Accounting Information Systems 10th Edition by Ulric Gelinas, Richard Dull & Wheeler TEST BANK

Accounting Information Systems 10e Ulric Gelinas Richard Dull Patrick Wheeler (Test Bank All Chapters, 100% Original Verified, A+ Grade) Chapter 1—Introduction to Accounting Information Systems TRUE/FALSE 1. The three themes of the text are operating systems, e-business, and internal control.

ANS: F

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2. It is critical for accountants to understand enterprise resource planning (ERP) systems.

ANS: T

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3. Information systems reliability and electronic commerce have been identified by the AICPA as potential assurance services.

ANS: T

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4. E-business is the application of electronic networks to undertake business processes among the functional areas in an organization.

ANS: F

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5. The role of the accountant has evolved to include non-financial information and information technology.

ANS: T

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6. Enterprise systems integrate an organization's business processes and information from all of an organization's functional areas.

ANS: T

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7. An information system consists of an integrated set of computer-based and manual components established to provide information to users.

ANS: T

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8. Internal control is a process that provides complete assurance that the organization is meeting its objectives, such as efficiency and effectiveness of operations and reliable reporting.

ANS: F

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9. The Sarbanes-Oxley Act of 2002 has dramatically changed the daily work of financial accountants and auditors.

ANS: T

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10. According to the Sarbanes-Oxley Act of 2002, management must identify, document, and evaluate significant internal controls.

ANS: T

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11. According to the Sarbanes-Oxley Act of 2002 and PCAOB Auditing Standard No. 5, management must audit and report on auditors' assertions about the organizations' systems of internal controls.

ANS: F

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12. According to the Sarbanes-Oxley Act's Section 409, material changes in the organization's financial condition must be disclosed to the public on a rapid and current basis.

ANS: T

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13. The Sarbanes-Oxley Act's Section 404 creates changes in both how companies document and evaluate internal control and how auditors audit and report on internal control.

ANS: T

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14. Sarbanes-Oxley Section 404 compliance is a major line of business for the biggest accounting firms.

ANS: T

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15. The Sarbanes Oxley Act of 2002 applies to publicly traded companies and not-for-profit entities.

ANS: F

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16. Historically the purpose of an accounting information system is to collect, process, and report financial aspects of business events.

ANS: T

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17. The MIS is a subsystem of the AIS. ANS: F

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18. Sales/marketing information system is traditionally part of the AIS. ANS: F

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19. Billing/accounts receivable is traditionally part of the AIS. ANS: T

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20. Production and personnel are part of the operations process.

ANS: T

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21. The management process includes marketing and sales.

ANS: F

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22. Information that is capable of making a difference in a decision-making situation, by reducing uncertainty or increasing knowledge for that particular decision, has the quality of relevance.

ANS: T

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23. Information about a customer's credit history that is received after the decision to grant additional credit lacks completeness.

ANS: F

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24. The consistency principle is violated when a firm uses straight-line depreciation one year and changes to declining balance depreciation the next year.

ANS: T

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25. Accuracy is the correspondence or agreement between the information and the actual events or objects that the information represents.

ANS: T

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26. Information has understandability when it is capable of making a difference in a decision-making situation..

ANS: F

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27. The most important information for tactical management involves information about the organization's environment.

ANS: F

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28. Deciding how much credit to grant to a customer is a structured decision.

ANS: T

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29. Strategic management requires more detailed information than operations management.

ANS: F

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30. The three steps in decision making take place in the sequence of (1) intelligence (2) design (3) choice.

ANS: T

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31. Strategic managers use more information from outside the organization than do operations managers.

ANS: T

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32. Operations management requires information that is more accurate and timely than strategic management.

ANS: T

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33. What controls will be necessary is a question that an accountant answers in the design of the AIS. ANS: T

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34. As a designer of an AIS the accountant will test a new system's controls.

ANS: F

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35. As a user of an AIS an accountant may be called upon to participate in the AIS design process.

ANS: T

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MULTIPLE CHOICE 1. The three themes of the text book include all of the following except: a. enterprise systems b. risk assessment c. e-business d. internal control ANS: B

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2. Efficiency and effectiveness of operations are goals of: a. enterprise systems b. risk assessment c. e-business d. internal control ANS: D

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3. A set of interdependent elements that together accomplish specific objectives is a a. system b. subsystem c. database d. accounting information system ANS: A

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4. A system can be further divided into a. input data b. subsystems c. databases d. enterprise systems ANS: B

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5. A system that consists of an integrated set of computer-based and manual components established to collect, store, and manage data and to provide output information to users is a(n) a. output b. ERP c. database d. information system ANS: D

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6. An information system: a. is composed of only the computer-based information resources of an organization b. may consist of both computer-based and manual components c. is different from a data processing system because it uses computers d. is not generally used for transaction processing ANS: B

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7. The AICPA has identified all but which of the following as assurance services? a. consulting b. information systems reliability c. electronic commerce d. All of these are assurance services identified by the AICPA. ANS: A

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8. The sequence of components in the functional model of an information system is a. Output, Input, Processing, Users b. Input, Processing, Output, Users c. Processing, Input, Users, Output d. Users, Processing, Input, Output ANS: B

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9. Historically, the relationship between an information system and an accounting information system has been: a. the AIS is a part of the IS b. the IS is a part of the AIS c. the IS and the AIS are one in the same d. the IS and AIS are unrelated ANS: A

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10. The text takes the following view of the relationship between an IS and an AIS: a. the AIS is part of the IS b. the IS is part of the AIS c. the IS and the AIS are one in the same d. the AIS is the primary system and the IS the subsystem ANS: C

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11. A man-made system that generally consists of an integrated set of computer-based components and manual components established to collect, store, and manage data and to provide output information to users. a. information system b. output system c. business event system d. database system ANS: A

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12. According to the ____, one of the responsibilities of accountants is to assess financial operations and make best-practices recommendations to management. a. AICPA b. Sarbanes-Oxley Act of 2002 c. Occupational Outlook Handbook d. Accounting Information System ANS: C

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13. A man-made system consisting of people, equipment, organization, policies and procedures with the objective of accomplishing the work of the organization. a. operations process b. management process

c. information process d. planning process ANS: A

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14. A man-made system consisting of people, authority, organization, policies and procedures whose objective is to accomplish the work of planning and controlling the operations of the organization. a. operations process b. management process c. information process d. planning process ANS: B

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15. The three logical components of a business process include all of the following except: a. management process b. operations process c. information process d. organization process ANS: D

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16. Which of the following statements is true? a. The information process facilitates operations by maintaining data such as inventory and customer data. b. The information process provides the means by which management monitors the operations process. c. Management designs the operations and information processes. d. All of the statements are true.

ANS: D

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17. Which of the following statements is false? a. Management designs the operations and information processes and establishes these processes with people, equipment, and policies. b. Information process users include operations personnel, management, and people outside the organization. c. Operations related and accounting related processes are designed by those external to the organization. d. None of the statements are false.

ANS: C

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18. ____ is (are) data presented in a form that is useful to decision makers. a. Activities b. Information c. Objectives d. Goals ANS: B

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19. ____ are facts and figures in raw form. a. Data b. Information c. Objectives d. Goals

ANS: A

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20. All of the following are components of relevance except: a. feedback value b. predictive value c. verifiability d. timeliness ANS: C

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21. All of the following are components of reliability except: a. validity b. accuracy c. verifiability d. feedback value ANS: D

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22. The Sarbanes-Oxley Act of 2002 dramatically changed the daily work of financial accountants and auditors because it a. expanded the scope of the audit beyond financial information b. required that organizations work with their auditors to design systems of internal control c. required that external auditors report on the effectiveness of an organizations system of internal control d. expanded the opportunities for auditors to engage in consulting activities with their audit clients ANS: C

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23. Internal control is a process designed to provide absolute assurance regarding achieving objectives in which of the following? a. efficiency and effectiveness of operations b. reliability of reporting c. compliance with applicable laws and regulations d. none of the above ANS: D

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24. Which of the following is NOT a business processes element? a. Business operations b. Events processing c. Management decision making d. Technology ANS: D

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25. ____ improves the decision maker's capacity to predict, confirm, or correct earlier expectations a. Understandability b. Feedback value c. Neutrality d. Comparability ANS: B

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26. The information quality that enables users to identify similarities and differences in two pieces of information is a. Understandability b. Predictive value c. Neutrality d. Comparability ANS: D

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27. The correspondence or agreement between the information and the actual events or objects that the information represents is known as a. accuracy b. completeness c. neutrality d. comparability ANS: A

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28. The degree to which information includes data about every relevant object or event necessary to make a decision is a. accuracy b. completeness c. neutrality d. comparability ANS: B

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29. The ability of more than one individual to come to the same measurement is known as a. accuracy b. completeness c. verifiability d. comparability ANS: C

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30. If information arrives too late to impact a decision then there is a problem with a. timeliness b. relevance c. completeness d. neutrality ANS: A

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31. Which of the following is NOT one of the three steps in decision making as described in the text a. action b. intelligence c. design d. choice ANS: A

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32. Regarding management problem structure and information requirements, which of the following represents the vertical information flows from lowest to highest? a. strategic management, tactical management, operations management, operations and business event processing b. operations and business event processing, strategic management, tactical management,

operations management c. tactical management, operations management, strategic management, operations and business event processing d. operations and business event processing, operations management, tactical management, strategic management ANS: D

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33. Structured decision a. are usually tactical management decisions b. require the use of an organization’s AIS system. c. are relatively routine and repetitive d. All of the above ANS: C

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34. Which of the following is an unstructured decision? a. how much inventory to reorder b. how fast an assembly line should operate c. when scheduled maintenance should be performed d. which research and development projects should be undertaken ANS: D

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35. At which level of the organization are decisions most unstructured? a. operations and business event processing level b. strategic management level c. operations management level d. tactical management level ANS: B

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36. ____ requires information to assess the environment and to project future events and conditions. a. Strategic management b. Tactical management c. Operations management d. Operations and business event processing ANS: A

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37. The ____ manager may be more concerned with accuracy than with timeliness. a. strategic b. tactical c. operations d. All of the above.

ANS: A

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38. The central repository for all the data related to the enterprise's business activities and resources. a. information system b. management information system c. enterprise database d. strategic planning ANS: C

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39. E-business does not include a. business processes between individuals and organizations b. electronic networks c. ERP systems d. interaction between back-office and front-office processes ANS: C

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40. Enterprise systems a. integrate back-office and front-office processes b. can include ERP systems c. have become fairly easy to implement d. facilitate business processes between organizations ANS: B

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41. Which of the following statements is false? a. Strategic planning is relatively unstructured. b. Strategic planning uses much information from outside the firm. c. Tactical management focuses on relevant operations units and uses some external information. d. Tactical management uses the most detailed and accurate information.

ANS: D

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42. Generally, which of the following is NOT one of the three roles an accountant typically fills in relation to the AIS? a. designer b. programmer c. user d. auditor ANS: B

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43. Which of the following questions might the accountant answer in the design of the AIS? a. what will be recorded b. what controls are necessary c. what reports will be produced d. all of the above ANS: D

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44. Which of the following is an element of the operations process? a. production b. planning c. controlling d. decision making ANS: A

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45. Which of the following is one of the three most prominent management activities? a. production b. finance c. marketing d. planning

ANS: D

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46. Accounting is an activity of the a. management process b. operations process c. information process d. organization process ANS: B

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47. Decision-making is an activity of the a. management process b. operations process c. information process d. organization process ANS: A

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COMPLETION 1. ______________________________, ______________________________, and ______________________________ are the three themes of the textbook.

ANS: Enterprise systems, e-business, internal control Enterprise systems, internal control, e-business Internal control, enterprise systems, e-business Internal control, e-business, enterprise systems E-business, enterprise systems, internal control E-business, internal control, enterprise systems PTS: 1 2. The ______________________________ Act of 2002 changed the daily work of financial accountants, auditors, and others.

ANS: Sarbanes-Oxley PTS: 1 3. A(n) ______________________________ is a set of independent elements that together accomplish specific objectives.

ANS: system PTS: 1 4. A system’s __________ ____________ depends on its type – natural, biological, or man-made – and on the particular system.

ANS: central objectives PTS: 1

5. Software packages that can be used for the core systems necessary to support enterprise systems are called ______________________________.

ANS: enterprise resource planning (ERP) systems enterprise resource planning systems ERP systems PTS: 1 6. ______________________________ is the application of electronic networks (including the Internet) to undertake business processes between individuals and organizations.

ANS: E-business PTS: 1 7. ____________ _____________ is a process⎯effected by an entity's board of directors, management, and other personnel⎯designed to provide reasonable assurance regarding achieving objectives in the following categories: efficiency and effectiveness of operations, reliability of reporting, and compliance with applicable laws and regulations.

ANS: Internal control PTS: 1 8. The ____________ _________________ units of large and small public accounting firms have accounted for a significant percentage of the firms’ business and were growing faster than the accounting, auditing, and tax portions of their businesses.

ANS: business consulting PTS: 1 9. Hiring employees, purchasing inventory and collecting cash from customers are all components of _________ ______________.

ANS: business operations PTS: 1 10. The three logical components of a business process are the _____________________ process, the ____________ process and the ____________process.

ANS: management, operations, information management, information, operations information, management, operations information, operations, management operations, information, management operations, management, information, PTS: 1

11. Historically, the accountant has performed a(n) ______________________________ function to determine the reliability of financial information presented in printed financial statements.

ANS: attest PTS: 1 12. A(n) ______________________________ system generally consists of both computerized and manual components established to collect, store, and manage data and to provide output information to users.

ANS: information management information PTS: 1 13. The ______________________________ is a man-made system consisting of the people, equipment, organization, policies, and procedures whose objective is to accomplish the work of the organization.

ANS: operations process PTS: 1 14. To present the results of their endeavors effectively, accountants must possess strong ______________________________.

ANS: oral and written communication skills PTS: 1 15. ______________________________ decisions are those for which all three decision phases (intelligence, design, and choice) are relatively routine or repetitive.

ANS: Structured PTS: 1 16. A(n) ______________________________ is designed to collect, process, and report information related to financial transactions.

ANS: accounting information system (AIS) accounting information system AIS PTS: 1 17. Input, processing, ______________________________, and users are included in a functional model of an information system.

ANS: output PTS: 1

18. The highest level of management activity and the one with the broadest scope is ______________________________ management.

ANS: strategic PTS: 1 19. In the management hierarchy, the level that lies between strategic management and operations management is called ______________________________ management.

ANS: tactical PTS: 1 20. Facts or figures in raw form are referred to as ______________________________.

ANS: data PTS: 1 21. ______________________________ is an information quality that can be expanded into validity, accuracy, and completeness..

ANS: Integrity PTS: 1 22. The __________ of information must be evaluated in relation to the purpose to be served (decision making).

ANS: effectiveness PTS: 1 23. Information that is capable of making a difference in a decision of a user is said to possess the quality of ______________________________.

ANS: relevance PTS: 1 24. Information that is available before it loses its capacity to influence a user's decision possesses the quality of ______________________________.

ANS: timeliness PTS: 1 25. Information that improves a decision makers ability to predict, confirm, or correct earlier expectations has the quality known as ______________ ________________.

ANS: feedback value

predictive value PTS: 1 26. The quality of information when there is a high degree of consensus about the information among independent measurers using the same measurement methods is referred to as ______________________________.

ANS: verifiability PTS: 1 27. Information that is objective is said to possess ______________________________.

ANS: neutrality freedom from bias PTS: 1 28. The quality of information that enables users to identify similarities and differences in two pieces of information is referred to as ______________________________.

ANS: comparability PTS: 1 29. A ________ is a tool designed to help you analyze a situation and relate processes to desired results.

ANS: matrix PTS: 1 30. Section ______________________________ of the Sarbanes-Oxley Act of 2002 requires auditors to report on about the effectiveness of the organizations' systems of internal control.

ANS: 404 PTS: 1 31. Section ______________________________ of the Sarbanes-Oxley Act of 2002 requires management to identify, document and evaluate significant internal controls.

ANS: 404 PTS: 1 32. Section ______________________________ of the Sarbanes-Oxley Act of 2002 requires disclosure to the public on a rapid and current basis of material changes in an organization's financial condition.

ANS: 409 PTS: 1

33. The ______________ ________________ is a man-made system consisting of the people, authority, organization, policies, and procedures whose objective is to plan and control the operations of the organization ANS: management process PTS: 1 34. ______________________________ is data presented in a form that is useful in a decision-making activity.

ANS: Information PTS: 1 35. Information about actual authorized events and objects has ______________________________.

ANS: validity PTS: 1 36. ______________________________ is the correspondence or agreement between the information and the actual events or objects that the information represents.

ANS: Accuracy PTS: 1 37. ______________________________ is the degree to which information includes data about every relevant object or event necessary to make a decision and includes that information only once.

ANS: completeness PTS: 1 ESSAY 1. Describe the activities performed and information used by each of the following levels in the management structure: a.

Strategic management b.

Tactical management c.

Operations management ANS: Suggested answer: a.

Strategic management requires information to assess the environment and to project future events and conditions. Such information is even more summarized, broader in scope, and comes from outside the organization more than does the information used by tactical management. To be useful to division managers, chief financial officers (CFOs), and chief executive officers (CEOs), information must relate to longer time periods, be sufficiently broad in scope, and be summarized to provide a means for judging the long-term effectiveness of management policies. External financial statements, annual sales reports, and division income statements are but a few examples of strategic-level

information. b.

Tactical management requires information that focuses on relevant operational units and is more summarized, broader in scope, and need not be as accurate as the information used by operations management. Some external information may be required. For example, a warehousing and distribution manager might want information about the timeliness of shipments each month.

c.

Information useful to operations management personnel is often an aggregate of data related to several business events. For example, a report summarizing shipments made each day might be useful to the shipping manager. At the operations management level, supervisors use this type of information to monitor the daily functioning of their operating units. The vertical information useful to operations management is a summarized and tailored version of the information that flows horizontally.

PTS: 1 2. Describe the three roles that an accountant can play in the AIS? ANS: The three roles the accountant can play in the AIS are designer, user and auditor.

The accountant is a designer of the AIS who brings knowledge of accounting principles, auditing principles, information systems techniques, and systems development methods.

The accountant is also a user of the AIS and will provide feedback on how well the system works, how easy or difficult it is to use, and on what items can be changed or improved from a user perspective.

The accountant performs a number of functions within the organization such as controller, treasurer, financial analyst, all of which are users of the AIS. Accountants, as users of the system can also be effective in the design process because of the functions they perform.

As internal and external auditors, accountants audit the AIS or provide assurance services about internal control or other items discussed in the chapter. Auditors are interested in the reliability of accounting data and of the reports produced by the system. They may test the system's controls, assess the system's efficiency and effectiveness, and participate in the system design process. The auditor must possess knowledge of internal controls, systems development techniques, technology and the design and operation of the AIS to be effective.

PTS: 1 3. Discuss five of the ten items that comprise the components of the study of AIS in this text.

ANS: The 10 components of the study of AIS are depicted in Figure 1.1. A detailed description of these components may be found in the chapter. Here is a brief summary of the detailed descriptions: Technology. Technological developments have a profound effect on information • systems; enterprise systems, ERP systems, e-business, databases, and intelligent systems are but a few examples. Technology provides the foundation on which AIS and business operations rest, and knowledge of technology is critically important to your understanding of the AIS discipline.

Databases. To perform analysis, to prepare information for management decision • making, and to audit a firm's financial records, an accountant must be able to access and use data from public and private databases.

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Reporting. To design reports generated by an information system, the accountant must know what outputs are required or are desirable. These reports often support management decisions as well as fulfill certain reporting obligations. GAAP-based financial statements are but one example of reporting that will be considered in our study of AIS. Control. Traditionally, accountants have been experts on controlling business processes.

As a practicing accountant, you will probably spend much of your time providing such expertise. You must develop an understanding of control that is specific to the situation at hand, yet is adaptable for the future.

Business operations. Organizations engage in activities or operations, such as hiring employees, purchasing inventory, and collecting cash from customers. AIS operates in concert with these business operations. Many AIS inputs are prepared by operating departments⎯the action or work centers of the organization⎯and many AIS outputs are used to manage these operations. Therefore, we must analyze and manage an AIS in light of the work being performed by the organization.

Events processing. As organizations undertake their business operations, events, such as sales and purchases, occur. Data about these events must be captured and recorded to mirror and monitor the business operations. The events have operational and AIS aspects (i.e., some do not have a direct accounting impact, and some are accounting "transactions" that result in entries in the general ledger). To design and use the AIS, an accountant must know what event data are processed and how they are processed.

Management decision making. The information used for a decision must be tailored to the type of decision under consideration. Furthermore, the information is more useful if it recognizes the personal management styles and preferences of the decision maker.

Systems development and operation. The information systems that process business events and provide information for management decision making must be designed, implemented, and effectively operated. An accountant often participates in systems development projects as a user or business process owner contributing requests for certain functions or an auditor advancing controls for the new system. Choosing the data for a report, designing that report, and configuring an enterprise system are examples of systems development tasks that can be accomplished by an accountant.

Communications. To present the results of their endeavors effectively, accountants must possess strong oral and written communication skills. Throughout this course, you will be required to evaluate alternatives, to choose a solution, and to defend your choice.

Technical knowledge alone won't be enough for the last task.

Accounting and auditing principles. To design and operate the accounting system, an accountant must know the proper accounting procedures and must understand the audits to which the accounting information will be subjected.

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Chapter 2—Enterprise Systems TRUE/FALSE 1. One of the primary goals of implementing an ERP system is to standardize systems across multiple locations and multiple divisions.

ANS: T

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2. Submitting a purchase order is a business event but creating an employee record is not a business event.

ANS: F

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3. Early adopters of ERP systems were in the business of making products.

ANS: T

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4. ERP systems have proved to be quite easy to install and in short periods of time.

ANS: F

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5. Enterprise systems potentially integrate the business process functionality and information from all of an organization's functional areas.

ANS: T

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6. With an enterprise system an organization will conduct business in a more costly manner.

ANS: F

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7. An add-on software module in an enterprise system might be a customer relationship management system (CRM).

ANS: T

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8. The dominant player in the large system ERP arena is Microsoft.

ANS: F

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9. SAP has a primary focus on large Fortune 500 type companies.

ANS: T

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10. Microsoft Dynamics and Sage Group focus on small and mid market sized companies.

ANS: T

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11. Customer relationship management (CRM) software builds and maintains an organization's customer-related database.

ANS: T

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12. Customer relationship management (CRM) software aggregates, manages, and retains data across the entire organization for the identification, acquisition, and retention of vendors to maximize the benefits of those relationships.

ANS: F

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13. If you have made a Web purchase such as with Amazon.com you have experienced some of the functionality of a CRM system where the vendor keeps track of your name, address, and purchases.

ANS: T

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14. Customer relationship management (CRM) functionality includes procurement and contract management.

ANS: F

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15. Customer self service (CSS) software is often an extension of CRM software.

ANS: T

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16. Supply chain management (SCM) software helps plan and execute steps such as demand planning, acquiring inventory, manufacturing, distributing, and selling the product.

ANS: T

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17. Supplier relationship management (SRM) software manages the interactions with the organization's that supply the goods and services to an enterprise.

ANS: T

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18. Middleware is a software product that connects two or more separate applications or software modules.

ANS: T

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19. Enterpriseware might be used to stitch together a number of legacy systems, an enterprise system, best-of-breed applications, and Web-based applications.

ANS: F

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20. An Application Programming Interface (API) is a means for connecting to a system or application provided by the developer of that application.

ANS: T

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21. Microsoft Dynamics Snap line of tools is an example of an Application Programming Interface.

ANS: T

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22. Enterprise application integration (EAI) links together two or more systems and allows them to work together.

ANS: T

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23. Product life-cycle management (PLM) software manages product data from design through manufacture, and disposal.

ANS: T

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24. When choosing modules for an organization’s ERP system, it is generally best to select them all from a single vendor.

ANS: F

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25. DreamWeaver is a Web services platform from SAP that can be used to build applications that integrate business processes and databases from a number of sources within and between organizations.

ANS: F

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26. Business process management (BPM) provides a comprehensive method for integrating manual and automated internal processes, applications, and systems, as well as integration to external partners and services.

ANS: T

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27. With a best-of-breed approach an organization can minimize the number of different software modules employed to implement an enterprise system.

ANS: F

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28. Because of the enormous implementation costs, only very large organizations can afford ERP systems.

ANS: F

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29. The data captured as business events occur should be sufficient for someone who was not a party to the event to understand and reconstruct what happened.

ANS: T

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30. The value chain is a chain of activities performed by the organization to transform outputs into inputs valued by the customer.

ANS: T

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31. An organization creates a competitive advantage by creating less value for its customers than does its competition.

ANS: F

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32. Supporting activities of the value chain include activities directly involved with marketing, producing, selling, and delivering the product or service to the customer.

ANS: F

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33. Primary activities of the value chain provide infrastructure such as procurement, information technology, human resources, and accounting.

ANS: F

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34. The value chain works to separate the functional activities or silos of the organization.

ANS: F

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35. Dell's value chain takes raw materials, manufactures computers and other products, and delivers them to customers in a timely manner at an attractive price.

ANS: T

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36. The activities in the value chain, the value activities, are business processes that convert inputs to valued outputs.

ANS: T

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37. In a disaggregated information system, the customer will be notified immediately whether the item is on the shelf and not committed to another customer.

ANS: F

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38. Telling the customer when they will receive an item is known as available to promise (ATP).

ANS: T

PTS: 1

39. A character is a basic unit of data such as a letter, number, or special character.

ANS: T

PTS: 1

40. A field is a collection of related characters that comprise an attribute, such as a customer number or name.

ANS: T

PTS: 1

41. A record is a collection of related data fields pertaining to a particular entity or event.

ANS: T

PTS: 1

42. The credit limit within a customer record always provides unlimited authorization to accept a customer order.

ANS: F

PTS: 1

43. Segregation of duties includes separating the sales and credit departments.

ANS: T

PTS: 1

44. Generally, when processing a customer order, one does not need to know the total price of the goods before credit authorization can be made.

ANS: F

PTS: 1

45. In an enterprise system, once a customer order is completed, the purchasing function can be immediately informed that the merchandise has been sold and may need to be replenished.

ANS: T

PTS: 1

46. The Controlling module of the SAP system handles internal accounting and profitability analysis.

ANS: T

PTS: 1

47. An enterprise systems centralized database can make data, such as inventory data, visible throughout the organization.

ANS: T

PTS: 1

48. The correct sequence of the three steps in the sales and distribution process are (1) order entry (2) shipment process and (3) billing process.

ANS: T

PTS: 1

49. The correct sequence of the three steps in the materials management process is (1) record vendor invoice (2) create purchase order (3) receive the goods.

ANS: F

PTS: 1

50. The bottom line is that without integrated information systems organizations have difficulty being managed on a day-to-day basis and being successful in the long run.

ANS: T

PTS: 1

51. The financial accounting module integrates with the sales and distribution and materials management modules.

ANS: T

PTS: 1

52. The purchase-to-pay process includes the events surrounding the sale of goods to a customer, the recognition of revenue, and the collection of the customer payment.

ANS: F

PTS: 1

53. The order-to-cash process includes events surrounding the purchase of goods from a vendor, the recognition of those costs, and the payment to the vendor.

ANS: F

PTS: 1

MULTIPLE CHOICE 1. Organizations install enterprise systems a. to differentiate themselves from competitors b. to reduce costs of conducting business c. to improve performance d. all of the above ANS: D

PTS: 1

2. Core applications of an ERP are a. financial accounting b. materials management c. sales and distribution d. all of the above ANS: D

PTS: 1

3. Which of the following is usually not part of an ERP's core applications? a. legacy systems b. financial accounting c. material management d. sales and distribution ANS: A

PTS: 1

4. The enterprise system might facilitate the purchase of office equipment by all of the following except a. providing an electronic order form (a purchase requisition) b. assisting the vendor with the selection of the appropriate purchase order c. routing the order to appropriate authorities for specific approval d. making data available for management analysis ANS: B

PTS: 1

5. The most dominant player in the ERP market for large companies is a. Oracle b. Sage c. SAP d. Microsoft ANS: C

PTS: 1

6. Sales force automation software a. automates order processing b. monitors inventory c. assists with employee performance evaluations d. all of the above ANS: D

PTS: 1

7. An application program interface (API) a. is an approach that combines processes, software, standards and hardware to link two or more systems together b. is a means for connecting to a system or application provided by the application developer c. streamlines the process between an enterprise and its customers d. joins activities together into an end-to-end business process ANS: B

PTS: 1

8. Software that builds and maintains an organization's customer-related database is known as a. customer relationship management (CRM) software b. customer self service (CSS) software c. sales force automation (SFA) software d. supply chain management (SCM) software

ANS: A

PTS: 1

9. Software that allows an organization's customers to complete inquiry without the aid of the organization's employees is known as a. customer relationship management (CRM) software b. customer self service (CSS) software c. sales force automation (SFA) software d. supply chain management (SCM) software ANS: B

PTS: 1

10. Software that automates sales tasks such as order processing and tracking is known as a. customer relationship management (CRM) software b. customer self service (CSS) software c. sales force automation (SFA) software d. supply chain management (SCM) software ANS: C

PTS: 1

11. Software that helps execute steps such as demand planning, acquiring inventory, manufacturing, distribution, and sales is known as a. customer relationship management (CRM) software b. customer self service (CSS) software c. supplier relationship management (SRM) software d. supply chain management (SCM) software ANS: D

PTS: 1

12. Software that manages the interactions with the organization's that supply the goods and services to an enterprise is known as a. customer relationship management (CRM) software b. customer self service (CSS) software c. supplier relationship management (SRM) software d. supply chain management (SCM) software ANS: C

PTS: 1

13. Software that manages the product, beginning with the design of the product, continuing through manufacture and culminating in the disposal of the product, is known as a. product lifecycle management (PLM) software b. product relationship management (PRM) software c. product self service (PSS) software d. supplier relationship management (SRM) software ANS: A

PTS: 1

14. Supply chain management (SCM) software a. is typically under the control of external partners in the chain. b. helps plan and execute demand planning; acquiring inventory; and manufacturing, distributing, and selling a product. c. cannot be integrated into an overall ERP. d. none of the above ANS: B

PTS: 1

15. Some third-party modules can extract data from

a. b. c. d.

legacy systems only ERP systems only both legacy systems and ERP systems neither legacy systems nor ERP systems

ANS: C

PTS: 1

16. Which of the following tracks a product from design, continuing through manufacture, and culminating with the disposal of the product at the end of its life? a. supply chain management (SCM) b. value chain c. product life cycle management (PLM) d. none of the above ANS: C

PTS: 1

17. Technology that can connect together ERP systems and third party add-on modules is called a. supply chain software b. enterprise application integration (EAI) c. EDP systems d. none of the above ANS: B

PTS: 1

18. Enterprise systems support an organization by: a. facilitating the functioning of an organization's operations b. retaining records about business events c. storing data useful for decision making d. all of the above ANS: D

PTS: 1

19. The enterprise system might help purchase office equipment by a. connecting directly to the enterprise system of the equipment vendor b. verifying that appropriate approvals have been obtained c. providing an electronic order form d. all of the above ANS: D

PTS: 1

20. A collection of entity/event instances is a a. record b. table c. field d. character ANS: B

PTS: 1

21. Business events include a. creating a new employee record b. receiving a payment from a customer c. submitting a purchase order to a vendor d. all of the above ANS: D

PTS: 1

22. The general term for software that connects third-party modules to ERP systems is known as a. DreamWeaver b. Middleware c. Microsoft d. NetWeaver ANS: B

PTS: 1

23. Software packages that can be used for the core systems necessary to support enterprise systems. a. Application Programming Interface (API) systems b. Business Process Management (BPM) systems c. Enterprise Resource Planning (ERP) systems d. Event-driven architecture (EDA) systems ANS: C

PTS: 1

24. This provides a comprehensive method for integrating manual and automated internal processes, applications, and systems, as well as integration to external partners and services. a. Application Programming Interface (API) b. Business Process Management (BPM) c. Enterprise Resource Planning (ERP) d. Event-driven architecture (EDA) ANS: B

PTS: 1

25. Primary activities of the value chain include a. Accounting b. Human Resources c. Procurement d. Production ANS: D

PTS: 1

26. Supporting activities of the value chain include a. Accounting b. Marketing c. Production d. Sales ANS: A

PTS: 1

27. Information technology (IT) has been able to create additional value by a. reducing costs b. improving quality c. balancing the cost and timeliness of value activities d. all of the above ANS: D

PTS: 1

28. Which of the following statements is false? a. Value chain activities need to be closely coordinated. b. Primary value chain activities include marketing and sales. c. An organization's value chain is the only component of the value system. d. None of the statements are false.

ANS: C

PTS: 1

29. The correct sequence of elements leading to an "available to promise" (ATP) is a. item availability, customer creditworthiness, price b. customer creditworthiness, price, item availability c. price, customer creditworthiness, item availability d. item availability, price, customer creditworthiness ANS: D

PTS: 1

30. The four Ws of capturing data do not include a. Who b. What c. Why d. When ANS: C

PTS: 1

31. A basic unit of data such as a letter, number, or special character is known as a a. Character b. Field c. Record d. Table ANS: A

PTS: 1

32. A collection of related characters that comprise an attribute such as a customer number or name is known as a a. Character b. Field c. Record d. Table ANS: B

PTS: 1

33. A collection of related data fields pertaining to a particular entity or event is known as a a. Character b. Field c. Record d. Table ANS: C

PTS: 1

34. The correct sequence of events for entering a customer order is a. edit order, record sales order, update inventory, notify warehouse b. record sales order, edit order, update inventory, notify warehouse c. notify warehouse, edit order, record sales order, update inventory d. edit order, notify warehouse, record sales order, update inventory ANS: A

PTS: 1

35. Steps in the sales and distribution process include all of the following except a. order entry b. shipment c. receiving d. billing

ANS: C

PTS: 1

36. Steps in the materials management process include all of the following except a. creating the purchase order b. shipment c. receiving d. recording the vendor invoice ANS: B

PTS: 1

37. The ____ module plays a central role in the SAP system by collecting business events from other modules. a. human resources b. controlling and profitability analysis c. financial accounting d. customer relationship management ANS: C

PTS: 1

38. The ____ module of the SAP system handles internal accounting including cost center accounting, activity-based accounting, and budgeting. a. human resources b. controlling and profitability analysis c. financial accounting d. customer relationship management ANS: B

PTS: 1

39. The ____ module of the SAP system handles payroll processing. a. human resources b. controlling and profitability analysis c. financial accounting d. customer relationship management ANS: A

PTS: 1

40. Which of the following is included in the first step in the order-to-cash process? a. sales order processing b. responding to customer inquiries c. pick and pack d. Billing ANS: B

PTS: 1

41. What is the correct sequence of the order-to-cash process? a. responding to customer inquiries; sales order processing; pick and pack; billing; shipping; payment b. sales order processing; responding to customer inquiries; pick and pack; shipping; billing; payment c. sales order processing; pick and pack; billing; shipping; payment; responding to customer inquiries d. responding to customer inquiries; sales order processing; pick and pack; shipping; billing; payment ANS: D

PTS: 1

42. What is the first step in the purchase-to-pay process? a. purchase order processing b. pick and pack c. requirements determination d. goods receipt ANS: C

PTS: 1

43. What is the correct sequence of the purchase-to-pay process? a. purchase order processing; goods receipt; invoice verification; payment processing; requirements determination b. requirements determination; purchase order processing; goods receipt; invoice verification; payment processing c. purchase order processing; requirements determination; goods receipt; invoice verification; payment processing d. requirements determination; purchase order processing; invoice verification; goods receipt; payment processing ANS: B

PTS: 1

COMPLETION 1. ______________________________ integrate the business process functionality and information from all of an organization's functional areas, such as marketing and sales, cash receipts, purchasing, cash disbursements, human resources, production and logistics, and business reporting (including financial reporting).

ANS: Enterprise systems PTS: 1 2. ______________________________ are software packages that can be used for the core systems necessary to support enterprise systems.

ANS: Enterprise resource planning (ERP) systems ERP systems Enterprise resource planning systems PTS: 1 3. ______________________________ software builds and maintains an organization's customer-related database.

ANS: Customer relationship management (CRM) CRM Customer relationship management PTS: 1 4. ______________________________ software allows an organization's customers to complete an inquiry, perform a task (including sales), or troubleshoot problems, without the aid of an organization's employees.

ANS: Customer self-service (CSS) CSS Customer self-service PTS: 1 5. ______________________________ software automates sales tasks such as order processing, contact management, inventory monitoring, order tracking, and employee performance evaluation.

ANS: Sales force automation (SFA) SFA Sales force automation PTS: 1 6. ______________________________ software helps plan and execute the steps in an organization's supply chain including demand planning; acquiring inventory; and manufacturing, distributing, and selling the product.

ANS: Supply chain management (SCM) SCM Supply chain management PTS: 1 7. ______________________________ software manages the interactions with the organizations that supply the goods and services to an enterprise.

ANS: Supplier relationship management (SRM) SRM Supplier relationship management PTS: 1 8. ______________________________ software manages product data during a product's life, beginning with the design of the product, continuing through manufacture, and culminating in the disposal of the product at the end of its life.

ANS: Product life-cycle management (PLM) PLM Product life-cycle management PTS: 1 9. ______________________________ is the dominant player in the ERP market for large businesses.

ANS: SAP

PTS: 1 10. ______________________________ includes integration of business processes, software, standards, and hardware to link two or more systems together allowing them to act as one.

ANS: Enterprise application integration (EAI) EAI Enterprise application integration PTS: 1 11. The ______________________________ approach combines modules from various vendors to create an information system that better meets an organization's needs than a standard ERP system.

ANS: best-of-breed PTS: 1 12. A(n) ______________________________ is a means for connecting to a system or application provided by the developer of that application.

ANS: Application Programming Interface (API) API Application Programming Interface PTS: 1 13. ______________________________ usually includes a design environment for modeling and documenting business processes. This process is targeted at looking for improvements that can be made to the existing system to increase efficiency and effectiveness.

ANS: Business process management (BPM) BPM Business process management PTS: 1 14. ______________________________ such as requiring separate authorizations for data-maintenance and business event processing activities is important in the prevention of many fraudulent activities.

ANS: Segregation of duties PTS: 1 15. The ______________________________ module plays a central role in the SAP system by incorporating business events from other modules into the general ledger accounts.

ANS: Financial Accounting FI

PTS: 1 16. Primary activities of the ______________________________ include activities directly involved with marketing, producing, selling, and delivering the product or service to the customer.

ANS: value chain PTS: 1 17. The ______________________________ of the value chain include functions such as moving raw materials into and around the organization, producing and delivering goods to the customer, and performing services such as installation and after-sales support.

ANS: primary activities PTS: 1 18. The ______________________________ of the value chain are those that provide infrastructure and include functions such as procurement, information technology, human resources and accounting.

ANS: supporting activities PTS: 1 19. Telling the customer when the item will be received is known as ______________________________.

ANS: available to promise (ATP) ATP available to promise PTS: 1 20. A(n) ______________________________ is a basic unit of data such as a letter, number, or special character.

ANS: character PTS: 1 21. A(n) ______________________________ is a collection of related characters that comprise an attribute, such as a customer number or name.

ANS: field PTS: 1 22. A(n) ______________________________ is a collection of related data fields pertaining to a particular entity or event.

ANS: record PTS: 1

23. The existence of the customer record, including the ______________________________, provides the basic authorization required to accept and record the customer order.

ANS: credit limit PTS: 1 24. The ______________________________ process includes the events surrounding the sale of goods to a customer, the recognition of revenue, and the collection of the customer payment.

ANS: order-to-cash PTS: 1 25. The ______________________________ process includes events surrounding the purchase of goods from a vendor, the recognition of the cost of those goods, and the payment to the vendor ANS: purchase-to-pay PTS: 1 26. ______________________________ are older systems that may exist in an organization when a newer system, such as an ERP, is installed.

ANS: Legacy systems PTS: 1 27. SAP ________________ is a technology platform that allows a collection of applications to interact and work together.

ANS: NetWeaver PTS: 1 28. The four Ws of capturing data are ______________________________, ______________________________, ______________________________, and ______________________________.

ANS: who, what, where, when PTS: 1 29. Edit order, record sales order, update inventory, notify warehouse is the sequence of events for entering a(n) ______________________________.

ANS: customer order sales order PTS: 1

30. The steps in the ______________________________ process include creating the purchase order, receiving the goods and services, recording the vendor invoice ANS: materials management (MM) MM material management purchase-to-pay PTS: 1 31. The module that handles internal accounting including cost center accounting, activity based accounting, and budgeting is ______________________________.

ANS: controlling (CO) and profitability analysis (PA) controlling (CO) CO CO/PA controlling and profitability analysis PTS: 1 32. The module that handles payroll processing is ______________________________.

ANS: human resources (HR) HR human resources PTS: 1 33. The first step in the order-to-cash process is ______________________________.

ANS: presale activities responding to customer inquiries PTS: 1 34. The first step in the purchase-to-pay process is ______________________________.

ANS: requirements determination PTS: 1 35. ______________________________ include any meaningful change in the state of an enterprise, such as creating a new employee record, submitting a purchase order to a vendor, receiving a payment from a customer, picking goods from a warehouse and delivering them to the shipping department, and revaluing inventory.

ANS: Business events PTS: 1

36. Third-party modules are connected to the ERP system using ______________________________, a software product that connects two or more separate applications or software modules.

ANS: middleware PTS: 1 ESSAY 1. Define enterprise resource planning (ERP) systems and give some examples of common ERP add-on modules.

ANS: Enterprise resource planning (ERP) systems are software packages that can be used for the core systems necessary to support enterprise systems. ERP products are designed to offer integration of virtually all of an organization's major business functions. Examples of common ERP add-on modules include customer relationship management (CRM) software; customer self-service (CSS) software; sales force automation (SFA) software; supply chain management (SCM) software; product lifecycle management (PLM) software; and supplier relationship management (SRM) software.

PTS: 1 2. What are the primary activities of the value chain and what are some of the main functions included in the value chain?

ANS: The primary activities of the value chain include those directly involved with marketing, selling, producing and delivering the product or service. This includes functions such as moving raw materials into and around the organization, producing and delivering the products or services to the customer, performing services such as installation and after sales support.

PTS: 1 3. List and describe the 6 steps in the order-to-cash process.

ANS: 1.

Pre-sales activities including responding to customer inquiries and RFQs. 2.

Sales order processing which includes capturing and recording customer orders.

3.

Pick and pack which includes picking the goods from the shelf in the warehouse and packing the goods for shipment.

4.

Shipping the goods to the customer which includes selecting the appropriate carrier, recording the reduction in inventory, recording cost of goods sold.

5.

Billing which includes preparing the customer invoice, recording sales, and recording accounts receivable.

6.

Payment which includes recording cash receipts, updating cash and accounts receivable.

PTS: 1 4. List and describe the 5 steps in the purchase-to-pay process.

ANS: 1.

Requirements determination which includes preparing the purchase requisition.

2.

3.

4.

5.

Purchase order processing which includes preparing and recording purchase orders. In an enterprise system where RFQs are used, it also includes analyzing vendor quotations.

Goods receipt which includes comparing the amount ordered to the amount received.

Invoice verification which includes receiving the invoice making a three way match of the purchase order, the receipt, and the vendor invoice and recording accounts payable.

Payment processing which includes preparing and recording cash disbursements and updating the cash and accounts payable accounts.

PTS: 1 5. Discuss three ways that enterprise systems achieve quality of information goals.

ANS: The answer should include any three of the following.

Enterprise systems can collect a wide variety of data about business events and make that data available for use to all interested and authorized persons inside and outside the organization. The data should help all users (relevance, understandability) make decisions (decision usefulness) and analyze past events to make predictions about future events (predictive/feedback value).

An enterprise system’s central database retains one version of data elements, uses that data to verify the accuracy of new data elements entered into the database, and applies business rules to permit only authorized changes to the database. Combined these improve the reliability, validity, and accuracy of the database.

Organization-wide enforcement of data standards and business rules means that business events will be handled consistently across the organization, that all relevant data will be collected (completeness) and that the collected data will be verifiable and neutral.

The integrated nature of the enterprise system makes all data available in a timely manner.

The system facilitates the sharing of services for efficiency and consistency.

PTS: 1 6. List four pros and four cons of ERP packages.

ANS: The pros should include any four of the following: One package across many functions Best practices Modular structure No development needed (unless modifications are required) Configurable Reduced errors (business rules, enter data once) The cons should include any four of the following: Complex and inflexible Best practices are shared by all who use it Difficult to configure Long implementation Best of breed might be better than single ERP package Can’t meet all needs (developed for many user types)

PTS: 1 7. Why might a firm decide to implement only certain modules in an ERP system rather than a complete implementation?

ANS: The answer should include such items as: Cost considerations Implementing additional modules one at a time or on an as needed basis with additional modules added at a later time There may be legacy systems that they do not want to change The firm may want to add on other modules from a combination of ERP vendors using enterprise application integration PTS: 1 8. What are the potential problems with a best-of-breed approach?

ANS: Potential problems include sacrificing the tight integration offered by ERP systems, errors during the translation and transmission between modules and higher total licensing, implementation and maintenance costs than with a single provider.

PTS: 1 9. Describe and explain these concepts and their relationship to one another: enterprise application integration, middleware, and application programming interface.

ANS: Enterprise application integration (EAI) is an approach to connecting together multiple pieces of an enterprise system and/or connecting the enterprise systems of different organizations. Middleware is a software product that connects two or more separate applications or software modules in this approach.

An Application Programming Interface (API) is a type of middleware that is a means for connecting to a system or application provided by the developer of that application.

PTS: 1

Chapter 3—Electronic Business (E-Business) Systems TRUE/FALSE 1. E-Business is the application of electronic networks (including the Internet) to exchange information and link business processes among organizations and individuals.

ANS: T

PTS: 1

2. Standing data is relatively permanent portions of master data.

ANS: T

PTS: 1

3. Adding, deleting, or replacing standing data is called transaction processing.

ANS: F

PTS: 1

4. Master data are repositories of relatively permanent data maintained over an extended period of time.

ANS: T

PTS: 1

5. Data maintenance refers to the recording of business event data and transactions.

ANS: F

PTS: 1

6. Information processing includes data processing functions related to accounting events, internal operations and financial statement preparation.

ANS: T

PTS: 1

7. Immediate mode is the data processing mode in which there is delay between data processing steps.

ANS: F

PTS: 1

8. Processes that include distribution, manufacturing, and accounting operations are front office processes.

ANS: F

PTS: 1

9. Periodic mode is the data processing mode in which there can be a delay exists between data processing steps.

ANS: T

PTS: 1

10. Batch processing is the aggregation of several business events over some period of time with the subsequent processing of these data as a group by the information system.

ANS: T

PTS: 1

11. A device that is not directly connected to the central computer or network is referred to as an online device.

ANS: F

PTS: 1

12. In an online transaction entry (OLTE) system, use of data entry devices allows business event data to be entered directly into the information system at the time and place that the business event occurs.

ANS: T

PTS: 1

13. A computer configuration in which certain equipment is directly connected to the computer is said to be online.

ANS: T

PTS: 1

14. Online real-time (OLRT) systems gather business event data at the time of occurrence, update the master data essentially instantaneously, and provide the results arising from the business event within a very short amount of time.

ANS: T

PTS: 1

15. Batch mode is the data processing mode in which there is little or no delay between any two data processing steps.

ANS: F

PTS: 1

16. Client/server technology is the physical and logical division between user-oriented application programs that are run at the client (user) level and the shared data that must be available through the server (i.e. separate computer containing a database that handles centrally shared activities.

ANS: T

PTS: 1

17. Value-added networks (VANs) are communication networks that link together several different local user machines with printers, databases, and other shared devices.

ANS: F

PTS: 1

18. Local area networks (LANs) are communication networks that link up distributed users and local networks into an integrated communication network.

ANS: F

PTS: 1

19. The Internet is a massive interconnection of computer networks worldwide that enables communication between dissimilar technology platforms.

ANS: T

PTS: 1

20. Web browsers are software programs designed specifically to allow users to view the various documents and data sources available on the Internet.

ANS: T

PTS: 1

21. Cloud computing is the use of the Internet to provide scalable services, such as software, and resources, such as data storage, to users.

ANS: T

PTS: 1

22. SPAM is unsolicited unwanted mail.

ANS: T

PTS: 1

23. A type of intranet, which has been extended to limited external access, is referred to as an extranet.

ANS: T

PTS: 1

24. E-mail is the electronic transmission of nonstandardized messages between two individuals who are linked via a communications network.

ANS: T

PTS: 1

25. Electronic data interchange (EDI) is the capture, storage, management, and control of electronic document images for the purpose of supporting management decision making and facilitating business event processing.

ANS: F

PTS: 1

26. Electronic document management (EDM) is the computer-to-computer exchange of business data in structured formats that allow direct processing of those electronic documents by the receiving computer system.

ANS: F

PTS: 1

27. Value-added network (VAN) service acts as the EDI "post office."

ANS: T

PTS: 1

28. Internet commerce is computer-to-computer exchange of business event data in structured or semi-structured formats via Internet communication that allows the initiation and consummation of business events.

ANS: T

PTS: 1

29. The benefits of electronic document management (EDM) include improved staff productivity, reduced cost of handling and storing paper and faster processing.

ANS: T

PTS: 1

30. Applications such as ANSI (X12) and EDIFACT are referred to as transaction software.

ANS: F

PTS: 1

31. Network providers are companies that provide a link into the Internet by making their directly connected networks available for access by fee-paying customers.

ANS: T

PTS: 1

32. Internet assurance is a service provided for a fee to vendors in order to provide absolute assurance to users of the vendor's web site that the site is in fact reliable and event data security is reasonable.

ANS: F

PTS: 1

33. The AICPA Internet assurance program that includes a certification and seal is called VeriSign.

ANS: F

PTS: 1

34. Electronic store fronts are Internet-located resources for displaying goods and services for sale and for conducting related sales transactions.

ANS: T

PTS: 1

35. Extranet auction markets provide an Internet base for companies to place products up for bid or for buyers to put proposed purchases up for bid.

ANS: F

PTS: 1

36. Internet market exchanges enable suppliers to put their products online, by feeding into electronic catalogs that sort through alternatives from different suppliers and electronically place an order.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. Back-office functions include: a. customer interface b. supplier interface c. purchasing d. accounting ANS: D

PTS: 1

2. A by-product of e-business is a. elimination of sales staff b. increase in accounting staff c. production of hard copy reports d. increased errors ANS: A

PTS: 1

3. Purchasing function benefits from e-business include a. elimination of sales staff b. automatic price checking by the computer c. interaction with supplier sales staff d. all of the above ANS: B

PTS: 1

4. Which of the following is NOT a primary e-business category? a. Business-to-consumer b. Consumer-to-consumer c. Business-to-business d. none of the above ANS: B

PTS: 1

5. Business to business (B2B)

a. b. c. d.

systems are limited to companies that see over the Internet represents the majority of e-business volume both a. and b. neither a. nor b.

