Risk Management Framework?

A) Monitoring
B) Avoidance
C) Acceptance
D) Sharing

Question 10

Of the following examples of fraud,which will be the most difficult to prevent and detect? Assume the company enforces adequate segregation of duties.

A) Jim issues credit cards to him and Marie, and when the credit card balances are just under $1,000, Marie writes off the accounts as bad debt. Jim then issues new cards.
B) An employee puts inventory behind the dumpster while unloading a vendor's delivery truck, then picks up the inventory later in the day and puts it in her car.
C) A mail room employee steals a check received from a customer and destroys the documentation.
D) The accounts receivable clerk does not record sales invoices for friends or family, so they can receive free goods.

Question 11

A control procedure designed so that the employee that records cash received from customers does not also have access to the cash itself is an example of a(n)

A) preventive control.
B) detective control.
C) corrective control.
D) authorization control.

Question 12

Pam is a receptionist for Dunderhead Paper Co.,which has strict corporate policies on appropriate use of corporate resources.The first week of August,Pam saw Michael,the branch manager,putting pencils,pens,erasers,paper and other supplies into his briefcase on his way out the door.This situation best reflects a weakness in which aspect of internal environment,as discussed in the COSO Enterprise Risk Management Framework?

A) Integrity and ethical values
B) Risk management philosophy
C) Restrict access to assets
D) Methods of assigning authority and responsibility

Question 13

At a movie theater box office,all tickets are sequentially prenumbered.At the end of each day,the beginning ticket number is subtracted from the ending number to calculate the number of tickets sold.Then,ticket stubs collected at the theater entrance are counted and compared with the number of tickets sold.Which of the following situations does this control detect?

A) Some customers presented tickets purchased on a previous day when there wasn't a ticket taker at the theater entrance (so the tickets didn't get torn.)
B) A group of kids snuck into the theater through a back door when customers left after a show.
C) The box office cashier accidentally gives too much change to a customer.
D) The ticket taker admits his friends without tickets.

Question 14

Which of the following is a control related to design and use of documents and records?

A) Sequentially prenumbering sales invoices
B) Comparing physical inventory counts with perpetual inventory records
C) Reconciling the bank statement to the general ledger
D) Locking blank checks in a drawer or safe

Question 15

One of the objectives of the segregation of duties is to

A) make sure that different people handle different parts of the same transaction.
B) ensure that no collusion will occur.
C) make sure that different people handle different transactions.
D) achieve an optimal division of labor for efficient operations.

Question 16

According to The Sarbanes-Oxley Act of 2002,the audit committee of the board of directors is directly responsible for

A) hiring and firing the external auditors.
B) performing tests of the company's internal control structure.
C) certifying the accuracy of the company's financial reporting process.
D) overseeing day-to-day operations of the internal audit department.

Question 17

Independent checks on performance include all the following except

A) data input validation checks.
B) reconciling hash totals.
C) preparing a trial balance report.
D) supervisor review of journal entries and supporting documentation.

Question 18

With a limited work force and a desire to maintain strong internal control,which combination of duties would result in the lowest risk exposure?

A) Updating the inventory subsidiary ledgers and recording purchases in the purchases journal
B) Approving a sales return on a customer's account and depositing customers' checks in the bank
C) Updating the general ledger and working in the inventory warehouse
D) Entering payments to vendors in the cash disbursements journal and entering cash received from customers in the cash receipts journal

Question 19

Which of the following duties could be performed by the same individual without violating segregation of duties controls?

A) Approving accounting software change requests and testing production scheduling software changes
B) Programming new code for accounting software and testing accounting software upgrades
C) Approving software changes and implementing the upgraded software
D) Managing accounts payable function and revising code for accounting software to more efficiently process discount due dates on vendor invoices

Question 20

Go-Go Corporation,a publicly traded company,has three brothers who serve as President,Vice President of Finance and CEO.This situation

A) increases the risk associated with an audit.
B) must be changed before your audit firm could accept the audit engagement.
C) is a violation of the Sarbanes-Oxley Act.
D) violates the Securities and Exchange Act.

Question 21

This control framework addresses the issue of control from three vantage points: business objectives,information technology resources,and information technology processes.

A) ISACA's control objectives for information and related technology
B) COSO's internal control framework
C) COSO's enterprise risk management framework
D) none of the above

Question 22

A(n)________ helps top-level managers with high-level activities that demand frequent and regular attention.

A) boundary system
B) diagnostic control system
C) interactive control system
D) internal control system

Question 23

A(n)________ measures company progress by comparing actual performance to planned performance.

A) boundary system
B) diagnostic control system
C) interactive control system
D) internal control system

Question 24

The COSO Enterprise Risk Management Framework includes eight components.Which of the following is not one of them?

