Deck 7: Control and Accounting Information Systems

Question 1

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.

Answer 1

A

Question 2

Irene Pacifica was relaxing after work with a colleague at a local watering hole.Well into her second martini,she began expressing her feelings about her company's budgeting practices.It seems that as a result of controls put in place by the company,her 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(n)

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

Answer 2

B

Question 3

Which type of control is associated with making sure an organization's control environment is stable?

A) general
B) application
C) detective
D) preventive

Answer 3

A

Question 4

The Sarbanes-Oxley Act (SOX)applies to

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

Question 5

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 6

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

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

Question 7

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 8

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 9

Which of the following measures can protect a company from AIS threats?

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 10

Which of the following was not an important change introduced by the Sarbanes-Oxley Act of 2002?

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

Question 11

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 12

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 13

Which of the below is not a component of the COSO ERM?

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

Question 14

Irene Pacifica was relaxing after work with a colleague at a local watering hole.Well into her second martini,she began expressing her feelings about her work environment.Recently,every employee of the firm was required to attend a sexual harassment workshop.The level of control that the company is using in this case is a(n)

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

Question 15

Explain why the Foreign Corrupt Practices Act was important to accountants.

Question 16

Why are threats to accounting information systems increasing?

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

Question 17

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 18

Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Oanez Dinnerware

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 19

Which type of control prevents,detects,and corrects transaction errors and fraud?

A) general
B) application
C) detective
D) preventive

Question 20

Identify the preventive control below.

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

Question 21

Identify the statement below that is not true of the 2013 COSO Internal Control updated framework.

A) It more efficiently deals with control implementation and documentation issues.
B) It more effectively deals with control implementation and documentation issues.
C) It provides users with more precise guidance.
D) It adds many new examples to clarify the framework concepts.

Question 22

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 23

How many principles are there in the 2013 updated COSO - Internal Control Framework?

A) 5
B) 8
C) 17
D) 21

Question 24

The COSO ERM contains all five of the same COSO-Integrated Framework components.

Question 25

The COBIT5 framework primarily relates to

A) best practices and effective governance and management of private companies.
B) best practices and effective governance and management of public companies.
C) best practices and effective governance and management of information technology.
D) best practices and effective governance and management of organizational assets.

Question 26

Which internal control framework is widely accepted as the authority on internal controls?

A) COBIT
B) COSO Integrated Control
C) COSO Enterprise Risk Management
D) Sarbanes-Oxley Control Framework

Question 27

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 28

Applying the COBIT5 framework,monitoring is the responsibility of

A) the CEO.
B) the CFO.
C) the board of directors.
D) all of the above

Question 29

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 30

Why was the original 1992 COSO - Integrated Control framework updated in 2013?

A) Congress required COSO to modernize.
B) U.S. stock exchanges required more disclosure.
C) to more effectively address technological advancements
D) to comply with International accounting standards

Question 31

Discuss the weaknesses in COSO's internal control framework that led to the development of the COSO Enterprise Risk Management framework.

Question 32

Nolwenn Limited 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.Nolwenn Limited is 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 33

The largest differences between the COSO Integrated Control (IC)framework and the COSO Enterprise Risk Management (ERM)framework is

A) IC is controls-based, while the ERM is risk-based.
B) IC is risk-based, while ERM is controls-based.
C) IC is required, while ERM is optional.
D) IC is more applicable to international accounting standards, while ERM is more applicable to generally accepted accounting principles.

Question 34

Which of the following is not a basic principle of the COSO ERM framework?

A) Companies are formed to create value for society.
B) Management must decide how much uncertainty it will accept to create value.
C) Uncertainty results in risk.
D) Uncertainty results in opportunity.

Question 35

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 36

Why did COSO develop the Enterprise Risk Management framework?

A) to improve the audit process
B) to improve the risk management process
C) to improve the financial reporting process
D) to improve the manufacturing process

Question 37

Rauol is a receptionist for The South American Paper Company,which has strict corporate policies on appropriate use of corporate resources.The first week of March,Rauol saw Jim (the branch manager)putting printer paper and toner 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 38

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 39

Which of the following is not one of the five principles of COBIT5?

A) meeting stakeholder needs
B) covering the enterprise end-to-end
C) enabling a holistic approach
D) improving organization efficiency

Question 40

Applying the COBIT5 framework,governance is the responsibility of

A) internal audit.
B) external audit.
C) management.
D) the board of directors.

Question 41

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 42

________ objectives help ensure the accuracy,completeness and reliability of internal and external company reports,Applying the ERM framework.