ANS: B

PTS: 1

6. Suggesting items to Internet customers based on their buying patterns a. is from the collection and analysis of customer purchase data b. is known as "shop at one location" c. has increased sellers' inventory levels d. all of the above ANS: A

PTS: 1

7. Vendor online catalogs can be viewed by customers through a(n): a. Browser b. Compiler c. Intranet d. none of the above ANS: A

PTS: 1

8. According to the text, this is a "book of original entry" a. business event data store b. data maintenance store c. master data store d. standing data store ANS: A

PTS: 1

9. These are repositories of relatively permanent data maintained over an extended period of time a. business event data b. data maintenance c. master data d. standing data ANS: C

PTS: 1

10. These are relatively permanent portions of master data a. business event data b. data maintenance c. master data d. standing data ANS: D

PTS: 1

11. This includes data processing functions related to accounting events, internal operations and financial statement preparation a. batch processing b. information processing c. periodic processing d. data maintenance ANS: B

PTS: 1

12. The processing mode in which there is a delay between the various data processing steps is referred to as: a. imperial mode b. periodic mode c. immediate mode d. passive mode ANS: B

PTS: 1

13. In batch processing, business event data are collected and processed a. as soon as possible b. one at a time c. in groups d. using OLRT systems ANS: C

PTS: 1

14. A disadvantage of the periodic mode is: a. completeness b. accuracy c. validity d. timeliness ANS: D

PTS: 1

15. The correct sequence of subprocesses for the batch processing of accounting data is a. business event occurs, update master data, record business event data, generate outputs b. business event occurs, generate outputs, update master data, record business event data c. business event occurs, record business event data, update master data, generate outputs d. none of the above ANS: C

PTS: 1

16. A disadvantage of periodic mode systems is a. online master data are only up to date right after the processing has been completed b. it is more expensive to operate than immediate mode systems c. query capability always exists to extract up-to-date data d. data is updated after every transaction ANS: A

PTS: 1

17. In a(n) ____ system, use of data entry devices allows business event data to be entered directly into the information system at the time and place the business event occurs a. online transaction entry (OLTE) b. online transaction data (OLTD) c. Periodic d. electronic document management (EDM) ANS: A

PTS: 1

18. An online transaction entry (OLTE) system merges the traditional subprocesses of: a. business event occurrences and record business event data b. business event occurrences and update master data c. business event occurrences and generate outputs d. record business event data and update master data

ANS: A

PTS: 1

19. Systems that gather business event data at the time of occurrence, update the master data essentially instantaneously, and provide the results arising from the business event within a very short amount of time are referred to as: a. online transaction entry (OLTE) b. online real-time (OLRT) c. online transaction data (OLTD) d. electronic document management (EDM) ANS: B

PTS: 1

20. The processing mode in which there is no or little delay between any two data processing steps is referred to as: a. imperial mode b. periodic mode c. immediate mode d. passive mode ANS: C

PTS: 1

21. A system that supports constantly up-to-date reporting of data is a. online transaction entry (OLTE) b. online real-time (OLRT) c. online transaction data (OLTD) d. electronic document management (EDM) ANS: B

PTS: 1

22. Electronic document management (EDM) systems are capable of performing all of the following except: a. capture of data b. storage of data c. control of data d. creation of data ANS: D

PTS: 1

23. There are two categories of electronic document management (EDM) systems: a. document storage and retrieval and business event data processing b. document storage and document retrieval c. periodic storage and immediate retrieval d. immediate storage and periodic retrieval ANS: A

PTS: 1

24. The technology that is the physical and logical division between user-oriented application programs that are run at the client level and the shared data that must be available through a separate computer (server) that handles centrally shared activities is: a. online real-time technology b. client/server technology c. online transaction processing technology d. online transaction entry technology ANS: B

PTS: 1

25. ____ is (are) communication networks that link several different local user machines with printers, databases, and other shared devices. a. Wide area networks (WANs) b. Client/server technology c. Local area networks (LANs) d. The Internet ANS: C

PTS: 1

26. Benefits of electronic data management (EDM) include all of the following except a. reduced cost of handling and storing paper b. improved staff productivity c. faster processing d. less disk storage ANS: D

PTS: 1

27. Which of the following is not a cost of electronic data interchange (EDI)? a. buying or leasing of hardware and software b. training employees c. responsiveness to customers' needs d. reengineering applications ANS: C

PTS: 1

28. Electronic document management (EDM) includes all of the following except: a. capturing document images b. controlling document images c. storing document images d. all of the above are included in EDM ANS: D

PTS: 1

29. The benefits of electronic document management (EDM) include all of the following except: a. improved staff productivity b. reduced computer processing requirements c. reduced cost of handling and storing paper d. faster processing ANS: B

PTS: 1

30. Which of the following is not a benefit of electronic data interchange (EDI)? a. enables continued business with certain business partners b. improved responsiveness to customers' needs c. providing timely and accurate data d. training employees ANS: D

PTS: 1

31. There is a high chance of success using an Electronic Data Management (EDM) for applications in which a. data must be scanned b. large amounts of paper are produced and stored c. both of the above d. none of the above

ANS: C

PTS: 1

32. Which of the following are the two primary categories of e-business over the web? a. Client and server relationships b. Networks and network providers c. Assurance providers and vendors d. B2B and B2C ANS: D

PTS: 1

33. To implement a secure Electronic Data Interchange (EDI) system between two or more companies, they might use a(n): a. online transaction entry (OLTE) b. value-added network (VAN) c. online transaction data (OLTD) d. online real-time (OLRT) ANS: B

PTS: 1

34. In Electronic Data Interchange (EDI), the software that includes the purchasing system at the origin and the order entry system at the destination is known as a. translation software b. value-added network (VAN) c. the communications network d. application software ANS: D

PTS: 1

35. The fastest-growing segment of commerce-business is: a. electronic mail (e-mail) b. electronic document management (EDM) c. electronic data interchange (EDI) d. Internet commerce ANS: D

PTS: 1

36. Which of the following is not a benefit of Internet commerce? a. maintaining security of the Internet site b. improved responsiveness to customers' needs c. survival in a competitive industry d. global penetration ANS: A

PTS: 1

37. The risks of Internet commerce include all of the following except: a. redesign of existing business processes b. hackers may attempt to access sensitive information c. individuals or organizations may attempt to overload the system, preventing legitimate customers from accessing the site d. business partners have access to sensitive information ANS: A 38. WebTrust is a(n): a. e-mail program b. Internet provider

PTS: 1

c. Internet assurance service d. electronic document management program ANS: C

PTS: 1

39. Costs of Internet commerce include a. training employees b. reengineering application systems c. establishing connections with new customers d. all of the above ANS: D

PTS: 1

40. Cloud computing uses the Internet to provide services such as: a. electronic mail (e-mail) b. data storage c. software d. all of the above ANS: D

PTS: 1

41. Web Services includes the following technologies; a. electronic data interchange (EDI) b. simple object access protocol (SOAP) c. electronic document management (EDM) d. online transaction entry (OLTE) ANS: B

PTS: 1

42. Service-oriented architectures (SOAs) are independent functions (or applications) that can be distributed over a network via: a. Web services b. value-added networks (VANs) c. local area networks (LANs) d. wide area networks (WANs) ANS: A

PTS: 1

43. Internet market exchanges: a. restrict those that can participate b. eliminate the need for credit and background checks c. bring together buyers and sellers in the same industry d. are approved by the Federal Trade Commission (FTC) ANS: C

PTS: 1

44. The proper sequence of activities in a manual accounting system is: a. journalize, summarize, post b. journalize, post, summarize c. post, journalize, summarize d. post, summarize, journalize ANS: B COMPLETION

PTS: 1

1. The application of electronic networks (including the Internet) to exchange information and link business processes among organizations and individuals is referred to as ______________________________.

ANS: electronic business (e-business) electronic business e-business PTS: 1 2. Processes that include distribution, manufacturing, and accounting are ______________________________ processes.

ANS: back-office back office PTS: 1 3. A(n) ______________________________ is a book of original entry for recording business events.

ANS: business event data store PTS: 1 4. ______________________________ are repositories of relatively permanent data maintained over an extended period of time.

ANS: Master data PTS: 1 5. ______________________________ includes activities related to adding, deleting, or replacing the standing data portions of master data.

ANS: Data maintenance PTS: 1 6. ______________________________ includes data processing functions related to economic events such as accounting events, internal operations and financial statement preparation.

ANS: Information processing PTS: 1 7. ______________________________ include relatively permanent portions of master data, such as a customer's credit limit.

ANS: Standing data PTS: 1

8. ______________________________ is the processing mode in which a delay exists between the various data processing steps.

ANS: Periodic mode PTS: 1 9. ______________________________ is the aggregation of several business events over some period of time with the subsequent processing of these data as a group by the information system.

ANS: Batch processing PTS: 1 10. A device that is not directly connected to the central computer or network is referred to as a(n) ______________________________ device.

ANS: offline PTS: 1 11. In a(n) ______________________________ system, use of data entry devices allows business event data to be entered directly into the information system at the time and place that the business event occurs.

ANS: online transaction entry (OLTE) online transaction entry OLTE PTS: 1 12. A computer configuration in which certain equipment is directly connected to the computer is said to be ______________________________.

ANS: online PTS: 1 13. ______________________________ systems gather business event data at the time of occurrence, update the master data essentially instantaneously, and provide the results arising from the event within a very short amount of time.

ANS: Online real-time (OLRT) Online real-time OLRT PTS: 1 14. ______________________________ is the data processing mode in which little or no delay occurs between any two data processing steps.

ANS: Immediate mode PTS: 1 15. ______________________________ uses the Internet to provide scalable services to users, such as software, and resources, such as data storage.

ANS: Cloud computing PTS: 1 16. Systems that capture, store, manage, and control electronic document images are called ______________________________.

ANS: electronic document management (EDM) electronic document management EDM PTS: 1 17. ______________________________ is the physical and logical division between user-oriented application programs that are run at the client (user) level and the shared data that must be available through a server (separate computer) that handles centrally shared activities.

ANS: Client/server technology Client server technology Client-server technology PTS: 1 18. ______________________________ are communication networks that link several different local user machines with printers, databases, and other shared devices.

ANS: Local area networks (LANs) Local area networks LANs PTS: 1 19. ______________________________ are communication networks that link distributed users and local networks into an integrated communication network.

ANS: Wide area networks (WANs) Wide area networks WANs PTS: 1 20. The ______________________________ is a massive interconnection of computer networks worldwide that enables communication between dissimilar technology platforms.

ANS: Internet PTS: 1 21. ______________________________ are software programs designed specifically to allow users to easily view the various documents and data sources available on the Internet.

ANS: Web browsers PTS: 1 22. ______________________________ is unsolicited unwanted mail.

ANS: Spam PTS: 1 23. A mini-internal equivalent to the Internet that links an organization's internal documents and databases into a system that is accessible only to members of the organization, through Web browsers and are increasingly internally developed is a(n) ______________________________.

ANS: intranet PTS: 1 24. ______________________________ is the electronic transmission of nonstandardized messages between two individuals who are linked via a communications network.

ANS: Electronic mail (e-mail) Electronic mail e-mail PTS: 1 25. This type of intranet that has been extended to limited external access is a(n) ______________________________.

ANS: extranet PTS: 1 26. ______________________________ is the computer-to-computer exchange of business data in structured formats that allow direct processing of those electronic documents by the receiving computer system.

ANS: Electronic data interchange (EDI) Electronic data interchange EDI PTS: 1

27. A(n) ______________________________ service acts as the EDI "post office."

ANS: value-added network (VAN) value-added network VAN PTS: 1 28. ______________________________ is computer-to-computer exchange of business event data in structured or semi-structured formats via Internet communication that allows the initiation and consummation of business events.

ANS: Internet commerce PTS: 1 29. ______________________________ is a software application that supports direct interactions with software objects over an intranet or the Internet.

ANS: Web services PTS: 1 30. ______________________________ are companies that provide a link into the Internet by making their directly connected networks available for access by fee-paying customers.

ANS: Network providers PTS: 1 31. ______________________________ is a service provided for a fee to vendors in order to provide a limited assurance to users of the vendor's Web site that the site is in fact reliable and event data security is reasonable.

ANS: Internet assurance PTS: 1 32. The AICPA Internet assurance program that includes a certification and seal is called ______________________________.

ANS: WebTrust CPA WebTrust PTS: 1 33. ______________________________ provide an Internet base for companies to put products up for bid or for buyers to put proposed purchases up for bid.

ANS: Internet auction markets PTS: 1

34. ______________________________ enable suppliers to put their products online, generally feeding into electronic catalogs that allow the buyer(s) to sort through alternatives from different suppliers and electronically place an order.

ANS: Internet market exchanges PTS: 1 35. ______________________________ refer to well-defined, independent functions (or applications) that can be distributed over a network via Web Services.

ANS: Service-oriented architectures (SOAs) Service-oriented architectures SOAs PTS: 1 36. ______________________________ represent the creation of Internet-located resources for displaying goods and services for sale and for conducting related sales events.

ANS: Electronic storefronts PTS: 1 37. ______________________________ processes connect an organization to its customers and suppliers.

ANS: Front-office PTS: 1 ESSAY 1. Compare and contrast manual and automated accounting information systems.

ANS: The first activity in the manual accounting system is to journalize the business event (i.e., accounting transaction) in a book of original entry (i.e., a special or general journal). The second activity is to post the business event from the journal to a subsidiary ledger. The third activity is to post the total from the journal to the general ledger. The fourth activity is to summarize the business events by preparing a trial balance.

In an automated accounting information system, business event data are stored in a transaction file, which automates the general and special journals of the manual system. Master data, repositories of relatively permanent data maintained over an extended period of time, are updated (analogous to posting to ledgers). Two types of updates can be made to master data: information processing and data maintenance. Information processing includes data processing functions related to economic events such as accounting events, internal operations such as manufacturing, and financial statement preparation such as adjusting entries. Data maintenance includes activities related to adding, deleting, or replacing the standing data portions of master data. Standing data include relatively permanent portions of master data, such as the credit limit on customer master data and the selling price and warehouse location on inventory master data. The business event data is summarized by retrieving the general ledger master data from storage and printing (or preparing on screen) the trial balance.

A computerized AIS automates the manual accounting process with which you are already quite familiar and will often do so in such a way as to make the automated process roughly equivalent to the manual process. That is, when we computerize an AIS, we may merely change how the data are processed; we often won't change what tasks are performed.

PTS: 1 2. Discuss the advantages and disadvantages of the different modes of processing (i.e., OLTE and OLRT).

ANS: Advantages OLTE OLRT Data entered directly into the information Data entered directly into the information system at the time and place the transaction system at the time and place the transaction occurs. occurs.

Eliminates the need to have one person enter Transactions are processed individually and business event data on a source document and master files are updated instantaneously. then have a second person perform the data entry.

Use of bar code readers and scanners aid in Allows reports and queries to be executed at accuracy of inputs any time from up-to-date data.

Can be used with the periodic mode of transaction processing.

Disadvantages OLTE OLRT May require using expensive software and Requires expensive software, hardware, and hardware. communication systems.

Master files may be out-of-date except after Transactions cannot be aggregated on a local updating. computer to be transferred later to a data processing center.

PTS: 1 3. Discuss the alternative methods (E-mail, EDI, and Internet) of conducting e-business ANS:

E-mail is the electronic transmission of nonstandardized messages between two individuals who are linked via a communications network. Businesses can use e-mail to target market potential buyers.

This method of contacting customers is less expensive and more efficient than U.S. mail. However, the unstructured nature of e-mail makes data capturing more difficult. This can be overcome by including an electronic order form with the e-mail transmission. The use of e-mail may require some transaction keying by data entry personnel. In addition, the consumer may be hesitant to provide certain information via e-mail, since it is not a secured transmission vehicle.

Electronic data interchange (EDI) is the computer-to-computer exchange of business data (i.e., documents) in structured formats that allow direct processing of those electronic documents by the receiving computer system. The benefits of EDI include: business survival, improved responsiveness to customer needs, elimination of reentering data at the receiving organization, reduction of mailroom and other document preparation and handling costs, increased timeliness and accuracy of data, the opportunity to redesign processes and controls. Costs include: modifying trading relationship and renegotiating contracts, buying or leasing hardware and software, establishing relationships with VANs and negotiating contracts, training employees, reengineering affected applications, and implementing security, audit, and control procedures. Control considerations include: ensuring proper authorization, having preventive rather than detective controls, and increased need for program change controls and physical security.

Internet commerce is the computer-to-computer exchange of transaction data in structured or semi-structured formats via Internet communication that allows the initiation and consummation of business events. In many cases, the goods or services that are contracted for through the Internet are immediately (or soon after) forwarded back to the consumer via the Internet as well. Benefits of Internet commerce include: business survival, improved responsiveness to customers, global penetration, elimination of reentering data at the receiving organization resulting in increase timeliness and accuracy, reduction of mailroom and other document preparation the opportunity to redesign processes and controls. Costs include: organizational change, buying or leasing equipment and maintaining connection to the Internet, establishing new customers' connections, staffing and training of employees, reengineering application systems, and maintaining security of the Internet site. Risks include hacker attempt to access data, denial-of-service attacks and business partners that have access to sensitive internal data PTS: 1 4. Explain how the Internet and PCs could be used in a college course such as AIS to eliminate all paper exchanged between the students and the professor. What technologies (hardware, software) you would need to carry out your plan. Be as specific as possible.

ANS: The answers will vary by student but should include items such as: E-mail for electronic communication and possible exchange of files such as word processing files, spreadsheet files, and other files.

Course Website Internet based exams and or quizzes Chat rooms and/or Threaded discussions Digital drop box for students to submit files to the instructor Links to other documents Word processing files, files with presentation slides, spreadsheets, or other files should be made available through either the Website, e-mailed, or otherwise made available to the students Server technology so all have access to common materials, database access (with limits for student access)

Technologies needed include computers, hard drives, USB flash drive, Internet access, browser software, word processing software, spreadsheet software, presentation slide software, and other software as needed.

PTS: 1 PROBLEM 1. The following is a list of 10 terms and concepts from Chapter 3:

A. B. C. D. E.

Master data Standing data Summarize Post to subsidiary ledger Post to general ledger

Terms and concepts: F. Journalize G. Subsidiary ledger H. General ledger I. Information processing J. Data maintenance

Required: Listed below are ten descriptions of a term or concept. On the blank line to the left of each number, insert the capital letter from the list above of the term or concept that corresponds to the statement. A letter should be used only once.

Answers

DESCRIPTIONS 1.

Add a sale to a customer's account

2.

Record a sales transactions in a book of original entry

3.

Customer credit limit

4.

Accounts Receivable and Sales accounts

5.

Change inventory prices

6.

Increase the balance in the Sales and Accounts Receivable accounts

7.

Financial statement preparation

8.

Individual customer accounts receivable records

9.

Accounts receivable subsidiary ledger

10.

Prepare a trial balance.

ANS: Descriptions 1.

2.

3.

4.

5.

6.

Term or Concept D F B H J E

7.

8.

9.

10.

PTS: 1

I G A C

Chapter 4—Documenting Information Systems TRUE/FALSE 1. Flowcharts are commonly used for new systems implementations, business process reengineering, finance function transformations, and assessments of internal controls.

ANS: T

PTS: 1

2. Data flow diagrams (DFDs) depict a system's components; the data flows among the components; and the sources, destinations, and storage of data.

ANS: T

PTS: 1

3. Data flow diagrams (DFDs) present a comprehensive picture of the management, operations, information systems and process controls embodied in business processes.

ANS: F

PTS: 1

4. A data flow diagram (DFD) is a graphical representation of a system, which depicts the system's components, data flows and the sources, destinations and storage of data.

ANS: T

PTS: 1

5. System flowcharts use only four symbols.

ANS: F

PTS: 1

6. Systems documentation is used to understand, explain, evaluate, and improve complex business processes, information systems, and internal controls.

ANS: T

PTS: 1

7. In a data flow diagram (DFD), a bubble symbol shown below depicts an entity or a process within which incoming data flows are transformed into outgoing data flows.

ANS: T

PTS: 1

8. The advantage of a physical data flow diagram (DFD) versus a logical data flow diagram (DFD) is that we can concentrate on what activities a system is performing without having to specify how, where or by whom.

ANS: F

PTS: 1

9. In a data flow diagram (DFD), a square represents an internal entity.

ANS: F

PTS: 1

10. In a data flow diagram (DFD), two parallel lines represent the data store symbol.

ANS: T

PTS: 1

11. The following symbol represents general purpose input-output.

ANS: F

PTS: 1

12. The following symbol represents a computer process.

ANS: T

PTS: 1

13. The following symbol represents a manual process

ANS: T

PTS: 1

14. The following symbol represents a disk data store

ANS: F

PTS: 1

15. The following symbol represents a paper file.

ANS: T

PTS: 1

16. The following symbol represents a document.

ANS: F

PTS: 1

17. In a data flow diagram (DFD), an external entity symbol portrays a source or a destination of data outside the system.

ANS: T

PTS: 1

18. A context diagram is a top-level diagram of a system that depicts the system and all its activities as a single bubble.

ANS: T

PTS: 1

19. A customer is an example of an internal entity.

ANS: F

PTS: 1

20. Internal entities do not perform any information processing activities.

ANS: F

PTS: 1

21. An external entity is a person, place, or thing within the system that transforms data.

ANS: F

PTS: 1

22. A physical data flow diagram (DFD) uses bubbles to specify where, how, and by whom a system's processes are accomplished.

ANS: T

PTS: 1

23. When the context diagram and the level 0 diagram have equivalent external data flows, the DFDs are said to be balanced.

ANS: T

PTS: 1

24. The successive subdivision, or exploding, of logical data flow diagrams (DFDs) is called bottom up partitioning.

ANS: F

PTS: 1

25. A systems flowchart is a graphical representation of both the physical and logical features of an information system.

ANS: T

PTS: 1

26. Processes that handle other-than-normal situations are called exception routines.

ANS: T

PTS: 1

27. Information processing activities retrieve data from storage, transform data, or file data.

ANS: T

PTS: 1

28. An acceptance stub is a data flow that leaves a bubble but does not go to any other bubble or file and indicates processing that is performed in other than normal situations.

ANS: F

PTS: 1

29. In an enterprise system, we would have one data store/disk symbol labeled "enterprise database" instead of two or more data store symbols.

ANS: T

PTS: 1

30. When we convert to an enterprise system, reengineered processes often result from the installation and can cause changes throughout the systems flowcharts.

ANS: T

PTS: 1

31. Systems flowcharts portray business process activities, stores of data, and flows of data among those elements without presenting the physical details of those elements.

ANS: F

PTS: 1

32. Data flow diagrams (DFDs) portray a business process' activities, stores of data, and flows of data among those elements.

ANS: T

PTS: 1

33. In a data flow diagram, a square represents a source or destination of data outside the system.

ANS: T

PTS: 1

34. In a systems flowchart, two parallel lines represent the data store symbol.

ANS: T

PTS: 1

35. Internal entities are included on both data flow diagrams (DFDs) and systems flowcharts.

ANS: T

PTS: 1

36. Internal entities are included on data flow diagrams (DFDs) but not on systems flowcharts.

ANS: F

PTS: 1

37. External entities are persons, places, or things outside the context of the system.

ANS: T

PTS: 1

38. The successive subdividing, or "exploding," of physical data flow diagrams (DFDs) is called top-down partitioning.

ANS: F

PTS: 1

39. On a systems flowchart the start/stop symbol can also be an external entity.

ANS: T

PTS: 1

40. There can be only one correct logical data flow diagram (DFD) for any system.

ANS: F

PTS: 1

MULTIPLE CHOICE 1. A symbol used in data flow diagrams (DFDs) to depict an entity or process within which incoming data flows are transformed into outgoing data flows is a(n): a. data flow symbol b. external entity symbol c. bubble symbol d. data store symbol ANS: C

PTS: 1

2. A data flow diagram (DFD) could contain each of the following symbols except: a. a bubble or circle b. an octagon c. a square d. a curved line with an arrow head ANS: B

PTS: 1

3. Which of the following data flow diagram (DFD) symbols is represented by two parallel lines? a. data flow symbol b. external entity symbol c. internal entity symbol d. data store symbol ANS: D

PTS: 1

4. Which data flow diagram (DFD) symbol portrays a source or destination of data outside the system? a. data flow symbol b. external entity symbol c. bubble symbol d. data store symbol ANS: B

PTS: 1

5. Which data flow diagram (DFD) symbol is portrayed by two parallel lines? a. data flow b. data store c. external entity d. internal entity or process ANS: B

PTS: 1

6. Which data flow diagram (DFD) symbol is usually portrayed with a square? a. data flow b. data store c. external entity d. process or internal entity ANS: C

PTS: 1

7. Which data flow diagram (DFD) symbol is usually portrayed with an arrow? a. data flow b. data store c. external entity d. process or internal entity ANS: A

PTS: 1

8. In the top-down partitioning of process 3.0, the next level's process bubbles would be labeled (assuming there are four subprocesses): a. 1.3, 2.3, 3.3, 4.3 b. 3.A, 3.B, 3.D, 3.D c. 3.1, 3.2, 3.3, 3.4 d. 3.1.1, 3.1.2, 3.1.3, 3.1.4 ANS: C

PTS: 1

9. Which of the following data flow diagram (DFD) guidelines is correct? a. include within the system context any entity that performs one or more information processing activities b. read computer data stores from the process bubble that requires the data c. include within the system context any entity in the system narrative d. data flows should never go from higher- to lower-numbered bubbles ANS: A

PTS: 1

10. Which of the following systems flowcharting guidelines is correct? a. documents or reports printed by a central computer should first be show in that computer's column b. sequential process steps, with no intervening delay, should be shown as one process c. divide the flowchart into columns, one for each internal entity, and label each column d. use a manual process symbol to show the sending or filing of a document

ANS: C

PTS: 1

11. Those entities which perform no information processing activities for the system are called: a. external entities b. internal entities c. boundary entities d. environmental entities ANS: A

PTS: 1

12. Which symbol can be either an entity or a process depending on the type of data flow diagram (DFD)? a. bubble symbol b. external entity symbol c. data flow symbol d. data store symbol ANS: A

PTS: 1

13. Which of the following is the least detailed of the data flow diagrams? a. logical data flow diagram b. systems flowchart c. context diagram d. physical data flow diagram ANS: C

PTS: 1

14. In a physical data flow diagram (DFD), this is something within the system that transforms data. a. data flow b. data store c. external entity d. internal entity ANS: D

PTS: 1

15. In a physical data flow diagram (DFD), a bubble or circle could be used to specify each of the following except: a. where a process is performed b. how a process is performed c. by whom a process is performed d. what process is performed ANS: D

PTS: 1

16. Which type of data flow diagram specifies where, how, and by whom a system's processes are performed? a. context diagram b. physical data flow diagram c. logical data flow diagram d. systems flowchart ANS: B

PTS: 1

17. A person, place, or thing within a system that transforms data is called: a. external entity b. data store

c. internal entity d. Boundary ANS: C

PTS: 1

18. Which data flow diagram shows what activities the system is performing without having to specify how, where, or by whom the activities are accomplished? a. context diagram b. physical data flow diagram c. systems flowchart d. logical data flow diagram ANS: D

PTS: 1

19. A _______________ depicts a system’s infrastructure. a. context diagram b. physical DFD c. logical DFD d. system flowchart ANS: B

PTS: 1

20. In which of the following data flow diagrams does the bubble symbol represent a process and not the entire system? a. context diagram b. physical data flow diagram c. logical data flow diagram d. systems flowchart ANS: C

PTS: 1

21. In a logical data flow diagram (DFD) for a cash receipts system, each of the following labels might appear in a bubble except: a. cashier b. capture cash receipt c. prepare deposit d. record customer payment ANS: A

PTS: 1

22. The data flows in a logical data flow diagram (DFD) show: a. how the data are transmitted b. where the data are transmitted c. the nature of the data being transmitted d. who transmits the data ANS: C

PTS: 1

23. When two data flow diagrams (DFDs) have equivalent external data flows, we say that the two data flow diagrams are: a. congruent b. similar c. balanced d. equal ANS: C

PTS: 1

24. A process in which successive layers of data flow diagrams (DFDs) are constructed by "exploding" the bubbles on a less detailed DFD to show more detailed data flows is called: a. top-down partitioning b. serial expansion c. balanced construction d. expanded data flows ANS: A

PTS: 1

25. Which of the following statements related to the construction of data flow diagrams (DFDs) is false? a. The level 0 diagram is the next level down from the context diagram. b. If the level 0 diagram has one arrow going into bubble number 1.0 and two arrows leaving bubble number 1.0, then diagram 1.0 will show one arrow entering and two arrows leaving. c. Sources and destinations are depicted by parallel horizontal lines, between which the name of the entity is shown. d. Arrows represent a pathway for data.

ANS: C

PTS: 1

26. A systems flowchart varies from a data flow diagram (DFD) because it: a. only represents the information system b. only represents the operations system c. only represents the management system d. represents the management system, the operations system, and the information system ANS: D

PTS: 1

27. Information processing activities include: a. only automated activities b. activities that retrieve, transform, and file data c. the sending of data between entities d. operational activities ANS: B

PTS: 1

28. Why do auditors and systems analysts use systems documentation? a. to understand, explain, and improve complex systems b. only to provide justification to management for systems investments c. to reduce the number and amount of external entities d. to eliminate evidence to be collected ANS: A

PTS: 1

29. On a systems flowchart, computer processing is represented by a: a. Square b. Trapezoid c. Rectangle d. Parallelogram ANS: C

PTS: 1

30. On a systems flowchart, a paper file is represented by a: a. Triangle b. Cylinder

c. Rectangle d. Pentagon ANS: A

PTS: 1

31. On a systems flowchart, a solid line with an arrow indicates a(n): a. batch total b. telecommunications link c. off-page connector d. logical flow ANS: D

PTS: 1

32. Which of the following systems flowcharting symbol descriptions is incorrect?

a. b. c. d.

Disk computer process manual process Display

ANS: C

PTS: 1

33. Which of the following systems flowcharting symbols descriptions is incorrect?

a. b. c. d.

Tape on-page connector start/stop paper file

ANS: D

PTS: 1

34. Which of the following systems flowcharting symbols descriptions is incorrect?

a. b. c. d.

general purpose input-output manual process multiple-page document punched card

ANS: D

PTS: 1

35. How many circles (bubbles) are included in a correctly drawn context diagram? a. Zero b. One c. Three d. Between five and seven bubbles ANS: B

PTS: 1

36. An information processing activity could be any of the following except: a. sending or receiving data between entities b. document preparation c. data entry d. data verification ANS: A

PTS: 1

37. In drawing a context diagram, we should include: a. only exception routines b. only error routines c. only normal processing routines d. only normal processing and exception routines ANS: C

PTS: 1

38. Bubbles are labelled with nouns in a. physical data flow diagrams b. logical data flow diagrams c. both physical and logical data flow diagrams d. neither physical nor logical data flow diagrams ANS: A

PTS: 1

39. On a logical data flow diagram (DFD), data flows: a. always go from a higher-numbered to a lower-numbered bubble

b. never go from a higher-numbered to a lower-numbered bubble c. can go in either direction as needed d. must go from a bubble to a square ANS: B

PTS: 1

40. All of the following are "guidelines" for grouping activities in a level 0 DFD except: a. group activities if they occur in the same place and at the same time b. group activities if they occur at different times in the same place c. group activities if they occur at the same time but in different places d. group activities that seem to be logically related ANS: B

PTS: 1

41. When a transaction cannot be processed in a routine fashion because of an error or other processing problems, the transaction must be handled by a(n): a. rejection routine b. change report c. exception and summary report d. exception routine ANS: D

PTS: 1

42. The following is a jumbled list of the activities suggested in this text for drafting data flow diagrams (DFDs) for an existing system: I. II. III. IV. V.

Prepare a table of entities and activities.

Prepare an annotated table of entities and activities.

Draw a physical data flow diagram.

Draw a logical data flow diagram.

Draw a context diagram.

The best sequence for undertaking these activities is: a. I, II, V, III, IV b. I, V, III, II, IV c. II, I, III, V, IV d. II, IV, III, I, V ANS: B

PTS: 1

43. Examine the following context diagram and the related level 0 logical DFD. Which of the following statements is true?

a. The diagrams are prepared correctly. b. A context diagram must have a least two external entities.

c. The diagrams are not balanced. d. None of the above are true.

ANS: C

PTS: 1

44. Which statement concerning the following diagram 1.0 logical data flow diagram (DFD) is true?

a. b. c. d.

The data flow diagram follows DFD guidelines.

An arrow should never leave a bubble with no destination.

Data should only flow from a data store.

Data flow diagrams (DFDs) at this level should show the external entities.

ANS: A

PTS: 1

45. Which of the following segments violates guidelines for creating systems flowcharts?

a. b. c. d.

Segment a.

Segment b.

Segment c.

Segment d.

ANS: A

PTS: 1

46. The following systems flowchart segment depicts a data entry clerk keying data from a source document into a business event data store. Which statement is correct?

a. b. c. d.

The systems flowchart was created properly.

The arrow between the computer process and the data store should be bi-directional.

The computer process should be shown in the computer column.

The second symbol in the data entry clerk column should be a square.

ANS: C

PTS: 1

47. The following systems flowchart segment depicts a user's query of a data store to view information on a computer screen. Which statement is correct?

a. The systems flowchart was created properly. b. Only a single direction arrow should connect the data store symbol to the process query symbol. c. The query input symbol should be a square. d. The query input symbol should be in the computer column.

ANS: B

PTS: 1

48. The following systems flowchart segment depicts a user entering business event data from a source document to update a master file data store. Which statement is correct?

a. b. c. d.

The systems flowchart was created properly.

Only a single disk must be used to represent the master data.

The every day symbol should be connected with a solid line.

The master data is a sequential data store.

ANS: D

PTS: 1

49. System flowchart logic should: a. flow from left to right b. flow top to bottom c. flow from bottom to top d. a. and b. but minimize crossed lines and connectors ANS: D

PTS: 1

50. Which of these represent a comprehensive picture of management, operations and information systems? a. context diagram b. logical data flow diagram c. physical data flow diagram d. systems flowchart ANS: D

PTS: 1

COMPLETION 1. In a data flow diagram (DFD), a(n) ______________________________ symbol depicts an entity or a process within which incoming data flows are transformed into outgoing data flows.

ANS: bubble PTS: 1 2. In a data flow diagram (DFD), a(n) ______________________________ symbol represents a pathway for data.

ANS: data flow

PTS: 1 3. In a data flow diagram (DFD) data store symbols are represented by ______________________________.

ANS: two horizontal parallel lines PTS: 1 4. In a data flow diagram (DFD), a(n) ______________________________ symbol portrays a source or a destination of data outside the system.

ANS: external entity PTS: 1 5. A(n) ______________________________ is the top-level, or least detailed, diagram of a system depicting the system and all its activities as a single bubble and showing the data flows into and out of the system and into and out of the external entities.

ANS: context diagram PTS: 1 6. Bubbles are labelled with verbs in a ____________ data flow diagram.

ANS: logical PTS: 1 7. ______________________________ are those persons, places, or things outside the system that send data to, or receive data from, the system.

ANS: External entities PTS: 1 8. A(n) ______________________________ is a person, place, or thing within the system that transforms data.

ANS: internal entity PTS: 1 9. A(n) ______________________________ specifies where, how, and by whom a system's activities are accomplished.

ANS: physical data flow diagram physical data flow diagram (DFD) physical DFD PTS: 1

10. A(n) ______________________________ shows what activities the system is doing without specifying how, where or by whom the activities are accomplished.

ANS: logical data flow diagram logical data flow diagram (DFD) logical DFD PTS: 1 11. A(n) ______________________________ data flow diagram (DFD) depicts what activities the system performs rather than how, where, or by whom they are performed.

ANS: logical PTS: 1 12. When the context diagram and the level 0 diagram reflect the equivalent external data flows, the two diagrams are said to be ______________________________.

ANS: balanced PTS: 1 13. The successive subdividing, or exploding, of logical data flow diagrams (DFDs) is called ______________________________.

ANS: top-down partitioning PTS: 1 14. A(n) ______________________________ gives a complete picture of a system by combining physical and logical aspects of the system.

ANS: systems flowchart PTS: 1 15. A(n) ______________________________ is any action being performed by an internal or external entity.

ANS: activity PTS: 1 16. ______________________________ activities include retrieving data from storage, transforming data, or filing data.

ANS: Information processing PTS: 1 17. Processes that handle other-than-normal situations are called ______________________________ routines or ______________________________ routines.

ANS: exception, error error, exception PTS: 1 18. A(n) ______________________________ is a data flow that leaves a bubble but does not go to any other bubble or data store.

ANS: reject stub PTS: 1 19. When we document a(n) ______________________________ system, the central computer will have one data store/disk symbol.

ANS: enterprise PTS: 1 20. A(n) ______________________________ depicts a system and all of its activities as a single bubble.

ANS: context diagram PTS: 1 21. A(n) ______________________________ is a graphical representation of a system showing the system's internal and external entities and flows of data into and out of those entities.

ANS: physical data flow diagram physical data flow diagram (DFD) physical DFD PTS: 1 22. A(n) ______________________________ is a graphical representation of a system showing the system processes, data stores, and flows of data into and out of the processes and data stores.

ANS: logical data flow diagram logical data flow diagram (DFD) logical DFD PTS: 1 23. A(n) ______________________________ is a graphical representation of a business process, including information processes and the related operations processes.

ANS: systems flowchart PTS: 1

24. On a systems flowchart a triangle represents ____________.

ANS: paper PTS: 1 25. On a systems flowchart a rectangle represents a(n) ________________.

ANS: computer process PTS: 1 26. On a systems flowchart a small circle represents a(n) ___________________ ANS: on-page connector PTS: 1 27. A(n) ______________________________ process activities might include picking goods in the warehouse inspecting goods at the receiving dock, or counting cash.

ANS: operations PTS: 1 28. A(n) ______________________________ is a graphical representation of a system that depicts a system's components; the data flows among the components; and the sources, destination, and storage of data.

ANS: data flow diagram data flow diagram (DFD) DFD PTS: 1 29. Data entering from outside a system is depicted on a data flow diagram (DFD) as coming from a(n) ______________________________ entity.

ANS: source PTS: 1 30. Data leaving for outside a system is depicted on a data flow diagram (DFD) as going to a(n) ______________________________ entity.

ANS: destination PTS: 1 PROBLEM 1. Figure TB-4.1 is a "generic" level 0 data flow diagram (DFD), taken from Figure 4.5 in the text.

Required: Using good data flow diagram construction techniques draw a diagram to explode bubble 3.0 to its next lower level. Diagram 3.0 should contain three processes, appropriately numbered, and should contain the following data flows in addition to those in the level 0 diagram (see NOTE): a.

Flow H runs from the first process to the second. b.

Flow I runs from the first process to the third. c.

Flows J and K run from the second process to the third.

NOTE: Assume that the flows shown in the level 0 diagram affect diagram 3.0 as follows: 1.

Flow D runs to the first process in diagram 3.0.

2.

Flow B runs from the third process in diagram 3.0.

3.

The data flow running from the data store runs to the second process in diagram 3.0.

ANS:

PTS: 1 2. Figure TB-4.3 shows a context diagram of a cash sales system. The diagram intentionally violates several of the guidelines and other techniques presented in the text for drawing data flow diagrams.

Required: Identify as many of the errors in data flow diagram construction as you can. In the diagram, place consecutive numbers (each in a circle) next to the points at which the errors exist. On your solution sheet, list the numbers and write a one- to two-sentence description of each error and what the correct procedure should be. Error 1 is provided as an example of how to construct the solution (but you must place the circled number 1 on your solution diagram).

Error 1

Error Description Data flows should not connect two external entities. Depending on the extent of the system being analyzed, either the mail room or the bank entity should be eliminated or documented within the system.

ANS: INSTRUCTOR NOTE: You may wish to modify the requirement in one of two ways: (1) Have the students redraw the diagrams instead of describing the errors or (2) limit the number of errors required in the solution to something less than the entire population.

(Figure TB-4.4, an annotated version of Figure TB-4.3, shows the location of each error.)

Error 2 3 4

5

Error Description When multiple entities operate identically, one box can represent all. Eliminate all but one customer box and label it "Cash customer."

A context diagram should have only one bubble. Since the problem states that we are analyzing a cash sales system, eliminate this bubble.

In the context diagram and level 0 diagram, logical rather than physical labels should be used. Eliminate the reference to Form S92 and Sales slip and replace it with a logical label such as "Sales data."

The symbols used for the sales transaction event data file is incorrect. In a DFD, the file symbol is a pair of parallel, horizontal lines.

PTS: 1 3. Figure TB-4.5 shows a level 0 logical data flow diagram for a billing system. Also shown for reference is the context diagram for the system. The logical data flow diagram intentionally violates several of the guidelines and other techniques presented in the text for drawing data flow diagrams.

Required: Identify as many of the errors in the logical data flow diagram construction as you can. In the logical data flow diagram, place consecutive numbers (each in a circle) next to the points at which the errors exist. On your solution sheet, list the numbers and write a one- to two-sentence description of each error and what the corrected diagram should depict. If an error occurs in more than one place, mark each occurrence of the error. Error 1 is provided as an example of how to construct the solution. Do not identify nor correct any errors that may exist on the context diagram.

Error 1

Error Description The flow from bubble 2.1 to the Accounts receivable department is not labeled. The flow on the context diagram indicates that copy 3 of the sales invoice is sent to the accounts receivable department.

Correction: Add a label to the flow from bubble 2.1 to the Accounts receivable department. But, because data flows on a logical data flow diagram (DFD) should describe the nature of the data not how the data are transmitted, we should label this flow "Recorded sales invoice."

ANS: INSTRUCTOR NOTE: You may wish to modify the requirement in one of two ways: (1) Have the students redraw the diagram instead of describing the errors or (2) limit the number of errors required in the solution to something less than the entire population.

(Figure TB-4.6, an annotated version of the logical data flow diagram in Figure TB-4.5, shows the location of each error.)

Error 2

Error Description The bubbles in the level 0 data flow diagram are numbered 1.0, 2.0, etc.

Correction: Change the bubble labels as follows: bubble 1.1 becomes 1.0, 2.1 becomes 2.0, and 3.1 becomes 3.0.

3

4

5

6 7

8

PTS: 1

In a logical DFD, the process labels should contain verbs describing what is done.

The label in the first bubble is a noun, referring to a physical entity.

Correction: Change the label of bubble 1.1 (corrected to 1.0) to say something like "Prepare sales invoice."

Sales invoice copy 2 flow from bubble 3.1 (corrected to 3.0) to bubble 1.0. In a logical DFD, there can be no backward flows.

Correction: Eliminate the backward flow or send it to a subsequent process bubble for action, or file copy 2 of the sales invoice at bubble 3.0.

The symbols used for the price list, and inventory master data are incorrect.

Correction: Change the symbols for these two files to a pair of parallel, horizontal lines.

Reject stubs should appear only in lower-level data flow diagrams.

Correction: Eliminate the reject stub.

The Sales invoice data flow should be from the 1.0 bubble to the customer (see the context diagram. Also, the flow label indicates how the data is transmitted rather than the nature of the flow.

Correction: Change the direction of the flow and label the flow "Sales invoice."

Instructor Note: Several flows have physical labels indicating how the data are transmitted instead of the nature of the flow.

Corrections: Remove "original" (see correction number 7), "copy 2", and "copy 3" from the sales invoice flows.

4. Figure TB-4.7 shows several systems flowchart routines that intentionally violate good flowchart construction procedures.

Required: Redraw each of the routines so that they conform to the guidelines and other techniques presented in the text for drawing systems flowcharts. HINT: Be alert to the description of each routine; the descriptions should govern your solution.

ANS: INSTRUCTOR NOTE: You may wish to modify the requirement in one of two ways: (1) Have the students describe the violations instead of redrawing the flowchart segments or (2) limit the number of drawings required in the solution to only certain of the routines in Figure TB-4.7

PTS: 1

5. The following narrative describes the order entry process at Adams, Inc.: Narrative Description Adams, Inc. customers mail their orders to the Adams customer service center where clerks open the orders and review them for accuracy. The clerks then key orders into the computer. As the clerk is entering data the computer populates the order input screen with data from the applicable customer and inventory master data. The computer displays the completed order and the clerk reviews the order (assume there are no discrepancies) and then accepts the order (selects the "save" icon on the input screen). The computer then creates a sales order master record, updates the inventory master data to allocate inventory to the sales order, prints a picking ticket in the warehouse, and displays the sales order number to the customer service center clerk. The clerk then reads this number to the customer.

Required: a.

Prepare a table of entities and activities. b.

Prepare a context diagram. c.

Prepare a physical data flow diagram.

ANS: INSTRUCTOR NOTE: This problem requires students to prepare selected components of systems documentation. In contrast, Instructors wishing to focus on the creation of data flow diagrams can provide their students with the solution to part a. a.

b.

Table of Entities and Activities Entities Customer

Para 1

1.

Mail orders

Customer service center (clerks)

1 1 1

2.

3.

4.

Open orders Review orders Enter (key) orders into computer

Computer

1

5.

1

6.

Populate inputs with data from customer and inventory master data Display order

Customer service center (clerks)

1 1

7.

8.

Review order Accept order

Computer

1 1 1 1

9.

10.

11.

11.

Create sales order master record Update inventory master data to allocate inventory Print picking ticket in the warehouse Display sales order number

Customer service center (clerks)

1

12.

Read sales order number to customer

Warehouse

1

Context diagram.

Activities

c.

Physical DFD

PTS: 1 6. Adams, Inc. customers mail their orders to the Adams customer service center where clerks open the orders and review them for accuracy. The clerks then key orders into the computer. As the clerk is entering data the computer populates the order input screen with data from the applicable customer and inventory master data. The computer displays the completed order and the clerk reviews the order (assume there are no discrepancies) and then accepts the order (selects the "save" icon on the input screen). The computer then creates a sales order master record, updates the inventory master data to allocate inventory to the sales order, prints a picking ticket in the warehouse, and displays the sales order number to the customer service center clerk. The clerk then reads this number to the customer.

Required: a.

Prepare an annotated table of entities and activities. Indicate on this table the groupings⎯bubble numbers and bubble titles⎯to be used in preparing the level 0 logical data flow diagram. b.

Prepare a logical data flow diagram (level 0 only). The context diagram of this billing system shows two external entities: customers and the shipping department. c.

Prepare a systems flowchart.

ANS:

INSTRUCTOR NOTE: This problem requires students to prepare selected components of systems documentation. Instructors wishing their students to prepare all systems documentation should use Problems 5 & 6 (in the original banks). a.

Table of Entities and Activities (annotated) Entities

Para 1 1

Activities 2. Open orders 3. Review orders

1

4. Enter (keys) orders into computer

1 1

5. Populate inputs with data from customer and inventory master data 6. Display order

Customer service center (clerks)

1 1

7. Review order 8. Accept order

Computer

1 1

9. Create sales order master record 10. Update inventory master data to allocate inventory 11. Print picking ticket in the warehouse 11. Display sales order number

Customer service center (clerks)

Computer

1 1 Customer service center (clerks)

b.

Logical DFD.

c.

Systems flowchart

12. Read sales order number to customer

Processes 1.0 Enter customer order

2.0 Verify and accept customer order

3.0 Record customer order

PTS: 1 7. The figure below contains 14 symbols used in constructing data flow diagrams or system flowcharts.

Each symbol has been assigned a capital letter (A through N) for identification in this problem. The following is a list of 14 data flow diagram or flowcharting symbols:

(1) (2) (3) (4) (5) (6) (7)

Data store (in a data flow diagram) Entity or process (in a data flow diagram) External entity (in a data flow diagram) Document Manual keying Computer process Manual process

(8) (9) (10) (11) (12) (13) (14)

Display Disk Paper file Off-page connector Start/stop Annotation Batch total

Required: Match each symbol to its corresponding description by writing the description number below the each symbol.

ANS: A. (7) B. (8) C. (6) D. (10) E. (3) F. (14) G. (1)

H. I. J. K. L. M. N.

(12) (2) (11) (13) (5) (9) (4)

PTS: 1 8. For each of the following, indicate whether it is a characteristic of a A. physical data flow diagram B. logical data flow diagram C. systems flowchart 1.

2.

3.

4.

5.

6.

A graphical representation of a system showing the system's processes, data stores, and the flows of data into and out of the processes and data stores.

Used by auditors and managers to understand a system and to analyze a system's controls.

Depicts a system's infrastructure.

Depicts the sequence of activities performed as the business events flow through the process.

Includes the operations process and management context for a system.

Labels on flows of data describe the nature of the data but not how the data are

7.

8.

9.

10.

11.

12.

transmitted.

Presents a logical and physical rendering of the who, what, how, and where of information and operations processes.

Processes are labeled with nouns.

Processes are labeled with verbs.

Provides a complete picture of a system by combining the physical and logical aspects of the system.

Represents what activities the system is performing, but not how, where or by whom.

Specifies where, how, and by whom a system's processes are accomplished.

ANS: 1.

B 2.

C 3.

A 4.

B and C NOTE: Both a logical DFD and a systems flowchart depict the sequence of activities through a process.

5.

C 6.

B 7.

C 8.

A 9.

B 10. C 11. B 12. A PTS: 1 ESSAY 1. Compare and contrast the description and use of physical data flow diagrams and logical data flow diagrams.

ANS: A physical data flow diagram is a graphical representation of a system showing the system's internal and external entities, and the flows of data into and out of these entities. Physical data flow diagrams specify where, how, and by whom a system's processes are accomplished. A physical data flow diagram does not tell us what activities are being accomplished.

A logical data flow diagram is a graphical representation of a system showing the system's processes, data stores, and the flows of data into and out of the processes and data stores. Logical data flow diagrams are used to document information systems because they represent the logical nature of a system⎯what activities the system is performing⎯without having to specify how, where, or by whom the activities are accomplished. The advantage of a logical DFD (versus a physical DFD) is that we can concentrate on the functions that a system performs.

PTS: 1

Chapter 5—Database Management Systems TRUE/FALSE 1. Business processes, such as hiring employees, purchasing inventory, and collecting cash from customers, are called events.

ANS: T

PTS: 1

2. The traditional applications approach to business event processing concentrates on the process being performed.

ANS: T

PTS: 1

3. The centralized database approach to business event processing, in which facts about events are stored in relational database tables instead of separate files, solves many of the problems caused by data redundancy.

ANS: T

PTS: 1

4. When different information about the same fact is stored in different files the integrity of the data is violated.

ANS: T

PTS: 1

5. A database management system (DBMS) is a set of standalone programs designed to complicate the tasks of creating, accessing, and managing data.

ANS: F

PTS: 1

6. The database administrator is responsible for administrative and technical issues related to the database management system.

ANS: T

PTS: 1

7. The database management system, containing data related to all an organization's applications, supports normal data processing needs and enhances the organization's management activities by providing data useful to managers.

ANS: T

PTS: 1

8. Data independence refers to decoupling the data from the system applications, and it is a major difference between the centralized database approach and the applications approach.

ANS: T

PTS: 1

9. Classifying data refers to grouping or categorizing data according to some common attributes.

ANS: T

PTS: 1

10. Another name for sequential coding is block coding.

ANS: F

PTS: 1

11. The uniform product codes (UPCs) used by supermarkets and other retailers are examples of a block coding scheme.

ANS: T

PTS: 1

12. Both the mnemonic and the hierarchical coding schemes attach specific meaning to particular character positions.

ANS: F

PTS: 1

13. Because it uses alphabetic characters, a sequential coding system is most understandable to human beings.

ANS: F

PTS: 1

14. A check digit is a code that includes an extra digit to a code in order to check the accuracy with which the code is keyed into a computer.

ANS: T

PTS: 1

15. The centralized database approach to data management concentrates on the process being performed, rather than on the data themselves.

ANS: F

PTS: 1

16. A DBMS is a set of integrated computer programs designed to simplify the tasks of creating, accessing, and managing a centralized database.

ANS: T

PTS: 1

17. The applications approach to data management decouples the data from the applications or other users of the data.

ANS: F

PTS: 1

18. In the network database model, a child record can have more than one parent record.

ANS: T

PTS: 1

19. A description of a portion of a schema is referred to as a subschema.

ANS: T

PTS: 1

20. A scanner is used to access a database and to produce inquiry reports.

ANS: F

PTS: 1

21. Data warehousing is the use of information systems facilities to focus on the collection, organization, integration, and long-term storage of entity-wide data.

ANS: T

PTS: 1

22. Data redundancy allows non-technical users to bypass the programmer and to access the database directly.

ANS: F

PTS: 1

23. Data mining refers to the exploration, aggregation, and analysis of large quantities of varied data from across the organization.

ANS: T

PTS: 1

24. A data model for a database is often depicted using entity-relationship diagrams.

ANS: T

PTS: 1

25. A data model depicts user requirements for data stored in a database.

ANS: T

PTS: 1

26. A secondary key uniquely identifies any row within a relational table.

ANS: F

PTS: 1

27. An attribute is equivalent to a field and may also be known as a row.

ANS: F

PTS: 1

28. In a hierarchical database model, all record relationships are 3:N. ANS: F

PTS: 1

29. In a hierarchical database model, a child record may only have one parent.

ANS: T

PTS: 1

30. In a relational database model, data are logically organized into two-dimensional tables.

ANS: T

PTS: 1

31. In a network database model, data are logically organized into two-dimensional tables.

ANS: F

PTS: 1

32. An object-oriented database system is a database that allows both simple and complex objects to be stored using abstract data types.

ANS: T

PTS: 1

33. The normalization process involves the application of various rules (called normal forms) that yields relational tables that are free of anomalies.

ANS: T

PTS: 1

34. An unnormalized table is a table that contains repeating attributes (or fields) within each row (or record).

ANS: T

PTS: 1

35. A table is in second normal form (2NF), if it does not contain repeating groups.

ANS: F

PTS: 1

36. A table is in first normal form (1NF) if it has no partial dependencies; that is, no non-key attribute is dependent on only a portion of the primary key.

ANS: F

PTS: 1

37. Update anomalies are problems in a relation table caused by the existence of functional dependencies.

ANS: T

PTS: 1

38. A relation is in third normal form (3NF) if it is in first normal form and no nonkey attribute is dependent on only a portion of the primary key.

ANS: F

PTS: 1

39. A partial dependency happens when an attribute that is dependent on a portion of the primary key not on the entire key.

ANS: T

PTS: 1

40. An attribute is an item of data that characterizes an entity or relationship.

ANS: T

PTS: 1

41. Each relationship has a characteristic, called a cardinality that shows the degree to which each entity participates in the relationship.

ANS: T

PTS: 1

42. Maximum cardinality is used to specify the minimum level of participation that one entity can have with another entity.

ANS: F

PTS: 1

43. In set theory, a two-dimensional collection of information is called a relation.

ANS: T

PTS: 1

44. A spreadsheet is a typical component of a decision support system.

ANS: T

PTS: 1

45. Executive information systems use complex processing and calculations to determine a solution to a problem.

ANS: F

PTS: 1

46. Group Support Systems (GSS) focus on such functions as e-mail, scheduling, and document sharing.

ANS: F

PTS: 1

47. An expert system helps make complex decisions consistently.

ANS: T

PTS: 1

48. A neural network is a software program that may be integrated into DSS or other software tools.

ANS: F

PTS: 1

49. An intelligent agent is a computer-based system of hardware and software that mimics the human brain's ability to recognize patterns or predict outcomes using less-than-complete information.

ANS: F

PTS: 1

50. Knowledge management is the process of capturing, storing, retrieving, and distributing the knowledge of the individuals in an organization for use by others in the organization to improve the quantity and/or efficiency of decision making.

ANS: T

PTS: 1

51. Data warehousing and data mining are driving many new DBMS implementations.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. Data redundancy: a. occurs when data is stored in multiple locations b. is eliminated by using the applications approach c. reduces labor and storage costs d. improves consistency between applications ANS: A

PTS: 1

2. Which of the following statements related to the event-driven approach is false? a. It attempts to describe all aspects of business events. b. It is also referred to as the top-down approach. c. It focuses on how users interact with business events and processes. d. It usually results in a better database design than the bottom-up approach.

ANS: C

PTS: 1

3. A record layout depicts: a. the characters comprising a field b. the fields comprising a record c. the records comprising a file d. the characters comprising a record ANS: B

PTS: 1

4. Grouping or categorizing data according to common attributes is called: a. coding data

b. filing data c. classifying data d. updating data ANS: C

PTS: 1

5. Another name for sequential coding is: a. block coding b. serial coding c. hierarchical coding d. significant digit coding ANS: B

PTS: 1

6. The uniform product codes (UPC) used in supermarkets is a type of: a. block code b. serial code c. hierarchical code d. significant digit code ANS: A

PTS: 1

7. A company uses a 7-digit number to identify customers. For example, the customer 1532789 indicates the following information: digits 1-2, state, 15 = Georgia digit 3, type of organization, 3 = government agency digit 4, credit terms, 2 = 2/10, n/30 digits 5-7, unique customer identifier, 789 This type of coding scheme is: a. hierarchical b. block c. significant digit d. sequential ANS: C

PTS: 1

8. A postal ZIP code is an example of which of the following coding schemes? a. block code b. serial code c. hierarchical code d. significant digit code ANS: C

PTS: 1

9. The coding system that is most understandable by human information processors is: a. serial coding b. hierarchical coding c. block coding d. mnemonic coding ANS: D

PTS: 1

10. Which of the following is the most likely coding scheme for college courses? a. hierarchical coding

b. sequential coding c. block coding d. mnemonic coding ANS: D

PTS: 1

11. An extra character added to a numeric code as a device to test the accuracy of data entered into a computer system is called a: a. control digit b. check digit c. mnemonic digit d. significant digit ANS: B

PTS: 1

12. Assigning numbers to objects in chronological sequence is known as: a. block coding b. mnemonic coding c. sequential coding d. check digit coding ANS: C

PTS: 1

13. The ____ concentrates on the process being performed with data playing a secondary or supporting role. a. database management approach b. hierarchical data management approach c. transaction processing approach d. applications approach ANS: D

PTS: 1

14. Which of the following statements regarding the centralized database approach to data management is false? a. Facts about events are stored in relational database tables. b. Users can access and manipulate data using their own models. c. The approach eliminates many of the problems caused by data redundancy. d. In this approach, data and applications are dependent on each other.