A) control environment
B) risk assessment
C) compliance with federal, state, or local laws
D) monitoring

Question 25

________ controls are designed to make sure an organization's control environment is stable and well managed.

A) Application
B) Detective
C) General
D) Preventive

Question 26

Congress passed this federal law for the purpose of preventing financial statement fraud,to make financial reports more transparent and to strengthen the internal control of public companies.

A) Foreign Corrupt Practices Act of 1977
B) The Securities Exchange Act of 1934
C) The Sarbanes-Oxley Act of 2002
D) The Control Provision of 1998

Question 27

This control framework's intent includes helping the organization to provide reasonable assurance that objectives are achieved and problems are minimized,and to avoid adverse publicity and damage to the organization's reputation.

A) ISACA's control objectives for information and related technology
B) COSO's internal control framework
C) COSO's enterprise risk management framework
D) none of the above

Question 28

Which of the following is not one of the important aspects of the Sarbanes-Oxley Act?

A) The creation of the Public Company Accounting Oversight Board
B) New rules for auditors and management
C) New roles for audit committees
D) New rules for information systems development

Question 29

Which of the following is not a reason for the increase in security problems for AIS?

A) Confidentiality issues caused by interlinked inter-company networks
B) Difficult to control distributed computing networks
C) Increasing efficiency resulting from more automation
D) Increasing numbers of information systems and users

Question 30

The process that a business uses to safeguard assets,provide accurate and reliable information,and promote and improve operational efficiency is known as

A) a phenomenon.
B) internal control.
C) an AIS threat.
D) a preventive control.

Question 31

Accountants must try to protect the AIS from threats.Which of the following would be a measure that should be taken?

A) Take a proactive approach to eliminate threats.
B) Detect threats that do occur.
C) Correct and recover from threats that do occur.
D) All of the above are proper measures for the accountant to take.

Question 32

Which of the following is accomplished by corrective controls?

A) Identify the cause of the problem.
B) Correct the resulting errors.
C) Modify the system to prevent future occurrences of the problem.
D) All of the above are accomplished by corrective controls.

Question 33

Safeguarding assets is one of the control objectives of internal control.Which of the following is not one of the other control objectives?

A) providing accurate and reliable information
B) promoting operational efficiency
C) ensuring that no fraud has occurred
D) encouraging adherence to management policies

Question 34

A(n)________ helps employees act ethically by setting limits beyond which an employee must not pass.

A) boundary system
B) diagnostic control system
C) interactive control system
D) internal control system

Question 35

Internal control is often referred to as a(n)________,because it permeates an organization's operating activities and is an integral part of management activities.

A) event
B) activity
C) process
D) system

Question 36

Duplicate checking of calculations is an example of a ________ control,and procedures to resubmit rejected transactions is an example of a ________ control.

A) corrective; detective
B) detective; corrective
C) preventive; corrective
D) detective; preventive

Question 37

________ controls prevent,detect and correct transaction errors and fraud.

A) Application
B) Detective
C) General
D) Preventive

Question 38

The primary purpose of the Foreign Corrupt Practices Act of 1977 was

A) to require corporations to maintain a good system of internal control.
B) to prevent the bribery of foreign officials by American companies.
C) to require the reporting of any material fraud by a business.
D) All of the above are required by the act.

Question 39

What is not a corrective control procedure?

A) Identify the cause of a problem.
B) Deter problems before they arise.
C) Correct resulting errors or difficulties.
D) Modify the system so that future problems are minimized or eliminated.

Question 40

One reason why many organizations do not adequately protect their systems is because

A) control problems may be overestimated by many companies.
B) productivity and cost cutting cause management to forgo implementing and maintaining internal controls.
C) control technology has not yet been developed.
D) all of the above

Question 41

The amount of risk a company is willing to accept in order to achieve its goals and objectives is

A) Inherent risk
B) Residual risk
C) Risk appetite
D) Risk assessment

Question 42

Corporate policy that requires a purchasing agent and purchasing department manager to sign off on asset purchases over $1,500 is an example of

A) general authorization.
B) specific authorization.
C) special authorization.
D) generic authorization.

Question 43

Which of the following would be considered a "red flag" for problems with management operating style if the question were answered "yes"?

A) Does management take undue business risks to achieve its objectives?
B) Does management attempt to manipulate performance measures such as net income?
C) Does management pressure employees to achieve results regardless of the methods?
D) All of the above statements would raise "red flags" if answered "yes."

Question 44

The COSO Enterprise Risk Management Integrated Framework stresses that

A) risk management activities are an inherent part of all business operations and should be considered during strategy setting.
B) effective risk management is comprised of just three interrelated components; internal environment, risk assessment, and control activities.
C) risk management is the sole responsibility of top management.
D) risk management policies, if enforced, guarantee achievement of corporate objectives.

