Internal Controls and Audit Exam Practice Tests
Course Introduction
This course provides a comprehensive overview of internal control systems and the essential role they play in effective organizational governance. Key topics include the design, implementation, and evaluation of internal controls to ensure accuracy, reliability, and security of financial information. Students explore various frameworks, such as COSO, and analyze their application in preventing fraud and operational inefficiencies. The course also examines auditing concepts, types of audits (internal, external, compliance, and operational), the audit process, risk assessment, evidence gathering, and the development of audit reports. Through real-world case studies and practical exercises, students gain skills needed to assess control environments and support ethical, transparent business practices.
Recommended Textbook
Accounting Information Systems 12th Edition by Marshall B. Romney
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22 Chapters
1496 Verified Questions
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Page 2
Chapter 1: Accounting Information Systems: an Overview
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Sample Questions
Q1) When two knowledgeable people acting independently each produce the same information,this information is said to be
A) complete. B) relevant.
C) reliable.
D) verifiable.
Answer: D
Q2) Define data,information,and how the value of information is determined.
Answer: Data: facts that are collected,entered,recorded,stored,and processed by an AIS.Information: data that has been organized and processed and is meaningful to its users.Such information is accessible,relevant,timely,reliable,verifiable,complete,and understandable.Information is of value when the benefits received from using or acting upon it outweighs the cost to produce the information.
Q3) What is the purpose behind the five primary activities in the value chain?
Answer: The goal of the five primary activities in the value chain is to facilitate the business in providing value to its customers.The five primary activities allow the business to create,market,and deliver its products and services to its customers,as well as providing postsale support.
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3
Chapter 2: Overview of Transaction Processing and Erp Systems
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Sample Questions
Q1) The premier buyer and seller of vintage action figures in the San Francisco Bay area is Vini Vidi Geeky.Since 1996,the owner,Glamdring Elfthrall,has leveraged computer technology to provide a superior level of customer service.In particular,the store's database system was designed to make detailed information about each individual action figure's characteristics easily accessible.Price information and condition are also provided for each inventory item.In this database,the data about an individual figure's price is stored in a(an)
A) entity.
B) attribute.
C) field.
D) record.
Answer: C
Q2) Describe guidelines to follow for a well-designed coding system.
Answer: First,the code should be consistent with its intended use.Second,the code should allow for growth in the number of items to be coded.The coding system should be as simple as possible.The coding system should be consistent with the company's organizational structure and it should be consistent across the different divisions of an organization.
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Page 4
Chapter 3: Systems Documentation Techniques
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Sample Questions
Q1) Chas Mulligan has been hired by Yardley Security as an assistant to the internal auditor.He has been asked to thoroughly document the existing accounting information system in preparation for making recommendations for improvements to internal controls.He decides to begin with a description of the information stored in paper records,their sources,and their destinations.The documentation tool that he should employ for this purpose is a
A) data flow diagram.
B) document flowchart.
C) system flowchart.
D) program flowchart.
Answer: B
Q2) In preparing a DFD,when data are transformed through a process,the symbol used should be
A) a circle.
B) an arrow.
C) a square.
D) two horizontal lines.
Answer: A
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Chapter 4: Relational Databases
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Sample Questions
Q1) What is one potential drawback in the design and implementation of database systems for accounting?
A) Double-entry accounting relies on redundancy as part of the accounting process but well-designed database systems reduce and attempt to eliminate redundancy.
B) Relational DBMS query languages will allow financial reports to be prepared to cover whatever time periods managers want to examine.
C) Relational DBMS provide the capability of integrating financial and operational data.
D) Relational DBMS can accommodate multiple views of the same underlying data; therefore, tables storing information about assets can include data about both historical and replacement costs.
Q2) The problem of changes (or updates)to data values in a database being incorrectly recorded is known as
A) an update anomaly.
B) an insert anomaly.
C) a delete anomaly.
D) a memory anomaly.
Q3) List the four DBMS "languages" and describe who uses each and for what purpose.
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6
Chapter 5: Computer Fraud
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Sample Questions
Q1) Perpetrators of theft of company assets typically exhibit all the following characteristics except that they
A) attempt to return or pay back stolen amounts soon after the initial theft, but find they are unable to make full restitution.
B) use trickery or lies to gain the confidence and trust of others at the organization they defraud.
C) become bolder and more greedy the longer the theft remains undetected.
D) begin to rely on stolen amounts as part of their income.
Q2) Why do fraudulent acts often go unreported and are therefore not prosecuted?