ANS: D

PTS: 1

15. The computer software needed to implement a database approach to data management that is not needed with the applications approach to data management is: a. operating system software b. database management system (DBMS) software c. application program software d. query language software ANS: B

PTS: 1

16. Which of the following is not a database model discussed in Chapter 5: a. Relational b. Hierarchical c. Network d. Physical

ANS: D

PTS: 1

17. The feature of a database management system that enables nontechnical users to access a database and to produce inquiry reports is the: a. Schema b. query language c. Subschema d. logical database view ANS: B

PTS: 1

18. Decoupling the data from the system applications is a major difference between the centralized database approach and the applications approach and is known as: a. data independence b. data manipulation c. data redundancy d. query language ANS: A

PTS: 1

19. With the centralized database approach to data management, we expect to have: a. increased data storage costs b. improved data integrity c. increased data redundancy d. greater difficulty in performing file maintenance ANS: B

PTS: 1

20. Which of the following advantages of the centralized database approach does not occur because of a reduction in data redundancy? a. reduced storage costs b. easier maintenance c. increased data integrity d. reduced user and programmer training ANS: D

PTS: 1

21. Which of the following is not a function that a database management system performs? a. Defining the data. b. Defining the relations among data. c. Interfacing with the operating system for storage of the data on the physical media. d. Coordinating access to data stored in the applications programs.

ANS: D

PTS: 1

22. The exploration, aggregation, and analysis of large quantities of varied data from across the organization is known as: a. data independence b. data mining c. data redundancy d. data warehousing ANS: B

PTS: 1

23. Which of the following statements related to events-driven systems is false? a. In events-driven systems data is aggregated and maintained in its original form.

b. With an events-driven system management views information systems processing as a decision-support activity. c. Organizations adopting an events-driven system are focused on capturing data for the purpose of generating reports. d. Users should be able to access and manipulate data using their own models and their own data aggregations.

ANS: C

PTS: 1

24. A(n) ____ reflects a system's key entities and the relationship among them. a. data flow diagram b. relational table c. program flowchart d. entity-relationship diagram ANS: D

PTS: 1

25. A resource, event, or agent about which data are collected is called: a. an attribute b. an entity c. a relationship d. a query ANS: B

PTS: 1

26. In an entity-relationship diagram, ____ are used to show the characteristics of relationships. a. squares b. circles c. diamonds d. parallelograms ANS: C

PTS: 1

27. A data model depicts the requirements for data as specified by the: a. database b. enterprise c. user d. database administrator ANS: C

PTS: 1

28. In a(n) ____ database model, records are organized in a pyramid structure. a. hierarchical b. relational c. network d. object-oriented ANS: A

PTS: 1

29. The ____ database model works well for simple data structures, but falls apart quickly when the data becomes more complex. a. Hierarchical b. Relational c. Network d. object-oriented

ANS: A

PTS: 1

30. In a(n) ____ database model, a child record may have more than one parent. a. hierarchical b. relational c. network d. object-oriented ANS: C

PTS: 1

31. ____ databases include abstract data types that allow users to define characteristics of the data to be stored when developing an application. a. Hierarchical b. Relational c. Network d. Object-oriented ANS: D

PTS: 1

32. In a(n) ____ database model, data are logically organized into two-dimensional tables. a. hierarchical b. relational c. network d. object-oriented ANS: B

PTS: 1

33. The use of information systems facilities to focus on the collection, organization, integration, and long-term storage of entity-wide data is known as: a. data independence b. data mining c. data redundancy d. data warehousing ANS: D

PTS: 1

34. In an object-oriented database model, what types of objects can be stored through use of abstract data types, inheritance, and encapsulation? a. simple b. complex c. both simple and complex d. neither simple nor complex ANS: C

PTS: 1

35. Object-oriented databases: a. include abstract data types b. organize data in two-dimensional tables c. are inferior to relational databases d. are used by most organizations ANS: A

PTS: 1

36. If attribute A determines a single value for attribute B at any time, we say that attribute B is ____. a. a parent of attribute A b. a child of attribute A

c. functionally dependent on attribute A d. networked to attribute A ANS: C

PTS: 1

37. A relation that is in ____ form contains repeating attributes within each row or record. a. unnormalized b. first normal (1NF) c. second normal (2NF) d. third normal (3NF) ANS: A

PTS: 1

38. A relation is in second normal form (2NF) if it is in first normal form (1NF) and: a. if the only determinants it contains are candidate keys. b. no non-key attribute is dependent on only a portion of the primary key. c. it does not contain any repeating groups. d. computed fields are eliminated.

ANS: B

PTS: 1

39. Of the following options, a database that is in ____ form has the best design. a. unnormalized b. first normal (1NF) c. second normal (2NF) d. third normal (3NF) ANS: D

PTS: 1

40. The applications approach to business event processing: a. concentrates on integrated applications b. uses a central database c. has data redundancy d. none of the above ANS: C

PTS: 1

41. Running an applications approach to sales and inventory programs leads to: a. a central database b. data redundancy c. higher efficiencies d. reports that are easier to query ANS: B

PTS: 1

42. Data flows that mirror and monitor business operations are called ____ flows. a. horizontal information b. vertical information c. Sequential d. master data ANS: A

PTS: 1

43. Data flows that provide a basis for managerial decisions are called ____ information flows. a. horizontal b. vertical

c. sequential d. master ANS: B

PTS: 1

44. The approach to business event processing in which facts are stored in a relational database is: a. the centralized database approach b. the applications approach c. the logical approach d. none of the above ANS: A

PTS: 1

45. In a DBMS, a complete description of the configuration of record types, data items and the relationships among them is known as: a. query language b. Subschema c. Schema d. DML ANS: C

PTS: 1

46. A ____ describes a portion of a DBMS' configuration of record types and data items and the relationships among them. a. query language b. Subschema c. Schema d. DML ANS: B

PTS: 1

47. The way a user thinks of the data in a database is called the user's: a. physical view b. logical view c. data entry view d. screen view ANS: B

PTS: 1

48. Which of the following statements is true of a hierarchical DBMS? a. child records can have more than one parent record b. parent records can have many child records c. the DBMS works well with complex data d. all of the above ANS: B

PTS: 1

49. Which of the following statements is true of a network database model? a. child records can have more than one parent record b. parent records can have many child records c. both a and b d. none of the above ANS: C

PTS: 1

50. The model that only works well for simple data structures is the:

a. b. c. d.

hierarchical database model network database model relational database model object-oriented database model

ANS: A

PTS: 1

51. The model that logically organizes data into two-dimensional tables is the: a. hierarchical database model b. network database model c. relational database model d. object-oriented database model ANS: C

PTS: 1

52. The model that includes abstract types that allow users to define data to be stored in the database is the: a. hierarchical database model b. network database model c. relational database model d. object-oriented database model ANS: D

PTS: 1

53. A unique identifier that serves as an address for each row in a database is called: a. the query b. the primary key c. the composite key d. the form ANS: B

PTS: 1

54. In the applications approach to business event processing, a data change in one application before updating another application could lead to: a. data redundancy b. inconsistent data c. data integrity d. data deletion ANS: B

PTS: 1

55. A(n) ____ depicts user requirements for data stored in a database. a. data model b. entity-relationship model c. E-R diagram d. all of the above ANS: D

PTS: 1

56. In creating an entity-relationship diagram, the correct sequence of steps is: a. create tables, identify entities, identify relationships b. identify relationships, identify entities, create tables c. identify entities, identify relationships, create tables d. create tables, identify relationships, identify entities ANS: C

PTS: 1

57. For the following diagram, which item is the entity?

a. b. c. d.

Students Name Address Street

ANS: A

PTS: 1

58. The mapping of the relationships between entities would be used in the development of a(n): a. context diagram b. physical DFD c. logical DFD d. E-R diagram ANS: D

PTS: 1

59. Which of the following is not a relationship type? a. one-to-many b. one-to-one c. one-to-few d. many-to-many ANS: C

PTS: 1

60. Which of the following database types has dominance in organizations? a. relational b. object-oriented c. network d. hierarchical ANS: A

PTS: 1

61. Each relationship in an E-R diagram has a ____ that shows the degree to which each entity participates in the relationship. a. maximum cardinality b. identifier c. cardinality d. primary key

ANS: C

PTS: 1

62. A decision maker prepares a presentation in a suitable format for a given decision at a given point in time when using a(n): a. neural network (NN) b. expert system (ES) c. group support system (GSS) d. decision support system (DSS) ANS: D

PTS: 1

63. The principal difference between an executive information system (EIS) and a decision support system (DSS) is that an EIS: a. suggests to the user the best choice from among alternative courses of action whereas the DSS merely provides information that could assist in making the decision b. is primarily about collecting and presenting information without doing additional processing or calculations c. uses both external and internal data whereas a DSS does not d. employs decision models whereas a DSS does not ANS: B

PTS: 1

64. The information system which emulates the problem-solving techniques of humans is called a(n): a. executive information system (EIS) b. group support system (GSS) c. decision support system (DSS) d. expert system (ES) ANS: D

PTS: 1

65. Which of the following statements about expert systems (ES) is false: a. They can help provide a competitive advantage. b. They are sometimes used as part of a down-sizing strategy. c. They only work well for simple decisions. d. They can be used to train new employees.

ANS: C

PTS: 1

66. The computer-based system of hardware and software that mimics the human brain's ability to recognize patterns or predict outcomes using less-than-complete information is referred to as: a. group support systems b. executive information system c. decision support system d. neural networks ANS: D

PTS: 1

67. A software program that may be integrated into DSS or other software tools is a(n): a. group support systems b. executive information system c. intelligent agent d. neural networks ANS: C

PTS: 1

COMPLETION 1. A meaningful change in the state of an enterprise such as hiring employees, purchasing inventory, and collecting cash from customers are called ______________________________.

ANS: business events PTS: 1 2. The ______________________________ approach to database design attempts to describe all aspects of the business events and processes under consideration.

ANS: event-driven PTS: 1 3. Analyzing collected historical data with multidimensional analytic tools and exploratory techniques is called ______________________________.

ANS: data mining PTS: 1 4. Primary key ______________________________ in a relational table must be a unique identifier for a row.

ANS: fields PTS: 1 5. In the ______________________________ to business event processing, each application collects and manages its own data.

ANS: applications approach PTS: 1 6. A(n) ______________________________ depicts the fields comprising a record.

ANS: record layout PTS: 1 7. ______________________________ is the process of grouping or categorizing data according to common attributes.

ANS: Classifying PTS: 1 8. Another name for sequential coding is ______________________________ coding.

ANS: serial

PTS: 1 9. The uniform product codes (UPCs) used by supermarkets and other retailers are examples of a(n) ______________________________ coding scheme.

ANS: block PTS: 1 10. ______________________________ coding schemes attach specific meaning to particular character positions by ordering items in descending order where each successive rank order is a subset of the rank above it.

ANS: Hierarchical PTS: 1 11. Because it uses alphabetic characters, a(n) ______________________________ coding system makes it easier for human beings to remember the codes.

ANS: mnemonic PTS: 1 12. A(n) ______________________________ is a code that includes an extra digit that can be used to verify the accuracy of the code.

ANS: check digit PTS: 1 13. The ______________________________ approach to business event processing concentrates on the process being performed, with data playing a secondary or supportive role to the programs.

ANS: applications PTS: 1 14. A(n) ______________________________ is a set of integrated programs designed to simplify the tasks of creating, accessing, and managing a database.

ANS: database management system (DBMS) database management system DBMS PTS: 1 15. Decoupling the data from the system applications is called ______________________________.

ANS: data independence PTS: 1

16. Systems that decouple data from system applications are often referred to as having ______________________________ architecture.

ANS: three-tier PTS: 1 17. The way a user thinks of data in a database is called the user's ______________________________.

ANS: logical view PTS: 1 18. The ______________________________ is the way data is actually stored on computer hardware.

ANS: physical view PTS: 1 19. A description of a portion of a schema is referred to as a(n) ______________________________.

ANS: subschema PTS: 1 20. A(n) ______________________________ language is used to access a database and to produce inquiry reports.

ANS: query PTS: 1 21. ______________________________ is the use of information systems facilities to focus on the collection, organization, integration, and long-term storage of entity-wide data.

ANS: Data warehousing PTS: 1 22. ______________________________ refers to the exploration, aggregation, and analysis of large quantities of varied data from across the organization.

ANS: Data mining PTS: 1 23. ______________________________ is the most popular data modeling approach.

ANS: Entity-relationship (E-R) modeling Entity-relationship modeling E-R modeling PTS: 1

24. In developing a data model, the term ______________________________ describes an association between entities.

ANS: relationship PTS: 1 25. A(n) ______________________________ depicts user requirements for data stored in a database.

ANS: data model PTS: 1 26. A(n) ______________________________ allows non-technical users to bypass the programmer and to access the database directly.

ANS: query language data manipulation language (DML) data manipulation language DML PTS: 1 27. ______________________________ is another name for query language.

ANS: Data manipulation language (DML) DML Data manipulation language PTS: 1 28. A(n) ______________________________ uniquely identifies any row within a relational table.

ANS: primary key PTS: 1 29. Database table ______________________________ each store one specific attribute of the type of things stored in a table.

ANS: columns PTS: 1 30. In a(n) ______________________________ database model, records are organized in a pyramid structure.

ANS: hierarchical PTS: 1

31. In a(n) ______________________________ database model, a child record may have more than one parent.

ANS: network PTS: 1 32. In a(n) ______________________________ database model, data are logically organized into two-dimensional tables.

ANS: relational PTS: 1 33. A(n) ______________________________ database model allows both simple and complex objects, including video clips and pictures, to be stored.

ANS: object-oriented PTS: 1 34. The goal of ______________________________ is to produce a database model that contains relationships that are in 3NF. ANS: normalization PTS: 1 35. An attribute is ______________________________ on a second attribute if the value for the first attribute determines a value for the second attribute at any time.

ANS: functionally dependent PTS: 1 36. A(n) ______________________________ happens when an attribute is dependent on a portion of the primary key not on the entire key.

ANS: partial dependency PTS: 1 37. A(n) ______________________________ table contains repeating attributes (or fields) within each row (or record).

ANS: unnormalized PTS: 1 38. A relation is in ______________________________ if it does not contain repeating groups.

ANS: first normal form (1NF) 1NF

first normal form PTS: 1 39. ______________________________ are problems in a relation table caused by the existence of functional dependencies.

ANS: Update anomalies PTS: 1 40. A table is in ______________________________ if it is in first normal form and no non-key attribute is dependent on only a portion of the primary key.

ANS: second normal form (2NF) 2NF second normal form PTS: 1 41. A(n) ______________________________ is the attribute whose value is unique for every entity that will appear in the database.

ANS: primary key attribute PTS: 1 42. ______________________________ is a measure of the highest level of participation that one entity can have in another entity.

ANS: Maximum cardinality PTS: 1 43. In set theory, a two-dimensional collection of information is called a(n) ______________________________.

ANS: relation PTS: 1 44. A(n) ______________________________ is an information system that assists managers with unstructured decisions by retrieving and analyzing data for purposes of identifying and generating useful information.

ANS: Decision support system Decision support system (DSS) DSS PTS: 1

45. A(n) ______________________________ is mainly about collecting and presenting information and less about doing additional processing and calculations.

ANS: executive information systems executive information system (EIS) EIS PTS: 1 46. A(n) ______________________________ is a computer-based system that supports collaborative intellectual work such as idea generation, elaboration, analysis, synthesis, information sharing, and decision making.

ANS: group support system group decision support system group support system (GSS) group decision support system (GDSS) GSS GDSS PTS: 1 47. A computer's ability to imitate human decision making when confronting situations that are complex and ambiguous is called ______________________________.

ANS: artificial intelligence PTS: 1 48. A(n) ______________________________ can be used to capture and retain the expertise of retiring employees.

ANS: expert system expert system (ES) ES PTS: 1 49. A(n) ______________________________ is a software program integrated into a decision support system or other software tool that can perform tasks without further direction from the user.

ANS: intelligent agent PTS: 1 50. A(n) ______________________________ is a computer hardware and software system that mimics the human brain's ability to recognize patterns or predict outcomes using less-than-complete information.

ANS: neural network

neural network (NN) NN PTS: 1 51. ______________________________ is the process of capturing, storing, retrieving, and distributing the knowledge of the individuals in an organization for use by others in the organization to improve the quantity and efficiency of decision making.

ANS: Knowledge management PTS: 1 52. ______________________________ is a method for freely and creatively generating as many ideas as possible without undue regard for their practicality or realism.

ANS: Brainstorming PTS: 1 PROBLEM 1. List 1 shows the coding schemes discussed and illustrated in Chapter 5, while List 2 contains eight coding examples.

List 1 - Coding Schemes A. Sequential (serial) B. Block C. Significant digit

D. E. F.

Hierarchical Mnemonic Check digit

List 2 - Coding Examples 1.

Sue Smith is taking three college courses this semester⎯AC 340, FI 101, and EN 280.

When you check with the Registrar's Office, you learn that Sue is enrolled in Accounting Information Systems, Principles of Finance, and English Literature.

2.

Pat Conroy's ZIP code is 29902. The first digit shows that Pat resides in South Carolina.

The last two digits (02) indicate that he lives in the town of Beaufort, which is located in Beaufort County⎯designated by the digits 99.

3.

Joe Langdon was the 151st employee hired by Acme Company. His employee ID number is 151.

4.

The uniform product code for an 18-ounce jar of Peter Pan Smart Choice peanut butter is 45300 00227, while the 28-ounce size of the same product has a code of 45300 00220.

Both are manufactured by Hunt-Wesson, Inc., as indicated by the first five digits (45300) of the UPC.

5.

Will Wodger's charge account number with J. C. Penney Co. is 923456-7. The 7 on the end of the number was generated by a computer algorithm in order to verify the accuracy with which the first six digits (923456) are keyed into the computer.

6.

Part of Xylox, Inc.'s general ledger chart of accounts reveals the following: Acc. # Account Title

1111 1112 1113 1121

Petty Cash Change Fund Cash in Bank Trade Account Receivables

You learn from the company's controller that the account numbers mean the following: First digit Second digit Third digit Fourth digit -

1XXX 1XX 1X 1

Assets Current Assets Current Asset Type (1X = Cash; 2X = Receivables) Specific account

7.

An example of a customer number at Fixit's Hardware is 1 0 3 548, where: 1 = Retail or wholesale customer 0 = Sales tax or not (1 = tax; 0 = no tax) 3 = Sales tax code (used to look up the tax rate) 548 = Unique identifier of a specific customer

8.

Rachel Rigby's employee number is AFP-293. Rachel works in the Assembly Department (A), is a full-time employee (F), and is paid on a piecework basis (P). The 293 is her unique identifier.

Required: On your solution sheet, list the numbers 1 through 8 from List 2. Next to each number, show the capital letter from List 1 that best describes the coding type represented by each example. HINT: Some letters from List 1 may be used for more than one coding example, while some letters may not be used at all.

ANS: 1.

E 2.

D 3.

A 4.

B

5.

6.

7.

8.

F D C E

PTS: 1 2. Normalize the database structure in Figure TB 5.1 by transforming it into first normal form (1NF).

ANS:

PTS: 1 3. Transform the relation in Figure TB 5.3 to second normal form (2NF). Label each new relation with a name that describes the attributes.

ANS:

PTS: 1 4. Transform the relation in Figure TB 5.5 to third normal form (3NF). Label each new relation with a name that describes the attributes.

ANS:

PTS: 1 5. Given the following: List 1 - Terms A. data mining B. data warehousing C. decision support system D. executive information system E. expert system

F. G. H. I.

group support system intelligent agent knowledge management neural network

List 2 - Descriptions 1.

This applies expertise extracted from a human expert to provide specific recommendations on problems or decisions.

2.

These systems are mainly about collecting and presenting information and often have the ability to drill down.

3.

This is a computer hardware and software system that mimics the human brain's ability to recognize patterns or predict outcomes using less-than-complete information.

4.

This is a computer-based system that supports collaborative intellectual work such as idea generation, elaboration, analysis, synthesis, information sharing, and decision making.

5.

This is a software program that may be integrated into a decision support system or other software tool (such as word processing, spreadsheet, or database packages).

6.

A spreadsheet is a typical component of this system.

7.

This is the process of capturing, storing, retrieving, and distributing the knowledge of the individuals in an organization for use by others in the organization to improve the quality and efficiency of decision making across the firm.

8.

This is the use of information systems facilities to focus on the collection, organization, integration, and long-term storage of entity-wide data.

9.

This is used to better understand an organization's business processes, trends within these processes, and potential opportunities to improve the effectiveness and efficiency of the organization.

Required: On your solution sheet, list the numbers 1 through 9 from List 2. Next to each number, show the capital letter from List 1 that best fits the description from List 2.

ANS: 1.

E 2.

D 3.

I 4.

F 5.

G PTS: 1

6.

7.

8.

9.

C H B A

Chapter 6—Relational Databases and SQL TRUE/FALSE 1. An entity in an accounting system can be classified as a resource, event or agent about which data are collected.

ANS: T

PTS: 1

2. Attributes are often called fields.

ANS: T

PTS: 1

3. A model is a complex representation of a simple entity or phenomenon.

ANS: F

PTS: 1

4. A primary attribute is the attribute whose value is unique for every entity that will appear in the database.

ANS: F

PTS: 1

5. The customer street address is often used as the key attribute in an REA diagram.

ANS: F

PTS: 1

6. In an REA diagram, the rectangle is used to represent the composite attribute.

ANS: F

PTS: 1

7. The first step in identifying all the relationships that should be included in a model is to identify users' existing and desired information.

ANS: T

PTS: 1

8. Relationships map and define the way in which data can be extracted from a database.

ANS: T

PTS: 1

9. A recursive relationship occurs between two different instances of an entity.

ANS: T

PTS: 1

10. Representing supervisors and their employees as separate entities in the model can lead to data redundancy.

ANS: T

PTS: 1

11. A recursive relationship is created when there is an employee being supervised, and another employee is the supervisor.

ANS: T

PTS: 1

12. The cardinality constraint is used less frequently than the participation constraint.

ANS: F

PTS: 1

13. The cardinality constraint is used to specify both the minimum and maximum participation of one entity in the relationship with the other entity.

ANS: F

PTS: 1

14. The notation 1:N is used to specify the relationship type of one-to-many.

ANS: T

PTS: 1

15. The notation of (1,1) is used to specify the relationship type of one-to-many.

ANS: F

PTS: 1

16. REA stands for resources, entities and agents.

ANS: F

PTS: 1

17. The fundamental requirement for moving toward an event-driven model is the complete integration of data related to an organization's business events.

ANS: T

PTS: 1

18. A legacy system is one that has existed in an organization for less than one year.

ANS: F

PTS: 1

19. A collection of data representing multiple occurrences of a resource, event, or agent is known as a relation.

ANS: T

PTS: 1

20. A set of data that describes a single instance of the entity represented by a relation is known as a tuple.

ANS: T

PTS: 1

21. A missing value is called a non-null.

ANS: F

PTS: 1

22. The secondary key is specified to uniquely identity each tuple in the relation.

ANS: F

PTS: 1

23. SQL is a powerful database language that can be used to define database systems, query the database for information, generate reports from the database, and access databases from within programs using embedded commands.

ANS: T

PTS: 1

24. Relational integrity specifies that for every attribute value in one relation that has been specified to allow reference to another relation, the tuple being referenced must remain intact.

ANS: T

PTS: 1

25. A relation in an ER model is the same as an entity in the REA model.

ANS: F

PTS: 1

26. Most DBMS available today that include SQL also include mechanisms within the DBMS itself for establishing and enforcing referential integrity.

ANS: T

PTS: 1

27. The INSERT command is used to add a single tuple to an existing relation.

ANS: T

PTS: 1

28. The UPDATE command demonstrates one of the weaknesses in most forms of SQL. ANS: F

PTS: 1

29. The DELETE command is used when we want to change one or more attribute values.

ANS: F

PTS: 1

30. Queries of a database are driven by SELECT commands.

ANS: T

PTS: 1

31. The DELETE command is the method used to delete a tuple from a relation.

ANS: T

PTS: 1

32. Knowledge management uses state-of-the art information technologies for storing and analyzing data to help managers make the best possible decisions for their companies.

ANS: F

PTS: 1

33. Business intelligence (BI) has been ranked as one of the top nine "key areas" of current developments in business information technology.

ANS: T

PTS: 1

34. Spreadsheets that are kept offline to an organization's enterprise systems can improve internal control.

ANS: F

PTS: 1

35. Composite attributes consist of multiple subattributes.

ANS: T MULTIPLE CHOICE

PTS: 1

1. An entity can be classified as all of the following except: a. resource b. event c. tuple d. agent ANS: C

PTS: 1

2. A(n) ____ of an entity is one specific thing of the type defined by the entity. a. agent b. composite attribute c. attribute d. instance ANS: D

PTS: 1

3. A(n) ____ is an item of data that characterizes an entity or relationship. a. agent b. composite attribute c. attribute d. instance ANS: C

PTS: 1

4. Which of the following is the entity or agent? a. Client b. client number c. client name d. client street address ANS: A

PTS: 1

5. Which of the following is the key attribute? a. Client b. client number c. client name d. client street address ANS: B

PTS: 1

6. Which of the following is an attribute but least likely to be the key attribute? a. Client b. client number c. client name d. client street address ANS: D

PTS: 1

7. Which of the following is a composite attribute? a. Client b. client number c. client name d. client street address ANS: D

PTS: 1

8. SQL a. b. c. d.

has become the de facto standard database language can be used to define database systems both a. and b. none of the above

ANS: C

PTS: 1

9. For the following entity and attribute model, what would be the key attribute of the Students entity?

a. b. c. d.

social security number name address street

ANS: A

PTS: 1

10. A key attribute is the attribute whose value is: a. undeterminable b. unique c. large d. the same for all attributes ANS: B

PTS: 1

11. The mapping of the relationships between entities would be used in the development of a(n): a. context diagram b. logical DFD c. physical DFD d. REA Model ANS: D

PTS: 1

12. The sequence of steps in identifying relationships in a model is: a. evaluate entities as pairs, identify user existing and desired information, evaluate each entity to determine if there is any need for two occurrences of the same entity type to be linked b. identify user's existing and desired information, evaluate entities as pairs, evaluate each entity to determine if there is any need for two occurrences of the same entity type to be linked

c. evaluate entities as pairs, evaluate each entity to determine if there is any need for two occurrences of the same entity type to be linked, identify user existing and desired information d. evaluate each entity to determine if there is any need for two occurrences of the same entity type to be linked, evaluate entities as pairs, identify user existing and desired information ANS: B

PTS: 1

13. Which of the following statements about the participation constraint is false? a. It specifies the degree of minimum participation of one entity in the relationship with the other entity. b. The constraint is either 1 or 0. c. It is the most common constraint in E-R diagrams. d. It provides more information than the cardinality constraint.

ANS: C

PTS: 1

14. Which of the following is not a relationship type? a. one-to-many b. one-to-one c. one-to-few d. many-to-many ANS: C

PTS: 1

15. Which relationship type does (1:N) mean? a. one-to-many b. one-to-one c. one-to-few d. many-to-many ANS: A

PTS: 1

16. The cardinality constraint: a. specifies the degree of minimum participation of one entity in the relationship with the other entity. b. provides more information than the participation constraint. c. is the most common constraint specified in E-R diagrams. d. all of the above.

ANS: C

PTS: 1

17. Customers of Hanson Company, a home furnishings wholesaler, place orders by contacting a sales representative via a toll-free number. Which is the appropriate relationship type for this relationship?

a. b. c. d.

1:1 1:N N:M N:1

ANS: B

PTS: 1

18. The constraint that is specifies the degree of minimum participation of one entity in the relationship with the other entity is called: a. cardinality constraint b. participation constraint c. economic constraint d. logical constraint ANS: B

PTS: 1

19. Students at Macom University use a Web-based course registration system. Identify the participation constraint of the following data model relationship. The university maintains student records until they graduate or do not enroll in a course for a 3-year period.

a. b. c. d.

N:M 1:N (1,1):(0,N) (1,1):(1,N)

ANS: D

PTS: 1

20. Common aspects of business intelligence include: a. access to massive amounts of data b. use spreadsheets c. does not require an extensive overhaul of the information system d. all of the above ANS: D

PTS: 1

21. A set of data that describes a single instance of the entity represented by a relation is known as a(n) ____. a. tuple b. resource c. agent d. event ANS: A

PTS: 1

22. Legacy systems do not usually have which of the following characteristics? a. developed on previous hardware (and/or software) platforms b. are easily adaptable to enterprise systems c. have been used by an organization for a long period of time d. all of the above are typical characteristics of legacy systems ANS: B

PTS: 1

23. In a relational database, a relation is defined as a collection of data representing multiple occurrences of the following except: a. a resource b. an event c. an activity

d. an agent ANS: C

PTS: 1

24. ____ are defined as a set of data that describes an instance of the entity represented by a relation. a. Attributes b. Tuples c. Primary keys d. Candidate keys ANS: B

PTS: 1

25. ____ specifies that for every attribute value in one relation that has been specified in order to allow reference to another relation, the tuple being referenced must remain intact. a. Cardinality constraint b. Participation constraint c. Referential integrity d. Economic constraint ANS: C

PTS: 1

26. Which of following is not a step in the process for specifying relations based on REA diagrams? a. Determine the attributes for each of the entities. b. Determine the number of tables. c. Create a separate relational table for each entity. d. Implement the relationships among the entities.

ANS: B

PTS: 1

27. A situation in which a particular supplier provides more than one type of inventory item to a firm and a particular type of inventory item is acquired from more than a single supplier is called a(n): a. one-to-one relationship b. one-to-many relationship c. many-to-many relationship d. entity relationship ANS: C

PTS: 1

28. The following E-R diagram shows a M:N relationship between two relations. To map this E-R diagram into a logical database model:

a. divide the content of the Course relation to establish two relations having 1:N relationships b. add the primary key of the Student relation as an attribute in the Course relation c. create a new relation whose primary key is a composite of the primary keys of two relations d. add the primary key of the Course relation as an attribute in the Student relation ANS: C

PTS: 1

29. Which of the following is not a proper SQL command for creating database relations? a. Create table employee

b. Create table training_completed c. Create client d. Alter table release_time ANS: C

PTS: 1

30. A simplified representation of a complex entity is a(n): a. instance b. attribute c. model d. relationship ANS: C

PTS: 1

31. Which of the following commands allow us to join data across multiple tables to link specific pieces of information that are of interest? a. Select b. Project c. Join d. Display ANS: A

PTS: 1

32. In a relational database, the entity is represented as a(n): a. Table b. Network c. Field d. Attribute ANS: A

PTS: 1

33. Which is not a step in creating a relation using SQL? a. assign the relation a name b. assign each attribute a name c. specify the constraints on the attributes d. specify the attributes of the constraints ANS: D

PTS: 1

34. Which is not an SQL command in which data can be changed in the database? a. INSERT b. DELETE c. UPDATE d. CREATE ANS: D

PTS: 1

35. Which of the following is a valid SQL command? a. MODIFY b. INSERT c. ADD d. APPEND ANS: B

PTS: 1

36. The SELECT statement has all but one of the following parts:

a. b. c. d.

a list of attributes that we wish to SELECT from the database a WHEN clause a list of tables where these attributes can be found a WHERE clause

ANS: B

PTS: 1

Exhibit 6-1 The following table is a view of BILLING_HOURS from the various data elements in High-Tech Corp.'s relational database.

BILLING_HOURS

Employee_No B122 A632 B122 A632 B122 A632

Client_No F26768 F11555 F26768 F11555 F26768 F11555

Date 20010823 20010823 20010824 20010824 20010825 20010825

Hours 8 7 8 6 9 10

Billing_Rate 150 100 150 100 150 100

37. Refer to Exhibit 6-1. Which of the following SQL statements would extract the employee number and date for every instance that an employee worked more than 8 hours any particular day? a. SELECT Employee_No, Date FROM BILLING_HOURS WHERE Hours>8 b. QUERY Employee_No, Date FROM BILLING_HOURS WHERE Hours>8 c. SELECT Employee_No, Date WHERE Hours>8 d. QUERY BILLING_HOURS SELECT Employee_No, Date WHERE Hours>8 ANS: A

PTS: 1

38. Refer to Exhibit 6-1. Which of the following SQL statements would extract the employee number and date for every instance that had a billing rate of $150? a. SELECT Employee_No, Date FROM BILLING_HOURS WHERE Rate=150 b. QUERY Employee_No, Date FROM BILLING_HOURS WHERE Rate=150 c. SELECT Employee_No, Date WHERE Rate=150 d. QUERY BILLING_HOURS SELECT Employee_No, Date WHERE Hours>8 ANS: A

PTS: 1

39. Refer to Exhibit 6-1. Which of the following SQL statements would extract the client number and date for every instance that had a billing rate of $150?

a. QUERY SELECT WHERE b. QUERY FROM WHERE c. SELECT WHERE d. SELECT FROM WHERE

BILLING_HOURS Client_No, Date Rate=150 Client_No, Date BILLING_HOURS Rate=150 Client_No, Date Rate=150 Client_No, Date BILLING_HOURS Rate=150

ANS: D

PTS: 1

40. Refer to Exhibit 6-1. Which of the following SQL statements would extract the client number and date for every instance that an employee worked less than 8 hours any particular day? a. QUERY BILLING_HOURS SELECT Client_No, Date WHERE Hours<8 b. QUERY Client_No, Date FROM BILLING_HOURS WHERE Hours>8 c. SELECT Client_No, Date WHERE Hours<8 d. SELECT Client_No, Date FROM BILLING_HOURS WHERE Hours<8 ANS: D

PTS: 1

COMPLETION 1. A(n) ______________________________ in an accounting system can be classified as a resource, event, or agent about which data is collected.

ANS: entity PTS: 1 2. A(n) ______________________________ is an item of data that characterizes an entity or relationship.

ANS: attribute PTS: 1 3. Attributes that consist of multiple subattributes are referred to as ______________________________.

ANS: composite attributes PTS: 1 4. A(n) ______________________________ attribute is the attribute whose value is unique for every entity that will ever appear in the database.

ANS: key PTS: 1 5. ______________________________ map and define the way in which data can be extracted from a database.

ANS: Relationships PTS: 1 6. A(n) ______________________________ relationship occurs between two different instances of an entity.

ANS: recursive PTS: 1 7. The ______________________________ specifies how many occurrences of an entity can participate in the given relationship with any one occurrence of the other entity in the relationship.

ANS: cardinality constraint PTS: 1 8. The ______________________________ specifies the degree of minimum participation of one entity in the relationship with the other entity.

ANS: participation constraint PTS: 1 9. The notation 1:N is used to specify the relationship type of ______________________________.

ANS: one to many one-to-many PTS: 1 10. REA stands for ______________________________, ______________________________ and ______________________________.

ANS: resources, events, agents resources, agents, events events, resources, agents events, agents, resources agents, resources, events agents, events, resources PTS: 1

11. ______________________________ values waste memory space and may cause problems when running queries.

ANS: Null PTS: 1 12. A collection of data representing multiple occurrences of a resource, event, or agent is known as a(n) ______________________________.

ANS: relation PTS: 1 13. A set of data that describes a single instance of the entity represented by a relation is known as a(n) ______________________________.

ANS: tuple PTS: 1 14. The ______________________________ is specified to uniquely identity each tuple in the relation.

ANS: primary key PTS: 1 15. ______________________________ specifies that for every attribute value in one relation that has been specified to allow reference to another relation, the tuple being referenced must be intact.

ANS: Referential integrity PTS: 1 16. ______________________________ is a powerful database language that can be used to define database systems, query the database for information, generate reports from the database, and access databases from within programs using embedded commands.

ANS: SQL PTS: 1 17. The ______________________________ command is used to add new tuples to a relation.

ANS: INSERT PTS: 1 18. The ______________________________ command demonstrates one of the weaknesses in most forms of SQL because the database will not enforce referential integrity.

ANS: DELETE PTS: 1

19. The ______________________________ command is used when we want to change one or more attribute values for one or more tuples in a table.

ANS: UPDATE PTS: 1 20. Queries of a database are driven by ______________________________ commands.

ANS: SELECT PTS: 1 21. ______________________________ systems have existed in an organization over a long period of time and were developed using an organization's previous computer hardware and software platforms.

ANS: Legacy PTS: 1 22. A(n) ______________________________ is a primary key that is inserted into other tables to establish links among the tables.

ANS: foreign key PTS: 1 23. ______________________________ uses state-of-the-art information technologies for storing and analyzing data to help managers make the best possible decisions for their companies.

ANS: Business intelligence Business intelligence (BI) BI PTS: 1 24. A(n) ______________________________ a simplified representation of a complex entity or phenomenon.

ANS: model PTS: 1 25. A(n) ______________________________ of an entity is one specific thing of the type defined by the entity.

ANS: instance PTS: 1 PROBLEM

1. The following table is a view of BILLING_HOURS from the various data elements in ABC's relational database: BILLING_HOURS

Employee_No B122 A632 B122 A632 B122 A632 B122 A632 A356 A432 A491 B122 A632 A356 B432 B491

Client_No F11555 F11555 F11555 F11555 F11555 F11555 H12456 H12456 F11555 H12456 H12456 F11555 H12456 F11555 H12456 H12456

Date 990823 990823 990824 990824 990825 990825 990826 990826 990826 990826 990826 990827 990827 990827 990827 990827

Hours 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8

Billing_Rate 150 100 150 100 150 100 150 100 57 57 57 150 100 57 57 57

Required: a.

Using proper SQL commands, develop a query to extract billing data for Fleet Services (client number F11555), showing the employee number, date, hours, and billing rate. b.

Design a table showing the output that would be generated based upon your query created above.

ANS: a.

SELECT FROM WHERE b.

Employee_No, Date, Hours, Billing_Rate BILLING_HOURS Client_No='F11555'

Employee_No B122 A632 B122 A632 B122 A632 A356 B122 A356

Date 990823 990823 990824 990824 990825 990825 990826 990827 990827

Hours 8 8 8 8 8 8 8 8 8

Billing_Rate 150.00 100.00 150.00 100.00 150.00 100.00 57.00 150.00 57.00

PTS: 1 2. The following table is a view of TRAINING_COMPLETED from the various data elements in High-Tech Corp.'s relational database: TRAINING_COMPLETED

Employee_No 11111

Date 990823

Hours 8

Train_Code 15

11152 11163 11111 11152 11163 11111 11152 11175 11111 11175 11111 11152 11163 11175

990823 990823 990824 990824 990824 990825 990825 990825 990826 990826 990827 990827 990827 990827

8 8 8 8 8 8 8 8 8 8 8 8 8 8

15 45 25 25 15 45 55 45 55 55 65 45 65 65

Required: a.

Using proper SQL commands, develop a query to extract training data for employee Missy Pitman (employee number 11111), showing the date, hours, and training code. b.

Design a table showing the output that would be generated based upon your query created above.

ANS: a.

SELECT FROM WHERE b.

Date 990823 990824 990825 990826 990827

Date, Hours, Train_Code TRAINING_COMPLETED Employee_No='11111' Hours 8 8 8 8 8

Train_Code 15 25 45 55 65

PTS: 1 3. Based on the following abbreviated description of Avery University's course scheduling and student advising procedures, prepare an Entity-Relationship (E-R) diagram that reflects the key entities and relationships.

Course Scheduling: In consultation with the vice-president of Academic Affairs and the Registrar's Office, each academic department chair decides which courses will be offered each semester and how many sections of each course will be scheduled. Courses are scheduled in sections meeting at different times over the course of the week. Some courses are scheduled in multiple sections. The department chair also assigns a faculty member who teaches for his/her department to teach each course-section. Students enroll in courses-sections by submitting their schedule selections to the Registrar's Office. In assigning students to sections, the Registrar gives preference to students based on their class standing (i.e., Senior, Junior, Sophomore, and Freshman).

Student Advising:

Student academic advising is done according to each student's major. Each student chooses a faculty advisor from his/her major department. While each student has only one "official" academic advisor, each faculty person advises several students, up to a maximum of 15 advisees.

ANS: See Figure TB-6.1

PTS: 1

Chapter 7—Controlling Information Systems: Introduction to Enterprise Risk Management and Internal Control TRUE/FALSE 1. Organizational governance is a process by which organizations select objectives, establish processes to achieve objectives, and monitor performance.

ANS: T

PTS: 1

2. Fraud is the possibility that an event or action will cause an organization to fail to meet its objectives (or goals).

ANS: F

PTS: 1

3. Management is responsible for establishing and maintaining an adequate system of internal control.

ANS: T

PTS: 1

4. A major reason management must exercise control over an organization's business processes is to provide reasonable assurance that the company is in compliance with applicable laws and regulations.

ANS: T

PTS: 1

5. Expected gross risk is a function of the initial expected gross risk, reduced risk exposure due to controls, and cost of controls.

ANS: F

PTS: 1

6. Under the Sarbanes Oxley Act of 2002, the section on Auditor Independence establishes an independent board to oversee public company audits.

ANS: F

PTS: 1

7. Under the Sarbanes Oxley Act of 2002, the section on Corporate Responsibility requires a company's CEO and CFO to certify quarterly and annual reports.

ANS: T

PTS: 1

8. Under the Sarbanes Oxley Act of 2002, the section on Enhanced Financial Disclosures requires each annual report filed with the SEC to include an internal control report.

ANS: T

PTS: 1

9. Under the Sarbanes Oxley Act of 2002, the section on Corporate Tax Returns conveys a sense of the Senate that the corporate federal income tax returns be signed by the treasurer.

ANS: F

PTS: 1

10. Management's legal responsibility to prevent fraud and other irregularities is implied by laws such as the Foreign Corrupt Practices Act.

ANS: T

PTS: 1

11. Risks are those events that could have a negative impact on organization objectives.

ANS: T

PTS: 1

12. Opportunities are events that could have a positive impact on organization objectives.

ANS: T

PTS: 1

13. Risk assessment is the entity's identification and analysis of relevant risks to the achievement of its objectives, forming a basis for determining how the risks should be managed.

ANS: T

PTS: 1

14. The control environment reflects the organization's general awareness of and commitment to the importance of control throughout the organization.

ANS: T

PTS: 1

15. External directives are the policies and procedures that help ensure that management directives are carried out.

ANS: F

PTS: 1

16. Establishing and maintaining a viable internal control system is the responsibility of management.

ANS: T

PTS: 1

17. Monitoring is a process that assesses the quality of internal control performance over time.

ANS: T

PTS: 1

18. The external environment is a system of integrated elements⎯people, structures, processes, and procedures⎯acting together to provide reasonable assurance that an organization achieves both its operations system and its information system goals.

ANS: F

PTS: 1

19. A fraud is a deliberate act or untruth intended to obtain unfair or unlawful gain.

ANS: T

PTS: 1

20. SAS No. 99 emphasizes auditors should brainstorm fraud risks, increase professional skepticism, use unpredictable audit test patterns, and detect management override of internal controls.

ANS: T

PTS: 1

21. According to the 2012 Report to the Nation on Occupational Fraud and Abuse, frauds are more likely to be detected by audits or internal controls than through tips.

ANS: F

PTS: 1

22. A computer crime technique called worm involves the systematic theft of very small amounts from a number of bank or other financial accounts.

ANS: F

PTS: 1

23. A computer abuse technique called a back door involves a programmer's inserting special code or passwords in a computer program that will allow the programmer to bypass the security features of the program.

ANS: T

PTS: 1

24. A logic bomb is a computer abuse technique in which unauthorized code is inserted in a program, which, when activated, may cause a disaster such as shutting down a system or destroying data.

ANS: T

PTS: 1

25. Salami slicing is program code that can attach itself to other programs (i.e., "infect" those programs), that can reproduce itself, and that operates to alter the programs or to destroy data.

ANS: F

PTS: 1

26. Ethical behavior and management integrity are products of the "corporate culture".

ANS: T

PTS: 1

27. The control matrix is a computer virus that takes control of the computer's operating system for malicious purposes.

ANS: F

PTS: 1

28. The control goal called efficiency of operations strives to assure that a given operations system is fulfilling the purpose(s) for which it was intended.

ANS: F

PTS: 1

29. Ensuring the security of resources is the control goal that seeks to provide protection of organization's resources from loss, destruction, disclosure, copying, sale, or other misuse of an organization's resources.

ANS: T

PTS: 1

30. The control goal of ensuring input materiality strives to prevent fictitious items from entering an information system.

ANS: F

PTS: 1

31. Valid input data are appropriately authorized and represent actual economic events and objects.

ANS: T

PTS: 1

32. The control goal of input accuracy is concerned with the correctness of the transaction data that are entered into a system.

ANS: T

PTS: 1

33. Business process control plans relate to those controls particular to a specific process or subsystem, such as billing or cash receipts.

ANS: T

PTS: 1

34. A sale to a customer is entered into the system properly, but the event does not accurately update the customer's outstanding balance. This type of processing error would be classified as a user error.

ANS: F

PTS: 1

35. A batch of business events is accurately entered into a business event data store, but the computer operator fails to use the data to update master data. This type of processing error would be classified as an operational error.

ANS: T

PTS: 1

36. A corrective control plan is designed to discover problems that have occurred.

ANS: F

PTS: 1

MULTIPLE CHOICE 1. A process by which organizations select objectives, establish processes to achieve objectives, and monitor performance is: a. enterprise risk management b. internal control c. organizational governance d. risk assessment ANS: C

PTS: 1

2. A process, effected by an entity's board of directors, management and other personnel, applied in strategy settings and across the enterprise, designed to identify potential events that may effect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives is: a. enterprise risk management b. internal control c. organizational governance d. risk assessment ANS: A

PTS: 1

3. A manager of a manufacturing plant alters production reports to provide the corporate office with an inflated perception of the plant's cost effectiveness in an effort to keep the inefficient plant from being closed. This action would be classified as a(n): a. risk b. hazard c. fraud d. exposure ANS: C

PTS: 1

4. The ERM framework addresses four categories of management objectives. Which category concerns high-level goals, aligned with and supporting its mission? a. compliance b. operations c. reporting d. strategic ANS: D

PTS: 1

5. The ERM framework addresses four categories of management objectives. Which category addresses the effective and efficient use of resources? a. compliance b. operations c. reporting d. strategic ANS: B

PTS: 1

6. The ERM framework addresses four categories of management objectives. Which category addresses the reliability of the financial statements? a. compliance b. operations c. reporting d. strategic ANS: C

PTS: 1

7. The ERM framework addresses four categories of management objectives. Which category of concerns laws and regulations? a. compliance b. operations c. reporting d. strategic ANS: A

PTS: 1

8. The ERM framework is comprised of eight components. Which component includes the policies and procedures established and implemented to help ensure the risk responses are effectively carried out? a. control activities b. event identification c. risk assessment d. risk response ANS: A

PTS: 1

9. Risk assessment is best described by: a. Internal and external events affecting achievement of an entity's objectives must be identified, distinguishing between risks and opportunities. b. Management selects whether to avoid, accept, reduce, or share risk − developing a set of actions to align risks with the entity's risk tolerances and risk appetite. c. The entirety of enterprise risk management is monitored and modifications made as necessary. d. The likelihood and impact of risks are analyzed, as a basis for determining how they should be managed.

ANS: D

PTS: 1

10. Which component of the ERM framework is best described here: Management selects whether to avoid, accept, reduce, or share risk − developing a set of actions to align risks with the entity's risk tolerances and risk appetite. a. control activities b. event identification c. risk assessment d. risk response ANS: D

PTS: 1

11. Which component of the ERM framework is best described here: Internal and external events affecting achievement of an entity's objectives must be identified, distinguishing between risks and opportunities. Opportunities are channeled back to management's strategy or objective-setting processes. a. control activities b. event identification c. risk assessment d. risk response ANS: B

PTS: 1

12. This component of the ERM framework that encompasses the tone of an organization and sets the basis for how risk is viewed and addressed by an entity's people, including risk management philosophy and risk appetite, integrity and ethical values and the environment in which they operate. a. control activities b. internal environment c. risk assessment d. risk response ANS: B

PTS: 1

13. This component of the ERM framework concerns the entirety of enterprise risk management and is accomplished through ongoing management activities, separate evaluations, or both. a. control activities b. Monitoring c. objective setting d. risk response ANS: B

PTS: 1

14. Approvals, authorizations, verifications, reconciliations, reviews of operating performance, security procedures, supervision, audit trails, and segregation of duties are examples of: a. control activities b. event identification c. monitoring d. risk response ANS: A

PTS: 1

15. Events that could have a negative impact on organizational objectives: a. opportunities b. embezzlement c. fraud d. risks

ANS: D

PTS: 1

16. Events that could have a positive impact on organizational objectives: a. controls b. fraud c. opportunities d. risks ANS: C

PTS: 1

17. Who is legally responsible for establishing and maintaining an adequate system of internal control? a. the board of directors b. stakeholders c. investors d. management ANS: D

PTS: 1

18. The major reasons for exercising control of the organization's business processes include: a. to provide reasonable assurance that the goals of the business are being achieved b. to mitigate risks of fraud and other intentional and unintentional acts c. to provide reasonable assurance that the company is in compliance with applicable legal and regulatory obligations d. all of the above ANS: D

PTS: 1

19. The effect of an event's occurrence is: a. control b. impact c. risk d. opportunity ANS: B

PTS: 1

20. According to the 2011 PricewaterhouseCoopers (PwC) Global Economic Crime Survey: a. Internal audit is the most effective fraud detection method. b. Cybercrime ranks as one of the top four economic crimes worldwide. c. Accounting fraud has increased significantly over the last two years. d. All of the above.

ANS: B

PTS: 1

21. With the issuance of the SEC Interpretative Guidance and the implementation of AS5: a. Auditors no longer opine on the effectiveness of management’s internal control reporting process. b. The number of controls that need to be documented, evaluated, and tested is reduced. c. Both a. and b. d. Neither a. nor b.

ANS: C

PTS: 1

22. The section of Sarbanes Oxley that requires a company's CEO and CFO to certify quarterly and annual reports is: a. Title I − Public Company Accounting Oversight Board b. Title II − Auditor Independence

c. Title III − Corporate Responsibility d. Title IV − Enhanced Financial Disclosures ANS: C

PTS: 1

23. The section of Sarbanes Oxley that requires each annual report filed with the SEC to include an internal control report is: a. Title I − Public Company Accounting Oversight Board b. Title II − Auditor Independence c. Title III − Corporate Responsibility d. Title IV − Enhanced Financial Disclosures ANS: D

PTS: 1

24. According to the COSO Fraudulent Financial Reporting 1998- 2007 update: a. The most common fraud scheme used was improper revenue recognition. b. Most companies engaged in fraudulent activities were able to recover and resume operations. c. CEO’s and CFO’s were named by the SEC for involvement in approximately 50% of fraud cases. d. All of the above.

ANS: A

PTS: 1

25. The section of Sarbanes Oxley that makes it a felony to knowingly destroy, alter, or create records and or documents with the intent to impede, obstruct, or influence an ongoing or contemplated federal investigation and offers legal protection to whistle blowers is: a. Title V − Analysts Conflicts of Interests b. Title VIII − Corporate and Criminal Fraud Accountability c. Title IX − White-Collar Crime Penalty Enhancements d. Title XI − Corporate Fraud and Accountability ANS: B

PTS: 1

26. Regarding internal control systems: a. ultimate ownership of the system should rest with the board of directors. b. a properly implemented system can be expected to provide 100 percent assurance that the organization will meet its objectives. c. both a. and b. d. neither a. not b.

ANS: D

PTS: 1

27. The section of Sarbanes Oxley that provides for fines and imprisonment of up to 20 years to individuals who corruptly alter, destroy, mutilate, or conceal documents with the intent to impair the document's integrity or availability for use in an official proceeding, or to otherwise obstruct, influence or impede any official proceeding is: a. Title V − Analysts Conflicts of Interests b. Title VIII − Corporate and Criminal Fraud Accountability c. Title IX − White-Collar Crime Penalty Enhancements d. Title XI − Corporate Fraud and Accountability ANS: D

PTS: 1

28. Which of the following is not a requirement of SOX Section 404?

a. Evaluate the design of the company's controls to determine if they adequately address the risk that a material misstatement of the financial statements would not be prevented or detected in a timely manner. b. Gather and evaluate evidence about the operation of controls. c. Implement key controls to determine their operating efficiency. d. Present a written assessment of the effectiveness of internal control over financial reporting.

ANS: C

PTS: 1

29. This framework was issued in 1996 (and updated in 2007) by the Information Systems Audit and Control Association (ISACA) because of the influence of IT over information systems, financial reporting and auditing. a. COBIT b. COSO c. ERM d. All of the above.

ANS: A

PTS: 1

30. As described in COSO, elements of a control environment might include the following: a. commitment to the importance of control b. reward systems c. tone at the top of the organization d. all of the above ANS: D

PTS: 1

31. ____ are the policies and procedures that help ensure that the risk responses are effectively carried out. a. Control environment b. Risk assessment c. Control activities d. Monitoring ANS: C

PTS: 1

32. ____ is a process that evaluates the quality of internal control performance over time. a. Control environment b. Risk assessment c. Control activities d. Monitoring ANS: D

PTS: 1

33. Which of the following statements regarding a system of internal control is false? a. Effective internal control systems provide complete assurance against the occurrence of material frauds and embezzlements. b. Internal control systems depend largely on the competency and honesty of people. c. Because internal control systems have a cost, management should evaluate the cost/benefit of each control plan. d. The development of an internal control system is the responsibility of management.