Question 45

When undertaking risk assessment,the expected loss is calculated like this.

A) Impact times expected loss
B) Impact times likelihood
C) Inherent risk times likelihood
D) Residual risk times likelihood

Question 46

Personnel policies such as background checks,mandatory vacations,and rotation of duties tend to deter

A) unintentional errors.
B) employee fraud or embezzlement.
C) fraud by outsiders.
D) disgruntled employees.

Question 47

Which attribute below is not an aspect of the COSO ERM Framework internal environment?

A) Enforcing a written code of conduct
B) Holding employees accountable for achieving objectives
C) Restricting access to assets
D) Avoiding unrealistic expectations

Question 48

Store policy that allows retail clerks to process sales returns for $300 or less,with a receipt dated within the past 60 days,is an example of

A) general authorization.
B) specific authorization.
C) special authorization.
D) generic authorization.

Question 49

Which component of the COSO Enterprise Risk Management Integrated Framework is concerned with understanding how transactions are initiated,data are captured and processed,and information is reported?

A) Information and communication
B) Internal environment
C) Event identification
D) Objective setting

Question 50

Which of the following is not one of the eight interrelated risk and control components of COSO Enterprise Risk Management Framework?

A) Internal environment
B) Monitoring
C) Risk response
D) Event assessment

Question 51

Generally in a risk assessment process,the first step is to

A) identify the threats that the company currently faces.
B) estimate the risk probability of negative events occurring.
C) estimate the exposure from negative events.
D) identify controls to reduce all risk to zero.

Question 52

A document that shows all projects that must be completed and the related IT needs in order to achieve long-range company goals is known as a

A) performance evaluation.
B) project development plan.
C) data processing schedule.
D) strategic master plan.

Question 53

The SEC and FASB are best described as external influences that directly affect an organization's

A) hiring practices.
B) philosophy and operating style.
C) internal environment.
D) methods of assigning authority.

Question 54

The audit committee is responsible for

A) overseeing the internal control structure.
B) overseeing the financial reporting process.
C) working with the internal and external auditors.
D) All of the above are responsibilities.

Question 55

Reducing management layers,creating self-directed work teams,and emphasizing continuous improvement are all related to which aspect of internal environment?

A) Organizational structure
B) Methods of assigning authority and responsibility
C) Management philosophy and operating style
D) Commitment to competence

Question 56

The COSO Enterprise Risk Management Integrated Framework identifies four objectives necessary to achieve corporate goals.Objectives specifically identified include all of the following except

A) implementation of newest technologies.
B) compliance with laws and regulations.
C) effective and efficient operations.
D) reliable reporting.

Question 57

The definition of the lines of authority and responsibility and the overall framework for planning,directing,and controlling is laid out by the

A) control activities
B) organizational structure
C) budget framework
D) internal environment

Question 58

The audit committee of the board of directors

A) is usually chaired by the CFO.
B) conducts testing of controls on behalf of the external auditors.
C) provides a check and balance on management.
D) does all of the above.

Question 59

The risk that remains after management implements internal controls is

A) Inherent risk
B) Residual risk
C) Risk appetite
D) Risk assessment

Question 60

The risk that exists before management takes any steps to control the likelihood or impact of a risk is

A) Inherent risk
B) Residual risk
C) Risk appetite
D) Risk assessment

Question 61

According to the COSO Enterprise Risk Management Framework,the risk assessment process incorporates all of the following components except

A) reporting potential risks to auditors.
B) identifying events that could impact the enterprise.
C) evaluating the impact of potential events on achievement of objectives.
D) establishing objectives for the enterprise.

Question 62

Ferdinand Waldo Demara was known as the great imposter.He had an astounding ability to convince people that he was who he truly was not.He worked as a naval officer,physician,college teacher,prison warden,and other jobs without any of the prerequisite qualifications.By not diligently checking references,the organizations fooled by Demara (including the Canadian Navy)apparently chose to ________ the risk of fraud.

A) reduce
B) share
C) avoid
D) accept

Question 63

The organization chart for Geerts Corporation includes a controller and an information processing manager,both of whom report to the vice president of finance.Which of the following would be a control weakness?

A) Assigning the programming and operating of the computer system to an independent control group which reports to the controller
B) Providing for maintenance of input data controls by an independent control group which reports to the controller
C) Periodically rotating assignment of application processing among machine operators, who all report to the information processing manager
D) Providing for review and distribution of system-generated reports by an independent control group which reports to the controller

Question 64

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits,unless there is evidence of criminal negligence.What is the impact of this risk without insurance?

A) $50,000
B) $650,000
C) $650
D) $50

Question 65

Due to data errors occurring from time to time in processing the Albert Company's payroll,the company's management is considering the addition of a data validation control procedure that is projected to reduce the risk of these data errors from 13% to 2%.The cost of the payroll reprocessing is estimated to be $11,000.The cost of implementing the data validation control procedure is expected to be $700.Which of the following statements is true?