A) Compliance objectives
B) Operations objectives
C) Reporting objectives
D) Strategic objectives

Question 43

According to the ERM,these help the company address all applicable laws and regulations.

A) compliance objectives
B) operations objectives
C) reporting objectives
D) strategic objectives

Question 44

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 45

Explain why management's philosophy and operating style are considered to be the most important element of the internal environment.

Question 46

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 47

________ is the risk that exists before management takes any steps to mitigate it.

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

Question 48

The first step of the risk assessment process is generally to

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

Question 49

Using the COSO definition of an event,an event represents uncertainty.

Question 50

According to the ERM,high level goals that are aligned with and support the company's mission are

A) compliance objectives.
B) operations objectives.
C) reporting objectives.
D) strategic objectives.

Question 51

Best Friends,Incorporated is a publicly traded company where three BFF's (best friends forever)serve as its key officers.This situation

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

Question 52

Discuss the internal environment and identify the elements that comprise the internal environment.

Question 53

How is expected loss calculated when performing risk assessment?

A) impact times expected loss
B) impact times likelihood
C) inherent risk times likelihood
D) residual risk times likelihood

Question 54

Which of the following is not a commonly used technique used to identify potential events?

A) performing internal analysis
B) monitoring leading events
C) conducting interviews
D) none of the above

Question 55

________ is not a risk responses identified in the COSO Enterprise Risk Management Framework.

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

Question 56

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 57

According to the ERM,________ deal with the effectiveness and efficiency of company operations,such as performance and profitability goals.

A) compliance objectives
B) operations objectives
C) reporting objectives
D) strategic objectives

Question 58

________ remains after management implements internal control(s).

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

Question 59

What are some of the ways to assign authority and responsibility within an organization?

Question 60

Identify the most correct statement with regards to an event.

A) An event identified by management will occur.
B) An event identified by management may or may not occur.
C) An event identified by management may not trigger other events.
D) It is easy to determine which events are most likely to occur.

Question 61

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 62

As a result of an internal risk assessment,Allstate Insurance decided it was not profitable to provide hurricane insurance in the state of Florida.Allstate apparently chose to ________ the risk of paying hurricane claims in Florida.

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

Question 63

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids.Management has determined that there is one chance in a thousand of a customer 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
B) $650
C) $50,000
D) $650,000

Question 64

Whitewater Rapids provides canoes to tourists eager to ride Whitewater River's rapids.Management has determined that there is one chance in a thousand of a customer 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
B) $650
C) $50,000
D) $650,000

Question 65

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 66

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 67

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids.Management has determined that there is one chance in a thousand of a customer 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.Based on cost-benefit analysis,what is the most that the business should pay for the insurance?

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

Question 68

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 69

Upon getting into your new car,you suddenly became worried that you might become injured in an auto accident.In response,you decided to drive 5 miles under the speed limit.You chose to ________ the risk of being injured in an auto accident.

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

Question 70

An accounting policy that requires a purchasing manager to sign off on all purchases over $5,000 is an example of

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

Question 71

Whitewater Rapids provides canoes to tourists eager to ride Whitewater river's rapids.Management has determined that there is one chance in a thousand of a customer 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
B) $650
C) $50,000
D) $650,000

Question 72

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 73

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) A mail room employee steals a check received from a customer and destroys the documentation.
B) The accounts receivable clerk does not record sales invoices for friends or family, so they can receive free goods.
C) 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.
D) Mike issues credit cards to him and Maxine, and when the credit card balances are just under $1,000, Maxine writes off the accounts as bad debt. Mike then issues new cards.

Question 74

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

A) locking blank checks in a drawer or safe
B) sequentially prenumbering sales invoices
C) reconciling the bank statement to the general ledger
D) comparing physical inventory counts with perpetual inventory records

Question 75

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 76

Upon getting into your new car,you suddenly became worried that you might become injured in an auto accident.In response,you decided to ride your bike instead.You chose to ________ the risk of being injured in an auto accident.

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

Question 77

One of the key objectives of segregating duties is to

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

Question 78

Identify the statement below which is true.

A) Requiring two signatures on checks over $20,000 is an example of segregation of duties.
B) Although forensic specialists utilize computers, only people can accurately identify fraud.
C) Internal auditors, rather than external auditors, can conduct evaluations of effectiveness of Enterprise Risk Management processes.
D) 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.

Question 79

A store policy that allows retail clerks to process sales returns for $500 or less,with a receipt dated within the past 30 days,is an example of

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

Question 80

Upon getting into your new car,you suddenly became worried that you might become injured in an auto accident.You decided to buckle your seat belt in response.You chose to ________ the risk of being injured in an auto accident.

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