ANS: A

PTS: 1

34. ____ sets the tone of the organization, influencing the control consciousness of its people. a. Control environment

b. Risk assessment c. Control activities d. Monitoring ANS: A

PTS: 1

35. According to the 2012 Report to the Nation on Occupational Fraud and Abuse, frauds are more likely to be detected by: a. Audits b. internal controls c. Managers d. Tips ANS: D

PTS: 1

36. A deliberate act or untruth intended to obtain unfair or unlawful gain is a(n): a. audit b. embezzlement c. fraud d. Theft ANS: C

PTS: 1

37. A computer abuse technique called a ____ involves inserting unauthorized code in a program, which, when activated, may cause a disaster, such as shutting the system down or destroying files. a. salami slicing b. back door c. logic bomb d. Trojan horse ANS: C

PTS: 1

38. A computer abuse technique called a ____ involves a virus that replicates itself on disks, in memory, or across networks. a. worm b. back door c. logic bomb d. Trojan horse ANS: A

PTS: 1

39. A(n) ____ is a computer abuse technique where unauthorized instructions are inserted into a program to systematically steal very small amounts, usually by rounding to the nearest cent in financial transactions. a. worm b. salami slicing c. logic bomb d. Trojan horse ANS: B

PTS: 1

40. A control goal that is a measure of success in meeting a set of established goals is called: a. effectiveness b. monitoring c. efficiency d. risk

ANS: A

PTS: 1

41. Establishing a viable internal control system is primarily the responsibility of: a. the external auditors b. management c. programmers d. government authorities ANS: B

PTS: 1

42. As a result of an inadequate design, a production process yields an abnormally high amount of raw material scrapped. Which control goal is being violated? a. ensure effectiveness of operations b. ensure efficient employment of resources c. ensure security of resources d. ensure input accuracy ANS: B

PTS: 1

43. The information process control goal which relates to preventing fictitious events from being recorded is termed: a. ensure input validity b. ensure input accuracy c. ensure input completeness d. ensure effectiveness of operations ANS: A

PTS: 1

44. A business event which is not properly authorized violates the control goal of: a. input validity b. input completeness c. input accuracy d. update validity ANS: A

PTS: 1

45. Achieving which control goal requires that all valid objects or events are captured and entered into a system's database once and only once? a. ensure input validity b. ensure update accuracy c. ensure input completeness d. ensure update completeness ANS: C

PTS: 1

46. Failing to record a customer's order for the purchase of inventory violates the control goal of: a. ensure input accuracy b. ensure input completeness c. ensure input validity d. ensure input accuracy and input validity ANS: B

PTS: 1

47. Discrepancies between data items recorded by a system and the underlying economic events or objects they represent are a violation of the control goal of:

a. b. c. d.

ensure input validity ensure input completeness ensure input accuracy ensure update completeness

ANS: C

PTS: 1

48. Assuring that the accounts receivable master data reflects all cash collections recorded in the cash receipts event data addresses the control goal of: a. ensure input accuracy b. ensure input completeness c. ensure update accuracy d. ensure update completeness ANS: D

PTS: 1

49. Assuring that cash collections recorded in the cash receipts event data are credited to the right customer in the accounts receivable master data addresses the control goal of: a. ensure input accuracy b. ensure input completeness c. ensure update accuracy d. ensure update completeness ANS: C

PTS: 1

50. Which of the following is a control goal regarding master data? a. ensure input validity b. ensure update accuracy c. ensure input accuracy d. ensure input completeness ANS: B

PTS: 1

51. Why is there usually no control goal called update validity? a. Input and update completeness achieve update validity. b. Input validity guarantees update validity. c. Update accuracy guarantees update validity. d. Input accuracy achieves update validity.

ANS: A

PTS: 1

52. A programming error causes the sale of an inventory item to be added to the quantity on hand attribute in the inventory master data. Which control goal was not achieved? a. ensure update completeness b. ensure input accuracy c. ensure update accuracy d. ensure input completeness ANS: C

PTS: 1

53. The business process objectives that an internal control system is designed to achieve are: a. control goals b. control plans c. general controls d. the control matrix

ANS: A

PTS: 1

54. Strong antifraud controls include: a. segregation of duties b. job rotations c. mandatory vacations d. all of the above ANS: D

PTS: 1

55. A tool designed to assist you in evaluating the potential effectiveness of controls in a business process by matching control goals with relevant control plans is: a. ERM b. control plans c. control matrix d. internal controls ANS: C

PTS: 1

56. _____________ control plans relate to a multitude of goals and processes. a. Pervasive b. IT general c. Business process d. Preventive ANS: A

PTS: 1

57. ____ relate to a specific AIS process, such as billing or cash receipts. a. Control procedures b. Information processing procedures c. Business process control plans d. Operations system control plans ANS: C

PTS: 1

58. Automated business process controls contained within IT systems are called: a. preventive controls b. pervasive controls c. application controls d. management controls ANS: C

PTS: 1

59. Control goals of operations processes include: a. validity b. the control environment c. accuracy d. security of resources ANS: D

PTS: 1

60. Controls that stop problems from occurring are called: a. preventive controls b. detective controls c. corrective controls d. programmed controls

ANS: A

PTS: 1

61. A control that involves reprocessing transactions that are rejected during initial processing is an example of: a. preventive controls b. detective controls c. corrective controls d. programmed controls ANS: C

PTS: 1

62. A process captures only authorized transactions but fails to record them only once. Which control goal does this fail to achieve? a. validity b. accuracy c. completeness d. effectiveness ANS: C

PTS: 1

63. The third level of protection in the control hierarchy is: a. the control environment b. business process control plans c. pervasive control plans d. IT general controls ANS: B

PTS: 1

COMPLETION 1. ______________________________ is a process, effected by an entity's board of directors, management and other personnel, applied in strategy settings and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

ANS: Enterprise Risk Management Enterprise Risk Management (ERM) ERM PTS: 1 2. ______________________________ is a process by which organizations select objectives, establish processes to achieve objectives, and monitor performance.

ANS: Organizational governance PTS: 1 3. ______________________________ is the possibility that an event will occur.

ANS: Likelihood

PTS: 1 4. ______________________________ is a deliberate act or untruth intended to obtain unfair or unlawful gain.

ANS: Fraud PTS: 1 5. ______________________________ are those events that would have a negative impact on organization objectives.

ANS: Risks PTS: 1 6. ______________________________ are events that would have a positive impact on objectives.

ANS: Opportunities PTS: 1 7. The ______________________________ states that "a fundamental aspect of management's stewardship responsibility is to provide shareholders with reasonable assurance that the business is adequately controlled."

ANS: Foreign Corrupt Practices Act PTS: 1 8. The section of Sarbanes Oxley that establishes an independent board to oversee public company audits is ______________________________.

ANS: Public Company Accounting Oversight Board, Section 101 Public Company Accounting Oversight Board Section 101 PTS: 1 9. The section of Sarbanes Oxley that has received the most press as companies and their auditors have struggled to comply with its requirements is ______________________________.

ANS: Enhanced Financial Disclosures, Section 404 Enhanced Financial Disclosures Section 404 PTS: 1 10. The section of Sarbanes Oxley that prohibits audit firms from providing a wide array of nonaudit services to audit clients is ______________________________.

ANS:

Auditor Independence, Section 201 Auditor Independence Section 201 PTS: 1 11. The section of Sarbanes Oxley that requires a company's CEO and CFO to certify quarterly and annual reports is ______________________________.

ANS: Corporate Responsibility, Section 302 Corporate Responsibility Section 302 PTS: 1 12. The section of Sarbanes Oxley that requires each annual report filed with the SEC to include an internal control report is ______________________________.

ANS: Enhanced Financial Disclosures, Section 404 Enhanced Financial Disclosures Section 404 PTS: 1 13. The section of Sarbanes Oxley that requires financial analysts to properly disclose in research reports any conflicts of interest they might hold with the companies they recommend is ______________________________.

ANS: Title V, Analysts Conflicts of Interests Analysts Conflicts of Interests Title V PTS: 1 14. The section of Sarbanes Oxley that authorizes the SEC to censure or deny any person the privilege of appearing or practicing before the SEC if that person is deemed to be unqualified, have acted in an unethical manner, or have aided and abetted in the violation of federal securities laws is ______________________________.

ANS: Commission Resources and Authority, Section 602 Commission Resources and Authority Section 602 PTS: 1 15. The section of Sarbanes Oxley that makes it a felony to knowingly destroy, alter, or create records and or documents with the intent to impede, obstruct, or influence an ongoing or contemplated federal investigation and offers legal protection to whistle-blowers is ______________________________.

ANS:

Corporate and Criminal Fraud Accountability, Section 802 Corporate and Criminal Fraud Accountability Section 602 PTS: 1 16. The section of Sarbanes Oxley that sets forth criminal penalties applicable to CEOs and CFOs of up to $5 million and up to 20 years imprisonment if they knowingly or willfully certify false or misleading periodic reports is ______________________________.

ANS: White Collar Crime Penalty Enhancements, Section 906 White Collar Crime Penalty Enhancements Section 906 PTS: 1 17. The section of Sarbanes Oxley that provides for fines and imprisonment of up to 20 years for individuals who corruptly alter, destroy, mutilate, or conceal documents with the intent to impair the document's integrity or availability for use in an official proceeding, or to otherwise obstruct, influence or impede any official proceeding is ______________________________.

ANS: Corporate Fraud and Accountability, Section 1102 Corporate Fraud and Accountability Section 1102 PTS: 1 18. ______________________________ provides guidance on how an organization's IT might affect any of COSO's five components of internal control. This standard guides auditors in understanding the impact of IT on internal control and assessing IT-related control risks.

ANS: Statement on Auditing Standards No. 94 (SAS 94) Statement on Auditing Standards No. 94 SAS 94 PTS: 1 19. PCAOB Auditing Standard No. 5 uses ______________________________ in its description of the conduct of an integrated audit under SOX 404.

ANS: COSO PTS: 1 20. The ______________________________ framework suggests that organizations and auditors should continue to use COSO as a basis for internal control.

ANS: Enterprise Risk Management (ERM) Enterprise Risk Management ERM

PTS: 1 21. COSO's ______________________________ is the entity's identification and analysis of relevant risks to the achievement of its objectives, forming a basis for determining how the risks should be managed.

ANS: risk assessment PTS: 1 22. COSO's ______________________________ sets the tone of the organization, influencing the control consciousness of its people.

ANS: control environment PTS: 1 23. COSO's ______________________________ are the policies and procedures that help ensure that management directives are carried out.

ANS: control activities PTS: 1 24. Establishing a viable internal control system is the responsibility of ______________________________.

ANS: management PTS: 1 25. COSO's ______________________________ is a process that assesses the quality of internal control performance over time.

ANS: monitoring PTS: 1 26. A(n) ______________________________ is a series of actions or operations leading to a particular and usually desirable result.

ANS: process PTS: 1 27. ______________________________ is a process⎯effected by an entity's board of directors, management, and other personnel⎯designed to provide reasonable assurance regarding the achievement of objectives such as: effectiveness and efficiency of operations, reliability of reporting, and compliance with applicable laws and regulations.

ANS: Internal control

PTS: 1 28. COSO's ______________________________ is the foundation for all other components of internal control, providing discipline and structure.

ANS: control environment PTS: 1 29. Management selects risk ________________________- avoiding, accepting, reducing or sharing risk – developing a set of actions to align risks with the entity’s risk tolerances and risk appetite.

ANS: response responses PTS: 1 30. A computer crime technique called ______________________________ involves the systematic theft of very small amounts usually by rounding to the nearest cent in financial transactions such as the calculation of interest on savings accounts.

ANS: salami slicing PTS: 1 31. A computer abuse technique called ______________________________ involves a program that replicates itself on disks, in memory, and across networks.

ANS: worm PTS: 1 32. A computer abuse technique called ______________________________ involves a programmer's inserting special code or passwords in a computer program that will allow the programmer to bypass the security features of the program.

ANS: back door PTS: 1 33. A(n) ______________________________ is a computer abuse technique in which unauthorized code is inserted in a program, which, when activated, could cause a disaster such as shutting down a system or destroying data.

ANS: logic bomb PTS: 1 34. A(n) ______________________________ is a program that secretly takes over another Internet -attached computer and then uses that computer to launch attacks that can't be traced to the creator.

ANS: zombie

PTS: 1 35. A(n) ______________________________ is a tool designed to assist you in evaluating the potential effectiveness of controls in a business process by matching control goals with relevant control plans.

ANS: control matrix PTS: 1 36. ______________________________ are business process objectives that an internal control system is designed to achieve.

ANS: Control goals PTS: 1 37. The control goal called ensure ______________________________ is a measure of success in meting one or more goals for the operations process.

ANS: effectiveness of operations effectiveness PTS: 1 38. The control goal called ensure ______________________________ is a measure of the productivity of resources applied to achieve a set of goals.

ANS: efficient employment of resources PTS: 1 39. The control goal that seeks to protect an organization's resources from loss, destruction, disclosure, copying, sale, or other misuse of an organization's resources is called ensure ______________________________.

ANS: security of resources security PTS: 1 40. The control goal of ensure ______________________________ strives to prevent fictitious items from entering an information system.

ANS: input validity PTS: 1 41. A(n) ______________________________ item is an object or event that is not authorized, never occurred, or is otherwise not genuine.

ANS: invalid

PTS: 1 42. The control goal that is concerned with the correctness of the transaction data that are entered into a system is called ensure ______________________________.

ANS: input accuracy PTS: 1 43. A missing data field on a source document or computer screen is an example of an error that could undermine the achievement of the control goal of ensure ______________________________.

ANS: input accuracy PTS: 1 44. The control goal of ensure ______________________________ provides assurance that all valid objects or events which were entered into the computer are in turn reflected in their respective master data once and only once.

ANS: update completeness PTS: 1 45. The control goal of ensure ______________________________ provides assurance that objects or events which were entered into the computer are in reflected correctly in their respective master data.

ANS: update accuracy PTS: 1 46. The control goal of ensure ______________________________ requires that all valid objects or events are captured and entered into the computer once and only once.

ANS: input completeness PTS: 1 47. Information-processing policies and procedures that assist in accomplishing control goals are known as ______________________________.

ANS: control plans PTS: 1 48. A(n) ______________________________ relates to a specific AIS process, such as billing or cash receipts.

ANS: business process control plan PTS: 1 49. ______________________________ are applied to all IT service activities.

ANS: IT general controls PTS: 1 50. ______________________________ are automated business process controls contained within computer programs.

ANS: Application controls PTS: 1 51. Control plans that relate to a multitude of goals and processes are called ______________________________.

ANS: pervasive control plans PTS: 1 52. ______________________________ is software designed specifically to damage or disrupt computer systems.

ANS: Malware PTS: 1 53. A(n) ______________________________ is program code that can attach itself to other programs or macros thereby infecting those programs and macros.

ANS: computer virus virus PTS: 1 54. Three terms used in the chapter to refer to when a control plan is exercised are ______________________________, ______________________________, and corrective control plans.

ANS: preventive, detective detective, preventive PTS: 1 55. A(n) ______________________________ control plan is designed to discover problems that have occurred.

ANS: detective PTS: 1 56. A(n) ______________________________ control plan is designed to rectify problems that have occurred.

ANS: corrective PTS: 1 PROBLEM 1. Below is a list of sources of information and guidance on internal controls. The second list contains descriptions or information provided by these sources.

Required: On the blank line to the left of each numbered item, place the capital letter of the source that best matches that description. HINT: Some letters may be used more than once. Conversely, some letters may not apply at all.

Sources of Information and Guidance on Internal Controls A. Enterprise Risk Management (ERM) Framework B. Foreign Corrupt Practices Act C. PCAOB Auditing Standard No. 5 D. Sarbanes-Oxley Act Section 201 E. Sarbanes-Oxley Act Section 404 F. Statement on Auditing Standards No. 94 G Internal Control⎯Integrated Framework (COSO) Answers

Descriptions of Information and Guidance Provided by the Sources 1.

A fundamental aspect of management's stewardship responsibility is to provide shareholders with reasonable assurance that the business is adequately controlled.

2.

This was developed to help management identify, assess and manage risk.

3.

This addressed four categories of management objectives: strategic, operations, reporting and compliance.

4.

This prohibits a CPA firm that audits a public company to engage in certain nonaudit services with the same client.

5.

Provides guidance for conducting an integrated audit of financial statements under Sarbanes-Oxley Act Section 404.

6.

This addresses the effect of IT on audits.

7.

This requires each annual report filed with the SEC to include an internal control report.

8.

Reduces the number of internal controls that need to be documented, evaluated and tested.

9.

States that COSO is a suitable framework for an assessment of internal control.

10.

The definition of internal control in this document has been adopted throughout the world.

ANS: Descriptions 1 2 3 4 5 6 7 8 9 10

Answer B A A D C F E C C G

PTS: 1 2. Below is a list of control goals followed by a list of short scenarios describing system failures (i.e., control goals not met) and/or instances of successful control plans (i.e., plans that helped to achieve control goals).

Required: On the blank line to the left of each numbered scenario, place the capital letter of the control goal that best matches the situation described. HINT: Some letters may be used more than once. Conversely, some letters may not apply at all.

A. B. C. D.

Control Goals Ensure effectiveness of operations.

E. Ensure efficient employment of resources.

F. Ensure security of resources.

G. Ensure input validity.

H.

Answers

Ensure input accuracy.

Ensure input completeness.

Ensure update accuracy.

Ensure update completeness.

SCENARIOS 1.

A batch of documents sent by the mail room to the accounts receivable department were lost in the intercompany mail and never recorded.

2.

A flaw in the processing logic of a computer program resulted in cash received from customers being added to their accounts receivable balances rather than subtracted.

3.

A mail room clerk fabricated a phony document for a friend to make it look like the friend had paid his account receivable balance. The phony document got recorded.

4.

An accounts receivable clerk made a copy of the company's accounts receivable master data and sold this customer information to a competing company.

5.

Customer checks received in the mail room are batched and sent to the cashier several times a day so that they can be deposited as fast as possible.

6.

In a manual bookkeeping system, an accounts receivable clerk failed to post

an entire page of transactions from the cash receipts journal to the accounts receivable subsidiary ledger.

7.

In a manual bookkeeping system, cash receipts recorded correctly in the cash receipts journal but some were inadvertently posted to the wrong customer accounts.

8.

In keying remittance advices into his computer terminal, an accounts receivable clerk entered a receipt of $200 as $2,000.

9.

The cost of the people and computers needed to process incoming checks is less than the benefit obtained from the incoming funds.

10.

The company's accounts receivable system was infiltrated by a hacker.

ANS: Scenario Number 1 2 3 4 5

Answer F G D C A

Scenario Number 6 7 8 9 10

Answer H G E B C

PTS: 1 3. Figure TB-7.1 depicts the objective setting process shown in Chapter 7 but with all labels removed.

Required: Complete Figure TB-7.1 by inserting the following labels where they belong in the model:

A.

Box Title Related objectives

E.

B.

Strategy

F.

C.

Mission, vision, purpose

G.

D.

Strategic objectives

H.

Box Description e.g., to be in the top quartile of product sales for retailers of our products e.g., to be the leading producer of household products in the regions in which we operate increase production of x by 15% • hire 180 qualified new staff • maintain product quality • e.g., expand production of our top-five selling retail products to meet increased demand

ANS:

PTS: 1 4. Listed below are 13 specific fraud examples taken from some well-known fraud cases: MiniScribe, ZZZZ Best Carpet Cleaning, Lesley Fay, and Equity Funding.

Required: For each fraud example, enter a letter corresponding to which information control goal was initially violated⎯Validity, Completeness, or Accuracy. Some examples might involve more than one violation.

NOTE: When we say initially, we mean what control goal failure led to this example, not what is the present condition. For example, master data might contain information that is inaccurate, but it might have been an inaccurate input that initially caused the data to be inaccurate.

Fraud Examples: Control Goal Initially Violated 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

Scenario MiniScribe: Sales were inflated by shipping disk drives that were not ordered by customers.

MiniScribe: Sales of goods were recorded prior to the passing of title.

MiniScribe: Some sales returns were never recorded.

MiniScribe: Defective disk drives were included in inventory.

MiniScribe: Auditors' work papers were altered to inflate inventory values.

ZZZZ Best Carpet Cleaning: Phony receivable/sales documents were created to overstate sales.

ZZZZ Best Carpet Cleaning: Payments were recorded to fictitious vendors.

Lesley Fay Cos.: Inventory was overstated, thereby understating cost of goods sold.

Lesley Fay: Markdown allowances to retailers were understated or omitted.

Lesley Fay: Suppliers' invoices were not recorded.

Lesley Fay: Revenues and profits were inflated by recording sales entries for several days after a quarter had ended.

Equity Funding: 63,000 bogus insurance policies were created and recorded.

Other: A bank teller stole $1.5 million by pocketing customer deposits.

He covered his theft by accessing an unsecured computer terminal and transferring funds from dormant bank accounts into the accounts of customers from whom he had received deposits.

ANS:

Scenario 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

PTS: 1

Control Goal Initially Violated V A or V C V or A V or A V V V or A A or C C A or V V V

5. The CFO of Exeter Corporation is very uncomfortable with its current risk exposure related to the possibility of business disruptions. Specifically, Exeter is heavily involved with e-business and its internal information systems are tightly interlinked with its key customers' systems. The CFO has estimated that every hour of system downtime will cost the company about $5,000 in sales. The CFO and CIO have further estimated that if the system were to fail, the average downtime would be about 2 hours per incident. They have anticipated (assume with 100% annual probability) that Exeter will likely experience 10 downtime incidents in a given year due to internal computer system problems, and another 10 incidents per year due to external problems; specifically system failures with the Internet service provider (ISP). Currently, Exeter pays an annualized cost of $25,000 for redundant computer and communication systems, and another $25,000 for Internet service provider (ISP) support just to keep total expected number of incidents to 20 per year.

Required: a.

Given the information provided thus far, how much ($) is the company's current expected gross risk? b.

A further preventative control would be to purchase and maintain more redundant computers and communication lines where possible, at an annualized cost of $30,000, which would reduce the expected number of downtimes per year to 5 per year due to internal computer system problems. What would the dollar amount of Exeter's current residual expected risk at this point?

ANS: a. $5,000  2 hours = $10,000 per incident. $10,000 per incident  20 incidents  100% probability = $200,000 for expected gross risk. b.

Expected gross risk $200,000 − (5 less internal incidents  $10,000) = $150,000 plus add the cost of the additional computers and communication lines of $30,000 = $180,000 residual expected risk.

PTS: 1 6. Listed below are 8 descriptions of sections of the Sarbanes-Oxley Act of 2002 (SOX) followed by the names of 8 sections of SOX. Required: On the blank line next to the numbered section description enter a letter of the corresponding section name.

Section Titles A. Public Company Accounting Oversight Board B. Auditor Independence C. Corporate Responsibility D. Enhanced Financial Disclosures E. Analysts Conflicts of Interest F. Studies and Reports G. Corporate and Criminal Fraud Accountability H. White-Collar Crime Penalty Enhancements Answers

Section Descriptions 1.

Authorizes the SEC to prohibit anyone from serving as an officer or director if the person has committed securities fraud.

ANS: 1.

G 2.

B 3.

H 4.

D PTS: 1

2.

Section prohibits a CPA firm that audits a public company to engage in certain nonaudit services with the same client.

3.

This section relates to fraudulent actions taken by corporate CEOs and CFOs

4.

Section requires each annual report filed with the SEC to include an internal control report.

5.

Section that requires the company's CEO and CFO to certify quarterly and annual report.

6.

Section requires financial analysts to properly disclose in research reports any conflicts of interest they might hold with the companies they recommend.

7.

Section establishes an independent board to oversee public company audits.

8.

Section authorizes the General Accounting Office (GAO) to study the consolidation of public accounting firms since 1989 and offer solutions to any recognized problems.

5.

6.

7.

8.

C E A f

Chapter 8—Controlling Information Systems: Introduction to Pervasive Controls TRUE/FALSE 1. IT governance is a process that ensures that the organization's IT sustains and extends the organization's strategies and objectives.

ANS: T

PTS: 1

2. According to COBIT, IT resources include applications, information, infrastructure, and people.

ANS: T

PTS: 1

3. According to COBIT, IT resources must be managed by IT control processes to ensure that an organization has the information it needs to achieve its objectives.

ANS: T

PTS: 1

4. The system of controls used in this text consists of the control environment, pervasive control plans, IT general controls, and business process and application control plans.

ANS: T

PTS: 1

5. The information systems function is synonymous with the accounting function.

ANS: F

PTS: 1

6. The function composed of people, procedures, and equipment and is typically called the information systems department, IS department, or the IT department is the information systems organization.

ANS: T

PTS: 1

7. The IS function with the responsibility of guiding the IT organization in establishing and meeting user information requirements is the IT steering committee.

ANS: T

PTS: 1

8. The IS function with the principal responsibilities of ensuring the security of all IT resources is data control.

ANS: F

PTS: 1

9. The IS function of quality assurance conducts reviews to ensure the attainment of IT objectives.

ANS: T

PTS: 1

10. The chief information officer (CIO) prioritizes and selects IT projects and resources.

ANS: F

PTS: 1

11. Within the data center, the data control group is responsible for routing all work into and out of the data center, correcting errors, and monitoring error correction.

ANS: T

PTS: 1

12. The systems development function provides efficient and effective operation of the computer equipment.

ANS: F

PTS: 1

13. Within the data center, the data librarian function grants access to programs, data, and documentation.

ANS: T

PTS: 1

14. Combining the functions of authorizing and executing events is a violation of the organizational control plan known as segregation of duties.

ANS: T

PTS: 1

15. Segregation of duties consists of separating the four functions of authorizing events, executing events, recording events, and safeguarding the resources resulting from consummating the events.

ANS: T

PTS: 1

16. Embezzlement is a fraud committed by two or more individuals or departments.

ANS: F

PTS: 1

17. A small organization that does not have enough personnel to adequately segregate duties must rely on alternative controls, commonly called resource controls.

ANS: F

PTS: 1

18. The functions of the security officer commonly include assigning passwords and working with human resources to ensure proper interview practices are conducted during the hiring process.

ANS: T

PTS: 1

19. Individual departments coordinate the organizational and IT strategic planning processes and reviews and approves the strategic IT plan.

ANS: F

PTS: 1

20. The policy of requiring an employee to alternate jobs periodically is known as forced vacations.

ANS: F

PTS: 1

21. Forced vacations is a policy of requiring an employee to take leave from the job and substitute another employee in his or her place.

ANS: T

PTS: 1

22. A fidelity bond indemnifies a company in case it suffers losses from defalcations committed by its employees.

ANS: T

PTS: 1

23. The WebTrust family of services offers best practices and e-business solutions related exclusively to B2B electronic commerce.

ANS: F

PTS: 1

24. Data encryption is a process that codes data to make it readable to human eye.

ANS: F

PTS: 1

25. Systems documentation provides an overall description of the application, including the system's purpose; an overview of system procedures; and sample source documents, outputs, and reports.

ANS: T

PTS: 1

26. Program documentation provides a description of an application program and usually includes the program's purpose, program flowcharts, and source code listings.

ANS: T

PTS: 1

27. The user manual gives detailed instructions to computer operators and to data control about a particular application.

ANS: F

PTS: 1

28. The operations run manual describes user procedures for an application and assists the user in preparing inputs and using outputs.

ANS: F

PTS: 1

29. Training materials help users learn their jobs and perform consistently in those jobs.

ANS: T

PTS: 1

30. Program change controls provide assurance that all modifications to programs are authorized and documented, and that the changes are completed, tested, and properly implemented.

ANS: T

PTS: 1

31. Business continuity planning is the process that identifies events that may threaten an organization and provide a framework whereby the organization will continue to operate when the threatened event occurs or resume operations with a minimum of disruption.

ANS: T

PTS: 1

32. COBIT 5 is more procedure-based than COBIT 4.1 ANS: F

PTS: 1

33. With continuous data protection (CDP) all data changes are data stamped and saved to secondary systems as the changes are happening.

ANS: T

PTS: 1

34. The disaster backup and recovery technique known as electronic vaulting is a service whereby data changes are automatically transmitted over the Internet on a continuous basis to an off-site server maintained by a third party.

ANS: T

PTS: 1

35. The disaster recovery strategy known as a cold site is a fully equipped data center that is made available to client companies for a monthly subscriber fee.

ANS: F

PTS: 1

36. A facility usually comprised of air-conditioned space with a raised floor, telephone connections, and computer ports, into which a subscriber can move equipment, is called a hot site.

ANS: F

PTS: 1

37. In a logic bomb attack, a Web site is overwhelmed by an intentional onslaught of thousands of simultaneous messages, making it impossible for the attacked site to engage in its normal activities.

ANS: F

PTS: 1

38. Biometric identification systems identify authorized personnel through some unique physical trait such as fingers, hands, voice, eyes, face, or writing dynamics.

ANS: T

PTS: 1

39. Antivirus is a technique to protect one network from another "untrusted" network.

ANS: F

PTS: 1

40. The most common biometric devices perform retinal eye scans.

ANS: F

PTS: 1

41. Access control software ensures that only authorized users gain access to a system through a process of identification and authentication.

ANS: T

PTS: 1

42. Threat monitoring is a technique to protect one network from another "untrusted" network.

ANS: F

PTS: 1

43. Application controls restrict access to data, programs, and documentation.

ANS: F

PTS: 1

44. An intrusion-detection systems (IDS) logs and monitors who is on or trying to access the network.

ANS: T

PTS: 1

45. Intrusion-prevention systems (IPS) actively block unauthorized traffic using rules specified by the organization.

ANS: T

PTS: 1

46. Periodic cleaning, testing, and adjusting of computer equipment is referred to as preventative maintenance.

ANS: T

PTS: 1

47. Computer hacking and cracking is the intentional, unauthorized access to an organization's computer system, accomplished by bypassing the system's access security controls.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. The use of IT resources for enterprise systems and e-business: a. magnifies the importance of protecting the resources both within and outside of the organization from risks b. magnifies the importance of protecting the resources both within but not outside the of the organization from risks c. makes it easier to provide internal control risk when IT resources are interlinked d. none of the above ANS: A

PTS: 1

2. Top 10 management concerns about IT's capability to support an organization's vision and strategy include all except the following: a. decline in IT investments during recession b. overall security of IT assets c. the Internet d. need for project management leadership ANS: C

PTS: 1

3. Top security concerns reported by IT security professionals include all the following except: a. data breaches b. cyber crimes and cyber attacks c. data backup d. workforce mobility ANS: C

PTS: 1

4. Pervasive control plans: a. are unrelated to applications control plans b. are a subset of applications control plans c. influence the effectiveness of applications control plans d. increase the efficiency of applications control plans ANS: C

PTS: 1

5. COBIT was developed to: a. provide guidance to managers, users, and auditors on the best practices for the management of information technology b. identify specific control plans that should be implemented to reduce the occurrence of fraud

c. specify the components of an information system that should be installed in an e-commerce environment d. suggest the type of information that should be made available for management decision making ANS: A

PTS: 1

6. The department or function that develops and operates an organization's information systems is often called the: a. information systems organization b. computer operations department c. controller's office d. computer technology branch ANS: A

PTS: 1

7. A policy: a. is a plan or process put in place to guide actions and achieve goals. b. can compel behavior and enforce penalties for failure to follow. c. can be used to prevent fraud in an organization. d. all of the above.

ANS: A

PTS: 1

8. COBIT was developed by: a. COSO b. IT Governance Institute c. PCAOB d. AICPA ANS: B

PTS: 1

9. Quality assurance function: a. modifies and adapts application software b. conducts reviews to determine adherence to IT standards c. analyzes existing applications and proposes solutions d. supervises applications systems development ANS: B

PTS: 1

10. This IT function's key control concern is that organization and IT strategic objectives are misaligned: a. CIO b. quality assurance c. IT steering committee d. systems development manager ANS: C

PTS: 1

11. ____ can consist of many computers and related equipment connected together via a network. a. PCs b. Servers c. LAN d. Firewall ANS: C

PTS: 1

12. In an information systems organization, which of the following reporting relationships makes the least sense? a. The data center manager reports to the CIO. b. The systems development manager reports to the data center manager. c. Database administration reports to the technical services manager. d. The data librarian reports to the data center manager.

ANS: B

PTS: 1

13. In an information systems organization, all of the following functions might logically report to the data center manager except: a. data control b. computer operations c. data librarian d. quality assurance ANS: D

PTS: 1

14. Managing functional units such as networks, CAD/CAM and systems programming typically is a major duty of: a. data center manager b. systems development c. technical services manager d. database administrator ANS: C

PTS: 1

15. From the standpoint of achieving the operations system control goal of security of resources, which of the following segregation of duties possibilities is least important? a. between systems programming and computer operations b. between data control and data preparation personnel c. between systems development and computer operators d. between technical services and data center ANS: B

PTS: 1

16. A key control concern is that certain people within an organization have easy access to applications programs and data files. The people are: a. data librarians b. systems programmers c. systems development d. data center managers ANS: B

PTS: 1

17. Which of the following has the major duties of prioritizing and selecting IT projects and resources? a. steering committee b. security officer c. CIO d. systems development manager ANS: A

PTS: 1

18. Which of the following has the responsibility to ensure the security of all IT resources? a. steering committee b. security officer

c. CIO d. systems development manager ANS: B

PTS: 1

19. Which of the following has the responsibility of efficient and effective operation of IT? a. steering committee b. security officer c. CIO d. systems development manager ANS: C

PTS: 1

20. In an information systems organizational structure, the function of ____ is the central point from which to control data and is a central point of vulnerability. a. data control b. data entry c. data librarian d. database administration ANS: D

PTS: 1

21. The control concern that there will be a high risk of data conversion errors relates primarily to which of the following information systems functions? a. data control b. data entry c. data librarian d. database administration ANS: B

PTS: 1

22. The controlled access to data, programs, and documentation is a principal responsibility of which of the following functions? a. data control b. data preparation (data entry) c. data librarian d. computer operator ANS: C

PTS: 1

23. Which of the following is not one of COBIT's four broad IT control process domains? a. plan and organize b. acquire and implement c. repair and replace d. monitor and evaluate ANS: C

PTS: 1

24. Which of the following is not a strategic planning process? a. IT-related requirements to comply with industry, regulatory, legal, and contractual obligations, including privacy, transborder data flows, e-business, and insurance contracts. b. Acquisition and development schedules for hardware, software, and application systems and for personnel and financial requirements. c. Systems development life cycle adoption to ensure that comprehensive documentation is developed for each application. d. An inventory of current IT capabilities.

ANS: C

PTS: 1

25. Which one of the following personnel is not involved in safeguarding resources resulting from consummating events? a. security officer b. technical service manager c. database administrator d. CIO ANS: D

PTS: 1

26. The segregation of duties control plan consists of separating all of the following event-processing functions except: a. planning events b. authorizing events c. executing events d. recording events ANS: A

PTS: 1

27. A warehouse clerk manually completing an order document and forwarding it to purchasing for approval is an example of: a. authorizing events b. executing events c. recording events d. safeguarding resources ANS: B

PTS: 1

28. Specifications for availability, reliability, performance, capacity for growth, levels of user support, disaster recovery, security, minimal system functionality, and service charges are included in: a. application documentation b. service-level requirements c. business continuity plan d. security plan ANS: B

PTS: 1

29. Approving a customer credit purchase would be an example of which basic events processing function? a. authorizing events b. executing events c. recording events d. safeguarding resources ANS: A

PTS: 1

30. Which of the following statements is true? a. Management has a legal responsibility to protect an organization’s informational assets. b. Proper protection of organizational information from unauthorized use required both physical and logical controls. c. The unauthorized disclosure of financial information is a violation of federal securities laws. d. All of the above.

ANS: D

PTS: 1

31. An outside auditing firm annually supervises a physical count of the items in a retail store's shelf inventory. This is an example of: a. authorizing events b. executing events c. recording events d. safeguarding resources ANS: D

PTS: 1

32. A warehouse supervisor prepares a sales order listing items to be shipped to a customer and then signs it approving the removal of the items from the warehouse. The supervisor is performing which functions? a. authorizing events and safeguarding of resources b. executing and recording events c. authorizing and executing events d. authorizing and recording events ANS: C

PTS: 1

33. A clerk receives checks and customer receipts in the mail. He endorses the checks, fills out the deposit slip, and posts the checks to the cash receipts events data. The clerk is exercising which functions? a. recording and executing events b. authorizing and executing events c. recording and authorizing events d. safeguarding of resources and authorizing events ANS: A

PTS: 1

34. When segregation of duties cannot be effectively implemented because the organization is too small, we may rely on a more intensive implementation of other control plans such as personnel control plans. This is called: a. collusion controls b. compensatory controls c. authorizing controls d. inventory controls ANS: B

PTS: 1

35. COBIT 5: a. shifts the center of attention from IT to governance. b. can be implemented by updating from COBIT 4.1. c. does not have the enablers used in COBIT 4.1 d. all of the above.

ANS: A

PTS: 1

36. Which of the following control plans is not a retention control plan? a. creative and challenging work opportunities b. occasional performance evaluations c. competitive reward structure d. viable career paths ANS: B

PTS: 1

37. Personnel development control plans consist of each of the following except: a. checking employment references b. providing sufficient and timely training c. supporting employee educational interests and pursuits d. performing scheduled evaluations ANS: A

PTS: 1

38. The primary reasons for performing regular employee performance reviews include all of the following except: a. determine whether an employee is satisfying the requirements indicated by a job description b. assess an employee's strengths and weaknesses c. assist management in determining salary adjustments, promotions, or terminations d. develop a strategy for filling necessary positions ANS: D

PTS: 1

39. A policy that requires employees to alternate jobs periodically is called: a. segregation of duties b. forced vacations c. rotation of duties d. personnel planning ANS: C

PTS: 1

40. A control plan that is designed to detect a fraud by having one employee periodically do the job of another employee is called: a. segregation of duties b. forced vacations c. periodic audits d. management control ANS: B

PTS: 1

41. A mechanism by which a company is reimbursed for any loss that occurs when an employee commits fraud is called a: a. segregation of duties b. fidelity bond c. personnel planning control d. termination control plan ANS: B

PTS: 1

42. Which of the following personnel security control plans is corrective in nature as opposed to being a preventive or detective control plan? a. rotation of duties b. fidelity bonding c. forced vacations d. performing scheduled evaluations ANS: B

PTS: 1

43. Personnel termination control plans might include all of the following except: a. require immediate separation b. identify the employee's reasons for leaving

c. establish a policy of forced vacations d. collect the employee's keys, badges, etc.

ANS: C

PTS: 1

44. Instructions for computer setup, required data, restart procedures, and error messages are typically contained in a(n): a. systems development standards manual b. program documentation manual c. operations run manual d. application documentation manual ANS: C

PTS: 1

45. Application documentation that describes the application and contains instructions for preparing inputs and using outputs is a(n): a. operations run manual b. user manual c. program documentation d. systems documentation ANS: B

PTS: 1

46. Alternative names for contingency planning include all of the following except: a. disaster recovery planning b. business interruption planning c. business disaster planning d. business continuity planning ANS: C

PTS: 1

47. A data replication strategy where all data changes are data stamped and saved to secondary systems as the changes are happening is called: a. mirror site b. electronic vaulting c. continuous data protection (CDP) d. Dumping ANS: C

PTS: 1

48. All of the following are components of a backup and recovery strategy except: a. echo checking b. mirror site c. electronic vaulting d. hot site ANS: A

PTS: 1

49. Which of the following statements related to denial of service attacks is false? a. Insurance is available to offset the losses suffered by denial of service attacks. b. A denial of service attack is designed to overwhelm a Web site, making it incapable of performing normal functions. c. Web sites can employ filters to sense multiple messages from a single site. d. The most effective attacks originate from a small cluster of computers in a remote geographic region.

ANS: D

PTS: 1

50. In an on-line computer system, restricting user access to programs and data files includes all of the following except: a. user identification b. user authentication c. determining user access rights d. wearing identification badges ANS: D

PTS: 1

51. Sending out an e-mail pretending to be a legitimate business asking for information about a person's account is called: a. dumpster diving b. phishing c. smoozing d. shoulder surfing ANS: B

PTS: 1

52. Which of the following controls restrict access to programs, data, and documentation? a. library controls b. password controls c. authentication controls d. program change controls ANS: A

PTS: 1

53. This logs and monitors who is on or trying to access an organization's network. a. biometrics b. electronic vaulting c. intrusion detection systems (IDS) d. firewall ANS: C

PTS: 1

54. Protecting resources against environmental hazards might include all of the following control plans except: a. fire alarms and smoke detectors b. waterproof ceilings c. voltage regulators d. rotation of duties ANS: D

PTS: 1

55. Searching through rubbish for system information such as passwords is called: a. scavenging b. phishing c. smoozing d. shoulder surfing ANS: A COMPLETION

PTS: 1

1. ______________________________ is a process that ensures that the enterprise's IT sustains and extends the organization's strategies and objectives.

ANS: IT governance PTS: 1 2. ______________________________ controls provide assurance that all modifications to programs are authorized and documented, and that the changes are completed, tested, and properly implemented.

ANS: Program change PTS: 1 3. ______________________________ is a process that employs mathematical algorithms and encryption keys to encode data (i.e., change un-encoded data, called plaintext, to a coded text form, called ciphertext) so that it is unintelligible.

ANS: Data encryption PTS: 1 4. ______________________________ are particularly important because they operate across all business processes and affect a company's capability to meet a multitude of control goals.

ANS: Pervasive controls PTS: 1 5. ______________________________ in an internal control system means assessment by management to determine whether the control plans in place are continuing to function appropriately over time.

ANS: Monitoring PTS: 1 6. The function composed of people, procedures, and equipment and is typically called the information systems department, IS department, or IT department is the ______________________________.

ANS: information systems organization IS organization PTS: 1 7. The ______________________________ coordinates the organizational and IT strategic planning processes and reviews and approves the strategic IT plan.

ANS: IT steering committee PTS: 1 8. The ______________________________ is charged with safeguarding the IT organization.

ANS: security officer PTS: 1 9. Management should establish a(n) ______________________________ plan and implement related activities, including reviews, audits, and inspections, to ensure the attainment of IT customer requirements.

ANS: quality assurance quality assurance (QA) QA PTS: 1 10. The ______________________________ group is responsible for routing all work in to and out of the data center, correcting errors, and monitoring all error correction.

ANS: data control PTS: 1 11. The ______________________________ function provides efficient and effective operation of the computer equipment by performing tasks such as mounting tapes, disks, and other media and monitoring equipment operation.

ANS: computer operations PTS: 1 12. The ______________________________ maintains custody of and controls access to programs, files, and documentation.

ANS: data librarian PTS: 1 13. Combining the functions of authorizing and executing events is a violation of the organizational control plan known as ______________________________.

ANS: segregation of duties PTS: 1 14. Segregation of duties consists of separating the four functions of authorizing events, ______________________________ events, ______________________________ events, and safeguarding the resources resulting from consummating the events.

ANS: executing, recording recording, executing PTS: 1

15. One method for circumventing segregation of duties is ______________________________ between one or more persons (or departments) to exploit a system and conceal an abuse such as fraud.

ANS: collusion PTS: 1 16. A small organization that does not have enough personnel to adequately segregate duties must rely on alternative controls, commonly called ______________________________.

ANS: compensatory controls PTS: 1 17. The functions of the ______________________________ commonly include assigning passwords and making sure the IT organization is secure from physical threats.

ANS: security officer PTS: 1 18. The trust service principle of processing ______________________________ determines whether processing is complete, accurate, timely and authorized.

ANS: integrity PTS: 1 19. The policy of requiring an employee to alternate jobs periodically is known as ______________________________.

ANS: rotation of duties PTS: 1 20. ______________________________ is a policy of requiring an employee to take leave from the job and substituting another employee in his or her place.

ANS: Forced vacations PTS: 1 21. A(n) ______________________________ indemnifies a company in case it suffers losses from defalcations committed by its employees.

ANS: fidelity bond PTS: 1 22. The ______________________________ covers the progression of information systems through the systems development process, from birth, through implementation, to ongoing use and modification.

ANS: system development life cycle (SDLC)

system development life cycle SDLC PTS: 1 23. Computer software that is used to facilitate the execution of a given business process is called ______________________________.

ANS: application software PTS: 1 24. The ______________________________ documentation portion of application documentation provides an overall description of the application, including the system's purpose; an overview of system procedures; and sample source documents, outputs, and reports.

ANS: systems system PTS: 1 25. ______________________________ documentation provides a description of an application computer program and usually includes the program's purpose, program flowcharts, and source code listings.

ANS: Program PTS: 1 26. The ______________________________ gives detailed instructions to computer operators and to data control about a particular application.

ANS: operations run manual PTS: 1 27. The ______________________________ describes user procedures for an application and assists the user in preparing inputs and using outputs.

ANS: user manual PTS: 1 28. ______________________________ are documents that help users learn their jobs and perform consistently in those jobs.

ANS: Training materials PTS: 1 29. ______________________________ controls restrict access to data, programs and documentation.

ANS: Library

PTS: 1 30. The terms ______________________________ planning, disaster recovery planning, business interruption planning, and business continuity planning have all been used to describe the backup and recovery control plans designed to ensure that an organization can recover from a major calamity.

ANS: contingency PTS: 1 31. ______________________________ is a service whereby data changes are automatically transmitted over the Internet on a continuous basis to an off-site server maintained by a third party.

ANS: Electronic vaulting PTS: 1 32. With the data replication strategy known as ______________________________ all data changes are data stamped and saved to secondary systems as the changes are happening.

ANS: continuous data protection (CDP) continuous data protection CDP PTS: 1 33. The disaster recovery strategy known as a(n) ______________________________ is a fully equipped data center that is made available on a standby basis to client companies for a monthly subscriber's fee.

ANS: hot site PTS: 1 34. A facility usually comprised of air-conditioned space with a raised floor, telephone connections, and computer ports, into which a subscriber can move equipment, is called a(n) ______________________________.

ANS: cold site PTS: 1 35. In a(n) ______________________________ a Web site is overwhelmed by an intentional onslaught of thousands of simultaneous messages, making it impossible for the attacked site to engage in its normal activities.

ANS: denial of service attack PTS: 1 36. ______________________________ identification systems identify authorized personnel through some unique physical trait such as fingers, hands, voice, eyes, face, and writing dynamics.

ANS: Biometric

PTS: 1 37. A(n) ______________________________ is a technique to protect one network from another "untrusted" network.

ANS: firewall PTS: 1 38. The most common biometric devices read ______________________________.

ANS: fingerprints PTS: 1 39. In an online environment, ______________________________ ensures that only authorized users gain access to a system through a process of identification (e.g., a unique account number for each user) and authentication.

ANS: access control software PTS: 1 40. COBIT 5 has two main components: five _____________ and seven ________________.

ANS: GEIT principles, enablers governance of enterprise IT principles, enablers PTS: 1 41. Periodic cleaning, testing, and adjusting of computer equipment is referred to as ______________________________.

ANS: preventive maintenance PTS: 1 42. ______________________________ is the intentional unauthorized access of an organization's computer system, accomplished by bypassing the system's access security controls.

ANS: Computer hacking and cracking Computer hacking Computer cracking PTS: 1 43. Copies of important stored data, programs, and documentation made periodically are called ______________________________.

ANS: backups

PTS: 1 44. The process whereby lost data is restored and operations are continued is called ______________________________.

ANS: recovery PTS: 1 45. The site that maintains copies of a primary computing site's programs and data is a(n) ______________________________ site.

ANS: mirror PTS: 1 46. A(n) ______________________________ uses many computers, called zombies, that unwittingly cooperate in a denial-of-service attack by sending messages to the target Web site.

ANS: distributed denial-of-service attack PTS: 1 47. The ______________________________ logs and monitors who is on or is trying to access the network.

ANS: intrusion-detection system (IDS) intrusion-detection system IDS PTS: 1 48. The ______________________________ actively blocks unauthorized traffic using rules specified by an organization.

ANS: intrusion-prevention system (IPS) intrusion-prevention system IPS PTS: 1 49. Watching a user type in passwords or user IDs or listening as they give account information over the phone is called ______________________________.

ANS: shoulder surfing PTS: 1 50. ______________________________ is when a hacker calls and requests a password based on some pretext.

ANS: Smoozing

PTS: 1 51. ______________________________ helps to solve the problem posed by single key cryptography by employing a pair of matched keys for each system user, one private (i.e., known only to the party who possesses it) and one public.

ANS: Public-key cryptography PTS: 1 52. ______________________________ is when an e-mail is sent pretending to be a legitimate business asking for information about your account.

ANS: Phishing PTS: 1 PROBLEM 1. Below is a list of ten functional titles for the information systems organization structure shown in Chapter 8. The second list contains descriptions (some partial) of the duties and responsibilities of ten of the functions.

Required: On the blank line to the left of each numbered description, place the capital letter of the functional title that best matches the duties and responsibilities described. Do not use a letter more than once.

A. B. C. D. E.

Quality assurance Data control Data librarian Data entry Systems development manager

Answers

Functional Title F. Systems programming G. Technical services manager H. CIO I. IT Steering committee J. Security officer

DUTIES AND RESPONSIBILITIES 1.

Delivers cost-effective, bug-free applications.

2.

Routes all work into and out of the data center, correct errors, and monitor all error correction.

3.

Plans IT acquisition and development.

4.

Conducts reviews to determine adherence to IT standards and procedures and achievement of IT objectives.

5.

Issues programs, data, and documentation to authorized users.

6.

Manages functional units such as networks, CAD/CAM and systems programming.

7.

Modifies and adapts systems software including operating systems and

various utility routines.

8.

Prepares input for computer processing.

9.

Manages physical security and logical security.

10.

Prioritizes and selects IT projects and resources.

ANS: Duties and Responsibilities 1 2 3 4 5 6 7 8 9 10

Answer E B H A C G F D J I

PTS: 1 2. The four events-processing functions that constitute the segregation of duties control plan are: A. Authorizing events B. Executing events C. Recording events D. Safeguarding resources Required: Below is a list of ten events-processing activities, five relating to the cycle of activities involved in processing a sales event and seven relating to the cycle for a purchase event. Classify each of the twelve activities into one of the four functional categories listed above by placing the letter A, B, C, or D on the answer line to the left of each number. You should use only one letter for each of the answers.

EVENT-PROCESSING ACTIVITIES Answers

(For a sales event) 1.

The order entry department instructs the shipping department to ship goods to a customer by sending an approved document to the shipping department.

2.

The shipping department keeps inventory items in a locked storeroom.

3.

The billing department prepares and mails a bill to the customer.

4.

The invoice in item 3 is added to the customer balance in the accounts receivable master data.

5.

The general ledger bookkeeper enters a sales event in a data file.

(For a purchase event) 6.

The purchasing department order goods.

7.

The inventory control department signs a document requesting that goods be purchased.

8.

The purchasing department manager reviews and signs all purchase order documents in excess of $100.

9.

The receiving department processes goods received from the vendor.

10.

The receiving department completes the receiving report.

11.

After being received goods are placed into the locked inventory storeroom.

12.

A payable is recognized by updating the accounts payable master data.

ANS: Event-Processing Activity 1 2 3 4 5 6 7 8 9 10 11 12

Answer A D B C C B A A B B D C

PTS: 1 3. Listed below are several pervasive control plans discussed in Chapter 8. On the blank line to the left of each control plan, insert a "P" (preventive), "D" (detective), or "C" (corrective) to best classify that control. If applicable, more than one code may be inserted for each plan.

CODE

CONTROL PLAN 1.

Service level agreements

2.

Program change controls

3.

Fire and water alarms

4.

Adequate fire and water insurance

5.

Install batteries for temporary loss in power

6.

Continuous-data protection (CDP)

7.

Intrusion-detection system (IDS)

8.

IT steering committee

9.

Security officer

10.

Operations run manuals

11.

Rotation of duties and forced vacations

12.

Fidelity bonding

13.

Personnel performance evaluations

14.

Personnel termination procedures

15.

Segregation of duties

16.

Strategic IT plan

17.

Disaster recovery planning

18.

Restrict entry to the computer facility through the use of security guards, locks, badges, and identification cards

19.

Personnel management (supervision)

20.

Library controls

ANS: CODE

CONTROL PLAN

P&C

1.

Service level agreements

P

2.

Program change controls

D

3.

Fire and water alarms

C

4.

Adequate fire and water insurance

C

5.

Install batteries for temporary loss in power

C

6.

Continuous-data protection (CDP)

D

7.

Intrusion-detection system (IDS)

P

8.

IT steering committee

P&D

9.

Security officer

P

10.

Operations run manuals

P&D

11.

Rotation of duties and forced vacations

C

12.

Fidelity bonding

P&D

13.

Personnel performance evaluations

P

14.

Personnel termination procedures

P&D

15.

Segregation of duties

P

16.

Strategic IT plan

C

17.

Disaster recovery planning

P

18.

Restrict entry to the computer facility through the use of security guards, locks, badges, and identification cards

P&D

19.

Personnel management (supervision)

P&D

20.

Library controls

PTS: 1 4. The first list below contains 10 control plans discussed in Chapter 8. The second list describes 10 system failures that have control implications.

Required: On the answer line to the left of each system failure, insert the capital letter from the first list of the best control plan to prevent the system failure from occurring. If you can't find a control that will prevent the failure, then choose a detective or a corrective plan. A letter should be used only once.

Control Plans A. Personnel development control plans B. Operations run manuals C. Disaster recovery plans D. Program change controls E. Librarian controls F. Segregation of systems development and programming from computer operations G. Retention control plans H. Restriction of physical access to computer resources I. Segregation of recording events from safeguarding resources J. Biometric identification system Answers

SYSTEM FAILURES 1.

The controller at Infotech, Inc. has just completed an analysis of personnel costs and believes that the cost associated with training new personnel is too high. She attributes this high cost to the increasing rate at which employees are being hired to replace defections to Infotech's competitors.

2.

Paul the programmer has modified the accounts receivable statement program so that the receivables from his cousin Peter will be eliminated from the accounts receivable master file upon printing of the monthly statements. Paul made these changes to the program while he was operating the computer on a Saturday morning.

3.

When the hurricane hit the coast, Soggy Records Company lost the use of its flooded computer room. In such cases, plans called for using an alternate computer center 100 miles inland. However, Soggy was unable to operate in the alternate facility because the company's programs and files were lost in the flooded computer facility.

4.

All the files were lost at the Stoughton Company when a visitor sat down at a computer terminal, signed on using one of the passwords posted on the computer terminals, and erased some of the data files.

5.

Sally is the inventory control/warehouse clerk at Techtron Inc. She has been stealing secret computer components from the warehouse, selling them to foreign agents, and covering up her thefts by altering the inventory records.

6.

At Maralee Company, there seems to be a lack of progression from lower to middle management. Edward, the director of personnel, believes that the people being hired have great potential, but they are just not realizing their potential.

7.

Roger, the night-shift computer operator, has had occasion several times in the last month to call his supervisor to receive assistance⎯over the telephone⎯to correct a problem that he was having in operating the computer.

8.