Q3) The most efficient way to conceal asset misappropriation is to
A) write-off a customer receivable as bad debt.
B) alter monthly bank statements before reconciliation.
C) alter monthly physical inventory counts to reconcile to perpetual inventory records.
D) record phony payments to vendors.
Q4) Describe at least four ways a company can make fraud less likely to occur.
Q5) What are the actions recommended by the Treadway Commission to reduce the possibility of fraudulent financial reporting?
Q6) Why is computer fraud on the rise?
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Chapter 6: Computer Fraud and Abuse Techniques
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Sample Questions
Q1) A ________ is similar to a ________,except that it is a program rather than a code segment hidden in a host program.
A) worm; virus
B) Trojan horse; worm
C) worm; Trojan horse
D) virus; worm
Q2) The deceptive method by which a perpetrator gains access to the system by pretending to be an authorized user is called
A) cracking.
B) masquerading.
C) hacking.
D) superzapping.
Q3) Mo Chauncey was arrested in Emporia,Kansas,on February 29,2008,for running an online business that specialized in buying and reselling stolen credit card information.Mo was charged with A) typosquatting.
B) carding.
C) pharming.
D) phishing.
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Page 8
Chapter 7: Control and Accounting Information Systems
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Sample Questions
Q1) 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.
Q2) According to the ERM,these objectives help ensure the accuracy,completeness and reliability of internal and external company reports.
A) Compliance objectives
B) Operations objectives
C) Reporting objectives
D) Strategic objectives
Q3) 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
Q4) Explain how a company could be the victim of fraud,even if ideal segregation of duties is enforced.
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Chapter 8: Information Systems Controls for System
Reliability Part 1: Information Security
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Sample Questions
Q1) This creates logs of network traffic that was permitted to pass the firewall.
A) Intrusion detection system
B) Log analysis
C) Penetration test
D) Vulnerability scan
Q2) Compatibility tests utilize a(n)________,which is a list of authorized users,programs,and data files the users are authorized to access or manipulate.
A) validity test
B) biometric matrix
C) logical control matrix
D) access control matrix
Q3) Identify six physical access controls.
Q4) Explain the value of penetration testing.
Q5) This is an authorized attempt by an internal audit team or an external security consultant to attempt to break into the organization's information system.
A) Intrusion detection system
B) Log analysis
C) Penetration test
D) Vulnerability scan
Page 10
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Chapter 9: Information Systems Controls for Systems
Reliability Part 2: Confidentiality and Privacy
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Sample Questions
Q1) Jeff Davis took a call from a client."Jeff,I need for my customers to make payments online using credit cards,but I want to make sure that the credit card data isn't intercepted.What do you suggest?" Jeff responded "The best solution will be to implement
A) a virtual private network."
B) a private cloud environment."
C) an encryption system with digital signatures."
D) a data masking program."
Q2) Jeff Davis took a call from a client."Jeff,I need to interact online and real time with our affiliate in India,and I want to make sure that our communications aren't intercepted.What do you suggest?" Jeff responded "The best solution will be to implement
A) a virtual private network."
B) a private cloud environment."
C) an asymmetric encryption system with digital signatures."
D) multifactor authentication."
Q3) Describe symmetric encryption and identify three limitations.
Q4) Describe some steps you can take to minimize your risk of identify theft.
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Chapter 10: Information Systems Controls for Systems
Reliability Part 3: Processing Integrity and Availability
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Sample Questions
Q1) A customer failed to include her account number on her check,and the accounts receivable clerk credited her payment to a different customer with the same last name.Which control could have been used to most effectively to prevent this error?
A) Closed-loop verification
B) Duplicate values check
C) Validity check
D) Reconciliation of a batch control total
Q2) Cancellation and storage of documents means that
A) data are copied from a document and stored, after which the document is shredded.
B) documents are defaced before being shredded.
C) documents are defaced and stored.
D) cancellation data are copied from documents before they are stored.
Q3) This control protects records from errors that occur when two or more users attempt to update the same record simultaneously.
A) Concurrent update controls
B) Cross-footing balance test
C) Data conversion controls
D) Recalculation of batch totals
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Chapter 11: Auditing Computer-Based Information Systems
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Sample Questions
Q1) The ________ procedure for auditing computer process controls uses a hypothetical series of valid and invalid transactions.
A) concurrent audit techniques
B) test data processing
C) integrated test facility
D) dual process
Q2) Explain the differences between each type of audit risk.
Q3) Auditors have several techniques available to them to test computer-processing controls.An audit technique that immediately alerts auditors of suspicious transactions is known as
A) a SCARF.