A) The data validation control procedure should be implemented because its net estimated benefit is $510.
B) The data validation control procedure should be implemented because its cost of $700 is less than the payroll reprocessing cost of $1,430.
C) The data validation control procedure should not be implemented because its cost of $700 exceeds the expected benefit by $480.
D) The data validation control procedure should not be implemented because its net estimated benefit is a negative $1,210.

Question 66

Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Folding Squid Technologies

A) asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process.
B) hired the manager from the external audit team as company CFO twelve months after the manager had worked on the audit.
C) selected the company's Chief Financial Officer to chair the audit committee.
D) did not mention to auditors that the company had experienced significant losses due to fraud during the past year.

Question 67

Hiring decisions at Frazier's Razors are made by Sheila Frazier,the Director of Human Resources.Pay rates are approved by the Vice President for Operations.At the end of each pay period,supervisors submit time cards to Sheila,who prepares paycheck requisitions.Paychecks are then distributed through the company's mail room.This represents a(an)________ segregation of duties.

A) effective
B) partial
C) ineffective
D) limited

Question 68

A ________ shows how a project will be completed,including tasks and who will perform them as well as a timeline and cost estimates.

A) performance evaluation
B) project development plan
C) steering committee
D) strategic master plan

Question 69

Petty cash is disbursed by the Fred Haynes in the Cashier's Office.He also maintains records of disbursements,places requests to the Finance Department to replace expended funds,and periodically reconciles the petty cash balance.This represents a(an)________ segregation of duties.

A) effective
B) ideal
C) ineffective
D) limited

Question 70

A ________ is created to guide and oversee systems development and acquisition.

A) performance evaluation
B) project development plan
C) steering committee
D) strategic master plan

Question 71

Which of the following is an independent check on performance?

A) The Purchasing Agent physically reviews the contents of shipments and compares them with the purchase orders he has placed.
B) Production teams perform quality evaluations of the products that they produce.
C) The General Manager compares budgeted amounts with expenditure records from all departments.
D) Petty cash is disbursed by Fred Haynes. He also maintains records of disbursements, places requests to finance to replace expended funds, and periodically reconciles the petty cash balance.

Question 72

FranticHouse Partners,L.L.C.,does home remodeling and repair.The firm does not accept jobs that require the installation of slate or copper roofing because these materials often require costly post-installation services.The firm's risk exposure to costly post-installation services is

A) reduced.
B) shared.
C) avoided.
D) accepted.

Question 73

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinions about his company's budgeting practices.It seems that,as a result of "budget handcuffs" that require managers to explain material deviations from budgeted expenditures,his ability to creatively manage his department's activities have been curtailed.The level of control that the company is using in this case is a

A) boundary system.
B) belief system.
C) interactive control system.
D) diagnostic control system.

Question 74

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits have an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits,unless there is evidence of criminal negligence.Based on cost-benefit analysis,what is the most that the business should pay for the insurance?

A) $500
B) $650
C) $600
D) $50

Question 75

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits,unless there is evidence of criminal negligence.What is the expected loss with insurance?

A) $50,000
B) $650,000
C) $650
D) $50

Question 76

Global Economic Strategies,L.L.D.,has been diligent in ensuring that their operations meet modern control standards.Recently,they have extended their control compliance system by incorporating policies and procedures that require the specification of company objectives,uncertainties associated with objectives,and contingency plans.They are transitioning from a ________ to a ________ control framework.

A) COSO-Integrated Framework; COBIT
B) COBIT; COSO-Integrated Framework
C) COBIT; COSO-ERM
D) COSO-Integrated Framework; COSO-ERM
E) COSO-ERM; COBIT

Question 77

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits,unless there is evidence of criminal negligence.What is the expected loss without insurance?

A) $50,000
B) $650,000
C) $650
D) $50

Question 78

The Sarbanes-Oxley Act (SOX)applies to

A) all companies with gross annual revenues exceeding $500 million.
B) publicly held companies with gross annual revenues exceeding $500 million.
C) all private and publicly held companies incorporated in the United States.
D) all publicly held companies.

Question 79

FranticHouse Partners,L.L.C.,does home remodeling and repair.All employees are bonded,so the firm's risk exposure to employee fraud is

A) reduced.
B) shared.
C) avoided.
D) accepted.

Question 80

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinions about his work environment.It seems that,as a result of "feminazi" interference,the suggestive banter that had been prevalent in the workplace during his youth was no longer acceptable.He even had to sit through a sexual harassment workshop! The level of control that the company is using in this case is a

A) boundary system.
B) belief system.
C) interactive control system.
D) diagnostic control system.