Mary had become quite unhappy with her job at Funk, Inc. She knew that she was going to quit soon and decided to destroy some computer files. Using her own username and password, she found several disk packs on a table outside the computer room and proceeded to "erase" the data with a powerful magnet.

After Mary's departure, Funk spent several months reconstructing the data that had been on the lost files.

9.

One of the inventory control programs at Excess Company has been ordering more inventory than is required, causing an overstock condition on many items. During an investigation of the problem, it was discovered that the inventory ordering program had recently been changed. The changes were approved, but the new program was never tested.

10.

Sydney, the computer operator, did not want to go to work one day because he wanted to go sailing. He gave his ID card to his cousin Vinny who went to work for him. Even though he was a computer operator, Vinny did not know how to operate this computer. He made mistakes and destroyed some data.

ANS: System Failure Number

Answer

1 2 3 4 5 6 7 8 9 10

G F C H I A B E D J

PTS: 1 5. The first list below contains 10 control plans discussed in Chapter 8. The second list describes 10 system failures that have control implications.

Required: On the answer line to the left of each system failure, insert the capital letter from the first list of the best control plan to prevent the system failure from occurring. (If you can't find a control that will prevent the failure, then choose a detective or corrective control plan). A letter should be used only once.

Control Plans A. Selection and hiring control plans B. Documentation control plans C. Personnel termination control plans D. Segregation of duties E. Biometric identification system F. Fire-protection control plans G. IT steering committee H. Off-site storage of back up computer files I. Program change controls J. Continuous-data protection (CDP) Answers

SYSTEM FAILURES 1.

Peter the programmer asked for a substantial increase in salary and benefits.

When turned down, he submitted his two week notice. During those two weeks he infected the program he was working on with a damaging computer virus.

2.

Cary enters cash receipts into the computer at Kiting Inc. For the past year she has been pocketing customer payments. To keep herself from being discovered, she enters credit memos into the computer, which records them as reductions in the customers' accounts receivable records⎯as if the payment had been made.

3.

Procedures for the approval of orders have been put in place at Overstock Company. Clyde, the new purchasing agent, was given a briefing on these procedures when he was hired and has been applying those procedures as best as he can remember them. Consequently, Clyde sometimes orders more inventory than is required.

4.

The new sales reporting system includes a computer printout that was supposed to report daily sales to the V.P. of marketing. The report was never tested and contains erroneous sales figures and is not presented in the format required by the V.P.

5.

There was a flood and all of the computers and all their data were destroyed.

6.

Freida was just hired as a computer operator at Vertigo Inc. Just a few days after being hired, she discovered that she would not be allowed to spend some of her time writing computer programs. This was contrary to what she was told initially, and she is now quite unhappy with her circumstances.

7.

After careful screening and selection of employees, an organization issues its employees name badges with magnetic strips that stores the employees' personal information. Employees in the IT function can scan the badges to gain entry into various rooms within the IT center. Recently management discovered that employees are sharing their badges to enable them to gain access to every room in the facility.

8.

A fire at the Mitre Corporation caused the release of a poisonous gas which contaminated the entire building. While the computer files were not destroyed during the fire, they were contaminated and cannot be removed from the building and personnel cannot enter the building. It took several months to recreate the computer files.

9.

Sandisfield, Inc. has many IT projects under consideration for development.

The CFO has some political connections with the CIO and so financial applications are given a green light for development while projects for marketing and logistics are put on hold.

10.

Jet Red Airlines, a new, low-cost start-up airline, has decided to operate its own Web site and reservation system that is running on servers located at the headquarters. One day, the server room was flooded, the reservation system was not available for many hours, and many reservations were lost.

ANS: System Failure Number 1 2 3 4 5 6 7 8 9 10 PTS: 1

Answer C D B I H A E F G J

Chapter 9—Controlling Information Systems: Business Process and Application Controls TRUE/FALSE 1. Specifying control goals is the first step in preparing a control matrix.

ANS: T

PTS: 1

2. In the control matrix M-1 stands for missing process number one.

ANS: F

PTS: 1

3. A control matrix is a tool that assists in evaluating the potential effectiveness of control goals in a particular business process.

ANS: T

PTS: 1

4. Control efficiency addresses whether control goals are being achieved.

ANS: F

PTS: 1

5. Control effectiveness addresses how individual control plans achieve multiple control goals.

ANS: F

PTS: 1

6. The purpose of security controls is to ensure that entity resources are protected from loss, destruction, disclosure, copying, sale, or other misuse.

ANS: T

PTS: 1

7. Control redundancy addresses whether too many control plans are directed toward the same control goal.

ANS: T

PTS: 1

8. Input control goals include those to ensure input validity, input completeness and input accuracy.

ANS: T

PTS: 1

9. In a control matrix P-1 stands for process number one.

ANS: F

PTS: 1

10. The most error-prone and inefficient steps in an operations or information process is master file updates.

ANS: F

PTS: 1

11. A control plan in which a source document is designed to make it easier to prepare the document initially and later to input data from the document into a computer or other input device is called document design.

ANS: T

PTS: 1

12. Written approval takes the form of a signature or initials on a document to indicate that the proper person has authorized the event.

ANS: T

PTS: 1

13. Online prompting helps guide the online entry of data by defining the acceptable length and format of certain fields.

ANS: F

PTS: 1

14. With preformatted screens a computer system asks the user for input or asks questions that the user must answer.

ANS: F

PTS: 1

15. Programmed edit checks are edits automatically performed by data entry programs upon entry of the input data.

ANS: T

PTS: 1

16. A variation of the limit check is the reasonableness check.

ANS: T

PTS: 1

17. Dollar totals represent a summarization of any numeric data field within the input document or record.

ANS: F

PTS: 1

18. The edit that compares calculations performed manually to those performed by the computer to determine if a document has been entered correctly is referred to as mathematical accuracy checks.

ANS: T

PTS: 1

19. A check digit is an extra digit that is added to the identification number of entities to help control the accuracy with which the number is entered into a computer system.

ANS: T

PTS: 1

20. Confirm input acceptance is a control that helps ensure input completeness by informing the user that the input has been accepted for processing.

ANS: T

PTS: 1

21. The control plan called key verification is designed to reduce the possibility that data will be misread or miskeyed during data entry.

ANS: T

PTS: 1

22. A dependency check authenticates the identity of a message's sender and verifies the integrity of a transmitted message.

ANS: F

PTS: 1

23. A digital signature tests whether the contents of two or more data fields bear the correct logical relationship.

ANS: F

PTS: 1

24. An exception and summary report reflects the events that were accepted or rejected by the system.

ANS: T

PTS: 1

25. Master data control plans regulate transaction processing by calculating control totals at various points in a processing run and subsequently comparing these totals.

ANS: F

PTS: 1

26. Document/record counts are simple counts of the number of documents entered.

ANS: T

PTS: 1

27. A count of the number of invoices being paid by all of the customer remittances is a type of batch control total called an item or line count.

ANS: T

PTS: 1

28. A summation of the dollar value of items in a batch is called a hash total.

ANS: F

PTS: 1

29. A hash total is the general term to describe the summation of data that would not normally be totaled except for control purposes.

ANS: T

PTS: 1

30. A turnaround document is a document that is printed as an output of multiple computer processes and is used to capture and input a previous transaction.

ANS: F

PTS: 1

31. Batch control plans regulate information processing by calculating control totals at various points in a processing run and subsequently comparing those totals.

ANS: T

PTS: 1

32. In order to implement a batch sequence check transactions must be captured on documents that are randomly numbered.

ANS: F

PTS: 1

33. Dollar totals are a summarization of the dollar value of items in the batch.

ANS: T

PTS: 1

34. In a batch sequence check a computer program sorts the input documents into numerical order; checks the documents against the sequence number range; and reports missing, duplicate, and out-of-range data.

ANS: T

PTS: 1

35. The cumulative sequence check provides input control in those situations in which the serial numbers are assigned within the organization but are not entered in perfect serial number sequence.

ANS: T

PTS: 1

36. A tickler file is a manual or computer file of documents that contain completed business data.

ANS: F

PTS: 1

MULTIPLE CHOICE 1. The two primary steps in preparing the control matrix include: a. specifying control goals, identifying recommended control plans b. specifying control plans, specifying input goals c. specifying the control environment, identifying information process goals d. specifying control procedures, identifying process goals ANS: A

PTS: 1

2. The purpose of ____ control goals is to ensure the successful accomplishment of the goals set forth for the operations process under consideration. a. efficiency b. effectiveness c. security d. input ANS: B

PTS: 1

3. The purpose of ____ control goals is to ensure that all resources used throughout the business process are being employed in the most productive manner. a. efficiency b. effectiveness c. security d. input ANS: A

PTS: 1

4. The purpose of ____ control goals is to ensure that entity resources are protected from loss, destruction, disclosure, copying, sale, or other misuse. a. efficiency b. effectiveness c. security d. input ANS: C

PTS: 1

5. Entity resources that are always considered in efficiency assessments for an AIS are: a. cash and equipment

b. inventory and cash c. people and computers d. fixed assets and inventory ANS: C

PTS: 1

6. The purpose of input control goals is to ensure: a. input validity, input completeness, and input accuracy b. update completeness and update accuracy c. both a. and b. d. none of the above ANS: A

PTS: 1

7. In a control matrix the coding P-1 means: a. process 1 b. process 1 is present c. process 1 is missing d. none of the above ANS: D

PTS: 1

8. In a control matrix, the coding M-1 means: a. a major control plan b. a missing control plan c. process 1 is missing d. none of the above ANS: B

PTS: 1

9. The most error-prone and inefficient steps in an operations or information process is: a. report generation b. master data update c. data entry d. none of the above ANS: C

PTS: 1

10. The columns in a control matrix contain headings listing the business process: a. control goals b. control plans c. control environment d. control procedures ANS: A

PTS: 1

11. In the control matrix, the rows represent: a. control goals of the operations process b. recommended control plans including both present and missing controls c. control goals of the information process d. control goals of the management process ANS: B

PTS: 1

12. Having too many control plans directed at the same control goal is called: a. control efficiency

b. control effectiveness c. control redundancy d. control completeness ANS: C

PTS: 1

13. Which of the following control plans is not directed primarily at the control goal of input accuracy? a. document design b. written approvals c. preformatted screens d. online prompting ANS: B

PTS: 1

14. Which of the following is a control plan in which the source document is designed to make it easier to input data from the document? a. document design b. written approval c. preformatted screens d. online prompting ANS: A

PTS: 1

15. Which of the following is a control plan that takes the form of signatures or initials on a document to indicate that a person has authorized the event? a. document design b. written approval c. preformatted screens d. online prompting ANS: B

PTS: 1

16. Which of the following is a control plan that controls the entry of data by defining the acceptable format of each data field? a. document design b. written approval c. preformatted screens d. online prompting ANS: C

PTS: 1

17. Which of the following is a control plan that requests user input or asks questions that the user must answer? a. document design b. written approval c. preformatted screens d. online prompting ANS: D

PTS: 1

18. Before a completed input screen is recorded the data entry clerk is asked if the data should be accepted. This is which control plan? a. online prompting b. mathematical accuracy check c. preformatted screen d. confirm input acceptance

ANS: A

PTS: 1

19. Which of the following reflects a summarization of any numeric data field within the input document or record? a. reasonableness check or limit check b. document/record hash totals c. mathematical accuracy check d. check digit ANS: B

PTS: 1

20. Which of the following compares manual calculations to computer calculations? a. reasonableness check or limit check b. document/record hash totals c. mathematical accuracy check d. check digit ANS: C

PTS: 1

21. A control that can be used to ensure that all of the characters of a social security number are entered by a data entry clerk is: a. dependency check b. procedures for rejected inputs c. preformatted screens d. turnaround documents ANS: C

PTS: 1

22. A written approval in the form of a signature or initials on a document indicating that a person has authorized the event is directed primarily at achieving the control goal of: a. ensure input validity b. ensure input completeness c. ensure input accuracy d. ensure update accuracy ANS: A

PTS: 1

23. A control that can be used to reduce the likelihood of an error occurring when an account number is entered into a computer is: a. check digit b. data encryption c. preformatted screens d. reasonableness checks ANS: A

PTS: 1

24. Which of the following control plans is designed to achieve the goal of input completeness? a. key verification b. confirm input acceptance c. programmed edit check d. written approvals ANS: B

PTS: 1

25. A control whose primary purpose is to ensure greater input accuracy is:

a. b. c. d.

written approvals preformatted screens confirm input acceptance all of these ensure greater input accuracy

ANS: B

PTS: 1

26. Not knowing whether input data has been accepted by the information system, the user enters the data again, resulting in duplicate event data. The control plan that helps to prevent this error is: a. key verification b. confirm input acceptance c. check digit d. online prompting ANS: B

PTS: 1

27. Which of the following control plans is designed to achieve the goal of input accuracy? a. key verification b. confirm input acceptance c. batch sequence check d. cumulative sequence check ANS: A

PTS: 1

28. A control in which two people key the same inputs into a system where they are compared is called: a. online prompting b. key verification c. computer matching procedures d. a redundancy check ANS: B

PTS: 1

29. Which of the following control plans is designed both to authenticate a system user's identity and to verify the integrity of a message transmitted by that user? a. coding schemes b. digital signature c. preformatted screens d. check digit ANS: B

PTS: 1

30. A control that is primarily directed at ensuring input validity is: a. written approvals b. programmed edit checks c. confirm input acceptance d. online prompting ANS: A

PTS: 1

31. Digital signatures address all of the following control goals except: a. ensure security of resources b. ensure input completeness c. ensure input validity d. ensure input accuracy ANS: B

PTS: 1

32. A sales representative enters the customer's account number and the system retrieves certain data about the customer from master data. This control plan addresses all of the control goals except: a. ensure efficient employment of resources b. ensure effectiveness of operations (timeliness) c. ensure input accuracy d. ensure update completeness ANS: D

PTS: 1

33. Online prompting is aimed primarily at ensuring which of the following information systems control goals? a. ensure input accuracy b. ensure input completeness c. ensure security of resources d. ensure update completeness ANS: A

PTS: 1

34. All of the following are types of programmed edit checks except: a. a proximity check b. a document/record hash total c. a mathematical accuracy check d. a reasonableness check ANS: A

PTS: 1

35. Which of the following is not a programmed edit check? a. online prompting b. check digit c. mathematical accuracy check d. limit checks ANS: A

PTS: 1

36. A control report generated by a system that shows data about transactions that were accepted or rejected during a transaction processing step is called a(n): a. violation report b. exception and summary report c. variance report d. program change log ANS: B

PTS: 1

37. Which of the following is a batch control total that represents the minimum level of control for input completeness? a. dollar totals b. document/record counts c. hash totals d. item counts ANS: B

PTS: 1

38. A summation of customer account numbers taken from a batch of sales invoices would be classified as a: a. record count

b. line count c. dollar total d. hash total ANS: D

PTS: 1

39. Which batch control total generally has no other purpose than control? a. dollar totals b. record counts c. hash totals d. item counts ANS: C

PTS: 1

40. Which of the following types of batch totals is likely to be most effective in ensuring the control goal of input accuracy? a. line counts b. document/record counts c. item counts d. hash totals ANS: D

PTS: 1

41. When they are sent to a customer and returned with the payment, remittance advices are examples of: a. batch control totals b. computer-prepared documents c. written approval controls d. turnaround documents ANS: D

PTS: 1

42. Which of the following activities is not part of the computer agreement of batch totals? a. a batch total is manually established and entered into the computer prior to data entry. b. data shown on source documents are key entered or scanned. c. the computer produces a report that includes a batch total. d. a person reconciles the manual and computer batch totals.

ANS: D

PTS: 1

43. Which of the following controls requires that documents be numbered sequentially or prenumbered before it can be implemented? a. completeness check b. sequence check c. batch total matching d. key verification ANS: B

PTS: 1

44. Inputting a range of numbers comprising a batch and then inputting each serially numbered document is characteristic of the control plan called: a. cumulative sequence check b. batch sequence check c. suspense file of missing numbers d. computer agreement of batch totals ANS: B

PTS: 1

45. Which of the following statements related to tickler files is false? a. A tickler file is reviewed on a regular basis for items that do not clear the file on a timely basis. b. A tickler file can consist of documents or computer records. c. A tickler file addresses the control goal of update accuracy. d. A tickler file addresses the control goal of input completeness.

ANS: C

PTS: 1

46. The process of encoding data so that it may only be read by someone having a key is called: a. a coding scheme b. encryption c. dependency checks d. check digit ANS: B

PTS: 1

47. Plaintext is a term associated with ____. a. coding schemes b. hash totals c. programmed edit checks d. data encryption ANS: D

PTS: 1

COMPLETION 1. Specifying ______________________________ is the first step in preparing a control matrix.

ANS: control goals PTS: 1 2. In the control matrix the P stands for ______________________________ controls.

ANS: present PTS: 1 3. A(n) ______________________________ is a tool that assists in evaluating the potential effectiveness of controls in a particular business process by matching control goals with relevant control plans.

ANS: control matrix PTS: 1 4. Control ______________________________ addresses whether the control goals are being achieved.

ANS: effectiveness PTS: 1

5. Control ______________________________ addresses the extent to which individual control plans achieve multiple control goals.

ANS: efficiency PTS: 1 6. The purpose of ______________________________ controls is to ensure that entity resources are protected from loss, destruction, disclosure, copying, sale, or other misuse.

ANS: security PTS: 1 7. Control ______________________________ addresses whether too many control plans are directed toward the same control goal.

ANS: redundancy PTS: 1 8. Input control goals include those for ensuring input validity, input ______________________________, and input ______________________________.

ANS: completeness, accuracy accuracy, completeness PTS: 1 9. The use of the letter M in a control matrix represents a(n) ______________________________.

ANS: missing control missing control plan PTS: 1 10. The most error-prone and inefficient step in an operations or information process is ______________________________.

ANS: data entry PTS: 1 11. A control plan that makes it easier to prepare the document initially and later to input data from the document is called ______________________________.

ANS: document design PTS: 1 12. ______________________________ takes the form of a signature or initials on a document to indicate that the proper person has authorized the event.

ANS: Written approval PTS: 1 13. ______________________________ control the online entry of data by defining the acceptable format of each data field, automatically moving to the next field, requiring that certain fields be completed, and/or automatically populating certain fields.

ANS: Preformatted screens PTS: 1 14. ______________________________ describes a computer system asking the user for input or asking questions that the user must answer.

ANS: Online prompting PTS: 1 15. ______________________________ are edits automatically performed by data entry programs upon entry of the input data.

ANS: Programmed edit checks Programmed edits PTS: 1 16. A(n) ______________________________ check is a variation of a limit check.

ANS: reasonableness PTS: 1 17. ______________________________ represent a summarization of any numeric data field within the input document or record.

ANS: Hash totals PTS: 1 18. The edit that compares calculations performed manually with those performed by the computer to determine if a document has been entered correctly is referred to as ______________________________.

ANS: mathematical accuracy checks PTS: 1 19. A(n) ______________________________ digit is an extra digit that is added to an identification number to help control the accuracy with which the number is entered into a computer system.

ANS: check

PTS: 1 20. The control ______________________________ informs the user that the input has been accepted for processing.

ANS: confirm input acceptance PTS: 1 21. The control plan called ______________________________ is designed to reduce the possibility that data will be misread or miskeyed during data entry.

ANS: key verification PTS: 1 22. A(n) ______________________________ authenticates a system user's identity and verifies the integrity of a message transmitted by that user.

ANS: digital signature PTS: 1 23. A(n) ______________________________ and ______________________________ report is a computer-generated report that reflects the events⎯either in detail, summary total, or both⎯that were accepted by the system and rejected by the system.

ANS: exception, summary summary, exception PTS: 1 24. ______________________________ regulate transaction processing by calculating control totals at various points in a processing run and subsequently comparing those totals.

ANS: Batch control plans PTS: 1 25. ______________________________ are simple counts of the number of documents entered.

ANS: Document counts Record counts Document/record counts PTS: 1 26. A count of the number of invoices being paid by all of the customer remittances is a type of batch control total called ______________________________.

ANS: item counts line counts item/line counts PTS: 1 27. A summation of the dollar value of all invoice totals in a batch are called ______________________________.

ANS: dollar totals PTS: 1 28. A(n) ______________________________ is the general term to describe the summation of data that would not normally be totaled except for control purposes.

ANS: hash total PTS: 1 29. A(n) ______________________________ is printed as an output of one computer process and is used to capture and input a subsequent transaction.

ANS: turnaround document PTS: 1 30. For the control plan ______________________________ a workflow facility is used to route business events to authorizing individuals.

ANS: electronic approvals PTS: 1 31. "Confirm input acceptance" addresses the information process control of ______________________________.

ANS: input completeness PTS: 1 32. In a(n) ______________________________ a computer program sorts the transactions into numerical order; checks the documents against the sequence number range; and reports missing, duplicate, and out-of-range event data.

ANS: batch sequence check PTS: 1 33. The ______________________________ provides input control in those situations in which the serial numbers are assigned within the organization but are not entered in perfect serial number sequence.

ANS: cumulative sequence check

PTS: 1 34. A conventional ______________________________ procedure involves a single key that is used both by the sender to encrypt the message and by the receiver to decrypt it.

ANS: data encryption PTS: 1 35. ______________________________ is the control that uses a computer system's workflow facility to route business events to persons authorized to approve those events.

ANS: Electronic approvals PTS: 1 36. To reduce the number of keystrokes required, making data entry quicker and more efficient, we can ______________________________ in response to the entry of identification codes, such as customer numbers, and have the computer retrieve stored data corresponding to those identification codes.

ANS: populate input screens with master data PTS: 1 37. When there are programmed edits to control data entry, we would expect to also find ______________________________ to ensure that erroneous items are corrected and resubmitted for processing.

ANS: procedures for rejected inputs PTS: 1 38. We prefer to ______________________________ to ensure that business event data is entered in a timely manner and that personnel who enter the data can confirm its legitimacy and easily correct errors.

ANS: enter data close to the originating source PTS: 1 39. With ______________________________ the data entry clerk compares input batch totals to those prepared and output by the computer.

ANS: manual reconciliation of batch totals PTS: 1 40. The manager of shipping reviews a file of open sales orders⎯items to be shipped today⎯to determine that all shipments are made in a timely manner. The file of open sales orders is called a(n) ______________________________.

ANS: tickler file

PTS: 1 41. The shipping clerk compares each line on the shipping document to the items to be shipped, called ______________________________, to ensure that the shipment is accurate.

ANS: one-for-one checking PTS: 1 42. When a clerk enters the identification code for an entity, such as a customer, and the system retrieves data about that entity from the master data, we have the control plan called ______________________________.

ANS: populate input screens with master data PTS: 1 43. For the control plan ______________________________ a data entry clerk enters an identification number, such as a customer number, and then examines the master data record displayed by the computer to determine that the correct identification number has been entered.

ANS: compare input data with master data PTS: 1 44. ______________________________ is a strategy for the capture and entry of event-related data using technology such as OCR, bar codes, RFID, and EDI. ANS: Automated data entry PTS: 1 45. A(n) ______________________________ can be applied to prenumbered documents to determine that all documents have been processed and that no extra documents have been processed.

ANS: sequence check PTS: 1 46. A(n) ______________________________ reflects a summarization of any numeric data field within the input document or record, such as item numbers or quantities on a customer order.

ANS: document hash total record hash total document/record hash total PTS: 1 47. We ______________________________ by reconciling totals prepared before a computer process has begun to totals prepared at the completion of the computer process. The totals may be prepared and reconciled either manually or by the computer.

ANS: agree run-to-run totals PTS: 1 PROBLEM 1. The control plan computer agreement of batch totals is described in Chapter 9. Below is a description of a particular example of that plan: Billing clerks batch sources documents and calculate batch totals.

• The batch of source documents and batch totals are forwarded to the data entry unit of the • data center where the batch totals are entered into the computer and written to a batch control totals file (a disk file).

As individual source documents are entered, they are recorded in an event data store (disk • file).

After the batch has been entered the computer prepares batch totals for the records on the • event data store and compares these totals with those on the batch control totals file.

The computer prepares an Error and Summary Report, which contains details of each • batch, together with an indication of whether the totals agreed or disagreed.

Required: Prepare a system flowchart to diagram the above process.

ANS:

PTS: 1 2. The table below lists 8 control plans from Chapter 9 and 3 control goals for the information process.

Fill in the table cells, as appropriate to indicate which control plans can accomplish which control goals. Number your entries and describe the reason for your entry (i.e. why the control can accomplish the goal). Some rows (controls) will have more than one entry. The first item has been completed for you as an example.

Control Preformatted screens Online prompting Procedures for rejected inputs Check digit Digital signature Written approvals

Input validity

Input completeness

Input Accuracy 1

Populate input screens with master data Confirm input acceptance 1.

Preformatted screens ensure that all data is formatted correctly and that no required fields are skipped.

ANS: Control Preformatted screens Online prompting Procedures for rejected inputs Check digit Digital signature Written approvals Populate input screens with master data Confirm input acceptance

Input validity

Input completeness

3 6 8 9

Input Accuracy 1 2 4 5 7 10

11

1.

Preformatted screens ensure that data is formatted correctly and no required fields are skipped.

2.

Online prompting gives data operators a chance to check their entries before continuing and may provide context-sensitive help.

3.

Correcting and resubmitting data with errors helps ensure that the data entry process is complete and no transactions are missing.

4.

Subjecting corrected and resubmitted data to the same tests it went through the first time helps ensure that all input data is accurate.

5.

When a numerical entry is input, the computer performs a calculation to verify correctness. If the original check digit is not calculated, it indicates that the entry is incorrect and needs to be changed.

6.

Opening the digital signature message with a sender's public key ensures that the signature message (and the related encrypted message) was actually sent by that sender thus ensuring the validity of the message.

7.

Matching the hash total in the signature message with the hash total of the encrypted message ensures that the message was not altered in transmission.

8.

The possibility of invalid events being processed is reduced when written approvals indicating authorization are used.

9.

When the computer displays a master record, such as a vendor master record, when a clerk inputs a vendor number for a purchase, we can be sure that we will be executing a purchase from an authorized vendor, thereby validating the purchase.

10.

When the computer displays a master record, such as a vendor master record, when a clerk inputs a vendor number for a purchase, fewer keystrokes will be required to enter the purchase data, improving input accuracy.

11.

Because the data entry clerk is informed by the computer that an input has been accepted, all inputs are recorded and none are recorded twice.

PTS: 1 3. The following is a list of 10 control plans.

Control Plans A. Enter data close to the originating source B. Preformatted screens C. Confirm input acceptance D. Check digit E. Document design F. Key verification G. Written approvals H. Digital signatures I. Procedures for rejected inputs J. Compare input data with master data Required: Listed below are ten system failures that have control implications. On the blank line to the left of each number, insert the capital letter from the list above of the best control plan to prevent the system failure from occurring. If you can't find a control that will prevent the failure, choose a detective or corrective control plan. A letter should be used only once.

Answers

SYSTEM FAILURES 1.

Clerks at Ludlow Company enter cash receipts in batches using offline networked PCs. The customer number is often miskeyed. As a result, some cash receipts are posted to the wrong account.

2.

At Washington Company shipping notices are entered in batches. Upon entry, the computer performs certain edits to eliminate those notices that have errors.

But, many actual shipments never get recorded.

3.

At Janet's Fine Fashions, several sales clerks prepare sales slips during the day. The sales slips are then keyed into the computer at the end of the day.

Numerous errors occur because the layout of the sales slips is difficult for the data entry clerk to follow.

4.

Winsted Company recently converted to an online order entry system. Clerks key in customer order data at one of several PCs. In the first week of operations, every sales order produced by the system was missing the data for the customer's "ship to" address.

5.

The computer system at South County Bank received and processed a bogus transaction to transfer funds to a fraudster's bank account in the British West Indies.

6.

Data entry clerks at the Windsor Inc. use offline networked PCs to prepare a variety of inputs for entry into the computer and the computer performs an agreement of batch totals. Recently, a number of errors have been found in key numeric fields. The supervisor would like to implement a control to

reduce the transcription errors being made by the clerks.

7.

At Kramer Company, field salespersons call on customers and take customer orders by recording them on sales order forms. The forms are mailed by each salesperson each night to Kramer's central data center for processing. The company has been besieged by customer complaints about how long it takes to receive their orders and about being shipped incorrect goods.

8.

Comet, Inc. recently installed a new cash receipts system. A clerk keys in remittance data through a terminal located in the accounts receivable department. On the first day of operations, several remittances were not accepted for processing. The clerk had no idea that these remittances were not processed.

9.

At Southfield Inc., data entry clerks receive a variety of inputs from many departments throughout the company. In some cases, unauthorized inputs are keyed and entered into the computer.

10.

Clerks in the cash applications section of Charlton Company enter customer payments. The amount being paid is often input incorrectly; it does not agree with the amount due as indicated on the accounts receivable master data.

ANS: System Failure 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Answer D I E B H F A C G J

PTS: 1 4. The following is a list of 10 control plans: Control Plans A. Populate input screens with master data B. Cumulative sequence check C. Turnaround documents D. Document/record counts E. Document design F. Preformatted screens G. Compare input data with master data H. Hash total I. Tickler file J. Automated data entry

Required: Listed below are ten statements describing a control. On the blank line to the left of each number, insert the capital letter from the list above of the name of the control plan that corresponds to the control description. A letter should be used only once.

Answers

CONTROL DESCRIPTIONS 1.

Helps to achieve the information systems control goal of input accuracy by ensuring that dates are properly entered as MM/DD/YY.

2.

By using a pre-recorded bar code to trigger an event, this control plan ensures effectiveness of operations and improves efficiency by reducing the amount of data that must be input and by improving the speed and productivity of data entry. In addition, this control plan improves input validity, and improves input accuracy.

3.

This control plan could help prevent the entry of inconsistent data elements, such as entering a tax code for a customer to whom sales should be nontaxable.

4.

When the order entry clerk types in the customer number, the system automatically retrieves the customer's name, address, and other standing data from the customer master data. In this way, resources are used more efficiently.

5.

This control plan should prevent a field salesperson from omitting data elements when filling in the sales order form.

6.

In entering a batch of remittance advices into the computer, an operator made several errors in keying the customer identification numbers. However, the errors were detected when the total of the customer ID numbers that were input did not agree with the corresponding total calculated from the source documents.

7.

This control plan helps to identify duplicate, missing, and out-of-range document numbers by comparing input numbers with a previously stored number range.

8.

This batch control total does not help to ensure input accuracy, nor would it detect the fact that one record in a batch was removed and substituted with another.

9.

Bar codes on the items to be shipped are scanned to enter and record the shipment data details. This is quicker and more accurate than typing in each item number.

10.

The manager of the shipping department periodically reviews a file of open sales orders due to be shipped to ensure that all orders are shipped in a timely manner.

ANS: Control Description

Control Plan

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

F C G A E H B D J I

PTS: 1 5. At Winsted Company the following procedures are used to enter purchase requisitions (PRs).

Clerks in the purchasing department receive purchase requisitions (PRs) from departments throughout Winsted's home office. The PRs are handwritten on forms specially designed for this purpose. The clerks enter these into preformatted screens on PCs that are connected to the central computer. After each PR is recorded on the purchase requisition event data store the computer informs the clerk that the PR has been recorded. Once recorded the computer forwards the PRs to appropriate managers who can approve the PRs online. Approving individuals enter their approvals (or denials). PRs that are not approved are sent back to the purchasing clerks for corrective action.

Below is the annotated systems flowchart and partially completed control matrix for this process.

Recommended control plans Present Controls P-1: Document design.

P-2: Preformatted screens.

Control Goals of the Winsted Purchase Requisition Data Entry Process Control Goals of the Operations Process Control Goals of the Information Process Ensure Ensure Ensure For the purchase For the effectiveness efficient security of order (i.e., purchase of operations: employment resources purchase order master of resources (inventory, requisitions) data, ensure: (people, purchase inputs, ensure: computers) order master data) A IV IC IA UC UA

P-3: Confirm input acceptance.

P-4: Electronic approvals.

P-5: Procedures for rejected inputs.

Possible effectiveness goals include the following:

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

A − Ensure timely input of purchase requisition data.

See below for a complete explanation of control plans and cell entries.

Required: Complete the control matrix by entering the control plan numbers (P-1, P-2, etc.) in the appropriate cells in the control matrix to indicate to which control goal(s) each control plan is directed. Below the matrix describe how each control plan achieves each control goal that you have indicated on the matrix.

ANS:

Recommended control plans Present Controls

Control Goals of the Winsted Purchase Requisition Data Entry Process Control Goals of the Operations Process Control Goals of the Information Process Ensure Ensure Ensure For the purchase For the effectiveness efficient security of order (i.e., purchase of operations: employment resources purchase order master of resources (inventory, requisitions) data, ensure: (people, purchase inputs, ensure: computers) order master data) A IV IC IA UC UA

P-1: Document design.

P-1

P-1

P-1

P-2: Preformatted screens.

P-2

P-2

P-2

P-3: Confirm input acceptance.

P-4: Electronic approvals.

P-5: Procedures for rejected inputs.

Possible effectiveness goals include the following: A − Ensure timely input of purchase requisition data.

See below for a complete explanation of control plans and cell entries.

P-3 P-4

P-4 P-5 P-5 IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

Discussion and Explanation of Recommended Control Plans for Winsted Purchase Requisition Data Entry Process P-1:

P-2:

Document design.

Effectiveness goal A, efficient employment of resources: A well-designed document can be completed more quickly (effectiveness goal A) and can be prepared and entered into the computer with less effort (efficiency).

Purchase requisition input accuracy: We tend to fill in a well-designed document completely and legibly. If a document is legible, data entry errors will occur less frequently.

Preformatted screens.

Effectiveness goal A, efficient employment of resources: By structuring the data entry process, automatically populating fields, and preventing errors, preformatted screens simplify data input and save time (Effectiveness goal A), allowing a user to input more data over a period of time (efficiency).

Purchase requisition input accuracy: As each data field is completed on a

P-3:

P-4:

P-5:

PTS: 1

preformatted screen, the cursor moves to the next field on the screen, thus preventing the user from omitting any required data set. The data for fields that are automatically populated need not be manually entered, thus reducing input errors. Incorrectly formatted fields are rejected.

Confirm input acceptance.

Purchase requisition input completeness: By advising the user that input has been accepted, interactive feedback checks help ensure input completeness.

Electronic approvals.

Security of resources, purchase requisition input validity: By checking to see that approvals are present on all purchase requisitions, we reduce the possibility that invalid (unauthorized) purchase requisitions will be input and that inventory purchased and funds expended without approval.

Procedures for rejected inputs.

Purchase requisition input completeness and purchase requisition input accuracy: The rejection procedures (i.e., "Error routine not shown" annotations) are designed to ensure that erroneous data not accepted for processing are corrected (accuracy) and resubmitted for processing (completeness).

Chapter 10—The Order Entry/Sales (OE/S) Process TRUE/FALSE 1. The order entry/sales (OE/S) process includes the first four steps in the order-to-cash process: presales activities; sales order processing; picking and packing the goods; and shipping.

ANS: T

PTS: 1

2. The first step in the order-to-cash process is sales order processing.

ANS: F

PTS: 1

3. A customer request for goods might take the physical form of a telephone call, an EDI transmission, an entry on a Web site, or a faxed or mailed customer order.

ANS: T

PTS: 1

4. The OE/S process helps support the decision needs of the accounting department.

ANS: F

PTS: 1

5. One of the primary functions of the OE/S is to create information flows which support the repetitive work routines of the sales order department, credit department, and shipping department.

ANS: T

PTS: 1

6. The flow of information from OE/S to marketing managers is an example of horizontal information flows.

ANS: F

PTS: 1

7. The flow of information from OE/S to the credit department is an example of vertical information flows.

ANS: F

PTS: 1

8. For companies using enterprise systems, CRM systems often share the same underlying database.

ANS: T

PTS: 1

9. Data warehousing applications in organizations are usually viewed as being focused on either operational or analytical applications.

ANS: T

PTS: 1

10. CRM software is designed to manage all the data related to customers, such as marketing, field service, and contact management data.

ANS: T

PTS: 1

11. Sell-side systems use the Internet to automate and manage corporate vendors and purchases.

ANS: F

PTS: 1

12. Buy-side systems are designed to allow a company to market, sell, deliver and service goods and services to customers throughout the world via the Internet.

ANS: F

PTS: 1

13. Sales-force automation software may be used to route calls to a particular sales representative who has previously worked with the customer.

ANS: T

PTS: 1

14. A customer order triggers the OE/S process.

ANS: T

PTS: 1

15. Analytical applications, which include data mining, are intended to allow the use of sophisticated statistical and other analytical software to help an organization's members develop insights about customers, processes, and markets.

ANS: T

PTS: 1

16. If a check of the customer master data shows that the goods requested on a customer order are not in stock, an exception routine called a back order is initiated.

ANS: F

PTS: 1

17. A packing slip authorizes the warehouse to remove goods from the warehouse and send them to the shipping department.

ANS: F

PTS: 1

18. A picking ticket is affixed to the inventory package sent to the customer and identifies the customer and the contents of the package.

ANS: F

PTS: 1

19. Vendor acknowledgements are sent to vendors to notify them that their orders have been accepted and to inform them of the expected delivery date.

ANS: F

PTS: 1

20. A bill of lading is the document representing the contract between the shipping company and the common carrier.

ANS: T

PTS: 1

21. The OE/S process sends the sales order notification to the billing department to notify them of a pending shipment.

ANS: T

PTS: 1

22. If a customer refuses to accept a back order, then the sales event is terminated and the sales order is accepted.

ANS: F

PTS: 1

23. A customer acknowledgement is sent to the customer to notify him or her of the order's acceptance and the expected shipping date.

ANS: T

PTS: 1

24. A customer acknowledgement is sent to the billing department to notify them of a pending shipment.

ANS: F

PTS: 1

25. In the E-R diagram for OE/S, SALES_ORDERS activates the STOCK_PICK. ANS: T

PTS: 1

26. In the E-R diagram for OE/S, STOCK_PICK triggers the SALES_INVOICES. ANS: F

PTS: 1

27. In the E-R diagram for OE/S, SHIPMENTS generate the SALES_INVOICES. ANS: T

PTS: 1

28. The marketing data is a repository of a variety of sales-oriented data, some of which result from recording sales events and some of which originate from activities that do not culminate in completed sales, such as presales activities.

ANS: T

PTS: 1

29. The inventory master data normally contains standing data about each customer, such as name, billing and ship-to addresses, and telephone number.

ANS: F

PTS: 1

30. The customer master data is a data store that contains data identifying the particular characteristics of each customer.

ANS: T

PTS: 1

31. The completed picking ticket file provides an audit trail of authorized inventory transfers made between the warehouse and the shipping department.

ANS: T

PTS: 1

32. Depending on how the OE/S process is designed, the sales order master data may be updated at least twice⎯once when a new sales order is created and later to reflect the shipment of that order.

ANS: T

PTS: 1

33. Optical character recognition (OCR) devices use light reflection to read differences in code patterns in order to identify a labeled item.

ANS: F

PTS: 1

34. Bar code readers are used to recognize patterns of handwritten or printed characters.

ANS: F

PTS: 1

35. Output devices that capture printed images or documents and convert them into electronic digital signals that can be stored in computer media are called scanners.

ANS: F

PTS: 1

36. When a customer service representative enters data into the OE/S system, the first screen prompt is usually for the customer number.

ANS: T

PTS: 1

37. A tickler file is one that is reviewed on a current and regular basis for the purpose of taking action to clear the items from that file.

ANS: T

PTS: 1

38. Preformatted screens in the OE/S process are a control plan that involves the detailed comparison of the individual elements appearing on two source documents.

ANS: F

PTS: 1

39. One-for-one checking in the OE/S process is a control plan that simplifies the data entry process, and may prevent the customer service representative from omitting data, to fill in certain fields, and reject incorrectly formatted fields to reduce input errors.

ANS: F

PTS: 1

40. Online prompting in the OE/S process is a control plan that advises the customer service representative to check their data entries for accuracy before moving on.

ANS: T

PTS: 1

41. Confirm input acceptance in the OE/S process is a control plan that tells the customer service representative that the order has been accepted.

ANS: T

PTS: 1

42. Customer credit check is a control plan that ensures that the organization protects its resources by dealing only with customers who have demonstrated an ability to satisfy their liabilities.

ANS: T

PTS: 1

43. Customer Relationship Management (CRM) tools can be used by marketing managers to connect with customers, to learn what they like and don't like, and about new products that they want.

ANS: F

PTS: 1

MULTIPLE CHOICE 1. The OE/S process is part of the ____ process. a. order-to-cash b. purchase-to-pay c. human resources d. general ledger/financial reporting ANS: A

PTS: 1

2. The OE/S process handles the processing and shipment of a customer order while another process actually bills the customer. With such a configuration, you would not expect the OE/S system to interface directly with the ____. a. billing/accounts receivable/cash receipts process b. inventory process c. general ledger process d. human resource process ANS: D

PTS: 1

3. The OE/S process includes the first four steps in the order-to-sales process. The order of these four steps is: a. pre-sales activities, sales order processing, picking and packing, shipping b. pre-sales activities, picking and packing, sales order processing, shipping c. pre-sales activities, picking and packing, shipping, sales order processing d. none of the above ANS: A

PTS: 1

4. The primary function of the OE/S process is to create information flows that support: a. decision making of sales personnel b. the key organizational features of the marketing function c. producing financial statements d. decision needs of those who manage various sales and marketing functions ANS: D

PTS: 1

5. In addition to the warehousing function, the three primary departments that you would expect to be part of a typical OE/S process are: a. sales order, shipping, and credit b. sales order, shipping, and accounts payable c. sales order, credit, and accounts payable d. credit, shipping, and accounts payable ANS: A

PTS: 1

6. The ultimate goal of the OE/S process is: a. to ensure accuracy of order entry and sales events b. to ensure increasing sales volume through the OE/S process c. to create value for the customer d. none of the above ANS: C

PTS: 1

7. When the sales order department acknowledges a customer order, it is an example of a: a. vertical information flow b. horizontal information flow c. both vertical and horizontal information flow d. neither vertical nor horizontal information flow ANS: B

PTS: 1

8. When the sales-related data are captured in the sales order department and then the information flows to the managers housed in the marketing department, it is an example of a: a. vertical information flow b. horizontal information flow c. both vertical and horizontal information flow d. neither vertical nor horizontal information flow ANS: A

PTS: 1

9. Which of the following is a horizontal information flow? a. sales order department requests credit approval from credit department b. sales order department acknowledges the order to the customer c. warehousing sends completed picking ticket to shipping d. all of the above are horizontal information flows ANS: D

PTS: 1

10. With companies facing global competition, firms are recognizing that their most important asset is: a. inventory b. employees c. cash d. a happy customer ANS: D

PTS: 1

11. The OE/S process addresses the decision needs of managers of various sales and marketing functions through the use of: a. vertical information flows b. horizontal information flows c. both vertical and horizontal information flows d. neither vertical nor horizontal information flows ANS: C

PTS: 1

12. The grouping of customers into categories based on key characteristics is called: a. itemization b. Identification c. segmentation d. sales-force automation ANS: C

PTS: 1

13. ____ applications in organizations are usually viewed as being focused on either operational or analytical applications. a. Data mining b. Data warehousing c. Data entry d. Market segmentation

ANS: B

PTS: 1

14. Analytical applications, which include ____, are intended to allow the use of sophisticated statistical and other analytical software to help an organization's members develop insights about customers, processes, and markets. a. data mining b. data entry c. e-commerce modules d. market segmentation models ANS: A

PTS: 1

15. ____ systems use the Internet to automate and manage purchases and the vendors from which these purchases are made with the predominate technology being electronic data interchange (EDI). a. Customer relationship management b. Buy-side c. Sell-side d. E-business ANS: B

PTS: 1

16. ____ applications can handle both B2B and B2C business transactions. a. Customer relationship management b. Buy-side c. Sell-side d. E-business ANS: C

PTS: 1

17. The concept behind ____ is to cultivate customer relationships by prospecting, acquiring, servicing, and retaining customers. a. customer relationship management (CRM) systems b. customer self-service (CSS) software c. sales-force automation (SFA) software d. sell-side systems ANS: A

PTS: 1

18. A data flow or event that causes a process to begin is called a: a. Tickler b. Trigger c. Document d. validity check ANS: B

PTS: 1

19. A specific type of reject stub is called a(n): a. exception routine b. summary report c. corrective routine d. normal routine ANS: A

PTS: 1

20. An example of an "exception routine" is a(n):

a. b. c. d.

back order process inventory subroutine customer acknowledgement process sales order processing process

ANS: A

PTS: 1

21. Assuming that we separate the shipping and billing processes, which of the following data stores would you expect to be updated by an OE/S process called execute shipping notice? a. accounts receivable master data b. sales order master data c. inventory master data d. both B and C ANS: D

PTS: 1

22. In a logical DFD for the OE/S process, which of the following data stores is least likely to interact with the process validate sales order? a. general ledger master data b. accounts receivable master data c. marketing data d. inventory master data ANS: A

PTS: 1

23. In a typical OE/S process, validating a sales order likely would involve all of the following processes except: a. checking the customer's credit b. verifying inventory availability c. completing the sales order d. completing the picking ticket ANS: D

PTS: 1

24. A valid shipping notice input is one that is supported by both: a. an approved sales order and a completed picking ticket b. an approved sales order and an actual shipment of goods c. an approved sales order and a customer acknowledgement d. an approved sales order and customer credit verification ANS: B

PTS: 1

25. Assuming that we separate the shipping and billing processes, which of the following data stores provides data to the typical OE/S process but is not updated by the process? a. general ledger master data b. sales order master data c. inventory master data d. customer master data ANS: D

PTS: 1

26. For a typical OE/S process to check a customer's credit, all of the following data stores likely would be consulted except the: a. general ledger master data b. customer master data c. accounts receivable master data

d. sales order master data ANS: A

PTS: 1

27. A document that is used when filling a sales order to authorize the movement of goods from a warehouse to shipping is called a: a. shipping order b. packing slip c. picking ticket d. blind authorization ANS: C

PTS: 1

28. To satisfy customers the focus of new OE/S systems is generally on: a. mass marketing b. segmented marketing strategies c. individual customers d. all of the above.

ANS: C

PTS: 1

29. At the time that the shipping notice is prepared and disseminated, two data stores within the OE/S process are normally updated. Those two data stores are the: a. customer master data and accounts receivable master data b. accounts receivable master data and sales order master data c. accounts receivable master data and marketing data d. sales order master data and inventory master data ANS: D

PTS: 1

30. Which of the following documents represents a contract between two parties? a. shipping's inventory notification b. packing slip c. customer acknowledgement d. bill of lading ANS: D

PTS: 1

31. Which of the following data stores is designed primarily to serve the vertical information needs of the organization rather than the horizontal information flows? a. inventory master data b. marketing data c. sales order master data d. customer master data ANS: B

PTS: 1

32. Which of the following data is least likely to be stored in the customer master data? a. customer number b. billing address c. ship-to address d. open invoices ANS: D

PTS: 1

33. In an entity-relationship (E-R) diagram for the OE/S process, you would expect that the word trigger would appear in the diamond showing the relationship between which of the following pairs of entities? a. CUSTOMER and SALES ORDER b. CUSTOMER and SHIPMENT c. STOCK PICK and SHIPMENT d. SALES INVOICE and SHIPMENT ANS: C

PTS: 1

34. Bar code readers: a. are devices that use light reflection to read differences in bar code patterns to identify a labeled item. b. are devices used for pattern recognition of handwritten or printed characters. c. are input devices that capture printed images or documents and convert them into electronic digital signals that can be stored on computer media. d. are computer-based systems for capture, storage, retrieval, and presentation of images of objects such as pictures and documents.

ANS: A

PTS: 1

35. Which of the following goals is not an example of an operations process goal of the typical OE/S process? a. to provide timely responses to customer inquiries b. to provide timely acknowledgements of customer orders c. to provide timely updates to general ledger accounts d. to provide timely shipments of goods to customers ANS: C

PTS: 1

36. In constructing a control matrix for an OE/S process, the principal data input(s) to the information system likely would be: a. customer inquiries and customer order inputs b. customer inquiries and shipping notice inputs c. customer order and shipping notice inputs d. customer order only ANS: C

PTS: 1

37. The file most important for ensuring validity of customer order inputs is the: a. customer master data b. accounts receivable master data c. marketing data d. completed picking ticket data ANS: A

PTS: 1

38. The control plan preformatted screens is directed primarily toward achieving the information process control goal of ensuring: a. sales order input validity b. sales order input accuracy c. sales order input completeness d. sales order update completeness ANS: B

PTS: 1

39. The control plan confirm input acceptance helps to achieve the sales order input control goal of: a. sales order input validity b. sales order input accuracy c. sales order input completeness d. shipping notice input accuracy ANS: C

PTS: 1

40. In the OE/S process, the document that represents an independent authorization to ship goods to the customer is the: a. bill of lading b. sales order c. customer acknowledgement d. shipping notice ANS: B

PTS: 1

41. In the control matrix of the OE/S process, regarding shipping notice inputs, which of the following control goals is ensured by comparing the shipping notice input to the sales order master data? a. input completeness and input accuracy b. input completeness and input validity c. input validity and input accuracy d. none of the above ANS: C

PTS: 1

42. Digital image processing systems are capable of performing all of the following except: a. capture of data b. storage of data c. retrieval of data d. creation of data ANS: D

PTS: 1

43. The system that enables users of an ERP system to view source documents from any location is: a. electronic data interchange b. local area network c. digital image processing d. electronic commerce ANS: C

PTS: 1

COMPLETION 1. The order entry/sales (OE/S) process includes the first four steps in the ______________________________ process.

ANS: order-to-cash PTS: 1 2. The first step in the OE/S process is typically a data flow from a(n) ______________________________.

ANS: customer

PTS: 1 3. ______________________________ expect convenient and timely access to information about their order from order initiation, through product delivery, and until after the bill had been paid.

ANS: Customers PTS: 1 4. The OE/S process helps support the decision needs of the ______________________________ and ______________________________ functions.

ANS: sales, marketing marketing, sales PTS: 1 5. One of the primary functions of the ______________________________ is to create information flows which support the repetitive work routines of the sales order, shipping, and credit departments.

ANS: order entry/sales (OE/S) process order entry/sales process OE/s process PTS: 1 6. The flow of information from the OE/S process to marketing managers is an example of ______________________________ information flows.

ANS: vertical PTS: 1 7. The flow of information from OE/S to the credit department is an example of ______________________________ information flows.

ANS: horizontal PTS: 1 8. For companies using enterprise systems, customer relationship management (CRM) systems often share the same underlying ______________________________.

ANS: database PTS: 1 9. The concept behind ______________________________ is to cultivate customer relationships by prospecting, acquiring, servicing, and retaining customers.

ANS:

customer relationship management (CRM) customer relationship management CRM PTS: 1 10. ______________________________ systems use the Internet to automate and manage purchases and the vendors from which these purchases are made.

ANS: Buy-side PTS: 1 11. ______________________________ systems are designed to allow a company to market, sell, deliver, and service goods and services to customers throughout the world via the Internet.

ANS: Sell-side PTS: 1 12. The buzzword in CRM which means the grouping of customers into categories based on key characteristics is ______________________________.

ANS: segmentation PTS: 1 13. In the OE/S process, the one input that creates the six outputs of general ledger inventory sales update, sales order notification, bill of lading, completed packing slip, shipping's billing notification, and customer acknowledgement is the ______________________________.

ANS: customer order PTS: 1 14. When a source document provides authority for a business activity to occur, the source document is said to ______________________________ the activity.

ANS: trigger PTS: 1 15. If a check of the inventory master data shows that the goods requested on a customer order are not in stock, an exception routine called a(n) ______________________________ process is initiated.

ANS: back order PTS: 1 16. A(n) ______________________________ authorizes the warehouse to remove goods from the warehouse and send them to the shipping department.

ANS: picking ticket

PTS: 1 17. A(n) ______________________________ is affixed to the inventory package sent to the customer and identifies the customer and the contents of the package.

ANS: packing slip PTS: 1 18. ______________________________ are sent to customers to notify them that their orders have been accepted and to inform them of the expected shipping date.

ANS: Customer acknowledgements PTS: 1 19. A(n) ______________________________ is the document representing the contract between the shipping company and the carrier.

ANS: bill of lading PTS: 1 20. The OE/S process sends the ______________________________ notification to the billing/accounts receivable/cash receipts process to notify that process of a pending shipment.

ANS: sales order PTS: 1 21. When a transaction is terminated because of an error or other exception condition, such as when a customer refuses to accept a back order in the OE/S process, the transaction termination is shown on a DFD by a(n) ______________________________ data flow.

ANS: reject PTS: 1 22. In the ER diagram for OE/S, SALES_ORDERS activates ______________________________.

ANS: STOCK_PICK PTS: 1 23. In the ER diagram for OE/S, STOCK_PICK triggers ______________________________.

ANS: SHIPMENTS PTS: 1 24. In the ER diagram for OE/S, SHIPMENTS generates ______________________________.

ANS: SALES_INVOICES

PTS: 1 25. The ______________________________ data is the repository of a variety of sales-oriented data, some of which result from recording sales events and some of which originate from activities that do not culminate in completed sales, such as presales activities.

ANS: marketing PTS: 1 26. The ______________________________ master data normally contains standing data about each customer, such as name, address, and telephone number.

ANS: customer PTS: 1 27. The ______________________________ master data is updated to reflect the fact that the goods have been picked, packed, and shipped.

ANS: sales order PTS: 1 28. ______________________________ are devices that use light reflection to read differences in code patterns in order to identify a labeled item.

ANS: Bar code readers PTS: 1 29. ______________________________ is used to recognize patterns of handwritten or printed characters.

ANS: Optical character recognition Optical character recognition (OCR) OCR PTS: 1 30. Input devices that capture printed images or documents and convert them into electronic digital signals that can be stored in computer media are called ______________________________.

ANS: scanners PTS: 1 31. A(n) ______________________________ file is one that is reviewed on a current and regular basis for the purpose of taking action to clear the items from that file.

ANS: tickler PTS: 1

32. One-for-one checking of ______________________________with the goods ensures that the correct goods are picked from the shelf and that any errors are detected and corrected in a timely manner (e.g., before the goods get to the shipping department).

ANS: picking tickets PTS: 1 33. ______________________________ may reduce input errors by populating certain fields and rejecting incorrectly formatted fields, thereby preventing the customer service representative from omitting data or entering data with errors.