B) an audit hook.
C) an audit sinker.
D) the snapshot technique.
Q4) An increase in the effectiveness of internal controls would have the greatest effect on
A) reducing control risk.
B) reducing detection risk.
C) reducing inherent risk.
D) reducing audit risk.
Page 13
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Chapter 12: The Revenue Cycle: Sales to Cash Collections
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Sample Questions
Q1) The document a customer returns with their payment and that identifies the source and the amount of the payment is called a
A) remittance advice.
B) remittance list.
C) credit memorandum.
D) debit memorandum.
Q2) When an ERP is used,it is assumed that there will be increases in efficiency and the effectiveness of the activities related to the revenue cycle.However,what must be in place and functioning well to fully realize these benefits?
A) an effective marketing staff
B) all the components of the expenditure cycle
C) adequate controls
D) adequate system flowchart documentation
Q3) All of the following edit checks for online editing of accounts receivable transactions would probably be included except
A) validity checks on customer ID and invoice numbers.
B) check digit verification on the amount of the sale.
C) closed loop verification on the customer ID.
D) field checks on the values in dollar fields.
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Page 14
Chapter 13: The Expenditure Cycle: Purchasing to Cash
Disbursements
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Sample Questions
Q1) To accomplish the objectives set forth in the expenditure cycle,a number of key management decisions must be addressed.Which of the decisions below is not ordinarily found as part of the expenditure cycle?
A) How can cash payments to vendors be managed to maximize cash flow?
B) What is the optimal level of inventory and supplies to carry on hand?
C) Where should inventories and supplies be held?
D) What are the optimal prices for each product or service?
Q2) All of the following are opportunities to improve efficiency of the accounts payable function except
A) use blanket purchase orders.
B) convert a manual AIS system to EDI and EFT.
C) streamline noninventory purchases.
D) use evaluated receipt settlement.
Q3) Identify in which of the following scenarios a company could adjust the balance due the vendor by issuing a debit memo.
A) quantity different from that ordered
B) damage to the goods
C) goods that fail inspection for quality
D) All of the above are possible scenarios.
Page 15
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Chapter 14: The Production Cycle
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Sample Questions
Q1) For replacement of inventories and assets destroyed by fire or other disasters,an organization needs
A) stand-by facilities.
B) adequate insurance coverage.
C) source data automation.
D) All of the above are correct.
Q2) The expenses associated with quality assurance activities are ________ costs.
A) prevention
B) inspection
C) internal failure
D) external failure
Q3) Discuss the criticisms of traditional cost accounting methods.
Q4) What specific control can help restrict the rights of authorized users to only the portion of a database needed to complete their specific job duties?
A) an access control matrix
B) passwords and user IDs
C) closed-loop verification
D) specific authorization
Q5) What role does the AIS play in the production cycle?
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Chapter 15: The Human Resources Management and Payroll Cycle
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Sample Questions
Q1) The employer pays a portion of some payroll taxes and employee benefits.Both the employee and employer pay which benefit or tax listed below?
A) social security taxes
B) federal income taxes
C) state income taxes
D) none of the above
Q2) All of the following are controls that should be implemented in a payroll process,except
A) supervisors distribute paychecks since they should know all employees in their department.
B) someone independent of the payroll process should reconcile the payroll bank account.
C) sequential numbering of paychecks and accounting for the numbers.
D) restrict access to blank payroll checks and documents.
Q3) What is the difference between a payroll service bureau and a professional employer organization?
Q4) Identify the two types of payroll deductions and give two examples of each type.
Q5) Describe benefits and threats of incentive and bonus programs.
Q6) Describe the basic activities in an HRM/payroll cycle.
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Chapter 16: General Ledger and Reporting System
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Sample Questions
Q1) The general ledger and reporting system consists of the ________ involved in ________ the general ledger and ________ reports.
A) business transactions; updating; processing
B) data processing; business transactions for; printing
C) information processing; updating; creating
D) business transactions; data processing; preparing
Q2) When updating the general ledger,sales,purchases,and production are examples of ________ entries,and issuance or retirement of debt and the purchase or sale of investment securities are examples of ________ entries.
A) adjusting; controller originated
B) accounting subsystem; treasurer originated
C) adjusting; special journal
D) controller generated; special journal
Q3) Adjusting entries that reflect events that have already occurred,but for which no cash flow has taken place are classified as
A) accruals.
B) deferrals.
C) revaluations.
D) corrections.
