Deck 3: Ethics, Fraud, and Internal Control

Question 1

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

Answer 1

False

Question 2

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 2

False

Question 3

Business bankruptcy cases always involve fraudulent behavior.

Answer 3

False

Question 4

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

Question 5

Computer programs are intellectual property.

Question 6

According to the Association of Certified Fraud Examiners (ACFE) study, most frauds are committed by employees in management positions.

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

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

Question 12

Ethical issues and legal issues are essentially the same.

Question 13

Defalcation is another word for financial fraud.

Question 14

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 15

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

Question 16

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

Question 17

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

Question 18

Preventive controls are passive techniques designed to reduce fraud.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

An input control that tests time card records to verify than no employee has worked more 50 hours in a pay period is an example of a range test.

Question 24

Spooling is a form of processing control.

Question 25

In a computerized environment, all input controls are implemented after data is input.

Question 26

Shredding computer printouts is an example of an output control.

Question 27

A check digit is a method of detecting data coding errors.

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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 35

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 36

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

Question 37

A run-to-run control is an example of an output control.

Question 38

Input controls are intended to detect errors in transaction data after processing.

Question 39

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 40

Systems that use sequential master files employ a backup technique called destructive update.

Question 41

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 42

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 43

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 44

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 45

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 46

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 47

The most cost-effective type of internal control is

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

Question 48

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 49

A physical inventory count is an example of a

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

Question 50

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 51

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 52

SOX requires:

A) public companies to report all off-balance sheet transactions
B) management to accept responsibility for maintaining adequate internal controls
C) Officers to certify that company accounts fairly present the results of operations
D) all of the above.

Question 53

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 54

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 55

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

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

Question 56

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 57

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 58

According to the ACFE study, when it comes to fraud losses

A) the median fraud loss caused by males is more than double that caused by females
B) most frauds are committed by individuals acting alone
C) managers commit more frauds that employees
D) all of the above.

Question 59

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 60

Giving, receiving, offering or soliciting something of value because of an official act that has been taken is

A) bribery
B) a conflict of interest
C) an illegal gratuity
D) economic extortion

Question 61

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 62

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 63

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 64

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

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

Question 65

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 66

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 67

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 68

All of the following are conditions for fraud except

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

Question 69

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) Preventing 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 70

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

A)
The purchasing department initiates purchases when the purchasing supervisor determines inventory levels are too low.
B) The warehouse clerk, who has the custodial responsibility over inventory in the warehouse, keeps the official inventory records.
C) The sales manager has the responsibility to approve credit and the authority to write off accounts.
D) 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.
E) All of these are segregation of duty violations.

Question 71

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

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

Question 72

Which of the following is not an internal control procedure?

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

Question 73

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 only authorized users to access the accounting system

Question 74

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 75

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

Question 76

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 77

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 78

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 79

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) s clerk pays a vendor twice for the same products and cashes the reimbursement check issued by the vendor

Question 80

Economic extortion

A) involves giving, offering, soliciting, or receiving things of value to influence an official in the performance of his or her lawful duties
B) occurs when an employee acts of behalf of a third party during the discharge or his or her duties
C) is the use of threat of force by an individual or organization to obtain something of value
D) involves stealing cash from an organization before it is recorded in its books and records