ANS: Preformatted screens PTS: 1 34. ______________________________ advises customer service representatives to check data entries for accuracy before moving on.

ANS: Online prompting PTS: 1 35. ______________________________ ensures that the organization protects its resources by dealing only with customers who have demonstrated an ability to satisfy their liabilities.

ANS: Customer credit check PTS: 1 36. ______________________________ master data contains a record of each item that is stocked in the warehouse or regularly ordered from a vendor.

ANS: Inventory PTS: 1 37. ______________________________ is a control plan that establishes, for shipping personnel, that someone other than warehouse personnel authorized a shipment.

ANS: Independent shipping authorization PTS: 1 38. ______________________________ segregates duties between the personnel who create the customer record and the personnel who create the sales order.

ANS: Independent customer master data maintenance PTS: 1 39. ______________________________ tools can be used by marketing managers to connect with customers, to learn what they like and don't like, and about new products that they want.

ANS: Web 2.0 PTS: 1 40. ______________________________ systems are computer-based systems for the capture, storage, retrieval, and presentation of images of objects such as pictures and documents.

ANS: Digital image processing PTS: 1 PROBLEM 1. TB Figure 10.1 below shows the horizontal perspective of an OE/S process. Functional titles and information flows, depicted as documents, generated or captured by the OE/S process have been omitted from the figured and listed underneath it.

Functional titles (for OE/S structures and entities with which the process interacts) A. Credit department B. Sales order department C. Shipping department D. VP finance E. VP logistics F. B/AR/CR process

Information Flows (depicted as documents) L. Customer order M. Credit request N. Credit approval O. Acknowledgement (to customer) P. Picking ticket (to warehouse) Q. Completed picking ticket (to shipping)

G. H. I. J. K.

Carrier Customer General ledger Warehouse VP marketing

R. S. T. U. V. W.

Sales order (to B/AR/CR) Shipping notice (to B/AR/CR) Shipping notice (to sales order dept.)

Shipping notice (to carrier) Shipping notice (to general ledger) Sales order (to shipping)

Required: Number your paper from 1 to 23 Match the letter from the list to the appropriate number in TB Figure 10.1.

ANS: 1.

H 2.

L 3.

O 4.

G 5.

K 6.

B 7.

T 8.

U

9.

10.

11.

12.

13.

14.

15.

16.

M N R D A F I P

17.

18.

19.

20.

21.

22.

23.

W S V E J Q C

PTS: 1 2. Below is a narrative of the "Validate sales order" portion (i.e., bubble 1.0) of the order entry/sales process.

Narrative Description How does the OE/S process then validate a customer order? First, process 1.1 verifies the availability of the requested inventory by consulting the inventory master data. If a sufficient level of inventory is on hand to satisfy the request, the order is forwarded for further processing, as depicted by the data flow "Inventory available order." Conversely, if a customer orders goods that are not in stock, process 1.1 runs a special back order routine. This routine determines the inventory requirement necessary to satisfy the order and then sends the back order request to the purchasing department. This activity is depicted by the "Back order" data flow, which in reality is a specific type of exception routine (i.e., a specific type of reject stub). If the customer refuses to accept a back order, then the sales event is terminated and the order is rejected, as shown by the "Reject" data flow. Information from the order (e.g., sales region, customer demographics, and order characteristics that reflect buying habits) that has potential value to marketing is recorded in the marketing data store.

After assuring inventory availability, process 1.2 establishes the customer's existence and then evaluates credit. The credit check adds the amount of the order to accounts receivable balances and open sales orders (i.e., orders about to be receivables), and compare that total to the credit limit. If the customer has exceeded their credit limit, the order is rejected.

Upon a successful credit approval, process 1.3 performs the following activities simultaneously: Updates the inventory master data to allocate the quantity ordered to the sales order. The • inventory balance could actually be reduced at this time to save a later update of the inventory master data.

Updates the sales order master data to indicate that a completed sales order has been • created.

Disseminates the sales order.

•

Required: From the DFD in TB Figure 10.2 and the narrative description above, explode bubble 1.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 3. Below is a narrative of the "Validate sales order" portion (i.e., bubble 1.0) of the order entry/sales process.

Narrative Description How does the OE/S process then validate a customer order? First, process 1.1 verifies the availability of the requested inventory by consulting the inventory master data. If a sufficient level of inventory is on hand to satisfy the request, the order is forwarded for further processing, as depicted by the data flow "Inventory available order." Conversely, if a customer orders goods that are not in stock, process 1.1 runs a special back order routine. This routine determines the inventory requirement necessary to satisfy the order and then sends the back order request to the purchasing department. This activity is depicted by the "Back order" data flow, which in reality is a specific type of exception routine (i.e., a specific type of reject stub). If the customer refuses to accept a back order, then the sales event is terminated and the order is rejected, as shown by the "Reject" data flow. Information from the order (e.g., sales region, customer demographics, and order characteristics that reflect buying habits) that has potential value to marketing is recorded in the marketing data store.

After assuring inventory availability, process 1.2 establishes the customer's existence and then evaluates credit. The credit check adds the amount of the order to accounts receivable balances and open sales orders (i.e., orders about to be receivables), and compare that total to the credit limit. If the customer has exceeded their credit limit, the order is rejected.

Upon a successful credit approval, process 1.3 performs the following activities simultaneously: Updates the inventory master data to allocate the quantity ordered to the sales order. The • inventory balance could actually be reduced at this time to save a later update of the

• •

inventory master data.

Updates the sales order master data to indicate that a completed sales order has been created.

Disseminates the sales order.

Required: From the DFD in TB Figure 10.4 and the narrative description above, explode bubble 1.0 into a lower-level diagram showing the details of that process by identifying the words that belong in items 1 to 18 (TB Figure 10.5).

ANS: NOTE TO INSTRUCTORS: This question is similar to Problem 2 (in the original banks) except that it asks students to identify the missing pieces instead of drawing Diagram 1.

1.

2.

3.

4.

5.

6.

7.

8.

9.

Customer order 1.1 Verify inventory availability Customer master data Sales order master data 1.3 Complete sales order Customer acknowledgement Sales order notification Marketing data Inventory available order

10.

11.

12.

13.

14.

15.

16.

17.

18.

Accepted order Picking ticket 1.2 Check credit Inventory master data Backorder Reject Inventory master data Accounts receivable master data Reject

PTS: 1 4. Below is the narrative of the "Execute shipping notice" portion (i.e., bubble 3.0) of the order entry/sales process.

Narrative Description This narrative describes activities that normally take place in a shipping department. Process 3.1 receives two data flows, namely the completed picking ticket and data retrieved from the sales order master data. The shipping clerk matches the quantity of the goods, the quantity on the picking ticket, and the quantity stored in the sales order master data. If the details agree, the matched sales order is forwarded to process 3.2. If the details of the data flows do not agree, process 3.1 rejects the order and initiates procedures for resolving any discrepancies.

When process 3.2 receives a matched sales order from process 3.1, it produces and disseminates notices of the shipment and updates the sales order and inventory master data. The sales order master data is updated to reflect the fact that the goods have been picked, packed, and shipped. The inventory master data is updated to change the quantity allocated for the sales order to an actual shipment, thus reducing the quantity of inventory on hand. We generally expect the dissemination of notices will include the following data flows: Shipping notifies billing to begin the invoicing process.

• A bill of lading is attached to the outside of the goods being shipped and is given to the • carrier.

A packing slip is inserted into the goods being shipped and is given to the carrier.

• The flow "General ledger inventory sales update" notifies the general ledger process that • inventory has been sold and the cost of goods sold has increased.

Required: From the DFD in TB Figure 10.6 and the narrative description above, explode bubble 3.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 5. The entity-relationship (E-R) diagram below represents an order entry/sales process, but with the names of certain entities, characteristics of relationships, and relationship cardinalities removed from the diagram. The names omitted are: Entities Characteristics of the Relationships CUSTOMERS activate • • INVENTORY billed_to • • SHIPMENTS generate • • SALES_RELATIONS • trigger • Required: Complete TB Figure 10.8 by: a.

Inserting the names from the above lists into the rectangles (entities) or diamonds (characteristics of the relationships), respectively, where they belong b.

Inserting a 1 or an N where necessary next to the connecting lines to indicate the cardinality of the relationships

ANS:

PTS: 1 6. The following systems flowchart depicts a portion of the OE/S Process:

Required: Based on the flowchart (TB Figure 10.10): a.

Complete the flowchart by matching the 8 blank items, which are indicated by the letters A through H with the 8 items listed below: 1.

Bill of Lading 2.

Compare order number and quantities 3.

Completed picking ticket (with bar codes) 4.

Display sales order 5.

Enterprise database 6.

Accept shipment 7.

Packing Slip 8.

Scan bar codes on picking ticket b.

Name the present and missing control plans identified with the letters P and M in the

flowchart.

ANS: a.

b.

Missing Item A B C D E F G H

Item Description 5 4 3 8 2 6 1 or 7 1 or 7

The control plans from above are: P-2 Customer credit check P-3 Populate input screens with master data P-4 Programmed edit checks P-9 Confirm input acceptance P-11 Enter shipment data in shipping P-12 Turnaround document P-13 Automated data entry P-14 Independent shipping authorization P-15 One-for-one checking of goods, picking ticket, sales order M-1 Independent customer master data maintenance M-2 Review open sales orders (tickler file)

PTS: 1 7. The following is a list of 10 control plans.

Control Plans A. Enter data close to where customer order is received B. Online prompting C. Independent shipping authorization D. Procedures for rejected inputs E. Preformatted screens F. Customer credit check G. One-for-one checking of goods, picking ticket, sales order H. Populate inputs with master data I. Review open sales orders (tickler file) J. Turnaround document (picking ticket with bar codes) Required: Listed below are ten system failures that have control implications. On the answer line to the left of each system failure, insert the capital letter from the list above of the best control plan to prevent the system failure from occurring. A letter should be used only once.

Answers

SYSTEM FAILURES 1.

The sales personnel can approve all customer orders.

2.

Any correcting entries to be made by the customer service representative are

done at a later time rather than as the data is input into the system. Some customer orders are never corrected and re-entered.

ANS: 1.

F 2.

D 3.

C 4.

A 5.

E

3.

The finished goods warehouse delivers goods to the shipping department, accompanied by the picking ticket. After checking the goods against the picking ticket, the shipping employee signs the picking ticket and gives it to the warehouse employee. Then the shipping department prepares a three-part shipping notice, one copy of which serves as the packing slip. A recent audit discovered that a dishonest warehouse employee had been forging picking ticket documents, thereby having goods shipped to an accomplice.

4.

Customer service representatives record customer orders on prenumbered order forms, and then forward the forms to the corporate office in Orlando for processing. J.B. Wrigley, one of Mandates top salesmen, had a very good week; he mailed 55 customer orders to the corporate office on Friday afternoon. Unfortunately, they were misplaced in the mail and did not reach Orlando until three weeks later. Needless to say, those 55 customers were more than a little displeased at the amount of time that Mandate took to fill their orders.

5.

Customer service representative can manually key in order data at one of many PCs. In the first two weeks of operation, every sales order produced by the computer was missing a "ship-to" address.

6.

The customer service representative can enter a customer code with no matching customer master data and no authorized customer. Therefore, it is possible to make invalid entries into the system.

7.

Proper comparisons are not made to ensure that the shipping notice inputs are represented by an actual shipment of goods.

8.

The OE/S system does not advise the customer service representative to check the data entries before moving on to the next order.

9.

Customers have complained that their invoices are not correct. The amount of goods received does not correspond to the number of items on the invoices.

After some investigation it was determined that shipping clerks have made errors in recording the amount shipped.

10.

Several shipments have not been made in a timely manner.

6.

7.

8.

9.

10.

H G B J I

PTS: 1 8. TB Figure 10.11 is the annotated systems flowchart for the order entry/sales process. TB Figure 10.12 is the related control matrix. Following the control matrix is a description of the first control plan, P-1.

Required: Using the format shown for control plan P-1, write descriptions for control plans P-2, P-10, P-14, P-15, and M-1.

Recommended control plans Present Controls P-1: Enter customer order close to where the order is received P-2: Customer credit check P-3: Populate input screens with master data P-4: Programmed edit checks P-5: Compare input data with master data P-6: Preformatted

Control Goals of the OE/S Business Process Control Goals of the Operations Process Control Goals of the Information Process Ensure Ensure For sales efficient security of order and employment resources For sales order inventory of resources (inventory, inputs (i.e., master For shipping notice Ensure effectiveness (people, customer customer orders), data, inputs (i.e., shipment of operations: computers) master data) ensure: ensure: data), ensure: A B C IV IC IA UC UA IV IC IA P-1

P-1

P-1

P-2 P-3

P-3

P-4

P-4

P-4

P-5

P-5

P-5

P-6

P-6

P-6

P-1

P-2

P-2

P-3

P-3

P-1

P-3

P-4 P-5

P-5

P-6

P-3

For sales order and inventory master data, ensure: UC UA

screens P-7: Online prompting P-8: Procedures for rejected inputs P-9: Confirm input acceptance P-10: One-for-one checking of picking ticket with the goods

P-7

P-7

P-8

P-8

P-7

P-7 P-8

P-8

P-8

P-9 P-10

P-10

P-10

P-8

P-9 P-10

P-10

TB Figure 10.12 (part 1)

Recommended control plans

Control Goals of the OE/S Business Process Control Goals of the Operations Process Control Goals of the Information Process Ensure Ensure For sales efficient security of order and employment resources For sales order inventory of resources (inventory, inputs (i.e., master For shipping notice Ensure effectiveness (people, customer customer orders), data, inputs (i.e., shipment of operations: computers) master data) ensure: ensure: data), ensure: A B C IV IC IA UC UA IV IC IA

Present Controls P-11: Enter shipment data in shipping P-12: Turnaround document P-3: Automated data entry P-14: Independent shipping authorization P-15: One-for-one checking of goods, picking ticket, sales order Missing Controls M-1: Independent customer master data

P-11

P-11

P-12

P-12

P-13

P-13

M-1

maintenance M-2: Review open M-2 sales orders (tickler file) Possible effectiveness goals include the following: A¾Provide timely acknowledgement of customer orders.

B¾Provide assurance of customer's creditworthiness.

C¾Provide timely shipment of goods to customers.

P-11

P-12

P-11

P-12 P-13

P-14

P-14

P-15

P-15

M-1

P-15

M-1

M-2

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

TB Figure 10.11 (part 2)

P-1: Enter customer order close to where the order is received.

Effectiveness goals A and C, efficient employment of resources: Use of this strategy • places CSRs in a position to process customer orders immediately, and being familiar with the orders allows the CSRs to input the orders more quickly, which leads to timely acknowledgements and shipments and more orders processed by each representative (efficiency).

Sales order input completeness: By having the CSRs enter the sales data rather than • forwarding to a data entry function, the risk of orders getting lost should be reduced.

Sales order input accuracy: Because CSRs are familiar with the type of data being • entered and can correct any input errors "on the spot," input accuracy should be

For sales order and inventory master data, ensure: UC UA

improved.

ANS: P-2: Customer credit check.

Effectiveness goal B: The credit check is performed by ascertaining that the amount of • the customer order (plus the amount of any open orders and the amount of any outstanding receivables balance) falls within the credit limit established by the credit department. If the request falls outside the limit, then the control terminates the sale.

Security of resources: Termination of orders exceeding credit limits ensures that the • organization protects its resources by dealing only with customers who have demonstrated an ability to satisfy their liabilities.

Sales order input validity: Valid sales orders include those that fall within authorized • credit limits (i.e., there is a reasonable expectation of payment).

P-10: One-for-one checking of picking tickets with the goods.

Effectiveness goal C, efficient employment of resources: By comparing the goods to the • picking ticket (and correcting any picking errors) in the warehouse, rather than later in shipping, we can process shipments in a more timely manner and more efficiently (the warehouse clerk is in a better position to correct picking errors than is the shipping clerk).

Security of resources: By correcting picking errors, we ensure that only goods that were • ordered leave the warehouse.

Shipping notice input validity, shipping notice input accuracy: The shipping clerk sends • only the quantity of goods that were on the picking ticket, thus ensuring that the goods entered are shipments that will be valid and accurate.

P-14: Independent shipping authorization.

Security of resources: The system provides the shipping department with an independent • authorization (i.e., an open sales order in the enterprise database that was created by the CSR) to ship inventory to a customer. In addition, the plan calls for the system to provide an independent authorization (i.e., a picking ticket) to the warehouse to pick goods and send them to the shipping department.

Shipping notice input validity: The shipping department will not record a shipment unless • it has received independent authorization to do so. This independent authorization comes in the form of picking tickets and the open sales order executed by independent functions, the warehouse and the CSR. P-15: One-for-one checking of goods, picking ticket, sales order.

Security of resources, shipping notice input validity: By comparing data on the sales • order master data with the data on the picking ticket and then comparing these data sets to the actual goods being shipped, this plan ascertains that inventory shipments have been authorized and represent an actual shipment of goods.

Shipping notice input accuracy: By comparing such items as item numbers, quantities, • and customer identification, we can ensure that the input of shipping data is accurate.

M-1: Independent customer master data maintenance.

Note: We are assuming that this control is missing, even though we are told that there is a credit check and that credit rejection procedures are initiated.

Effectiveness goal B: Only personnel in the credit department, a function that is separate • from the sales department, should add new customers to the customer master data.

Security of resources: By precluding sales being made to customers who may not be • creditworthy, the organization helps to ensure the security of its resources.

Sales order input validity: Valid sales orders include those that are made to customers for • whom management has provided prior authorization. This is accomplished here by having the records entered by the credit department.

PTS: 1

Chapter 11—The Billing/Accounts Receivable/Cash Receipts (B/AR/CR) Process TRUE/FALSE 1. The B/AR/CR process completes the order to cash process by accomplishing the activities of billing customers, managing customer accounts, and securing payment for goods and services rendered.

ANS: T

PTS: 1

2. Recording B/AR/CR event data is generally the responsibility of the treasury department, which typically reports to the controller function.

ANS: F

PTS: 1

3. Although both the treasurer and controller functions report to the VP of Finance, for good internal control, these functions should be segregated.

ANS: T

PTS: 1

4. The credit department uses accounts receivable master data to complete several of their activities.

ANS: T

PTS: 1

5. The goal for treasurers, who are responsible for managing an organization's cash resources, is to make funds available so that they can be used to acquire revenue-generating assets, be invested to earn interest, or be used to reduce debt, thus saving interest charges.

ANS: T

PTS: 1

6. Float, when applied to cash receipts, is the time between payment by customer and the availability of funds on deposit and available for use.

ANS: T

PTS: 1

7. Funds on deposit and available for use are known as good funds.

ANS: T

PTS: 1

8. The AR master file address is a postal address, maintained by the firm's bank, which is used solely for the purpose of collecting checks.

ANS: F

PTS: 1

9. Database systems are Internet based systems for sending bills/invoices to customers and receiving the customer payment electronically.

ANS: F

PTS: 1

10. An invoice is a business document⎯either paper or electronic transmission⎯used to notify the customer of an obligation to pay the seller for merchandise which was ordered and shipped.

ANS: T

PTS: 1

11. A purchasing statement is a business document designed to inform the payee of the invoices or other items being paid.

ANS: F

PTS: 1

12. The accounts receivable master data is a repository of all unpaid invoices issued by an organization and awaiting final disposition.

ANS: T

PTS: 1

13. The sales event data store contains invoice records.

ANS: T

PTS: 1

14. Electronic bill presentment and payment (EBPP) systems are B2B systems that use a Web site to post customers' bills and to receive their electronic payments.

ANS: F

PTS: 1

15. The three types of accounts receivable systems discussed in the text are the lockbox, balance-forward, and open-item systems.

ANS: F

PTS: 1

16. In a balance-forward accounts receivable system, customer statements display previous balance, payments, and balance forward to which are added any new charges to derive the total balance due.

ANS: T

PTS: 1

17. In an open-item accounts receivable system, customer statements display invoices (new or settled in the current period), along with payment details.

ANS: T

PTS: 1

18. In a pre-billing system, invoices are prepared after the goods have been shipped and the sales order notification has been matched to the shipping's billing notification.

ANS: F

PTS: 1

19. In a post-billing system, invoices are prepared upon acceptance of the customer order.

ANS: F

PTS: 1

20. The acronym EFT stands for electronic funds transfer.

ANS: T

PTS: 1

21. The acronym ACH stands for automated clearing house.

ANS: T

PTS: 1

22. A credit card system is better at reducing float time for the collector than a debit card system.

ANS: F

PTS: 1

23. In an open-item system, accounts receivable records consist of a customer's current balance due, past-due balance, and the finance charges and payments related to the account.

ANS: F

PTS: 1

24. The B/AR/CR system supports the repetitive work routines of the credit department, the cashier, and the accounts receivable department.

ANS: T

PTS: 1

25. A debit card is a method of payment whereby a third party, for a fee, removes from the collector the risk of non-collection of the account receivable.

ANS: F

PTS: 1

26. A credit card is a form of payment authorizing the collector to transfer funds electronically from the payer's bank account to the collector's bank account.

ANS: F

PTS: 1

27. Forced vacations is the only control procedure that can be used to help prevent or detect lapping.

ANS: F

PTS: 1

28. The ACH network electronically transfers funds by crediting the collector's bank account and debiting the payer's bank account for the amount of a payment.

ANS: T

PTS: 1

29. The payment event data contains the details of each payment received.

ANS: F

PTS: 1

30. The stub attached to the customer statement is also known as a turnaround document.

ANS: T

PTS: 1

31. The accounts receivable master data is created as sales returns, bad debt write-offs, estimated doubtful accounts, or similar adjustments are processed.

ANS: F

PTS: 1

32. A lockbox is a postal address maintained by a third party⎯typically a bank⎯which is used solely for the purpose of collecting checks.

ANS: T

PTS: 1

33. EFT includes wire transfers, credit and debit card processing, as well as payments made via the ACH Network.

ANS: T

PTS: 1

34. An electronic bill presentment and payment (EBPP) system is a B2C system that uses a Web site to post customer bills and to receive electronic payments.

ANS: T

PTS: 1

35. With the biller direct method of an electronic bill presentment and payment (EBPP) system, a company posts its bills/invoices to its own Web site (or to a Web site hosted by a third party) and sends an e-mail notification to its customers telling them that their bill has been posted.

ANS: T

PTS: 1

36. With the consolidation/aggregation method of an electronic bill presentment and payment (EBPP) system, a company's bills are posted, along with bills from other companies, to a Web site hosted by a third party. Customers then go to that site to pay bills from a number of companies.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. As discussed in the text, the functions of the B/AR/CR process: a. is identical to those of the order entry/sales process b. supports the problem-solving processes of marketing managers c. collects amounts due from customers d. is unrelated to the functions of the order entry/sales process ANS: C

PTS: 1

2. According to the concept of segregation of duties, which of the following managers should report to the controller rather than to the treasurer? a. credit department manager b. accounts receivable department manager c. cashier d. investments manager ANS: B

PTS: 1

3. In an organization in which the OE/S and B/AR/CR processes are separate processes, the B/AR/CR process usually accomplishes all of the following activities except: a. picking goods in the warehouse b. billing customers c. managing customer accounts d. securing payment of customer accounts ANS: A

PTS: 1

4. Which of the following pairs of functions would you expect might report directly to the vice president of finance? a. credit department and controller b. shipping department and controller c. accounts receivable department and treasurer d. treasurer and controller ANS: D

PTS: 1

5. Which of the following statements regarding Check 21 is false? a. It allows banks to exchange checks electronically. b. Before this system, paper checks were flown around the country from bank-to-bank to complete the check-clearing process. c. It requires that banks exchange check images. d. It significantly reduced float.

ANS: C

PTS: 1

6. Which of the following process bubbles (i.e., activities) would you not expect to see in the logical DFD for a B/AR/CR process? a. perform billing b. requisition inventory c. receive customer payment d. manage customer accounts ANS: B

PTS: 1

7. Which of the following normally would trigger the billing process in a B/AR/CR process? a. remittance advice b. shipping notice c. picking ticket d. customer acknowledgment ANS: B

PTS: 1

8. Which of the following normally would trigger the B/AR/CR process to record a customer payment? a. credit memo b. remittance advice c. deposit slip d. notice to the general ledger to record a cash receipt ANS: B

PTS: 1

9. The principal master data that you would expect to see in a B/AR/CR process is the: a. sales order b. shipping notifications c. sales journal d. accounts receivable ANS: D

PTS: 1

10. In a B/AR/CR process, which of the following data stores is least likely to interact with a process called "perform billing"? a. vendor master data b. customer master data c. accounts receivable master data d. sales event data ANS: A

PTS: 1

11. In a logical DFD for a B/AR/CR process, which of the following data stores would you expect to interact with a process called "manage customer accounts"? a. inventory master data b. accounts receivable master data

c. sales event data d. cash receipts event data ANS: B

PTS: 1

12. In a logical DFD for a B/AR/CR process, you would expect that a credit memo would be sent by the B/AR/CR process to the customer from which of the following processes? a. perform billing b. manage customer accounts c. receive payment d. validate sales order ANS: B

PTS: 1

13. Inputs to the B/AR/CR process normally could include all of the following except: a. a copy of the sales order sent by the sales order function to the billing function b. a shipping notice sent by the shipping function to the billing function c. customer acknowledgement d. remittance advice ANS: C

PTS: 1

14. In general, adjustments to customer balances in the accounts receivable master data will be necessary for all of the following except: a. sales returns and allowances b. reversals of mispostings and other errors c. bad debt write-offs d. estimates of uncollectible accounts ANS: D

PTS: 1

15. An invoice record usually contains all of the following elements except: a. the customer's credit limit b. customer's identification c. items and quantities billed d. invoice date ANS: A

PTS: 1

16. In an entity-relationship (E-R) diagram for the B/AR/CR process, you would expect that the word trigger would appear between the boxes for? a. CUSTOMER and SHIPMENT b. CUSTOMER and SALES INVOICE c. STOCK PICK and SHIPMENTS d. SALES INVOICE and SHIPMENT ANS: C

PTS: 1

17. A company using a centralized database approach might not maintain a relational table for ACCOUNTS RECEIVABLE. Rather, accounts receivable balances at any point in time could be computed as the difference between the relations for which of the following continuous events? a. SHIPMENTS and SALES_INVOICES b. SALES_INVOICES and CASH_RECEIPTS c. SHIPMENTS and CASH_RECEIPTS d. CUSTOMER and SALES_INVOICES

ANS: B

PTS: 1

18. One type of accounts receivable system is balance-forward, the other is: a. debit card system b. Automated Clearing House system c. Electronic Funds Transfer system d. open-item system ANS: D

PTS: 1

19. In a pre-billing system, invoices are prepared: a. immediately upon acceptance of a customer order b. when there is to be a delay between the time that the order is accepted and the time it is shipped c. where inventory balances can be determined only through physical count d. to improve customer relations ANS: A

PTS: 1

20. In a fraud scheme known as ____, the perpetrator attempts to cover the theft of cash received from customer A by applying cash collected from customer B to A's account, then applying a receipt from C to B's account, and so forth. a. Kiting b. lapping c. schmoozing d. hacking ANS: B

PTS: 1

21. Deposit slips are usually generated by the B/AR/CR process: a. at the time invoices are prepared b. by manual procedures c. electronically d. as part of processing cash receipts ANS: D

PTS: 1

22. Typically, the operations process goals of the B/AR/CR: a. vary, depending on the organization and its particular view of these processes b. remain the same for all organizations c. vary inversely with the information process goals d. are the same as the information process goals ANS: A

PTS: 1

23. Which of the following control plans is most likely to appear in the input validity and input accuracy columns, but not in the input completeness column of a control matrix for the billing process? a. independent billing authorization b. reconcile input and output batch totals c. check for authorized prices, term, freight, and discounts d. procedures for rejected inputs ANS: C

PTS: 1

24. For the cash receipts process, the control plan turnaround documents helps to achieve which of the following pairs of control goals?

a. b. c. d.

ensure input validity and ensure input completeness ensure efficient employment of resources and ensure input accuracy ensure input completeness and ensure input accuracy ensure security of resources and ensure input accuracy

ANS: B

PTS: 1

25. In the cash receipts process, the control plan of immediately endorsing incoming checks is designed to achieve the control goal of: a. ensure the timely deposit of cash receipts b. ensure security of the cash asset c. ensure cash receipts input accuracy d. ensure cash receipts input completeness ANS: B

PTS: 1

26. In the billing process, the control plan of review shipped not billed sales orders (tickler file) helps to ensure: a. effectiveness of operations (timely billing) b. efficient employment of resources c. security of resources d. input accuracy ANS: A

PTS: 1

27. The B/AR/CR process comprises three different but related processes⎯namely, billing, accounts receivable, and cash receipts. Which of the following would not be an operations process goal for these three processes? a. ensure effectiveness of operations b. ensure AR master data update accuracy c. ensure efficient employment of resources d. ensure security of resources ANS: B

PTS: 1

28. A remittance advice generally would be recorded in which of the following pairs of data stores? a. customer master data and accounts receivable master data b. sales event data and accounts receivable master data c. accounts receivable adjustments data and accounts receivable master data d. cash receipts data and accounts receivable master data ANS: D

PTS: 1

29. Digital images: a. help reduce paper in the B/AR/CR system b. may be scans of checks c. may be scans of remittance advices d. all of the above ANS: D

PTS: 1

30. Which of the following statements is false? a. The typical B/AR/CR system assists in preparing internal and external reports. b. Cash receipts can be accelerated by using some form of EFT. c. The two types of adjustments that commonly result from a periodic review of the aging details of customer account balances are a recurring entry for estimated bad debts and a

bad debt write-off. d. Cash receipts events data are comprised of one or more invoice records.

ANS: D

PTS: 1

31. Which of the following statements is true? a. In a pre-billing system, invoices are prepared after the goods have been shipped and the sales order notification has been matched to the shipping's billing notification. b. In a post-billing system, invoices are prepared upon acceptance of the customer order. c. Of the two types of billing systems discussed in the text, the pre-billing system requires the more accurate inventory records. d. Of the two types of billing systems discussed in the text, the pre-billing system is appropriate in situations where there is a significant delay between acceptance of the customer's order and the subsequent shipment.

ANS: C

PTS: 1

32. Which of the following statements is false? a. The check and remittance advice trigger the receive payment process. b. A bank lockbox provides more protection for cash than a system where cash receipts are mailed to the payee company and then deposited. c. Good funds are funds on deposit and available for use. d. From the standpoint of reducing the collector's float, a customer check is a better payment method than a debit card.

ANS: D

PTS: 1

33. The B/AR/CR process completes the: a. billing process b. production process c. order-to-cash process d. inventory process ANS: C

PTS: 1

34. Which of the following is not part of the horizontal information flows of the B/AR/CR process? a. accounts receivable aging report b. customer payment c. bank deposit d. customer invoice ANS: A

PTS: 1

35. Which of the following is most commonly associated with the treasury function? a. recording of event data b. security of funds c. reporting of results of business events d. maintaining accounting records ANS: B

PTS: 1

36. Which of the following segregation of duties is not required for the B/AR/CR business process controls to be effective? a. price authorization and billing b. treasury and controllership c. bank reconciliation and cash receipts

d. all of these are required for effective control ANS: D

PTS: 1

37. Placing a customer's bills on a company's own Web site and sending an e-mail telling the customer that his or her bill is there is called: a. electronic funds transfer b. electronic bill presentment c. electronic bill payment d. electronic document management ANS: B

PTS: 1

38. The accounts receivable system in which all the accounts receivable master data contains individual open invoices, against which payments and other adjustments are applied: a. pre-billing system b. open-item system c. balance-forward system d. post-billing system ANS: B

PTS: 1

39. The accounts receivable system typically used by utilities is the: a. pre-billing system b. open-item system c. balance-forward system d. post-billing system ANS: C

PTS: 1

40. Quantities of items shipped to a customer would typically be found in the relational table for: a. CUSTOMERS b. SALES_RELATIONS c. BANKS d. DEPOSITS ANS: B

PTS: 1

41. The billing system in which the invoice is prepared after goods have been shipped and the sales order notification has been matched to shipping's billing notification is called a(n): a. post-billing system b. open-item system c. pre-billing system d. balance-forward system ANS: A

PTS: 1

42. A billing system that can be used when there is little or no delay between the receipt of the customer order and the shipment of the goods is a: a. post-billing system b. open-item system c. balance-forward system d. pre-billing system ANS: D

PTS: 1

43. The technology that allows information on documents to be converted into machine-readable data through a scanner is called a(n): a. OCR b. MICR c. bar code reader d. Digitizer ANS: A

PTS: 1

44. An overall management objective is to: a. minimize the number of sales transactions b. minimize the total amount of accounts receivable c. minimize the time from the beginning of the selling process to the end of the cash collections process d. maximize the amount of float ANS: C

PTS: 1

45. The cash receipts process can be accelerated by using the ACH network because it is: a. an immediate process b. a periodic process c. a type of EFT process d. a batch process ANS: C

PTS: 1

46. A form of fraud in which the payments made by one customer are systematically applied to the account of another is called: a. lapping b. malfeasance c. pre-posting d. knitting ANS: A

PTS: 1

47. In the billing function described in the text, the control plan that contributes to effective operations is: a. edit the shipping notification for accuracy b. independent billing authorization c. compare input shipping notices to sales order master data d. review shipped not billed sales orders (tickler file) ANS: D

PTS: 1

48. Which control is most effective in contributing to the goal of ensure input accuracy in the billing function? a. compare input shipping notices to sales order master data b. batch sequence checks c. confirm input acceptance d. review shipped not billed sales orders (tickler file) ANS: A

PTS: 1

49. Which control plan for the cash receipts function has as its primary control goal to ensure security of resources? a. reconcile bank account regularly. b. enter cash receipts close to where cash is received.

c. immediately endorse incoming checks. d. one-to-one checking of deposit slips and checks.

ANS: C

PTS: 1

50. The control independent billing authorization ensures that bills: a. are accurate b. are for goods that were picked in the warehouse c. are for goods actually ordered by the customer d. have authorized prices ANS: C

PTS: 1

51. A customer is instructed to send his remittance advice and check to a bank's postal address. This method for collecting customer cash receipts is called: a. electronic funds transfer b. automated clearing house c. Check 21 d. Lockbox ANS: D

PTS: 1

52. To reduce the cost of collecting its accounts receivable, a company sells its accounts receivable to a financial organization. The service is called: a. collection agency advance b. lock-boxing c. Factoring d. Funding ANS: C

PTS: 1

COMPLETION 1. The B/AR/CR process completes the order to cash process by accomplishing the activities of: ______________________________, managing customer accounts, and securing payment for goods or services rendered.

ANS: billing customers PTS: 1 2. Recording B/AR/CR event data is generally the responsibility of the accounts receivable department, which for good internal control typically reports to the ______________________________ function.

ANS: controller PTS: 1 3. In the organization structure shown in the text, although both report to the VP of Finance, the ______________________________ and ______________________________ functions should be segregated.

ANS: treasurer, controller

controller, treasurer PTS: 1 4. Organizations should monitor ______________________________ to ensure that cash is received in a timely manner.

ANS: open accounts receivable open accounts receivable (AR) open AR PTS: 1 5. There are two types of electronic bill presentment and payment (EBPP) systems the ______________________________ method and the consolidation/aggregation method.

ANS: biller direct PTS: 1 6. ______________________________, when applied to cash receipts, is the time between the payment by a customer and the availability of funds on deposit and available for use.

ANS: Float PTS: 1 7. Funds on deposit and available for use are known as ______________________________ funds.

ANS: good PTS: 1 8. A(n) ______________________________ is a postal address, maintained by a third party⎯typically a bank⎯which is used solely for the purpose of collecting checks.

ANS: lockbox PTS: 1 9. ______________________________ systems are B2C systems that use a Web site to post customers' bills and to receive their electronic payments.

ANS: Electronic bill presentment and payment (EBPP) Electronic bill presentment and payment EBPP PTS: 1 10. A(n) ______________________________ is a business document used to notify the customer of an obligation to pay the seller for merchandise which was ordered and shipped.

ANS: invoice PTS: 1 11. A(n) ______________________________ is a business document used by the payer to notify the payee of the items being paid.

ANS: remittance advice remittance advice (RA) RA PTS: 1 12. The ______________________________ data is a repository of all unpaid invoices issued by an organization and awaiting final disposition.

ANS: accounts receivable master accounts receivable (AR) master AR master PTS: 1 13. The ______________________________ data store contains invoice records.

ANS: sales event PTS: 1 14. Organizations should reconcile their ______________________________ on a regular basis to ensure that valid deposits are recorded correctly.

ANS: bank account PTS: 1 15. The two types of accounts receivable systems discussed in the text are the balance-forward and ______________________________ systems.

ANS: open-item PTS: 1 16. In a(n) ______________________________ accounts receivable system, accounts receivable records consist of a customer's balance, categorized as current and past due, and current account activity, including such items as current charges, finance charges for past-due balances, and payments.

ANS: balance-forward PTS: 1

17. In a(n) ______________________________ accounts receivable system, the customer statement displays invoices (new or settled in the current period), along with payment details.

ANS: open-item PTS: 1 18. In a(n) ______________________________ billing system, invoices are prepared after the goods have been shipped and the sales order notification has been matched to the shipping's billing notification.

ANS: post-billing PTS: 1 19. In a(n) ______________________________ billing system, invoices are prepared upon acceptance of the customer order.

ANS: pre-billing PTS: 1 20. The acronym ACH stands for ______________________________.

ANS: automated clearing house PTS: 1 21. The acronym EFT stands for ______________________________.

ANS: electronic funds transfer PTS: 1 22. When customers pay with a(n) ______________________________ card, float is eliminated.

ANS: debit PTS: 1 23. The ______________________________ process supports the repetitive work routines of the credit department, the cashier, and the accounts receivable department.

ANS: B/AR/CR billing/accounts receivable/cash receipts billing/accounts receivable/cash receipts (B/AR/CR) PTS: 1 24. The Check Clearing for the 21st Century Act called ______________________________ allows banks to exchange check images electronically.

ANS: Check 21

PTS: 1 25. The ______________________________ type of accounts receivable systems is appropriate in situations where invoices are prepared and sent for each sale (i.e., each shipment), and the customer typically makes payments for specific invoices when those invoices are due.

ANS: open-item PTS: 1 26. A(n) ______________________________ is a form of payment authorizing the collector to transfer funds electronically from the payer's bank account to the collector's bank account.

ANS: debit card PTS: 1 27. ______________________________ is a fraud resulting from the improper segregation of duties between the functions of handling cash and recording cash receipt events.

ANS: Lapping PTS: 1 28. The ______________________________ data is created as sales returns, bad debt write-offs, estimated doubtful accounts, or similar adjustments are processed.

ANS: accounts receivable adjustments accounts receivable (AR) adjustments AR adjustments PTS: 1 29. The ______________________________ network is one of the earliest and most prominent methods for EFT in which the collector's bank account is credited and the payer's bank account is debited for the amount of a payment.

ANS: automated clearing house (ACH) automated clearing house ACH PTS: 1 30. The ______________________________ data store contains the details of each payment as reflected on the remittance advice (RA) accompanying a payment.

ANS: cash receipts event PTS: 1 31. Often times a stub is attached to the customer statement. This stub is also known as a(n) ______________________________ document.

ANS: turnaround PTS: 1 32. Electric and gas utility companies typically use the ______________________________ type of accounts receivable system.

ANS: balance-forward PTS: 1 33. The control plan ______________________________ establishes for the billing personnel that the shipment is supported by an actual sales order.

ANS: independent billing authorization PTS: 1 34. The control plan ______________________________ ensures that invoices, accounts receivable, and revenue reflect prices, terms, freight, and discounts authorized by management.

ANS: check for authorized prices, terms, freight, and discounts PTS: 1 35. The control plan ______________________________ assumes that there is a segregation of duties between those who approve prices and those involved in the selling function.

ANS: independent pricing data PTS: 1 36. The control plan ______________________________ controls the billing and cash receipts functions by asking the customer to review open invoices to determine that they are valid and accurate.

ANS: confirm customer accounts regularly PTS: 1 37. To help prevent incoming cash receipts from being fraudulently misappropriated, an organization should ______________________________.

ANS: immediately endorse incoming checks PTS: 1 38. An organization can accelerate cash deposits and prevent lapping by ______________________________.

ANS: immediately separating checks and remittance advices PTS: 1

PROBLEM 1.

Below is the narrative of the "Perform billing" portion (i.e., bubble 1.0) of the B/AR/CR process.

Narrative Description When the OE/S process produces a sales order, it notifies the B/AR/CR process to that effect. This is the flow "Sales order notification." When triggered by the data flow, "Shipping's billing notification" (i.e., the shipping notice), process 1.1 validates the sale by comparing the details on the sales order notification to those shown on shipping's billing notification. If discrepancies are noted, the shipping notice is rejected, i.e. a reject stub. Rejected notices are later processed through a separate exception routine.

If the data flows match, process 1.1 sends a validated shipping notification to process 1.2. Process 1.2 then performs the following actions: Obtains from the customer master data certain standing data which is needed to produce • the invoice.

Creates the invoice and sends it to the customer.

• Updates the accounts receivable master data.

• Adds an invoice to the sales event data (i.e., the sales journal).

• Notifies the general ledger process that a sale has occurred (GL invoice update).

• Required: From the DFD in TB Figure 11.1 and the narrative description above, explode bubble 1.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 2. Below is the narrative of the "Manage customer accounts" portion (i.e., bubble 2.0) of the B/AR/CR process.

Narrative Description Processes 2.1 through 2.3 relate to sales returns adjustments. This process begins when there is notification from the receiving department that goods have been returned by a customer. Subprocess 2.1 obtains data from the accounts receivable master data to validate the return. If the sales return is not valid, it will be rejected (see Reject stub) and processed through a separate exception routine. If the sales return is valid, it is sent to subprocess 2.2 where a credit memo is prepared and sent to the customer, and the accounts receivable master data is updated to reflect the credit. At the same time, the validated sales return is sent to subprocess 2.3 where a journal voucher is prepared, which is used to create a record in the AR adjustments event data store (i.e., the journal), and the general ledger is notified that a credit memo has been issued. This results in updates to sales returns and allowances and to AR. Process 2.4 is triggered by a periodic review of aging details obtained from the accounts receivable master data. The aging details would be used to identify and follow up on late-paying customer accounts. One of two types of adjustments might result from this review: The recurring adjusting entry for estimated bad debts.

• The periodic write-off of "definitely worthless" customer accounts.

• Like process 2.4, bubble 2.5, "Prepare customer statements," also is triggered by a periodic event that recurs at specified intervals, often on a monthly basis in practice. Details of unpaid invoices are extracted from the accounts receivable master data and are summarized in a statement of account that is mailed (or sent electronically) to customers.

Required: From the DFD in TB Figure 11.3 and the narrative description above, explode bubble 2.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 3. Below is the narrative of the "Manage customer accounts" portion (i.e., bubble 2.0) of the B/AR/CR process.

Narrative Description Processes 2.1 through 2.3 relate to sales returns adjustments. This process begins when there is notification from the receiving department that goods have been returned by a customer. Subprocess 2.1 obtains data from the accounts receivable master data to validate the return. If the sales return is not valid, it will be rejected (see Reject stub) and processed through a separate exception routine. If the sales return is valid, it is sent to subprocess 2.2 where a credit memo is prepared and sent to the customer, and the accounts receivable master data is updated to reflect the credit. At the same time, the validated sales return is sent to subprocess 2.3 where a journal voucher is prepared, which is used to create a record in the AR adjustments event data store (i.e., the journal), and the general ledger is notified that a credit memo has been issued. This results in updates to sales returns and allowances and to AR. Process 2.4 is triggered by a periodic review of aging details obtained from the accounts receivable master data. The aging details would be used to identify and follow up on late-paying customer accounts. One of two types of adjustments might result from this review: The recurring adjusting entry for estimated bad debts.

• The periodic write-off of "definitely worthless" customer accounts.

• Like process 2.4, bubble 2.5, "Prepare customer statements," also is triggered by a periodic event that recurs at specified intervals, often on a monthly basis in practice. Details of unpaid invoices are extracted from the accounts receivable master data and are summarized in a statement of account that is mailed (or sent electronically) to customers.

Required: Using the DFD in TB Figure 11.5 and the narrative description above, identify the words that belong in items 1 to 15 of Diagram 2.0 (TB Figure 11.6).

ANS: NOTE TO INSTRUCTORS: This question repeats the "Manage customer accounts" narrative of Problem 2 (in the original banks) but instead of asking students to draw Diagram 2.0 it asks them to identify missing diagram elements.

1.

2.

3.

4.

5.

6.

7.

8.

Sales return notification 2.1 Validate return Validated sales return notification 2.3 Prepare journal voucher GL sales return update Reject 2.2 Prepare credit memo Credit memo

9.

10.

11.

12.

13.

14.

15.

AR adjustments event data Periodic customer statements 2.5 Prepare customer statements Accounts receivable master data 2.4 Prepare bad debts journal voucher GL estimated bad debts update GL write-off update

PTS: 1 4. Below is the narrative for the "Receive payment" portion (i.e., bubble 3.0) of the B/AR/CR process.

Narrative Description The payment and remittance advice data triggers the receive payment process. Upon receipt of the payment and RA from the bank, process 3.1 first validates the remittance by comparing the payment to the RA. Mismatches are rejected for later processing. If the payment and RA agree, the validated remittance is sent to process 3.2, which uses the RA to update the accounts receivable master data to reflect the customer's payment and records the collection in the cash receipts events data, and notifies the general ledger process of the amount of the cash deposited. This is an immediate update of the GL for a single cash receipt.

Required: From the DFD in TB Figure 11.7 and the narrative description above, explode bubble 3.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 5. TB Figure 11.9 is the control matrix for the billing process presented in Chapter 11, but with certain items omitted. In the matrix, each omission is indicated by a box. Jumbled lists of the omitted items are as follows: Omitted from Control Goals Columns 1.

Accounts receivable master data 2.

Ensure efficient employment of resources (people, computers) 3.

For completed shipping notice inputs, ensure 4.

Ensure security of resources 5.

For the accounts receivable and master data, ensure 6.

Ensure effectiveness of operations Omitted Control Plans 7.

Confirm customer accounts regularly 8.

Compare input shipping notices to sales order master data 9.

Independent pricing data 10. Review shipped not billed sales orders (tickler file) 11. Independent billing authorization 12. Check for authorized prices, terms, freight, and discounts Required: Complete TB Figure 11.9 by placing one of the numbers, 1 through 12, from the above lists into each box showing a missing item. HINT: Complete the control goal column headings first, and then use the cell entries as a guide in deciding which number (7 through 12 above) belongs in each box in the recommended control plans column.

ANS:

PTS: 1 6. TB Figure 11.11 is a systems flowchart for the billing process with letters indicating omitted descriptions. Fill in the omitted descriptions in the flowchart by matching the numbers from the list below with the letters on the flowchart.

Missing descriptions: 1.

"Billing completed," changes to AR and related accounts 2.

"Shipments not yet billed" 3.

BT 4.

Compare batch totals with changes to AR and related accounts 5.

Create and print invoice, update AR, sales event, and GL data, send "Billing completed" notice with amounts posted to AR and related accounts 6.

Customer 7.

End 8.

Select shipments to be billed and prepare batch total 9.

Enterprise database 10. Error routine not shown 11. Invoice 12. Prepare and display "Shipments not yet billed" 13. Request shipments to be billed 14. Select shipments and execute billing program 15. Start

ANS: Letter from flowchart A B C D E F G H I J K L M N O

Missing description 15 13 12 2 8 3 14 9 5 1 4 11 6 7 10

PTS: 1 7. The E-R diagram below represents a B/AR/CR process but with the names of certain entities, and relationship cardinalities removed from the diagram. In alphabetic order, the names omitted are: BANKS • CASH_RECEIPTS • CUSTOMERS • DEPOSITS • INVENTORY • SALES_INVOICES • SALES_ORDERS • SHIPMENTS • Required: Complete The E-R Diagram (TB Figure 11.12) by: a.

Inserting the names from the above lists into the boxes where they belong. b.

Inserting a 1 or an M or an N where necessary to indicate whether the cardinality of the relationship is: one-to-one (1:1), one-to-many (1:M), or many-to-many (M:N).

ANS:

PTS: 1

8. The following is a list of 10 control plans: A. Independent billing authorization B. Review shipped not billed sales orders (tickler file) C. One-for-one checking of deposit slip and checks D. Compare input shipping notice to sales order master data E. Monitor open accounts receivable

F. G.

Immediately endorse incoming checks Document design

H.

Prenumbered documents

I.

Turnaround documents

J.

Immediately separate checks and remittance advices

Required: Listed below are ten statements describing either the achievement of a control goal (i.e., a system success) or a system deficiency (i.e., a system failure). On the answer line to the left of each description, insert the capital letter from the list above of the best control plan to achieve the desired goal or to address the system deficiency described. A letter should be used only once.

Answers

ANS: 1.

B 2.

H 3.

A 4.

I 5.

E

CONTROL GOALS OR SYSTEM DEFICIENCIES 1.

Helps to ensure that all shipments are billed in a timely manner.

2.

This feature can be used to help prevent duplicate document numbers from entering the system to ensure input validity.

3.

Helps to ensure the validity of shipping notices.

4.

Ensures efficient employment of resources and remittance advice input accuracy.

5.

Helps optimize cash flows, solve billing and cash receipts processing problems, and ensure that the organization complies with compensating balance requirements of loan agreements with its bank.

6.

Helps to ensure the security of resources (prevent fraudulent appropriation)

7.

Helps ensure remittance advice input validity, completeness and accuracy.

8.

Ensures that the items and quantities shipped are the same as the items and quantities on the sales order.

9.

Should have precluded a field salesman from omitting the sales terms from the sales order, thereby causing the order to be rejected by the computer data entry personnel.

10.

Reduces opportunities for lapping.

6.

7.

8.

9.

10.

F C D G J

PTS: 1 9. The following narrative describes a cash receipts process. The annotated systems flowchart for this cash receipts process is TB Figure 11.14 and the related control matrix is Figure TB 11.15.

Narrative Description TB Figure 11.14 presents a physical description of the cash receipts process in which customer payments are received by mail. The source documents include checks and RAs. Each day, the process begins with mailroom clerks opening the mail. Immediately, the clerks endorse all checks. They assemble RAs (stubs from the customer invoice⎯i.e., turnaround documents) in batches and prepare batch totals. The cash receipts data⎯batch total and remittance details⎯are then entered into the computer system via a scanner with OCR. The computer edits the data as the data are entered and computes batch totals. The batched RAs are sent to the accounts receivable department for filing, and the checks are transferred to the cashier. The editing process verifies the correctness of the entered data, including customer number and so forth. By matching the input cash receipts data to the open invoice data that reside on the accounts receivable master data in the enterprise database, the process also verifies that the customer account number, invoice number, and amount due are correct and that any cash discounts taken by the customer are legitimate (i.e., they have been authorized). After the data have passed all the control checks, the cash receipts event data, accounts receivable master data, and general ledger data are updated in the enterprise database. Also, the computer generates various cash reports and prepares the deposit slip. The deposit slip is transferred to the cashier. The cashier compares the checks and the deposit slip; if they agree, all documents are sent to the bank.

Required: Using the format shown for control plan P-3, write descriptions for control plans P-1, P-2, P-5, M-1 and M-3.

P-3: Enter cash receipts close to where cash is received.

Efficient employment of resources: The direct entry of cash receipts data by mailroom • personnel provides for a more efficient employment of resources because this arrangement eliminates the costs associated with the handling of the cash receipts data by additional entities.

Remittance advice input accuracy: Because mailroom personnel would have both the • check and the RA, they would be in a position to correct many input errors "on the spot," thereby improving input accuracy.

ANS: P-1: Immediately endorse incoming checks.

Security of resources: The checks are restrictively endorsed to protect them from being • fraudulently appropriated.

P-2: Turnaround documents.

Efficient employment of resources: The use of the stub from the customer invoice as a • turnaround document reduces the data entry that must be completed.

•

Remittance advice input accuracy: Scanning the computer-readable turnaround document reduces the risk of data entry errors, thereby improving accuracy.

P-5: Compare input data with master data.

Effectiveness goal A, Efficient employment of resources: Cash receipts data can be • entered more quickly and at a lower cost if errors are detected and prevented from entering the system.

Remittance advice input validity: The matching process verifies that any cash discounts • deducted by customers have been authorized.

Remittance advice input accuracy: Comparison to the accounts receivable master data • should reduce input errors.

M-1: Immediately separate checks and remittance advices.

Effectiveness goals A, B, and C: The checks should be separated from the RAs and the • checks deposited as quickly as possible. This helps to optimize cash flow and to ensure that the organization complies with compensating balance requirements of loan agreements with its bank. If the RAs were immediately separated from the checks, the process of recording the RAs also could be accelerated in that the customer payment could be recorded at the same time that the deposit is being prepared. Faster recording of the RAs (i.e., updating customer balances more quickly) helps minimize overdue accounts and reduces the investment in accounts receivable. Furthermore, because the information available from the system is more up to date, this plan also addresses the providing of more meaningful query and reporting functions.

Security of resources: The faster the checks are deposited, the less chance that the cash • can be diverted. Also, by separating the check and RA, we can reduce opportunities for lapping.

M-3: Monitor open accounts receivable.

Note: Most organizations regularly review aging reports, but that process is beyond the scope of that depicted in Figure TB 11.14, so we have marked this as missing.

Effectiveness goals A, B, and C: By following up on open accounts receivable, we can • optimize cash flows, solve billing and cash receipts processing problems, and ensure that the organization complies with compensating balance requirements of loan agreements with its bank.

Remittance advice input validity, input completeness, and input accuracy: By following • up on open accounts receivable, we can detect and correct any errors that may have previously been made in the billing and cash receipts processes.

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Chapter 12—The Purchasing Process TRUE/FALSE 1. As used in the purchasing process chapter, the term "goods and services" refers to raw materials, merchandise, supplies, fixed assets, or intangible assets only.

ANS: F

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2. The purchasing manager usually performs major buying activities as well as the required administrative duties of running a department.

ANS: T

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3. The purchasing supervisor is responsible for receiving incoming goods, signing the bill of lading presented by the carrier, reporting the receipt of goods, and making prompt transfer of goods to the appropriate warehouse or department.

ANS: F

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4. In many organizations professional buyers do the actual buying.

ANS: T

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5. Goal congruence exists when each individual manager's goals are achieved.