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Chapter 17: The Rea Data Model
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Sample Questions
Q1) Developing an REA diagram for a specific transaction cycle begins by identifying A) relevant events.
B) agents involved.
C) resources affected.
D) relationship cardinalities.
Q2) On an entity-relationship (E-R)diagram,anything about which an organization wants to collect and store information is called
A) a data model.
B) an entity.
C) a schema.
D) a tuple.
Q3) Explain specifically what is meant by the following statement,"Accountants can and should participate in all stages of the database design process."
Q4) An REA diagram must link every event to at least one ________ and two ________.
A) resource; agents
B) agent; resources
C) transaction; entities
D) resource; relationships
Q5) Describe the three basic rules that apply to the REA model pattern.
Page 19
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Chapter 18: Implementing an Rea Model in a Relational Database
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Q1) Concerning tables for M:N relationships,which of the following statements is false?
A) Non-key attributes may be included.
B) Multiple attribute primary keys are used.
C) Single attribute primary keys may be used.
D) Concatenated keys are used.
Q2) When using an REA diagram to develop a database,many-to-many relationships must be
A) broken into multiple one-to-one relationships.
B) combined into a single one-to-one relationship.
C) combined into a one-to-many relationship.
D) broken into multiple one-to-many relationships.
Q3) In a relational database,which of the following attributes would typically be included in the table that stores data about the Customer entity?
A) Invoice number
B) Credit limit
C) Product code
D) Backorder
Q4) Explain where in the REA model you can find the information normally found in a ledger.
Page 20
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Chapter 19: Special Topics in Rea Modeling
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Q1) Concerning the relationship from the Rent Item to the Receive Cash events: The minimum cardinality is ________ because customers typically pay first,prior to taking possession of the item.The maximum cardinality is ________ because there may be additional charges imposed when the item is returned.
A) 0,1
B) 1,1
C) 1,N
D) N,M
Q2) Which is the most likely primary key for the Pay for Goods table?
A) Cash transaction number
B) Check number
C) Invoice number
D) Receiving report number, check number
Q3) Why is cost information stored in several relational tables?
Q4) In an expanded revenue cycle REA diagram,customer number is least likely to be a foreign key in
A) Call on Customers.
B) Customers.
C) Fill Customer Order.
D) Take Customer Order.
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Chapter 20: Introduction to Systems Development Systems Analysis
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Sample Questions
Q1) A Logical model used to gather information about an existing system
A) comes only after a physical model of the existing system is created.
B) describes how a system actually works, rather than how it should work.
C) illustrates how a system functions by describing the flow of documents and computer processes.
D) illustrates what is being done, regardless of how that flow is actually accomplished.
Q2) Which data gathering method is most helpful to deal with the question: "Why?"
A) interviews
B) observation by the analyst
C) questionnaires
D) system documentation
Q3) Identify and describe the five types of feasibility that must be considered throughout the system development life cycle.
Q4) During which phase of systems analysis does modeling of the existing system occur?
A) information needs and system requirements
B) the feasibility study
C) the initial investigation
D) the systems survey
22
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Chapter 21: Ais Development Strategies
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Q1) Identify the ways an organization can gain full advantage of using a Request For Proposal (RFP).
Q2) As part of the development process for a new job bidding software system for Halide Construction,LLC,Jon Chelide prepared and distributed functional programs that simulate the system's input and output interface.These programs are an example of A) CASE.
B) an operational prototype.
C) a RFP.
D) a nonoperational prototype.
Q3) What is an important risk to be considered when allowing end users to develop a system?
A) IS personnel may not have enough work to do.
B) Systems are implemented that have not been adequately tested.
C) Systems are usually easy to use and modify.
D) Users control development process and decide what systems are created and implemented.
Q4) Describe prototyping and identify when prototyping is appropriate.Identify the steps involved in prototyping.Discuss the advantages and disadvantages of prototyping.
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Chapter 22: Systems Design, implementation, and Operation
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Q1) Developing a general framework for implementing user requirements and solving problems identified in the analysis phase occurs in which phase of the SDLC?
A) conceptual systems design
B) implementation and conversion
C) operations and maintenance
D) physical design
Q2) Which of the following statements below is correct about modules of computer code created during program design?
A) Modules interact with each other directly and also through the control module.
B) Modules interact with each other directly.
C) Modules interact with only the control module.
D) Modules primarily, but not always, interact with the control module.
Q3) The decision about how often to produce a certain report is part of which conceptual design specification element?
A) data storage
B) input
C) output
D) processing procedures and operations
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