ANS: F

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6. The connections from the suppliers of merchandise and raw materials through to an organization's customers, including the flow of information, materials, and services, are its supply chain.

ANS: T

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7. When the data on the inventory record indicate a need to replenish the stock, the inventory system prepares a purchase order.

ANS: F

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8. The purchase requisition is sent from the inventory control department to the purchasing department.

ANS: T

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9. Supply chain management (SCM) is the combination of processes and procedures used to ensure the delivery of goods and services to customers at the lowest cost while providing the highest value to the customers.

ANS: T

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10. With continuous replenishment (CRP) a vendor obtains a buyer's current sales, demand, and inventory data in real time and replenishes the buyer's inventory.

ANS: T

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11. Notifications that a PO has been prepared and sent to the vendor are sent to the receiving department, the accounts receivable process, and the department or process that requested the purchase.

ANS: F

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12. Collaborative processes across the supply chain using a set of processes and technology models are called Collaborative Planning, Forecasting, and Replenishment (CPFR).

ANS: T

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13. A retailer could misread a demand signal doubling its normal order, and the wholesaler could respond and also double its order resulting in four times the retail order. This is an example of the bullwhip effect.

ANS: T

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14. According to the context diagram for the purchasing process, when a purchase order is sent to the purchaser, the vendor responds by sending the goods along with a packing slip.

ANS: F

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15. Reorder point (ROP) analysis reorders inventory when the item reaches a certain inventory level that was determined in advance based on the item's purchase rate.

ANS: F

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16. EOQ is a technique of analyzing all incremental costs associated with acquiring and carrying particular items of inventory.

ANS: T

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17. ABC analysis is a technique for ranking inventory items according to their relative importance.

ANS: T

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18. In selecting a vendor, a buyer may need to obtain competitive bids by means of a document called a purchase order.

ANS: F

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19. A receiving report is an external request for the purchase of goods or services from a vendor.

ANS: F

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20. After the vendor has been selected, the buyer prepares a purchase order.

ANS: T

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21. Inventory personnel use the vendor master data to select an appropriate vendor.

ANS: F

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22. It is not uncommon for the copy of the PO available for the receiving department to be a carbon copy, meaning that certain data is blanked out.

ANS: F

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23. The business document that accompanies the purchased inventory from the vendor identifies the shipment and triggers the inventory receiving process is the vendor packing slip.

ANS: T

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24. The document used to record merchandise receipts is called a purchasing report.

ANS: F

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25. Whereas a receiving report normally indicates that goods have been received, some organizations use an acceptance report to acknowledge formally the satisfactory completion of a service contract.

ANS: T

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26. The inventory master data contains a record of each vendor that is approved for use by the organization.

ANS: F

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27. The purchase order master data is a compilation of open POs and includes the status of each item on order.

ANS: T

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28. The warehouse master data contains a record of each inventory item which is stocked in the warehouse and/or regularly ordered from a vendor.

ANS: F

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29. The purchase receipts data is an event data store with each record reflecting a receipt of goods and services.

ANS: T

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30. A paperless system would eliminate documents and forms as the medium for conducting business transactions.

ANS: T

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31. The warehouse number is the primary key for the relational table for inventory.

ANS: F

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32. The item number is the primary key for relational table for vendors.

ANS: F

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33. RFID tags are computer chips with an antenna that contains information about the object to which it is attached.

ANS: T

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34. An employee has a conflict of interest when he (she) has a financial interest (direct or indirect) in a company with which the employer does business.

ANS: T

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35. Digital signatures allow the vendor to determine that the sender of the message has the authority to send it and thus prevents an unauthorized purchase.

ANS: T

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36. E-procurement is the use of information technology to automate significant portions of the procurement process.

ANS: T

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MULTIPLE CHOICE 1. The purchasing process is part of the ____ process for a merchandising firm. a. order-to-cash b. purchase-to-pay c. conversion d. general ledger/financial reporting ANS: B

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2. The typical purchasing process would capture and record data related to the day-to-day operations of all of the following except: a. shipping b. buyers c. receiving d. purchasing ANS: A

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3. As used in the text, the term services specifically refers to: a. items having a physical existence and value b. work performed by employees c. work performed by outside vendors d. products normally held for resale ANS: C

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4. Which of the following is least likely to report directly to the vice president of logistics? a. controller b. receiving department c. purchasing department d. warehouse ANS: A

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5. Which of the following managers is most likely to report to the controller?

a. b. c. d.

accounts payable department manager cashier purchasing department manager receiving department manager

ANS: A

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6. The typical information flows in a purchasing process might include all of the following except: a. a purchase requisition is sent from inventory control to the purchasing department b. the purchase order is sent to the vendor c. goods or services are received from the vendor d. a copy of a receiving report is sent to the cashier ANS: D

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7. The purchasing manager is evaluated by his/her supervisors based on purchasing inventory at the lowest price. Consequently, the purchasing manager knowingly orders materials only based on price.

This has resulted in the purchase of inferior quality materials. This improved the purchasing manager's performance evaluation, but had a negative impact on production due to an increase in scrapped materials. This situation is an example of a failure of: a. goal congruence b. management perquisites c. management by exception d. control theory ANS: A

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8. Assume that one of the process bubbles in the Purchasing Process - Level 0 Diagram is called "order goods and services." The data flow between "order goods and services" and the "vendor" is called a: a. purchase order b. receiving report c. stock notice d. inventory notice ANS: A

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9. Which of the following process bubbles would you not expect to see in the Purchasing Process - Level 0 Diagram? a. make payment b. order goods and services c. receive goods and services d. determine requirements ANS: A

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10. Which of the following data stores would you least expect to see in the Purchasing Process - Level 0 Diagram? a. inventory master data b. vendor master data c. purchase order master data d. cash receipts event data ANS: D

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11. In a purchasing process, once requirements are determined and a vendor selected, the next step is: a. the purchase requisition

b. the purchase order c. receive goods and services d. a vendor acknowledgement ANS: B

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12. The purchasing process⎯receive goods and services⎯normally would be triggered by the data flow: a. purchase order b. vendor acknowledgement c. vendor packing slip d. purchase requisition ANS: C

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13. At the time that a purchasing orders goods and services, the process is likely to interact with all of the following data stores except the: a. purchase receipts data b. vendor master data c. inventory master data d. purchase order master data ANS: A

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14. At the time that a purchasing process places an order for goods or services, which of the following is typically updated? a. accounts payable master data b. purchase receipts data c. purchase order master data d. general ledger master data ANS: C

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15. In the Purchasing Process - Level 0 Diagram, a data flow called "vendor packing slip" would most likely be sent by the vendor to which of the following processes? a. order goods and services b. receive goods and services c. determine requirements d. none of the above ANS: B

PTS: 1

16. In the Purchasing Process - Level 0 Diagram, a data flow called "inventory's purchase requisition" most likely would be sent by the inventory management process to which of the following processes? a. order goods and services b. receive goods and services c. determine requirements d. none of the above ANS: C

PTS: 1

17. Outputs of a purchasing process normally might include all of the following except: a. purchase order b. PO inventory notification sent to the inventory system c. receiving report d. vendor invoice

ANS: D

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18. Who usually authorizes a purchase requisition? a. the supervisor of the requisitioning department b. the purchasing manager c. a purchasing agent d. a customer ANS: A

PTS: 1

19. Which of the following techniques has the reorder point based on each inventory item's sales rate? a. cyclical reordering b. reorder point (ROP) analysis c. ABC analysis d. EOQ models ANS: B

PTS: 1

20. Which of the following is a technique for ranking items in a group based on the value, activity, sales, or other relevant metric for the items? a. cyclical reordering b. reorder point analysis c. EOQ models d. ABC analysis ANS: D

PTS: 1

21. Which of the following techniques analyzes all incremental costs associated with acquiring and carrying particular items of inventory? a. cyclical reordering b. reorder point analysis c. EOQ models d. ABC analysis ANS: C

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22. Inventory carrying costs include all of the following except: a. clerical cost of ordering goods b. opportunity cost of investment funds c. insurance costs d. obsolescence and deterioration ANS: A

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23. Which of the following is not a cost element as part of the inventory carrying costs? a. insurance costs b. property taxes c. purchase order preparation costs d. storage costs ANS: C

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24. When large or expensive items are purchased, most organizations make use of a procedure to obtain competitive bids from multiple vendors. The document used to obtain competitive bids is called a(n): a. purchase requisition b. purchase order

c. request for quotation d. authorization to bid ANS: C

PTS: 1

25. The document one business sends to another business that identifies the goods or services to be purchased is a: a. request for proposal b. purchase requisition c. purchase order d. disbursement voucher ANS: C

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26. In a purchasing process, receiving goods, but not a vendor invoice, from a supplier typically results in an update to all of the following data stores except the: a. inventory master data b. vendor master data c. accounts payable master data d. purchase order master data ANS: C

PTS: 1

27. Purchase orders are sent to: a. customers b. vendors c. carriers d. managers ANS: B

PTS: 1

28. Which of the following most likely would be "blinded" on a copy of the purchase order sent to the receiving department? a. inventory descriptions b. vendor identification c. quantities d. freight terms ANS: C

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29. A control that can ensure that receiving clerks are not influenced by quantity information while actually counting incoming goods is to: a. send a "blind" copy of the purchase order to receiving b. establish a "tickler" file for completed purchase orders c. send copies of a receiving report to accounts payable d. establishing "blanket orders" in purchasing ANS: A

PTS: 1

30. A "blind" copy of the purchase order should be sent to receiving so that: a. receiving can anticipate the receipt of the goods from the vendor b. receiving clerks will know the value of what is on order c. partial shipments can be monitored d. receiving clerks will be forced to actually count the goods that are received ANS: D

PTS: 1

31. The vendor packing slip triggers which process? a. receive goods and services b. order goods and services c. determine requirements d. none of the above ANS: A

PTS: 1

32. In the process of preparing a receiving report, the receiving department should perform all of the following tasks except: a. inspect and approve quality b. count the quantity received c. compare the completed receiving report to the information stored in the purchase order master data d. compare the vendor's packing slip to a copy of the purchase requisition ANS: D

PTS: 1

33. In a purchasing process, the receiving report may be accessed by all of the following except: a. accounts payable department b. cashier c. warehouse d. requesting department ANS: B

PTS: 1

34. A receiving report is to goods what a(n) ____ is to services. a. purchase requisition b. purchase order c. acceptance report d. vendor packing slip ANS: C

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35. Data about vendor compliance with the terms of the purchase order normally would be included in the: a. accounts payable master data b. vendor master data c. inventory master data d. warehouse master data ANS: B

PTS: 1

36. The ____ is a compilation of open purchase orders and includes the status of each item on order. a. accounts payable master data b. vendor master data c. vouchers payable master data d. purchase order master data ANS: D

PTS: 1

37. In an entity-relationship (E-R) diagram for the purchasing process, you would expect that the word generate would appear in the diamond showing the relationship between: a. VENDOR and PURCHASE_ORDERS b. VENDOR and EMPLOYEES c. VENDOR and PURCHASE_REQUISITIONS

d. PURCHASE_REQUISITIONS and PURCHASE_ORDERS ANS: D

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38. In an entity-relationship (E-R) diagram for the purchasing process, you would expect that the word yield would appear in the diamond showing the relationship between: a. PURCHASE_REQUISITIONS and INVENTORY_RECEIPT b. PURCHASE_ORDERS and PURCHASE_RECEIPTS c. VENDOR and PURCHASE_ORDERS d. VENDOR and PURCHASE_REQUISITIONS ANS: B

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39. In a database containing (among others) six relations⎯VENDORS, PURCHASE_REQUISITIONS, PURCHASE_ORDERS, PURCHASE_RECEIPTS, INVENTORY, and EMPLOYEES⎯you would expect that the attribute Vend_No (vendor number) would be the primary key in the ____ relation. a. VENDORS b. PURCHASE_ORDERS c. PURCHASE_RECEIPTS d. EMPLOYEES ANS: A

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40. Issues related to the purchasing function, such as kickbacks, bribes, conflicts of interest, and the like are often addressed by ____. a. job descriptions b. corporate codes of conduct c. computer security modules d. vendor master files ANS: B

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41. Which of the following items is not a control plan of the purchasing process? a. minimize inventory carrying costs b. approved purchase order c. compare vendors for favorable prices, terms, quality, and product availability d. PO confirmation to requesting department ANS: A

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42. The resources for which the purchasing process wants to ensure security for which of the following: a. purchase order master data b. inventory c. both a and b d. neither a or b ANS: C

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43. The control plan compare vendors for favorable prices, terms, quality, and product availability is directed primarily at which of the following control goals? a. ensure effectiveness of operations b. input validity c. input accuracy d. input completeness ANS: A

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44. Supply chain management: a. helps to ensure delivery of goods and services to customers of the highest value but increases costs. b. helps to ensure delivery of goods and services to customers at the lowest costs while providing the highest value. c. helps to ensure delivery of goods and services to customers at the lowest cost but can comprise quality. d. increases inventory across the supply chain.

ANS: B

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45. Which of the following is not included in the SCOR model as one of the five basic components of supply chain management? a. Plan b. Source c. Deliver d. Receive ANS: D

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46. Which of the following is not a potential benefit of supply chain management? a. lower costs to the customer b. reduced inventories c. reduced customer orders d. reduced product defects ANS: C

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47. Which of the following is a potential problem with supply chain management initiatives? a. confused lines of responsibility b. inaccurate data within the supply chain c. over-reliance on demand forecasting d. all of the above ANS: D

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48. Which type of supply chain collaboration methods includes the vendor obtaining the buyer's current sales, demand, and inventory data in real time and replenishing the buyer's inventory? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Collaborative Forecasting and Replenishment (CFAR) c. Collaborative Planning, Forecasting and Replenishment (CPFR) d. None of the above ANS: A

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49. Which type of supply chain collaboration methods includes the vendor replenishing standard merchandise while the buyer manages the replenishment of promotion merchandise? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Co-Managed Inventory c. Collaborative Forecasting and Replenishment (CFAR) d. Collaborative Planning, Forecasting and Replenishment (CPFR) ANS: B

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50. Supply chain execution software: a. accumulates data about orders from retail customers, sales from retail outlets, and data about manufacturing. b. receives and routes customer orders and executes the invoice for the sale. c. Both a. and b. d. Neither a. nor b.

ANS: B

PTS: 1

51. Which type of supply chain collaboration methods includes collaborative processes across the supply chain using a set of processes and technology models? a. Continuous Replenishment (CRP) or Vendor Managed Inventory (VMI) b. Co-Managed Inventory c. Collaborative Forecasting and Replenishment (CFAR) d. Collaborative Planning, Forecasting and Replenishment (CPFR) ANS: D

PTS: 1

COMPLETION 1. As used in the purchasing process chapter, the term ______________________________ refers to raw materials, merchandise, supplies, fixed assets, or intangible assets.

ANS: goods PTS: 1 2. The ______________________________ manager usually performs major buying activities as well as the required administrative duties of running a department.

ANS: purchasing PTS: 1 3. The ______________________________ supervisor is responsible for receiving incoming goods, signing the bill of lading presented by the carrier, reporting the receipt of goods, and making prompt transfer of goods to the appropriate warehouse or department.

ANS: receiving PTS: 1 4. In many organizations ______________________________ do the actual buying.

ANS: professional buyers PTS: 1 5. Goal ______________________________ exists when individual managers' goals are in agreement with overall organizational objectives.

ANS: congruence PTS: 1

6. The connections from the suppliers of merchandise and raw materials through to an organization's customers, including the flow of information, materials, and services, are its ______________________________.

ANS: supply chain PTS: 1 7. When data on the inventory record indicate a need to replenish the stock, the inventory system prepares a(n) ______________________________.

ANS: purchase requisition PTS: 1 8. The purchase requisition is sent from the inventory control department to the ______________________________ department.

ANS: purchasing PTS: 1 9. Notification that a PO has been prepared and sent to the vendor is sent to the original requester, to ______________________________, and to ______________________________.

ANS: receiving, accounts payable accounts payable, receiving PTS: 1 10. ______________________________ management is the combination of processes and procedures used to ensure the delivery of goods and services to customers at the lowest cost while providing the highest value to the customer.

ANS: Supply chain PTS: 1 11. With ______________________________ a vendor obtains a buyer's current sales, demand, and inventory data in real time and replenishes the buyer's inventory.

ANS: continuous replenishment (CRP) vendor managed inventory (VMI) supplier managed inventory (SMI) continuous replenishment vendor managed inventory supplier managed inventory CRP VMI SMI

PTS: 1 12. ______________________________ features collaborative processes across the supply chain using a set of processes and technology models.

ANS: Collaborative Planning Forecasting and Replenishment (CPFR) Collaborative Planning Forecasting and Replenishment CPFR PTS: 1 13. A retailer could misread a demand signal doubling its normal order and the wholesaler could respond and also double its order resulting in four times the retail order. This is an example of the ______________________________ effect.

ANS: bullwhip PTS: 1 14. According to the context diagram for the purchasing process, when a purchase order is sent to the vendor, the vendor responds by sending the goods along with a(n) ______________________________.

ANS: vendor packing slip PTS: 1 15. ______________________________ reorders inventory when the item reaches a certain inventory level that was determined in advance based on the item's sales rate.

ANS: Reorder point (ROP) analysis ROP analysis Reorder point analysis PTS: 1 16. ______________________________ is a technique of analyzing all incremental costs associated with acquiring and carrying particular items of inventory.

ANS: Economic order quantity (EOQ) EOQ Economic order quantity PTS: 1 17. ______________________________ is a technique for ranking inventory items in a group based on the value, activity, sales, or other relevant metric for the items..

ANS: ABC analysis PTS: 1

18. In selecting a vendor, a buyer may need to obtain competitive bids by means of a document called a(n) ______________________________.

ANS: request for quotation (RFQ) RFQ request for quotation PTS: 1 19. A(n) ______________________________ is an external request for the purchase of goods or services from a vendor.

ANS: purchase order PTS: 1 20. After the ______________________________ has been selected, the ______________________________ prepares a purchase order.

ANS: vendor, buyer PTS: 1 21. Documents requiring approval, such as a purchase requisition, may be routed for electronic approval using ______________________________ software.

ANS: workflow PTS: 1 22. Purchasing personnel use the ______________________________ data to identify potential suppliers that have been approved for use by the organization.

ANS: vendor master PTS: 1 23. A(n) ______________________________ copy of a document is one in which selected data are blanked out so that persons receiving that copy will not have access to the data.

ANS: blind PTS: 1 24. The business document that accompanies the purchased inventory from the vendor and identifies the shipment and triggers the inventory receiving process is the ______________________________.

ANS: vendor packing slip PTS: 1 25. The document used to record merchandise receipts is called a(n) ______________________________.

ANS: receiving report PTS: 1 26. Whereas a receiving report normally indicates that goods have been received, some organizations use a(n) ______________________________ to acknowledge formally the satisfactory completion of a service contract.

ANS: acceptance report PTS: 1 27. The ______________________________ is a compilation of open purchase orders that includes the status of each item on order.

ANS: purchase order master data PTS: 1 28. The ______________________________ are an event data store with each record reflecting a receipt of goods and services.

ANS: purchase receipts data PTS: 1 29. A(n) ______________________________ system would eliminate documents and forms as the medium for conducting business.

ANS: paperless PTS: 1 30. The ______________________________ is the primary key for the relational table for inventory.

ANS: item number Item_No PTS: 1 31. The ______________________________ is the primary key for relational table for vendors.

ANS: vendor number Vendor_No PTS: 1 32. ______________________________ tags identify an instance of an item, not just an item type (e.g., this box of Huggies, not any box of Huggies).

ANS:

Radio frequency identification (RFID) Radio frequency identification RFID PTS: 1 33. An employee has a(n) ______________________________ when he (she) has a financial interest (direct or indirect) in a company with which the employer does business.

ANS: conflict of interest PTS: 1 34. ______________________________ allow the vendor to determine that the sender of the message has the authority to send it and thus prevents an unauthorized purchase.

ANS: Digital signatures PTS: 1 35. The ______________________________ process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish the steps of requirements determination, purchase order processing, and goods receipt.

ANS: purchasing PTS: 1 36. Purchase requisitions are compiled in a(n) ______________________________ data store.

ANS: purchase requisition PTS: 1 37. ______________________________ are particular Web sites or portals that may be used as sources of supply in the procurement process.

ANS: B2B marketplaces PTS: 1 38. Management should exercise the control plan ______________________________ to ensure that a purchase is within an applicable budget and that the purchase is desirable.

ANS: approve purchase requisitions PTS: 1 39. In preparing a PO, buyers should ______________________________ to ensure that a purchase is being made from a suitable vendor.

ANS: use authorized vendor data PTS: 1

40. The control plan ______________________________ assumes that there is a segregation of duties between the personnel who create vendor records and those that create and approve POs, record accounts payable, and approve payments.

ANS: independent vendor master data maintenance PTS: 1 41. Before executing a purchase, buyers should compare vendors for favorable prices, ______________________________, quality and ______________________________to determine that they have made an optimal choice for the purchase.

ANS: terms, product availability product availability, terms PTS: 1 42. Management should exercise the control plan of ______________________________ to ensure that an appropriate supplier has been selected and that the correct goods and services, for the correct amounts, are being purchased.

ANS: approve purchase orders PTS: 1 43. To prevent duplicate purchase requests and to allow the requesting department to ensure that a purchase order has been created, the purchasing department should ______________________________.

ANS: confirm purchase order to requesting departments PTS: 1 44. ______________________________ means that before a receipt can be accepted and recorded, the receipt data should be compared with the PO master data to determine that an approved PO, prepared by someone other than receiving personnel, is on file.

ANS: Independent authorization to record receipt PTS: 1 45. The receiving department or quality control function should ______________________________ to ensure that the correct goods are received in acceptable condition.

ANS: inspect goods PTS: 1 46. ______________________________ is the use of information technology to automate significant portions of the procurement process.

ANS: E-procurement

PTS: 1 PROBLEM 1. Below is a narrative of the "Determine Requirements" portion (bubble 1.0) of the purchasing process described in Chapter 12.

Narrative Description Bubble 1.1 receives and stores the requests received from the inventory-management process (inventory's purchase requisition) and various departments (purchase requisition⎯goods and services).

At predetermined intervals, bubble 1.2 accesses the accumulated requests held in the purchase requisition data; sorts the requests, perhaps by vendor or product type; and combines that data with the inventory master data to determine what purchases need to be made.

Required: From the DFD (TB Figure 12.1) and the narrative description above, explode bubble 1.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1

2. Below is a narrative of the "Order goods and services" portion (bubble 2.0) of the purchasing process described in Chapter 12.

Narrative Description The first process involves vendor selection (bubble 2.1). A buyer generally consults the vendor master data to identify potential suppliers that have been approved for use by the organization and then evaluates each prospective vendor for a particular purchase.

After the vendor has been selected, the buyer prepares a purchase order (PO). Process bubble 2.2 of depicts the process of preparing a PO. The "purchase order" data flowing out of process 2.2 is sent to the vendor. At the same time, the inventory master data is updated to reflect the goods on order. A record of the purchase is stored on the PO master data, and PO information is distributed to several departments, including the requesting department, the inventory management process, accounts payable process, and receiving.

Required: From the DFD (TB Figure 12.3) and the narrative description above, explode bubble 2.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1

3. Below is a narrative describing the "Receive goods and services" portion (bubble 3.0) of the purchasing process described in Chapter 12.

Narrative Description The vendor packing slip, which accompanies the purchased inventory from the vendor and identifies the shipment, triggers the receiving process. As indicated by bubble 3.1 of the figure, goods arriving at the receiving department are inspected and counted, and these data are matched against the vendor packing slip and the "PO receiving notification" (i.e., the blind copy of the PO). Nonconforming goods are denoted by the reject stub out of process 3.1. Notation of rejected goods is added to the vendor service record in the vendor master data. After the count and condition of the goods has been obtained, process 3.1 completes the receiving report by noting the quantity received. Once annotated with the quantity received, the PO receiving notification becomes a receiving report, which is the document used to record merchandise receipts.

Process 3.2 compares the receiving report data to the information stored in the PO master data⎯a process that often is automatically completed by the information system. Bubble 3.2 also reflects the following activities: Data about vendor compliance with the order terms are added to the vendor service • record on the vendor master data.

The receiving report data is stored as a copy of the receiving report document or • electronically.

Receiving report data is sent to the accounts payable process.

• A copy of the receiving report is sent to the warehouse (i.e., "Stock notice") with the • goods.

The inventory master data are updated to reflect the additional inventory on hand.

• The cost of the inventory received is relayed to the general ledger process (see the data • flow "GL inventory received update").

Finally, the PO master data are updated to reflect the receipt of the goods.

• Required: From the DFD (TB Figure 12.5) and the narrative description above, explode bubble 3.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 4. Below is a narrative describing the "Receive goods and services" portion (bubble 3.0) of the purchasing process described in Chapter 12.

Narrative Description The vendor packing slip, which accompanies the purchased inventory from the vendor and identifies the shipment, triggers the receiving process. As indicated by bubble 3.1 of the figure, goods arriving at the receiving department are inspected and counted, and these data are matched against the vendor packing slip and the "PO receiving notification" (i.e., the blind copy of the PO). Nonconforming goods are denoted by the reject stub out of process 3.1. Notation of rejected goods is added to the vendor service record in the vendor master data. After the count and condition of the goods has been obtained, process 3.1 completes the receiving report by noting the quantity received. Once annotated with the quantity received, the PO receiving notification becomes a receiving report, which is the document used to record merchandise receipts.

Process 3.2 compares the receiving report data to the information stored in the PO master data⎯a process that often is automatically completed by the information system. Bubble 3.2 also reflects the following activities: Data about vendor compliance with the order terms are added to the vendor service • record on the vendor master data.

The receiving report data is stored as a copy of the receiving report document or • electronically.

Receiving report data is sent to the accounts payable process.

• A copy of the receiving report is sent to the warehouse (i.e., "Stock notice") with the • goods.

• • •

The inventory master data are updated to reflect the additional inventory on hand.

The cost of the inventory received is relayed to the general ledger process (see the data flow "GL inventory received update").

Finally, the PO master data are updated to reflect the receipt of the goods.

Required: Using the DFD in TB Figure 12.7 and the narrative description above, identify the words that belong in items 1 to 15 of Diagram 3.0 (TB Figure 12.8).

ANS: NOTE TO INSTRUCTORS: This question repeats the "Receive goods and services" narrative of Problem 3 (in the original banks) but instead of asking students to draw Diagram 3.0 it asks them to identify the missing diagram pieces.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

Vendor master data PO receiving notification Vendor packing slip Purchase order master data GL inventory received update Purchase receipts data 3.1 Inspect and count goods Receiving report 3.2 Compare receiving report and purchase order Receiving report Stock notice Reject Reject Vendor master data Inventory master data

PTS: 1 5. TB Figure 12.9 is the control matrix for the purchasing process presented in Chapter 12 with certain items omitted. In the matrix, each omission is indicated by a square. Jumbled lists of the omitted items are as follows: Omitted from Control Goals Columns 1.

Inventory and vendor and purchase order master data 2.

Ensure security of resources

3.

4.

5.

6.

7.

8.

Vendor packing slip inputs Purchase order and inventory master data Purchase order inputs (i.e., requisitions) Ensure effectiveness of operations Ensure efficient employment of resources (i.e., people, computers) Inventory master data

Omitted Control Plans 9.

Approve purchase order 10. Use authorized vendor data 11. Compare vendors for favorable price, terms, quality and product availability 12. Automated data entry 13. Independent authorization to record receipt 14. Approve purchase requisition 15. Count goods and compare to vendor packing slip Required: Complete TB Figure 12.9 by replacing one of the numbers, 1 through 15 from the above lists, for each square showing a missing item.

ANS:

PTS: 1 6. The following is a list of 12 control plans.

A. B. C. D. E. F.

Control Plans Populate input screens with master data G. Approve purchase orders Programmed edit checks H. Confirm purchase order to requesting department Approve purchase requisitions I. Digital signatures Requisition audit data J. Enter receipt data in receiving department Use authorized vendor data K. Independent authorization to record receipt Compare vendors for prices, terms, L. Inspect goods quality, and product availability

Required:

Listed below are 10 system failures that indicate weaknesses in control. On the answer line to the left of each description, insert the capital letter (from the list above) of the best control plan to address the system deficiency described. A letter should be used only once. Two letters will not be used.

Answers

SYSTEM FAILURES 1.

Ordered goods are often of a different quality and price than requested.

2.

Data on the RFID tags are not compared to the existing purchase order to ensure that we have received the goods that we ordered.

3.

Purchase orders are sometimes prepared on the basis of purchase requisitions from departments with no budget to pay for the ordered goods.

4.

The computer does not automatically identify erroneous or suspect data on purchase orders before they are printed for signing and mailing.

5.

Inventory is being discarded or sold at a reduced price due to damage or quality issues.

6.

Bill the buyer often prepares purchase orders for vendors owned by his relatives.

7.

Clerks in the purchasing department enter purchase order data from forms given to them by the buyers. They spend a considerable amount of time typing in the vendor name and address, and item descriptions and prices.

8.

The vendor has no way of knowing if the electronic purchase order was sent by authorized personnel of the buyer.

9.

The purchasing manager has not informed the requisitioning department in a timely manner to let them know that their requests were processed.

10.

Certain vendors have been favored in the selection process.

ANS: System Failure 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

PTS: 1

Answer F K C B L E A I H G

7. TB Figure 12.11 is a partial flowchart for the purchasing process. There are selected symbols that must be filled in to complete the flowchart. Fill in the items with missing labels using a letter from A to J. A. B. C. D. E. F. G. H. I. J.

ANS:

Enter approval (for PO) Enterprise database Enter requisition data Exception routine not shown Requisition approval screen Enter approval (for requisition) PO input screen Requisition screen with vendor candidates Edit input and record PO Edit input and record requisition

PTS: 1 8. TB Figure 12.13 is the annotated systems flowchart for the purchasing process. TB Figure 12.14 is the related control matrix. Following the control matrix is a description of the first control plan, P-1.

Required: Using the format shown for control plan P-1, write descriptions for control plans P-2 through P-6.

Recommended control plans Present controls P-1: Approve purchase requisition P-2: Use authorized vendor data P-3: Independent vendor master data maintenance P-4: Compare vendors for favorable price, terms, quality, and product availability P-5: Approve purchase order P-6: Confirm purchase order to requesting department Missing controls None noted

Control goals of the Purchasing Process Control goals of the operations process Control goals of the information process Ensure Ensure Ensure For the purchase For the effectiveness efficient security of order inputs (i.e., purchase of operations employresources purchase order master ment of (vendor and requisitions), data, ensure: resources purchase ensure: (people, order computers) master data) A B IV IC IA UC UA

P-2 P-3

P-2 P-3

P-2 P-3

P-1 P-2 P-3

P-4

P-5

P-5

Possible effectiveness goals include the following: A⎯Select a vendor who will provide the best quality at the lowest price by the required delivery date.

B⎯Comply with corporate code of conduct

P-5 P-6

IV = input validity IC = input completeness IA = input accuracy UC = update completeness UA = update accuracy

TB Figure 12.14 P-1: Approve purchase requisition.

Purchase requisition input validity: By obtaining approvals for all purchase requisitions, • we reduce the possibility that invalid (unauthorized) requisitions will be input.

ANS: P-2: Use authorized vendor data.

Effectiveness goal A: Buyers in the purchasing department are presented with a list of • vendor candidates that have been approved by management. The screening of vendors that preceded their being added to the authorized data should help ensure the selection of a vendor that will provide the best quality at the lowest price by the promised delivery date.

Effectiveness goal B: Screening of vendors helps to ensure that company employees do • not have financial interests in a vendor that would jeopardize their ability to be impartial in selecting a vendor with whom to place an order.

Efficient employment of resources: People resources (buyers' time) are used efficiently • because time is not wasted in searching for vendors that might not even supply the required goods or services.

Purchase requisition input validity: The blanket approval accorded to vendors who are • placed on the authorized vendor data also helps ensure the validity of the POs issued.

P-3: Independent vendor master data maintenance.

Effectiveness goals A and B, security of resources: By having someone other than the • buyers add vendors to the vendor master, data we can obtain independent support for the quality of their products and processes (goal A), ensure that there will be no conflict of interest for the buyer (goal C), and ensure the integrity of the vendor master data (security of resources).

Purchase requisition input validity: Valid purchase requisitions are those that result in • POs to vendors that have received prior authorization.

P-4: Compare vendors for favorable prices, terms, quality, and product availability.

Effectiveness goal A: The comparison of vendors should help ensure the selection of a • vendor who will provide the best quality at the lowest price by the promised delivery date.

P-5: Approve purchase order.

Effectiveness goal A: After the PO is checked against the requisition details, it is • approved by the purchasing manager and other authorized individuals⎯by adding an approval code to the PO record. The manager's approval includes the vendor chosen by the buyer and the items and quantities purchased.

Effectiveness goal B: This control plan could flag situations in which certain vendors • appear to be favored in the vendor-selection process.

Purchase requisition input validity: Approval by the purchasing manager helps to ensure • validity of the PO. P-6: Confirm purchase order to requesting department.

Purchase requisition input completeness: After the PO has been released by the • purchasing manager, a confirmation of the requisition is sent to the requesting department. Should the confirmation not be received in a timely manner, the requester will follow up to see that the request is processed.

PTS: 1

Chapter 13—The Accounts Payable/Cash Disbursements (AP/CD) Process TRUE/FALSE 1. The cashier is responsible for processing vendor invoices, preparing payment vouchers, and recording purchase and disbursement transactions.

ANS: F

PTS: 1

2. The notification of an obligation to pay a vendor for merchandise that was ordered and received is known as a purchase order.

ANS: F

PTS: 1

3. A true voucher system requires that all expenditures for whatever purpose and in excess of a certain dollar amount be formally approved for payment before they can be paid.

ANS: F

PTS: 1

4. The vendor invoice master data is a repository of all unpaid vendor invoices.

ANS: F

PTS: 1

5. The AP/CD process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish the handling of repetitive work routines of the AP department and the cashier, support their decision needs, and assist in the preparation of internal and external reports.

ANS: T

PTS: 1

6. The cashier usually reports to the controller.

ANS: F

PTS: 1

7. The VP of finance usually has the cashier and the controller directly reporting to him (her).

ANS: F

PTS: 1

8. When it is time to make a payment, an approved voucher is sent to the accounts payable department.

ANS: F

PTS: 1

9. The Level 0 diagram of the AP/CD Process contains the two process bubbles depicting the two major logical steps in the process: Establish payable and Approve checks.

ANS: F

PTS: 1

10. When the vendor payment is made, the general ledger is updated for the cash disbursement.

ANS: T

PTS: 1

11. The vendor invoice triggers the "establish payable" process.

ANS: T

PTS: 1

12. The vendor sends a confirmation to establish the payable.

ANS: F

PTS: 1

13. A disbursement voucher is designed to reflect formal approval of the voucher for payment and to provide such added data as the account distribution and the amounts to be debited.

ANS: T

PTS: 1

14. The purchase order triggers the make payment process.

ANS: F

PTS: 1

15. Within the make payment process, the three sub-processes are "Prepare proposed payments," "Select and record payments," and "Issue and record disbursements."

ANS: T

PTS: 1

16. The trigger for either a true voucher process or a nonvoucher process is a payment request.

ANS: T

PTS: 1

17. The cash disbursements event data shows, in alphabetical order, the details of each cash payment made.

ANS: F

PTS: 1

18. In the ER diagram for AP/CD process, CASH_DISBURSEMENTS are prepared by EMPLOYEES (Treasury Employees).

ANS: F

PTS: 1

19. In the ER diagram of the AP/CD process, VALID_INVOICES are received from the purchasing department.

ANS: F

PTS: 1

20. In a relational table for PURCHASE_RECEIPTS, the primary key would be the receipt number (Rec_No).

ANS: T

PTS: 1

21. In a relational table for VALID_INVOICES, the primary key would be the vendor number.

ANS: F

PTS: 1

22. In the flowchart for the AP/DC process the symbol below represents the enterprise database.

ANS: T

PTS: 1

23. Fraud abuses in the AP/CD process usually entail creating phony customers or submitting fictitious purchase orders.

ANS: F

PTS: 1

24. Independent validation of vendor invoices helps ensure that appropriate cash discounts are obtained.

ANS: F

PTS: 1

25. The duties of the cashier are segregated from the treasurer to protect the cash resource.

ANS: F

PTS: 1

26. The cash disbursements process uses disbursement vouchers as inputs to update the accounts payable master data.

ANS: T

PTS: 1

27. A key control in the AP/CD process is to segregate the treasurer and controller.

ANS: T

PTS: 1

28. Chapter 13 describes the electronic invoicing and payment (EIPP) system for the B2C environment.

ANS: F

PTS: 1

29. The electronic invoicing and payment (EIPP) system for the B2B environment is similar to the electronic bill presentment and payment (EBPP) system for the B2C environment.

ANS: T

PTS: 1

30. Evaluated receipt settlement (ERS) is a process by which an organization pays for a purchase on the basis of the goods receipt.

ANS: T

PTS: 1

31. Purchase returns and allowances usually occur at the point of inspecting and counting the goods or at the point of validating vendor invoices.

ANS: T

PTS: 1

32. Spear phishing is a type of phishing attack that is sent to a wide variety of persons. The e-mail appears to be coming from an individual or organization that the recipient recognizes and from whom they normally receive e-mails.

ANS: F

PTS: 1

33. Independent authorization to make payment ensures that only authorized purchases are made.

ANS: F

PTS: 1

34. The "three-way match" matches the invoice with the purchase order and disbursement voucher.

ANS: F

PTS: 1

35. It is difficult to independently validate the vendor invoice if we do not segregate purchasing, receiving, and accounts payable.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. The typical AP/CD process would capture and record data related to the day-to-day operations of all of the following departments except: a. shipping b. cashier c. receiving d. activities for all of the above are captured and recorded by the AP/CD process.

ANS: A

PTS: 1

2. Which of the following is least likely to report (either directly or indirectly) to the vice president of finance? a. controller b. treasurer c. shipping department supervisor d. accounts payable department ANS: C

PTS: 1

3. Which of the following managers is most likely to report to the controller? a. accounts payable department manager b. cashier c. purchasing department manager d. receiving department manager ANS: A

PTS: 1

4. The typical horizontal flows of information in an accounts payable/cash disbursements process might include all of the following except: a. an invoice is received from a vendor b. the paid voucher is returned to the accounts payable department c. an approved disbursement voucher is sent to the cashier d. a copy of a receiving report is sent to the cashier ANS: D

PTS: 1

5. Which of the following process bubbles would you not expect to see in the logical DFD for an AP/CD process? a. requisition inventory b. establish payable c. make payment d. all of these are process bubbles ANS: A

PTS: 1

6. In an AP/CD process "establish payable" would normally be triggered by: a. vendor invoice b. a purchase order c. a copy of the purchase order sent to the inventory process d. a vendor acknowledgement ANS: A

PTS: 1

7. In an AP/CD process, a process "make payment" normally would be triggered by the data flow: a. purchase order b. vendor acknowledgement c. vendor packing slip d. payment due date information ANS: D

PTS: 1

8. At the time that an AP/CD process makes payment for goods or services, the process generally follows which order." a. select and record payments, prepare proposed payments, issue and record disbursements b. prepare proposed payments, issue and record disbursements, select and record payments c. issue and record disbursements, select and record payments, prepare proposed payments d. prepare proposed payments, select and record payments, issue and record disbursements ANS: D

PTS: 1

9. When the AP/CD process records a payable obligation, the data flow between "validate invoice" and "record payable" is? a. GL payable update b. AP notification c. validated vendor invoice d. receiving report ANS: C

PTS: 1

10. In the Level 0 DFD for an AP/CD process, a data flow called "vendor invoice" most likely would be sent by the vendor to which of the following processes? a. establish payable b. make payment c. order inventory d. none of the above ANS: A

PTS: 1

11. In the Level 0 DFD for an AP/CD, a data flow called "receiving report" most likely would be sent by the purchasing process to which of the following processes? a. order inventory b. receive goods and services c. establish payable d. make payment ANS: C

PTS: 1

12. Data flows of an AP/CD process normally might include all of the following except: a. PO accounts payable notification b. sales report c. receiving report

d. vendor invoice ANS: B

PTS: 1

13. Who usually authorizes a payment? a. the controller b. the purchasing manager c. a purchasing agent d. the treasurer ANS: D

PTS: 1

14. Which of the following is designed to reflect the formal approval of the voucher for payment? a. a vendor invoice b. an RFQ c. a payment voucher d. a disbursement voucher ANS: D

PTS: 1

15. An exception routine is usually performed for: a. processing payments b. vendor invoice identification c. purchase returns and allowances d. general ledger updates ANS: C

PTS: 1

16. Payments not typically supported by invoices include: a. payroll b. income taxes c. investments d. all of the above ANS: D

PTS: 1

17. The document one business sends to another business that identifies the amount to be paid is: a. check b. purchase requisition c. vendor invoice d. disbursement voucher ANS: C

PTS: 1

18. Which document typically notifies the purchaser of his or her obligation to pay? a. vendor packing slip b. receiving report c. acceptance report d. vendor invoice ANS: D

PTS: 1

19. Which of the following documents would be matched with the vendor invoice to ensure that the purchase was authorized (i.e., to ensure input validity)? a. receiving report b. acceptance report

c. purchase order d. vendor packing slip ANS: C

PTS: 1

20. In a typical, efficient AP/CD process, you would expect that "validating" a vendor invoice might include all of the following steps except: a. having a copy of the invoice approved by the purchasing manager b. comparing the invoice with a copy of the purchase order c. comparing the invoice with a copy of the receiving report d. checking the invoice for mathematical accuracy ANS: A

PTS: 1

21. Which disbursement system most easily facilitates paying a number of invoices with a single check? a. nonvoucher system b. voucher system c. balance-forward system d. open-items system ANS: B

PTS: 1

22. Which of the following activities would not occur when an inventory manager decides to return merchandise to a vendor? a. the accounts payable department is notified b. a credit memorandum is issued to the vendor c. the warehouse is instructed to release the merchandise to the shipping department d. a debit memorandum is prepared ANS: B

PTS: 1

23. In a voucher system, the data flow between the originating department and the process "prepare disbursement voucher" typically is: a. the disbursement voucher b. the payment notification c. the payment request d. the check ANS: C

PTS: 1

24. Which of the following statements regarding evaluated receipt settlement (ERS) is false? a. ERS is a system by which an organization pays for a purchase on the basis of the goods receipt. b. ERS can reduce the costs associated with entering invoices, matching the invoice with the PO and receiving report, and resolving discrepancies between the invoice and the PO and goods receipt. c. ERS arrangements are only made with vendors who have proven e-payment records. d. Upon receipt of the goods, the AP/CD system compares the received quantity to the open purchase quantity and, if appropriate, makes a payment based on the price and terms on the PO. ANS: C

PTS: 1

25. Information for evaluating vendor performance normally would reside on the: a. accounts payable master data b. vendor master data

c. vouchers payable master data d. purchase order master data ANS: B

PTS: 1

26. In an entity-relationship (E-R) diagram for the accounts payable/cash disbursements process, you would expect that the words sent to would appear in the diamond showing the relationship between: a. VENDORS and INVENTORY_RECEIPTS b. VENDORS and VENDOR_INVOICES c. VENDORS and CASH_DISBURSEMENTS d. CASH_DISBURSEMENTS and INVENTORY_RECEIPTS ANS: C

PTS: 1

27. A company using a centralized database approach to data management might not maintain a relational table for ACCOUNTS PAYABLE. Rather, accounts payable balances at any point in time could be computed as the difference between the relations for which of the following continuous events? a. PURCHASE_ORDERS and INVENTORY_RECEIPTS b. INVENTORY and INVENTORY_RECEIPTS c. VALID_ INVOICES and INVENTORY_RECEIPTS d. VALID_ INVOICES and CASH_DISBURSEMENTS ANS: D

PTS: 1

28. What factor has caused an escalation of check forgeries in recent years? a. the increased use of EDI b. the availability of cheap color printers c. a lack of control plans to control automated funds transfer d. a repeal of severe civil and criminal penalties for such crimes ANS: B

PTS: 1

29. Which of the following items is not a control plan of the AP/CD process? a. check for authorized prices, terms, freight, and discounts b. independent validation of vendor invoices c. independent authorization to make payment d. reconcile bank account ANS: A

PTS: 1

30. The resources for which the AP/CD process wants to ensure security typically do not include: a. cash b. accounts payable master data c. accounts receivable master data d. All of the above are included in resources for which the AP/CD process wants to ensure security.

ANS: C

PTS: 1

31. The control plan tickler file of payments due, is directed primarily at which of the following control goals? a. update completeness b. input validity c. input accuracy d. input completeness

ANS: D

PTS: 1

32. A control plan that helps ensure the security of resources within the AP/CD process is: a. requisition confirmation to originating department b. approve vendor selection c. independent validation of vendor invoice d. independent authorization to make payment ANS: D

PTS: 1

33. A control plan to ensure input accuracy in payables processing is: a. requisition confirmation to originating department b. match invoice, purchase order, and receiving report c. tickler file of payments due d. independent authorization to make payment ANS: B

PTS: 1

34. The control plan independent validation of vendor invoice is directed primarily at which of the following control goals? a. select a vendor who will provide the best quality at the lowest price by the promised delivery date b. input validity c. input accuracy d. input completeness ANS: B

PTS: 1

35. The AP application matches invoices, quantities, prices and terms when it performs the control plan: a. independent validation of vendor invoices b. match invoice, purchase order, and receiving report c. independent authorization to make payment d. reconcile input and output batch totals ANS: B

PTS: 1

36. For payment voucher input validity, which control plan uses records in the AP master data to give authorization to the cash disbursements computer program to make a payment? a. independent validation of vendor invoices b. match invoice, purchase order, and receiving report c. independent authorization to make payment d. reconcile input and output batch totals ANS: C

PTS: 1

37. Which of the following statements regarding e-payment technologies is true? a. an advantage to the payer is that float is eliminated b. the use of EDI for payments continues to decline in use c. e-payments are settled through the ACH network, by wire transfer, or by debit or credit card d. the cost of paying an invoice is reduced by about 50% when using e-payments ANS: C

PTS: 1

38. Which control is most likely to address the goal of input completeness? a. agreement of run-to-run totals

b. digital signature c. independent validation of vendor invoice d. tickler file of open purchase orders and receiving reports ANS: D

PTS: 1

39. The AP/CD process handles the repetitive work routines of: a. cashier b. purchasing c. Receiving d. all of the above ANS: A

PTS: 1

40. Frauds in the cash disbursement function: a. are less direct and more subtle than purchasing and accounts payable frauds b. have decreased significantly due to a decrease in the number of checks being written c. can be decreased or prevented by using digitally signed electronic payments d. all of the above ANS: C

PTS: 1

41. An enterprise system may facilitate the AP/CD process by linking: a. the PO and receiving report b. the PO and invoice c. the invoice and the related cash disbursements d. all of the above ANS: D

PTS: 1

42. Information technology has enhanced the AP/CD process by: a. eliminating invoices b. eliminating paper checks c. reducing the cost to process an invoice by up to 40% d. all of the above ANS: C

PTS: 1

COMPLETION 1. The ______________________________ department is responsible for processing vendor invoices, preparing disbursement vouchers, and recording purchase and disbursement transactions.

ANS: accounts payable PTS: 1 2. The notification of an obligation to pay a vendor for merchandise that was ordered and received is known as a(n) ______________________________.

ANS: vendor invoice PTS: 1 3. In an AP/CD process, a frequent exception routine is caused by ______________________________.

ANS: purchase returns and allowances PTS: 1 4. To initiate an adjustment for returned goods or for a price allowance in the case of otherwise nonconforming goods, someone usually prepares a(n) ______________________________ and sends it to the vendor.

ANS: debit memorandum PTS: 1 5. A true ______________________________ system requires that all expenditures be formally approved for payment and be recorded as a payable before they can be paid.

ANS: voucher PTS: 1 6. The ______________________________ data is a repository of all unpaid vendor invoices.

ANS: accounts payable master PTS: 1 7. The ______________________________ is an interacting structure of people, equipment, activities, and controls that is designed to accomplish the handling of repetitive work routines of the AP department and the cashier, support their decision needs, and assist in the preparation of internal and external reports.

ANS: AP/CD process PTS: 1 8. The cashier usually reports to the ______________________________.

ANS: treasurer PTS: 1 9. The VP of finance usually has the ______________________________ and the ______________________________ directly reporting to him (her).

ANS: treasurer, controller controller, treasurer PTS: 1 10. When it is time to make a payment, an approved ______________________________ is sent to the cashier.

ANS: voucher

PTS: 1 11. The Level 0 diagram of the AP/CD Process contains the two process bubbles of ______________________________ and ______________________________.

ANS: establish payable, make payment make payment, establish payable PTS: 1 12. The vendor sends a(n) ______________________________ to notify the purchaser of an obligation to pay for goods or services ordered by and shipped to the purchaser.

ANS: vendor invoice PTS: 1 13. The ______________________________ triggers the "establish payable" process.

ANS: vendor invoice PTS: 1 14. A(n) ______________________________ is designed to reflect formal approval of a payment and to provide such added data as the account distribution and the amounts to be debited.

ANS: disbursement voucher PTS: 1 15. The ______________________________ triggers the "make payment" process.

ANS: payment due date information PTS: 1 16. Within the make payment process, the three sub-processes are "Prepare proposed payments", "Select and record payments," and ______________________________.

ANS: payment due date information "Issue and record disbursements" PTS: 1 17. When processing non-invoiced disbursements, the trigger for either a true voucher process or a non voucher process is a(n) ______________________________.

ANS: payment request PTS: 1

18. The ______________________________ master data store is a repository of all unpaid vendor invoices.

ANS: accounts payable PTS: 1 19. The ______________________________ data shows, in chronological sequence, the details of each cash payment made.

ANS: cash disbursements event PTS: 1 20. In the ER diagram for AP/CD process, CASH_DISBURSEMENTS are ______________________________ by EMPLOYEES (Treasury Employees).

ANS: authorized PTS: 1 21. In the ER diagram of the AP/CD process, VALID_INVOICES are received from the ______________________________.

ANS: VENDORS PTS: 1 22. In a relational table for PURCHASE_RECEIPTS, the primary key would be the ______________________________.

ANS: receipt number Rec_No PTS: 1 23. Usually the theft of cash entails ________________

or fraudulent _________________________.

ANS: check forgery, wire transfers forging checks, wire transfers PTS: 1 24. Fraud abuses in the AP/CD process usually entail creating phony ______________________________ or submitting fictitious _________.

ANS: vendors, invoices PTS: 1

25. The control plan ______________________________ includes an aging of open vouchers / accounts payable records that is produced and reviewed on a regular basis in order to ensure that there is an adequate cash reserve to make required payments.

ANS: cash planning report PTS: 1 26. Input validity for ______________________________ is ensured by making sure that the invoice is for goods that were actually ordered and actually received.

ANS: vendor invoices PTS: 1 27. The AP process that uses vendor invoices for inputs updates the ______________________________ master data.

ANS: accounts payable PTS: 1 28. ______________________________ is an exception that usually occurs at the point of inspecting and counting the goods or when validating vendor invoices.

ANS: Purchase returns and allowances PTS: 1 29. ______________________________ is a process by which an organization pays for a purchase on the basis of the receipt of the goods.

ANS: Evaluated receipt settlement (ERS) Evaluated receipt settlement ERS PTS: 1 30. ______________________________ systems are B2B systems that combine e-invoicing and e-payment processes to send invoices to electronic invoices to customers and to receive electronic payments.

ANS: Electronic invoice presentment and payment (EIPP) Electronic invoice presentment and payment EIPP PTS: 1 31. The control plan ______________________________ requires that the authority for recording a vendor invoice come from the purchase order and receiving report created by entities other than the entity that records the vendor invoice.

ANS: independent validation of vendor invoices PTS: 1 32. To ensure that a vendor invoice is recorded accurately and that items on the invoice were ordered and received requires that we ______________________________.

ANS: match invoice, purchase order and receiving report PTS: 1 33. To ensure that only authorized payments are made, there should be ______________________________ whereby the accounts payable records on which the payment is based should created by an entity other than the entity that executes the payment.

ANS: independent authorization to make payment PTS: 1 34. The control plan ______________________________ matches records of cash disbursements to bank records to ensure that all disbursements actually made by the bank were authorized and accurate.

ANS: reconcile bank account PTS: 1 PROBLEM 1. The figure below shows a portion of the horizontal perspective of an accounts payable/cash disbursements (AP/CD) process. The following functional titles (for the AP/CD process organizational structures and the entities with which the AP/CD process interacts) and information flows, depicted as documents, generated or captured by the AP/CD process, have been omitted.

A. B. C. D.

Functional titles (for the AP/CD structures and entities with which the process interacts) Accounts payable E. VP Finance Cashier F. Vendor Controller G. General ledger Treasurer

Information flows (depicted as documents) H. Payment request notice sent from accounts payable to general ledger I. Payment request (voucher) sent from accounts payable to cashier J. Payment (check) sent to vendor by cashier K. Invoice sent to accounts payable from vendor L. Payment notice sent from cashier to general ledger M. Payment notice sent from cashier to accounts payable N. Accounts payable invoice notice sent from accounts payable to general ledger Required: Complete TB Figure 13.1 by inserting the letter corresponding to the: (a) functional titles into the boxes (b) information flow descriptions in the document symbols

ANS:

PTS: 1 2. Below is a narrative of the "Establish payable" portion (bubble 1.0) of the AP/CD process described in Chapter 13.

Narrative Description The first step in establishing the payable involves validating the vendor invoice. This process is triggered by receipt of the vendor invoice. Process 1.1 comprises a number of steps. First, the vendor invoice is matched against vendor master data to determine that the invoice is from an authorized vendor. Next, the vendor invoice is compared against the PO data (see the flow PO accounts payable notification) to make sure that there is a PO (i.e., there is an authorized purchase) and that the invoiced items, quantities, and prices conform to the PO. Then, the invoice is matched against the receiving report data to determine that the items and quantities have been received. Finally, the invoice is further validated by checking for accuracy of terms, computed discounts, extensions, and total amount due.

Note that the vendor master data is updated at this point to reflect purchase history data.

If the data items do not agree, the invoice is rejected, and follow-up procedures are initiated (see the reject stub emanating from bubble 1.1). If the data items agree, the invoice is approved, and the validated invoice is sent on to the next step to be used to record the payable. Bubble 1.2 depicts the process of recording the payable in the purchase events data and accounts payable master data. A payable is recognized and recorded by: Creating a record in the purchase events data store.

• • Creating a record in the accounts payable master data to reflect an open invoice⎯a payment due to a vendor.

Updating the inventory master data for the cost of the items received.

• Notifying the general ledger of the amount of the payable that was recorded (see the data • flow "GL payable update").

Required: From the DFD (TB Figure 13.3) and the narrative description above, explode bubble 1.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 3. Below is a narrative for the "Make payment" portion (bubble 2.0) of the accounts payable/cash disbursements process described in Chapter 13.

Narrative Description The payment process begins with the periodic preparation of a list of payments that might be made at this time (bubble 2.1). The selection of items for this list is based on payment due dates and terms that may indicate a discount can be taken for a payment at this time. The proposed list is reviewed and amended (bubble 2.2) to add additional invoices that are not due for payment yet but that can be consolidated with other payments being made to a vendor. Proposed payments may be removed from the list if there are insufficient funds or if payments to a vendor are on hold.

Bubble 2.3 depicts the process of preparing the disbursement, which is equal to the amount of the invoice less any discount taken. The payment is recorded by:

• • •

Marking the invoice as paid on the accounts payable master data.

Making an entry in the cash disbursements event data store.

Sending payment data to the general ledger where an entry is made to reflect the payment.

Required: From the DFD (TB Figure 13.5) and the narrative description above, explode bubble 2.0 into a lower-level diagram showing the details of that process.

ANS:

PTS: 1 4. Below is a narrative for the "Make payment" portion (bubble 2.0) of the accounts payable/cash disbursements process described in Chapter 13.

Narrative Description The payment process begins with the periodic preparation of a list of payments that might be made at this time (bubble 2.1). The selection of items for this list is based on payment due dates and terms that may indicate a discount can be taken for a payment at this time. The proposed list is reviewed and amended (bubble 2.2) to add additional invoices that are not due for payment yet but that can be consolidated with other payments being made to a vendor. Proposed payments may be removed from the list if there are insufficient funds or if payments to a vendor are on hold.

Bubble 2.3 depicts the process of preparing the disbursement, which is equal to the amount of the invoice less any discount taken. The payment is recorded by: Marking the invoice as paid on the accounts payable master data.

• Making an entry in the cash disbursements event data store.

• Sending payment data to the general ledger where an entry is made to reflect the • payment.

Required: Using the DFD in TB Figure 13.7 and the narrative description above, identify the words that belong in items 1 to 9 of Diagram 2.0 (TB Figure 13.8).

ANS: NOTE TO INSTRUCTORS: This question repeats the "Make payment" narrative of Problem 3 (in the original banks) but instead of asking students to draw Diagram 2.0 it asks them to identify the missing diagram pieces.

1.

2.

3.

4.

5.

2.1 Prepare proposed payments Proposed payments Accounts payable master data 2.2 Select and record payments Approved payments

6.

7.

8.

9.

Cash disbursements events data 2.3 Issue and record disbursements GL cash disbursements update Vendor payment

PTS: 1 5. TB Figure 13.9 is the control matrix for the accounts payable/cash disbursements process presented in Chapter 13, but with certain items omitted. In the matrix, each omission is indicated by a box. Jumbled lists of the omitted items are as follows:

1.

2.

3.

4.

Omitted from Control Goals Columns Cash, Accounts payable master data 5.

Vendor invoice inputs Ensure security of resources 6.

Ensure effectiveness of operations Payment inputs 7.

Ensure efficient employment of resources Accounts payable master data 8.

Accounts payable master data

Omitted Control Plans 9.

Tickler file of open purchase orders and receiving reports 10. Independent authorization to make payment 11. Tickler file of payments due 12. Digital signatures 13. Independent validation of vendor invoices 14. Reconcile bank account Required: Complete the matrix in parts 1 and 2 of TB Figure 13.9 below by placing one of the numbers, 1 through 14 from the above lists, in each empty box.

ANS:

PTS: 1 6. The flowchart below is the accounts payable/cash disbursements process presented in Chapter 13, but with certain items omitted. In the flowchart, each omission is indicated by a capital letter (A through I). Jumbled lists of the omitted items are as follows: 1.

Compare incoming invoices to PO and receiving report data and record AP and GL data

2.

3.

4.

5.

6.

Display of proposed payments Enterprise database Exception routine not shown Payment totals Prepare payment order and RA, update AP and GL data for payment, display payment totals Select payments, calculate batch totals Translate from EDI and record incoming invoices VAN

7.

8.

9.

Required: Complete the flowchart TB Figure 13.11 by placing one of the numbers, 1 through 9 from the above lists, to match the letters showing the missing items.

ANS: Missing item A B C D E F G H I

Item description 8 3 2 1 7 6 5 4 9

PTS: 1 7. The following is a list of 10 control plans.

A. B. C. D. E.

Control Plans Independent validation of vendor F. Match invoices, POs, and receiving invoices reports Tickler file of payments due G. Reconcile input-output batch totals Preformatted screens H. Digital signatures Tickler file of open POs and receiving I. Independent authorization to make reports payment Cash planning report J. Reconcile bank account

Required: Listed below are ten system failures that indicate weaknesses in control. On the answer line to the left of each description, insert the capital letter (from the list above) of the best control plan to address the system deficiency described. A letter should be used only once.

Answers

SYSTEM FAILURES 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

There is often an inadequate amount of cash on hand to make required payments. Some discounts are lost and vendor relations are negatively impacted.

Some vendor invoices are not received and input in a timely manner. Some discounts are lost.

Data fields must be manually entered and users can customize the input fields as needed. The data entry process is, therefore, slow and error prone.

Payables are not tracked by due date and discounts are often missed.

The VAN does not know that the sender of a message has the authority to send it.

Overpayments are made to the vendor because invoices are for quantities and prices other than what was ordered and received.

Invoices are recorded for items that were never ordered.

Invoices are paid even though there is no invoice on the accounts payable master data.

The totals calculated for payments before the input do not match those produced after the updates have been made.

Unauthorized and incorrect disbursements have been recorded.

ANS: System Failure 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

PTS: 1

Answer E D C B H F A I G J

Chapter 14—The Human Resources Process (HR) Management and Payroll Processes TRUE/FALSE 1. A job time record is used to calculate the gross amount of each employee's pay.

ANS: F

PTS: 1

2. Attendance time records reflect the start and stop times on specific jobs to allow the distribution of payroll costs to jobs in process (or to other accounts).

ANS: F

PTS: 1

3. Attendance time records show the time periods that employees are in attendance at the job site and available for work.

ANS: T

PTS: 1

4. The imprest payroll account should show a zero balance after both the debit for gross pay paid to employees and the credit for gross pay distributed to jobs in process or to expense categories has been posted to the account.

ANS: F

PTS: 1

5. An imprest payroll bank account is one to which cash transfers are made in an amount exactly equal to the amount of payroll checks cashed.

ANS: T

PTS: 1

6. Human capital management is the process of managing how people are hired, trained, assigned, motivated and retained.

ANS: T

PTS: 1

7. The human capital management process is an interacting structure of people equipment, activities, and controls that supports the repetitive work routines and decision needs of the HR department.

ANS: F

PTS: 1

8. The payroll process maintains records containing data for payroll taxes and fringe benefits, attendance reporting, timekeeping, and paying employees for work performed.

ANS: T

PTS: 1

9. The manager of safety, health services and benefits usually reports to the controller.

ANS: F

PTS: 1

10. The manager of employee and industrial relations helps to settle employee complaints and grievances.

ANS: T

PTS: 1

11. The manager of safety, health services and benefits has key functions that include plans and forecasts of an organization's short-term and long-term HR needs.

ANS: F

PTS: 1

12. Systems that allow employees to access their personnel information and related functions are known as human resources self-service systems.

ANS: T

PTS: 1

13. Data in the employee/payroll master data originates in HR and payroll.

ANS: T

PTS: 1

14. Factory workers record attendance and job time at a payroll service bureau.

ANS: F

PTS: 1

15. The skills inventory data maintains data concerning an organization's short-term and long-term staffing requirements.

ANS: F

PTS: 1

16. The labor-force planning data catalogs each employee's set of relative skills.

ANS: F

PTS: 1

17. HR self-service systems can reduce HR and payroll-related operational costs up to 85%.

ANS: T

PTS: 1

18. The chief financial officer usually has direct supervision of the treasurer and controller and indirect supervision of the payroll supervisor.

ANS: T

PTS: 1

19. The GL supervisor usually reports to the treasurer.

ANS: F

PTS: 1

20. A payroll service bureau often makes tax and insurance payments for the client.

ANS: T

PTS: 1

21. The general ledger supervisor is in charge of payroll preparation.

ANS: F

PTS: 1

22. The cashier is in charge of payroll check disbursement.

ANS: T

PTS: 1

23. The trigger for the payroll process "pay employees" is the payroll register.

ANS: F

PTS: 1

24. The data flow between "prepare paychecks" and "prepare disbursement voucher" is the payroll register.

ANS: T

PTS: 1

25. The employee/payroll master data is the central repository of data about people who work for an organization.

ANS: T

PTS: 1

26. The employee wage and tax statement is known as a W-4.

ANS: F

PTS: 1

27. Annuities, pensions, and retirement pay are reported on Form 1099-P. ANS: F

PTS: 1

28. Wages taxable under FICA are reported on Form 941.

ANS: T

PTS: 1

29. An electronic time management system is a computer based system that captures, stores, and reports time.

ANS: T

PTS: 1

30. A company that specializes in rendering payroll services to client companies for a fee is a payroll service bureau.

ANS: T

PTS: 1

31. For good internal control, there should be a segregation of duties between personnel data creation/modification, payroll preparation, and disbursement of the checks.

ANS: T

PTS: 1

32. The control plan "use an imprest bank account" entails having paychecks distributed to employees by an entity not otherwise involved in payroll processing.

ANS: F

PTS: 1

33. In an imprest system, the bank account is reimbursed for the exact amount of the disbursements made from the fund.

ANS: T

PTS: 1

34. A payroll clearing account is a separate bank account used solely for payroll purposes. Funds are transferred into the account to cover payroll checks to be issued.

ANS: T

PTS: 1

35. Moving from bi-weekly to monthly payroll can reduce costs by 30 to 50 percent.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. The process of preparing paychecks for hourly employees is triggered by which of the following data flows? a. validated attendance time cards b. job time tickets c. a temporal event d. employee paychecks ANS: A

PTS: 1

2. Information for distributing labor charges to jobs, departments, or other accounts comes primarily from: a. attendance time cards b. job time tickets c. a temporal event d. employee paychecks ANS: B

PTS: 1

3. In a payroll system logical DFD, all of the following processes likely would provide updates to the general ledger except for: a. reconcile hours worked b. distribute labor costs c. pay employees d. accrue employer taxes ANS: A

PTS: 1

4. The control plan independent reconciliation of payroll bank account is directed primarily at achieving which of the following control goals? a. provide employees with timely pay checks b. ensure efficient employment of resources c. ensure security of resources d. ensure validity, completeness and accuracy of time card inputs ANS: C

PTS: 1

5. Which of the following activities related to payroll is not an effective control plan? a. Paychecks should be drawn on an imprest payroll bank account. b. Approve imprest clearing check. c. Approve attendance time data and job time data. d. After their preparation, paychecks should be delivered directly to the employees' supervisors for distribution to the employees.

ANS: D

PTS: 1

6. According to the text, what is the process of managing how people are hired, trained, assigned, motivated and retained and presumes that employees are a strategic investment? a. organizational management b. personnel management

c. human capital management d. none of the above ANS: C

PTS: 1

7. Which of the following began with the handling of payroll, personnel administration, and later added the functions of recruiting and employee relations? a. strategic management b. personnel management c. human capital management d. payroll distribution management ANS: B

PTS: 1

8. Which of the following recognized the importance of personnel in achieving organizational objectives, but viewed personnel as something that could be controlled? a. human resource management b. personnel management c. human capital management d. strategic management ANS: A

PTS: 1

9. Which of the following emphasizes an individuals' value to the organization, personnel development to maximize the benefits that an individual can provide to the organization and retention of employees to ensure that important skills are not lost? a. human resource management b. personnel management c. human capital management d. strategic management ANS: C

PTS: 1

10. Which of the following is not part of the information provided by HR management to support management decisions? a. generating a variety of HR forms and documents b. preparing management reports c. preparing governmental reports d. all of these are part of the information provided by HR management ANS: D

PTS: 1

11. Which of the following is false regarding the payroll process? a. it supports the repetitive work routines of the payroll department b. because payroll is a key competency, it typically does not make sense to outsource this process c. it maintains data for payroll taxes and fringe benefits d. moving from bi-weekly to monthly payroll can reduce costs by 30 to 50 percent ANS: B

PTS: 1

12. The HR module in most ERP systems includes all of the following except: a. cafeteria benefits administration b. compliance reporting c. skills inventories d. strategic and tactical planning

ANS: D

PTS: 1

13. Including HR data within the enterprise system allows sharing of common data providing benefits except: a. creating a single source for obtaining HR information b. increased data redundancy c. improving data accuracy d. ensuring data integrity and consistency ANS: B

PTS: 1

14. The key functions of planning and forecasting HR needs, analyzing jobs to determine required skills, assisting in recruiting, and helping new hires adjust to their work environment is the job position of the manager of: a. personnel appraisal and development b. employee and industrial relations c. HR systems d. personnel planning and staffing ANS: D

PTS: 1

15. The key functions of handling employee complaints and negotiating with unions is the job position of the manager of: a. personnel appraisal and development b. employee and industrial relations c. HR systems d. personnel planning and staffing ANS: B

PTS: 1

16. The key functions of ensuring that the information needs of HR managers and staff workers are satisfied and serving as the liaison between the IT department and the HR department is the job position of the manager of: a. personnel appraisal and development b. employee and industrial relations c. HR systems d. personnel planning and staffing ANS: C

PTS: 1

17. The key functions of assisting managers in setting rewards for good employee performance, helping line managers provide training or take disciplinary action, and reducing employee turnover by helping workers achieve their career goals is the job position of the manager of: a. personnel appraisal and development b. employee and industrial relations c. HR systems d. personnel planning and staffing ANS: A

PTS: 1

18. Which of the following is not one of the HR related events performed by the HR management process? a. selecting employees b. paying employees c. evaluating employees d. terminating employees

ANS: B

PTS: 1

19. Inputs to the HR management process are provided by: a. various departments b. employees c. HR department d. all of the above ANS: D

PTS: 1

20. With an enterprise system, updates of employee/payroll master data is performed by: a. various departments b. employees c. computer d. HR department ANS: C

PTS: 1

21. In an HR management process, needs requests, supervisor review, employee termination, and employee requests are approved by: a. various departments b. employees c. computer d. HR department ANS: D

PTS: 1

22. Payroll reports may be provided to all of the following except: a. unions b. employees c. government d. customers ANS: D

PTS: 1

23. Which of the following data stores is updated when employees gain new on the job training? a. labor-force planning data b. skills inventory data c. payroll data d. none of the above ANS: B

PTS: 1

24. Which of the following data stores is updated for job specifications? a. labor-force planning data b. skills inventory data c. payroll data d. termination data ANS: A

PTS: 1

25. The payroll supervisor usually reports directly to: a. the treasurer b. the cashier c. the controller

d. the VP Finance ANS: C

PTS: 1

26. For good internal control an organization should segregate the duties of: a. HR and payroll b. AP and payroll c. payroll and cashier d. all of the above ANS: D

PTS: 1

27. Which of the following shows when employees are at work, may be maintained near the entrance of the workplace and take the physical form of cards? a. attendance time records b. job time records c. payroll contribution notice d. none of the above ANS: A

PTS: 1

28. Which of the following shows start and stop times on specific job with the purpose of allowing the distribution of payroll costs to work in process? a. attendance time records b. job time records c. payroll contribution notice d. wage and tax forms ANS: B

PTS: 1

29. Which of the following is a data flow that generally goes to insurance companies? a. attendance time records b. job time records c. payroll contribution notice d. employee vacation pay form ANS: C

PTS: 1

30. Which of the following is a data flow that generally goes to government agencies? a. attendance time records b. job time records c. payroll contribution notice d. payroll tax reports ANS: D

PTS: 1

31. Payroll processing is typically conducted in: a. immediate mode b. periodic mode c. batches d. both b and c ANS: D

PTS: 1

32. Payroll tax reports are initially remitted to: a. government agencies

b. the bank c. the general ledger process d. the cashier ANS: A

PTS: 1

33. Updates of the tax rates data are stored in: a. tax rates data b. employee/payroll master data c. HR master data d. GL master data ANS: A

PTS: 1

34. What is the process that compares total hours of each worker as shown by the attendance record with the hours reflected on the job time records for that employee? a. accrue employer taxes b. distribute labor costs c. reconcile hours worked d. pay employees ANS: C

PTS: 1

35. What is the process that interfaces with the GL to provide the necessary journal entries for the distribution of labor charges? a. accrue employer taxes b. distribute labor costs c. reconcile hours worked d. pay employees ANS: B

PTS: 1

36. What is the process that is initiated by validated attendance time records? a. accrue employer taxes b. distribute labor costs c. reconcile hours worked d. pay employees ANS: D

PTS: 1

37. Which of the following is processed in batches? a. HR activities b. Payroll c. both a and b d. neither a or b ANS: B

PTS: 1

38. Which of the following is processed in the immediate mode? a. HR activities b. Payroll c. both a and b d. neither a or b ANS: A

PTS: 1

39. Which of the following is an example of processing the company's payroll for a fee? a. electronic time management b. payroll direct deposit system c. payroll service bureau d. payroll register ANS: C

PTS: 1

40. Which of the following has the inputs of attendance and work on specific jobs? a. electronic time management b. payroll direct deposit system c. payroll service bureau d. GL master data ANS: A

PTS: 1

41. The payroll register is used to: a. record time worked b. record hours worked on specific jobs c. prepare a payroll disbursement voucher d. prepare and disburse employee paychecks ANS: C

PTS: 1

42. The approved payroll disbursement voucher is used to: a. record time worked b. record hours worked on specific jobs c. prepare and disburse employee paychecks d. prepare a payroll transfer check ANS: D

PTS: 1

43. Which of the following payroll-related frauds may involve non-existent employees? a. ghost employees b. falsified hours and salary c. commission schemes d. false workers' compensation claims ANS: A

PTS: 1

44. Which of the following payroll-related frauds can have a direct impact on the organization's insurance company? a. ghost employees b. falsified hours and salary c. commission schemes d. false workers' compensation claims ANS: D

PTS: 1

45. Employee fraud schemes in the area of reimbursement of expenses include all of the following except: a. overstating expenses b. fake receipts c. overstating commissions d. using personal expenses as business expenses ANS: C

PTS: 1

46. Which of the following control plans transfers the exact amount of funds necessary to reimburse the account for payroll checks cashed? a. approve attendance time data and job time data b. use payroll clearing account c. independent paycheck distribution d. imprest payroll bank account ANS: D

PTS: 1

47. Which of the following control plans will detect discrepancies between the attendance time and job time? a. approve attendance time data and job time data b. distribute labor costs c. independent paycheck distribution d. use payroll clearing account ANS: B

PTS: 1

48. Which of the following control plans is an account used solely for payroll purposes and funds are transferred into the account to cover payroll checks to be issued? a. approve attendance time data and job time data b. use payroll clearing account c. independent paycheck distribution d. imprest payroll bank account ANS: B

PTS: 1

COMPLETION 1. In some organizations, employees "punch" in and out of work by swiping an employee identification card through or by a(n) ______________________________.

ANS: magnetic card reader PTS: 1 2. ______________________________ reflect(s) the start and stop times on specific jobs to allow the distribution of payroll costs to jobs in process (or to other accounts).

ANS: Job time records PTS: 1 3. ______________________________ show the time periods that employees are in attendance at the job site and available for work.

ANS: Attendance time records PTS: 1 4. The ______________________________ is an account used solely for payroll purposes. Funds are transferred into the account to cover payroll checks to be issued.

ANS: payroll clearing account PTS: 1 5. ______________________________ is the process of managing how people are hired, trained, assigned, motivated and retained.

ANS: Human capital management Human capital management (HCM) HCM PTS: 1 6. The ______________________________ process is an interacting structure of people, equipment, activities, and controls that supports the repetitive work routines and decision needs of the HR department ANS: human resources management human resources (HR) management HR management PTS: 1 7. The ______________________________ process maintains data for payroll taxes, fringe benefits, attendance reporting, timekeeping, and paying employees for work performed.

ANS: payroll PTS: 1 8. The manager of safety, health, and human services usually reports to the ______________________________.

ANS: vice president of human resources vice president (VP) of human resources (HR) VP of HR VP of human resources (HR) VP of human resources vice president of HR PTS: 1 9. The manager of ______________________________ handles employee complaints.

ANS: employee and industrial relations PTS: 1 10. The ______________________________ plans and forecasts an organization's short-term and long-term HR needs.

ANS: manager of personnel planning and staffing PTS: 1 11. Systems that allow employees to access their personnel information and business-related information and functions are known as human resources ______________________________.

ANS: self-service systems PTS: 1 12. The HR and payroll processes share data in the ______________________________ master data.

ANS: employee/payroll PTS: 1 13. The ______________________________ data maintains data concerning an organization's short-term and long-term staffing requirements.

ANS: labor-force planning PTS: 1 14. The ______________________________ data catalogs each employee's set of relative skills.

ANS: skills inventory PTS: 1 15. A payroll ______________________________ often makes tax and insurance payments for the client.

ANS: service bureau PTS: 1 16. The chief financial officer usually has direct supervision of the treasurer and ______________________________.

ANS: controller PTS: 1 17. The GL supervisor usually reports to the ______________________________.

ANS: controller PTS: 1 18. Payroll is typically processed in the ______________________________ mode.

ANS: periodic PTS: 1

19. The trigger for the payroll process "pay employees" is (are) validated ______________________________.

ANS: attendance time records PTS: 1 20. The data flow between "prepare paychecks" and "prepare disbursement voucher" is the ______________________________.

ANS: payroll register PTS: 1 21. The ______________________________ master data is the central repository of data about people who work for the organization.

ANS: employee/payroll PTS: 1 22. The employee wage and tax statement is known as a(n) ______________________________.

ANS: W-2 PTS: 1 23. Annuities, pensions, and retirement pay are reported on Form ______________________________.

ANS: 1099-R PTS: 1 24. Wages taxable under FICA are reported on Form ______________________________.

ANS: 941 PTS: 1 25. A(n) ______________________________ system is a computer based system that captures, stores, and reports time.

ANS: electronic time management PTS: 1 26. A company that specializes in rendering payroll services to client companies for a fee is a(n) ______________________________.

ANS: payroll service bureau PTS: 1

27. ______________________________ employees are employees who do not currently work for the company but who receive paychecks.

ANS: Ghost PTS: 1 28. For good internal control, there should be a(n) ______________________________ between personnel data creation/modification, payroll preparation, and disbursement of the checks.

ANS: segregation of duties PTS: 1 29. The control plan ______________________________, entails having paychecks distributed to employees by an entity not otherwise involved in payroll processing.

ANS: independent paycheck distribution PTS: 1 30. A(n) ______________________________ account is used solely for payroll purposes. Funds are transferred into the account to cover payroll checks to be issued.

ANS: payroll clearing PTS: 1 31. To transfer funds from the company's general account to its payroll bank account, the payroll register is sent to the ______________________________ department.

ANS: accounts payable PTS: 1 32. ______________________________ of the payroll bank account helps ensure the safety of resources (cash) by identifying missing or unusual items entered into the account.

ANS: Independent reconciliation PTS: 1 33. In a(n) ______________________________ bank account funds are transferred into the account for the exact amount of the paychecks cashed.

ANS: imprest payroll PTS: 1 PROBLEM 1. TB Figure 14.1 is a Level 0 DFD of a payroll process with several labels omitted. Listed below is a numbered, alphabetical list of the omitted items.

1.

2.

3.

4.

5.

6.

Accrue liabilities Attendance time records Bank Distribute labor costs Employee/payroll master data General ledger process

Omitted Labels 7.

GL employer tax accrual update 8.

GL tax deposit update 9.

Government agencies 10. Pay employees 11. Perform data maintenance 12. Validated job time records

Required: Match each letter in the Level DFD to the appropriate number from the list of omitted labels.

ANS: A. 11 B. 2 C. 5 D. 12 E. 4 F. 1

G. H. I. J. K. L.

10 3 7 6 8 9

PTS: 1 2. Below is a narrative for the "Pay employees" portion (bubble 4.0) of the payroll process described in Chapter 14.

Narrative Description

Validated attendance time records initiate the payment to workers in process 4.0 (Pay employees). In calculating employees' gross and net pay, Process 4.1 (Prepare paychecks) retrieves data from both the employee/payroll master data and the tax rates data. Process 4.1 accumulates current, quarter-to-date, and year-to-date totals for each employee and reports this information via the data flow "Payroll register." This information also is used to update the employee/payroll master data. Finally, process 4.1 prints and distributes paychecks to employees as reflected in the "Employee paychecks" data flow.

The data flow "Payroll register" triggers process 4.2 (Prepare disbursement voucher). This will result in a data flow for the GL disbursement voucher update and a data flow for the disbursement voucher.

Process 4.3 (Prepare payroll transfer check) and sends the check to the bank to cover the organization's periodic net payroll.

Required: From the DFD in TB Figure 14.2 and the narrative description above, explode bubble 4.0 into a lower level diagram showing the details of that process.

ANS:

PTS: 1

3. Below is a narrative for the "Pay employees" portion (bubble 4.0) of the payroll process described in Chapter 14.

Narrative Description Validated attendance time records initiate the payment to workers in process 4.0 (Pay employees). In calculating employees' gross and net pay, Process 4.1 (Prepare paychecks) retrieves data from both the employee/payroll master data and the tax rates data. Process 4.1 accumulates current, quarter-to-date, and year-to-date totals for each employee and reports this information via the data flow "Payroll register." This information also is used to update the employee/payroll master data. Finally, process 4.1 prints and distributes paychecks to employees as reflected in the "Employee paychecks" data flow.

The data flow "Payroll register" triggers process 4.2 (Prepare disbursement voucher). This will result in a data flow for the GL disbursement voucher update and a data flow for the disbursement voucher.

Process 4.3 (Prepare payroll transfer check) and sends the check to the bank to cover the organization's periodic net payroll.

Required: Using the DFD in TB Figure 14.4 and the narrative description above, identify the words that belong in items 1 to 11 of Diagram 4.0 (TB Figure 14.5).

ANS: NOTE TO INSTRUCTORS: This question repeats the "Pay employees" narrative of Problem 2 (in the original banks) but instead of asking students to draw Diagram 4.0 it asks them to identify the missing diagram pieces.

1.

2.

3.

4.

5.

6.

Tax rates data Validated attendance time records Employee paychecks 4.1 Prepare paychecks Employee/payroll master data Payroll register

7.

8.

9.

10.

11.

GL disbursement voucher update 4.2 Prepare disbursement voucher Payroll transfer check Disbursement voucher 4.3 Prepare payroll transfer check

PTS: 1 4. Assume you are working with a payroll application that produces weekly paychecks, including paystubs. Listed below are 20 data elements that appear on the paycheck/paystub.

Data Elements Number 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Description Employee identification number Social security number Employee name Employee address Regular hours worked Overtime hours worked Pay rate classification Hourly pay rate Regular earnings Overtime earnings Total earnings Deduction for federal income tax Deduction for state income tax Deduction for FICA tax Union dues withheld (flat amount based on length of service) Net pay Check number (same number is also preprinted on each check form) Year-to-date amounts for items 11 through 14 preceding Pay-period end date Date of check (employees are paid on Wednesday for the week ended the previous Friday)

Required: For each numbered item, indicate the immediate (versus ultimate) source of the item. For instance, the immediate source of the number of exemptions for an employee would be the employee master file as opposed to the ultimate source which is the W-4 form filed by the employee. Some items may have more than one source, as in the case of item 1. You have the following choices: E T

= =

H

=

Employee master file Time clock cards (these are in machine-readable form and show for each employee for each day the time punched in the morning, out at lunch, in after lunch, and out in the evening) "Table" file of hourly wage rates (i.e., wage rate "class" and hourly rate for each

W

=

CG CC CO

= = =

class) "Table" file of state and federal income tax withholding amounts plus FICA tax rate and annual "cutoff" amount for FICA wages.

Computer generated (such as a date or time of day supplied by the system) Computer calculated Console operator (such as batch totals or a date to be used)

Arrange your answer as follows: Item 1 2 etc.

Source T, E ?

ANS: Item No. 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

Description Employee identification number Social security number Employee name Employee address Regular hours worked Overtime hours worked Pay rate classification Hourly pay rate Regular earnings Overtime earnings Total earnings Deduction for Federal Income Tax Deduction for State Income Tax Deduction for FICA tax Union dues withheld (flat amount based on length of service) Net pay Check number (same number is also preprinted on each check form) Year-to-date amounts for items 11 through 14 above Pay period ending Date of check (employees are paid on Wednesday for the week ended the previous Friday)

Source T, E E T, E E T, CC T, CC E H CC CC CC W, CC W, CC W, CC E, CC CC CG, CO E, CC CG, CO CC, CO

PTS: 1 5. The following is a list of 10 control plans.

A. B. C. D.

Control Plans Independent paycheck distribution Reconcile bank account Tickler file of employees due for periodic performance reviews.

Reconcile attendance time data and attendance time data

F. G. H.

Payroll service bureau Payroll clearing account Reconcile run-to-run totals

I.

Approve job time data

E.

Electronic time management system

J.

HR self-service system

Required: Listed below are ten system failures that indicate weaknesses in control. On the answer line to the left of each description, insert the capital letter (from the list above) of the best control plan to address the system deficiency described. A letter should be used only once.

Answers

SYSTEM FAILURES 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Grover Company was experiencing cost overruns on several construction projects. An investigation seemed to indicate that workers were recording more hours to some jobs than they actually worked on those jobs.

Some project managers at Gecko Consultants are having trouble understanding why there are cost overruns on their projects. They suspect that some staff are mistakenly recording hours worked to their projects and not to other managers' projects.

Management at Duclos Company suspects that some supervisors are submitting attendance time records, and collecting the paychecks, for employees that don't exist.

Payroll checks being cashed at Bemidji Company are greater than the amount of the checks issued.

Randy, the owner of Winsted Company, suspects that his accountant is making unauthorized disbursements.

Employees at Farmington, Inc. are complaining that they cannot easily view and make changes to their retirement plans.

Employees at Kindle, Inc are unclear as to how well they are doing in their jobs.

Beverly, the new CFO at Florida Company, believes that the process of collecting attendance and job time data is inefficient.

The initial calculations for employee payments at Garfield Inc. do not agree with the payments recorded and made.

The controller at Blanford Company believes that the present payroll process is inefficient and error-prone. For example, they have trouble keeping up with changing tax and benefits regulations.

ANS: System Failure 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

PTS: 1

Answer D I A G B J C E H F

Chapter 15—Integrated Production Processes (IPP) TRUE/FALSE 1. Production systems facilitate integration of all aspects of product design, manufacturing, and marketing processes.

ANS: F

PTS: 1

2. Product lifecycle management (PLM) systems are ERP modules or enterprise system add-ons that organize data by product, including designs, manufacturing specifications, quality, and warranty performance.

ANS: T

PTS: 1

3. Cycle time is the time it takes from when authorization is made for goods to be produced to when the goods are completed.

ANS: F

PTS: 1

4. In the pull approach to manufacturing, the sales forecast drives the production plan and goods are produced in large batches.

ANS: F

PTS: 1

5. Theoretically, in the push approach to manufacturing, each job consists of a batch of one unit.

ANS: F

PTS: 1

6. With the pull approach to manufacturing, factory machinery is arranged in clusters or cells.

ANS: T

PTS: 1

7. Supply chain management software provides available to promise planning and capable to promise planning.

ANS: T

PTS: 1

8. A process costing is a costing approach where detailed costs to perform activities throughout the value chain are computed and can be managed or assigned to cost objects, including products.

ANS: F

PTS: 1

9. Cost drivers measure the amount of an activity performed to explain activity costs.

ANS: T

PTS: 1

10. Lifecycle costs are the sum of costs to design, produce, market, deliver, and support a product from conception to ultimate discontinuance.

ANS: T

PTS: 1

11. Manufacturing is often the quickest way for developing countries to increase domestic wealth and citizen wages.

ANS: T

PTS: 1

12. The computer technology application that automates the product design process, including but not limited to the functions of geometric modeling, materials stress and strain analysis, drafting, storing product specifications, and mechanical simulation of a product's performance, is called CAD/CAE. ANS: T

PTS: 1

13. The inventory production schedule is a statement of specific production goals developed from forecasts of demand, actual sales orders, or inventory information.

ANS: F

PTS: 1

14. Materials requirements planning is a process that uses bills of material, raw material and WIP inventory status data, open order data, and the master production schedule to calculate a time-phased order requirements schedule for materials and subassemblies.

ANS: T

PTS: 1

15. Continuous inventory management is an inventory management approach where inventory needs and production capabilities are matched across the entire global enterprise.

ANS: F

PTS: 1

16. The capacity requirements planning (CRP) process uses information from the master production schedule and the time-phased order requirements schedule to develop detailed machine- and labor-use schedules based on available capacity.

ANS: T

PTS: 1

17. Purchase orders convey authority for the manufacture of a specified product or subassembly in specified quantity and describe the material, labor, and machine requirements for the job.

ANS: F

PTS: 1

18. Manufacturing resource planning (MRP) is an integrated decision support system for planning, executing, and controlling manufacturing operations.

ANS: T

PTS: 1

19. JIT is a manufacturing philosophy or business strategy for designing production processes that are more responsive to precisely timed customer delivery requirements.

ANS: T

PTS: 1

20. An assembly line manufacturing system is a highly automated computer integrated manufacturing system that has its goal of achieving the ability to quickly produce wide varieties of products using the same equipment.

ANS: F

PTS: 1

21. Computer-aided manufacturing (CAM) is the application of computer and communications technology to improve productivity by linking computer numerical control (CNC) machines, monitoring production, and providing automatic feedback to control operations.

ANS: T

PTS: 1

22. Computer-aided process planning (CAPP) is an automated decision support system that generates manufacturing operations instructions and routings based on information about machining requirements and machine capabilities.

ANS: T

PTS: 1

23. An automated storage and retrieval system (AS/RS) is a computer-based cart system capable of delivering parts and tools among multiple work centers.

ANS: F

PTS: 1

24. An automated storage and retrieval system (AS/RS) is a computer-controlled machine that stores and retrieves parts and tools.

ANS: T

PTS: 1

25. JIT is often called a kanban process.

ANS: T

PTS: 1

26. A bill of material contains the standard material quantities that are required to produce one unit of end product.

ANS: T

PTS: 1

27. The process of exploding the BOM involves extending a BOM to determine the total of each component required to manufacture a given quantity of an upper-level assembly or subassembly.

ANS: T

PTS: 1

28. The process of exploding the BOM results in a master production schedule.

ANS: F

PTS: 1

29. The shop floor control process is devoted to monitoring and recording the status of manufacturing orders as they proceed through the factory.

ANS: T

PTS: 1

30. A step master shows the necessary steps and the time to complete each operation to produce a product.

ANS: F

PTS: 1

31. The material, labor, and machine requirements for each job are reflected in a manufacturing order.

ANS: T

PTS: 1

32. Capable to promise planning is the accumulation of the data on current inventories, sales commitments, and planned production to determine whether the production of finished goods will be sufficient to commit to additional sales orders.

ANS: F

PTS: 1

33. Available to promise planning is the accumulation of data on current inventories, sales commitments, planned production and excess production capacity or other planned production capacity that could be quickly converted to production of the desired finished goods necessary to fulfill a sales order request.

ANS: F

PTS: 1

34. Variance analysis is the process of comparing actual information about input costs and usage to standards.

ANS: T

PTS: 1

35. The final move ticket data marks the end of the conversion process and the movement of goods to the finished goods warehouse.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. Which of the following is not one of the key characteristics of companies that are successful at managing the pressures resulting from global complexity according to the Deloitte Touche report? a. improved internal business processes in the areas of customers, products, and supply chains b. better use of technology to increase integration within and among the areas of customers, products and supply chain c. pursuit of new lucrative marketing channels d. better general capabilities in the areas of collaboration, flexibility, visibility, and technology ANS: C

PTS: 1

2. Which of the following is not one of the key drivers of manufacturing competitiveness in a global market defined by uncertainty, change and complexity according to the Deloitte Touche survey? a. facing the realities of globalization b. talent-driven innovation c. healthcare system d. local market attractiveness ANS: A

PTS: 1

3. Designing ground-breaking products and getting them to market quickly is an example of: a. product innovation b. production process innovation c. supply chain management d. management accounting systems ANS: A

PTS: 1

4. Which of the following has included management of throughput time and pull manufacturing?

a. b. c. d.

product innovation production process innovation supply chain management management accounting systems

ANS: B

PTS: 1

5. Which of the following is impacted by flexible costing systems, activity-based costing, shift in cost structure from variable to fixed costs, and reduced direct labor cost component in manufacturing? a. product innovation b. production process innovation c. supply chain management d. management accounting systems ANS: D

PTS: 1

6. Which of the following is an ERP add on system that organizes data by product, including designs, manufacturing specifications, quality and warranty performance? a. product lifecycle management b. throughput c. push manufacturing d. pull manufacturing ANS: A

PTS: 1

7. Which of the following involves measuring the time from authorization of goods to be produced to when the goods are completed? a. product lifecycle management b. throughput time c. push manufacturing d. pull manufacturing ANS: B

PTS: 1

8. Which of the following involves short production runs, continuous flow of operations, cellular manufacturing, reduced floor space, and reduced WIP? a. product lifecycle management b. throughput time c. push manufacturing d. pull manufacturing ANS: D

PTS: 1

9. Prevailing trends in production systems reflect all of the following except: a. emphasis on customer satisfaction b. shortened product lifecycles c. increased factory automation d. the change from "pull" to "push" production scheduling ANS: D

PTS: 1

10. Which of the following statements is true? a. Japanese companies have accomplished much in the area of production process innovation, mainly by switching from pull to push manufacturing. b. Cellular manufacturing organizes machines by department. c. Adopting the pull approach to manufacturing requires an increase in floor space.

d. In the push approach to manufacturing, the sales forecast drives the production plan, and goods are produced in large batches.

ANS: D

PTS: 1

11. Which of the following statements is false? a. With the pull approach to manufacturing, factory machinery typically is arranged in factory cells. b. The pull approach to manufacturing should lead to reduced work in process and finished goods inventories. c. The pull approach to manufacturing should lead to shorter production runs. d. Enterprise resource planning (ERP) employs a pull approach to manufacturing.

ANS: D

PTS: 1

12. Pull manufacturing should lead to all of the following except: a. short production runs b. increased work in process and finished goods inventories c. continuous flow operations d. a cellular arrangement of factory machinery ANS: B

PTS: 1

13. Trends in cost management/cost accounting include all of the following except: a. reductions in the administrative costs of gathering data b. a trend toward job order cost systems and away from process cost systems c. adding a fourth cost category called direct technology d. reduction in the direct labor cost component ANS: B

PTS: 1

14. Performing a detailed analysis of cost per unit and cost drivers is an essential prerequisite for using: a. concurrent engineering b. activity-based costing c. computer-integrated manufacturing d. flexible manufacturing ANS: B

PTS: 1

15. Activity-based-costing (ABC) systems are generally prevalent in companies seeking to increase ____ and ____. a. cost accuracy and usefulness b. cost accumulation and cost assignment c. cost allocation and cost containment d. product costing and cost allocation ANS: A

PTS: 1

16. The Level 0 data flow diagram for the integrated production process includes all of the following process bubbles except: a. design product and production processes b. generate master distribution schedule c. determine needs for materials d. record manufacturing events ANS: B

PTS: 1

17. The objectives of computer-aided design (CAD) and computer-aided engineering (CAE) are all of the following except: a. improve design productivity b. reduce design lead time c. increase redundant design effort d. enhance design quality ANS: C

PTS: 1

18. Which of the following often includes global inventory management? a. design product and production processes b. generate master production schedule c. determine needs for materials d. develop detailed production instructions ANS: B

PTS: 1

19. Which of the following lists the detailed specifications for each raw materials item? a. parts master b. routing master c. work center master d. bill of materials ANS: A

PTS: 1

20. Which of the following specifies the operations necessary to complete a subassembly or finished good and the sequence of operations? a. parts master b. routing master c. work center master d. bill of materials ANS: B

PTS: 1

21. Which of the following is a statement of specific production goals developed from forecasts of demand, actual sales orders, or inventory information? a. a master production schedule (MPS) b. materials requirements planning (MRP) c. shop floor control (SFC) d. just-in-time (JIT) manufacturing ANS: A

PTS: 1

22. The objectives of just-in-time (JIT) manufacturing usually include all of the following except: a. large lot sizes b. zero defects c. zero setup times d. zero lead times ANS: A

PTS: 1

23. The implementation features of just-in-time (JIT) manufacturing typically include all of the following except: a. arranging the factory in work cells b. assigning each worker to a single machine

c. allowing workers to stop the production line d. requiring that the daily production schedule remain fairly constant ANS: B

PTS: 1

24. Which of the following components is not part of a flexible manufacturing system (FMS)? a. manufacturing resource planning (MRP) b. Computer-aided manufacturing (CAM) c. automated storage and retrieval systems(AS/RS) d. automated guided vehicle systems (AGVS) ANS: A

PTS: 1

25. Which of the following develops detailed machine- and labor-use schedules that consider available capacity? a. capacity requirements planning (CRP) b. capable to promise planning (CTP) c. computer-aided process planning (CAPP) d. computer-aided manufacturing (CAM) ANS: A

PTS: 1

26. What conveys authority for the manufacture of a specified product or subassembly in a specified quantity and describe the material, labor, and machine requirements for the job? a. capacity requirements planning (CRP) b. manufacturing orders (MO) c. capable to promise planning (CTP) d. computer-aided process planning (CAPP) ANS: B

PTS: 1

27. Materials requirements planning (mrp) normally would use all of the following inputs except: a. master production schedule (MPS) b. bill of materials c. routing file d. raw materials inventory status data ANS: C

PTS: 1

28. This shows when a manufacturing order or purchase order should be released so that the subassemblies and raw materials will be available when needed. a. bill of materials b. routing sheet c. time-phased order requirements schedule d. parts master file ANS: C

PTS: 1

29. The process of comparing actual information about input costs and usage to standards is: a. standard costing b. process costing c. variance analysis d. Activity-based costing ANS: C

PTS: 1

30. The raw material quantity variance can be determined by: a. an excess RM issue notice b. a RM returned notice c. both a and b d. none of the above ANS: C

PTS: 1

31. Inventory process controls to protect inventory assets include: a. warehouse bin location b. periodic physical inventory counts c. internal transfer procedures d. Just-in-time materials acquisition ANS: B

PTS: 1

32. Which of the following inventory frauds is not identified by Practice Alert No. 94-2: Auditing Inventories⎯Physical Observations? a. double-counting inventory b. counting obsolete inventory as salable c. including inventory for which the corresponding payable has not been recorded d. employee theft of inventory item having high sales volume ANS: D

PTS: 1

33. The AICPA's Practice Alert No. 94−2: Auditing Inventories⎯Physical Observations describes several circumstances that constitute inventory fraud. Which of the following is not an example of inventory fraud? a. including items in inventory when the corresponding payable has not been recorded b. adjusting inventory to lower-of-cost-or-market c. increasing counts for items that auditors did not test count d. counting obsolete inventory as salable or usable ANS: B

PTS: 1

34. Which of the following is not an inventory process control? a. JIT materials acquisition b. locked storerooms c. periodic inventory systems d. physical counts ANS: C

PTS: 1

35. Sales forecasts drive the production plan and goods are produced in large batches with this type of manufacturing: a. pull b. push c. JIT d. SCM ANS: B

PTS: 1

36. Production is initiated as individual sales orders are received with this type of manufacturing: a. pull b. push c. JIT

d. SCM ANS: A

PTS: 1

37. The entire design process is automated through the use of: a. AS/RS b. AGVS c. CAD/CAE d. CAM ANS: C

PTS: 1

38. Which is a listing of all the subassemblies, parts, and raw materials that go into a parent assembly showing the quantity of each that is required to make an assembly? a. bill of materials b. time-phased order requirements schedule c. routing master d. master production schedule ANS: A

PTS: 1

39. The total quality control (TCQ) approach places responsibility for quality control in the hands of the: a. shop floor control process b. managerial accountant c. inspector d. builder ANS: D

PTS: 1

COMPLETION 1. ______________________________ systems facilitate the integration of all aspects of product design, manufacturing, and marketing.

ANS: Enterprise PTS: 1 2. ______________________________ are ERP modules or enterprise systems add-ons that organize data by product, including designs, manufacturing specifications, quality, and warranty performance.

ANS: Product lifecycle management (PLM) Product lifecycle management PLM PTS: 1 3. ______________________________ is the time it takes from when authorization is made for goods to be produced to when the goods are completed.

ANS: Throughput time PTS: 1

4. In the ______________________________ approach to manufacturing, the sales forecast drives the production plan and goods are produced in large batches.

ANS: push PTS: 1 5. Theoretically, in the ______________________________ approach to manufacturing, each job consists of a batch of one unit.

ANS: pull PTS: 1 6. With the pull approach to manufacturing, factory machinery is arranged in ______________________________.

ANS: clusters cells PTS: 1 7. Supply chain management software provides ______________________________ to promise planning and ______________________________ to promise planning.

ANS: available, capable capable, available PTS: 1 8. ______________________________ is a costing approach where detailed costs to perform activities throughout the value chain are computed and can be managed or assigned to cost objects, including products.

ANS: activity-based costing (ABC) activity-based costing ABC PTS: 1 9. ______________________________ are the sum of costs to design, produce, market, deliver, and support a product from conception to ultimate discontinuance.

ANS: Lifecycle costs PTS: 1 10. A(n) ______________________________ is a sequence of activities performed by an organization that add value or utility to the product produced or service rendered.

ANS: value chain PTS: 1 11. The computer technology application that automates the product design process, including but not limited to the functions of geometric modeling, materials stress and strain analysis, drafting, storing product specifications, and mechanical simulation of a product's performance, is called ______________________________.

ANS: computer-aided design/computer-aided engineering (CAD/CAE) computer-aided design/computer-aided engineering CAD/CAE PTS: 1 12. The ______________________________ is a statement of specific production goals developed from forecasts of demand, actual sales orders, or inventory information.

ANS: master production schedule (MPS) master production schedule MPS PTS: 1 13. ______________________________ is a process that uses bills of material, raw material and WIP inventory status data, open order data, and the master production schedule to calculate a time-phased order requirements schedule for materials and subassemblies.

ANS: Materials requirements planning (mrp) Materials requirements planning mrp PTS: 1 14. ______________________________ is an inventory management approach where inventory needs and inventory production capabilities are matched across the entire global enterprise.

ANS: Global inventory management PTS: 1 15. The ______________________________ process uses the information from the master production schedule and the time-phased order requirements schedule to develop detailed machine- and labor-use schedules based on available capacity.

ANS: capacity requirements planning (CRP) capacity requirements planning CRP PTS: 1

16. ______________________________ convey authority for the manufacture of a specified product or subassembly in specified quantity and describe the material, labor, and machine requirements for the job.

ANS: Manufacturing orders (MOs) Manufacturing orders MOs PTS: 1 17. ______________________________ is an integrated decision support system for planning, executing, and controlling manufacturing operations.

ANS: Manufacturing resource planning (MRP) Manufacturing resource planning MRP PTS: 1 18. ______________________________ is a manufacturing philosophy or business strategy for designing production processes that are more responsive to precisely timed customer delivery requirements.

ANS: Just-in-time (JIT) Just-in-time JIT PTS: 1 19. A(n) ______________________________ is an automated manufacturing operations system that can react quickly to product and design changes because a centralized computer control provides real-time routing, load balancing, and production scheduling logic.

ANS: flexible manufacturing system (FMS) flexible manufacturing system FMS PTS: 1 20. ______________________________ is the application of computer and communications technology to improve productivity by linking computer numerical control (CNC) machines, monitoring production, and providing automatic feedback to control operations.

ANS: Computer-aided manufacturing (CAM) Computer-aided manufacturing CAM PTS: 1

21. ______________________________ is an automated decision support system that generates manufacturing operations instructions and routings based on information about machining requirements and machine capabilities.

ANS: Computer-aided process planning (CAPP) Computer-aided process planning CAPP PTS: 1 22. A(n) ______________________________ is a computer-based cart capable of delivering parts and tools among multiple work centers.

ANS: automated guided vehicle system (AGVS) automated guided vehicle system AGVS PTS: 1 23. A(n) ______________________________ is a computer-controlled machine that stores and retrieves parts and tools.

ANS: automated storage and retrieval system (AS/RS) automated storage and retrieval system AS/RS PTS: 1 24. ______________________________ authorize and record movement of a job from one work center to another.

ANS: Move tickets PTS: 1 25. A(n) ______________________________ contains the standard material quantities that are required to produce one unit of end product.

ANS: bill of material (BOM) bill of material BOM PTS: 1 26. The process of ______________________________ involves determining the total of each component required to manufacture a given quantity of an upper-level assembly or subassembly.

ANS: exploding the bill of materials (BOM) exploding the BOM

exploding the bill of materials PTS: 1 27. The process of exploding the BOM results in a(n) ______________________________ requirements schedule.

ANS: time-phased order PTS: 1 28. The ______________________________ process is devoted to monitoring and recording the status of manufacturing orders as they proceed through the factory.

ANS: shop floor control (SFC) shop floor control SFC PTS: 1 29. The ______________________________ specifies the operations necessary to complete a subassembly or finished good and the sequence of these operations.

ANS: routing master PTS: 1 30. Used in conjunction with a perpetual inventory process, ______________________________ assists in protecting materials, work-in-process, and finished goods inventory by providing the warehouse manager or the inventory control supervisor with a record of the actual (on-hand) balance of each item of inventory.

ANS: periodic physical inventory counts PTS: 1 31. ______________________________ is accumulation of the data on current inventories, sales commitments, and planned production to determine whether the production of finished goods will be sufficient to commit to additional sales orders.

ANS: Available to promise planning PTS: 1 32. ______________________________ is the accumulation of data on current inventories, sales commitments, planned production and excess production capacity or other planned production capacity that could be quickly converted to production of the desired finished goods necessary to fulfill a sales order request.

ANS: Capable to promise planning PTS: 1

33. ______________________________ is the process of comparing actual information about input costs and usage to standards.

ANS: Variance analysis PTS: 1 34. ______________________________ data marks the end of the conversion process and the movement of goods to the finished goods warehouse.

ANS: Final move ticket PTS: 1 35. ______________________________ tags can be attached to inventory items to track their movement throughout the warehouse and even through the entire supply chain.

ANS: Radio frequency identification (RFID) Radio frequency identification RFID PTS: 1 36. A(n) ______________________________ is an authorization that identifies the type and quantity of materials to be withdrawn from the storeroom and tracks the manufacturing order being produced and the work center needing the materials.

ANS: raw materials (RM) requisition raw materials requisition RM requisition PTS: 1 37. The ______________________________ approach to manufacturing places responsibility for quality in the hands of the builder rather than in those of the inspector.

ANS: total quality control (TQC) total quality control TQC PTS: 1 38. The ______________________________ describes each work center available for producing products, including information such as the machine available at the station, its capacity, its maintenance requirements, labor needs to operate it, and so on.

ANS: work center master PTS: 1

39. A(n) ______________________________ is the assigned location where a worker performs his or her job; it could be a machine or a workbench.

ANS: workstation PTS: 1 40. A(n) ______________________________ is a group of similar workstations.

ANS: work center PTS: 1 PROBLEM 1. The process within TB Figure 15.1 Bubble 1.0 might be described as follows: Consistent with the value chain concept, the IPP begins with the design of the product and production processes.

Activity-based costing can be used to develop estimates of the future cost of producing new products as well as potential cost changes from product or design changes. The entire design process is automated through the use of computer-aided design (CAD) and computer-aided engineering (CAE).

With the use of enterprise systems, the electronic designs produced using CAD/CAE become the basis for developing detailed production schedules (bubble 2.0 in TB Figure 15.1) as well as the electronic control of production machines. In addition to the detailed product design, the CAD/CAE process results in several data stores of information that are used later in the IPP: Bill of materials (BOM) master: The BOM provides the basis for later orders of raw • materials (bubble 3.0 in TB Figure 15.1) when a finished good is to be produced.

Part master: The parts master or raw materials inventory master lists the detailed • specifications of each raw materials item. An engineer must specify the information for the new material in the parts master when a new part is used in product design. Often, existing parts will be used in new products to reduce needed ordering and carrying costs for the inventory.

Routing master: The routing master specifies the operations necessary to complete a • subassembly or finished good, and the sequence of these operations. The routing master also includes the machining tolerances; the tools, jigs, and fixtures required and the time allowed for each operation. The routing master is vital to developing detailed production instructions (bubble 4.0 in TB Figure 15.1). Computer aided process planning (CAPP), is often used in developing the routing master for developing new products. CAPP is an automated decision support system that generates manufacturing operations instructions and routings based on information about machinery requirements and capabilities.

Work center master: The work center master describes each work center available for • producing products. A work station is the assigned location where a worker performs their job. A group of similar work stations constitutes a work center. When new products require new machines or production activities, a new record in the work center master must be created.

Refer to TB Figure 15.1. Prepare a Level 1 data flow diagram for the product and production process design process only.

ANS:

PTS: 1

2. The process within TB Figure 15.3, Bubble 3.0 might be described as follows: After the master production schedule is determined, an important step in completing the production in a timely manner is identifying, ordering, and receiving materials. Materials requirements planning is a process that uses bills of material, raw material and WIP inventory status data, open order data, and the master production schedule to calculate a time-phased order requirements schedule for materials and subassemblies. The schedule shows the time period when a manufacturing order or purchase order should be released so that the subassemblies and raw materials will be available when needed. The process involves working backward from the date production is to begin to determine the timing for manufacturing subassemblies and then moving back further to determine the date that orders for materials must be issued into the purchasing process. In an enterprise system, this process is performed automatically, using a variety of data from the enterprise database including: Bills of materials, showing the items and quantities required as developed by engineering.

• Parts master data, which contains information about part number, description, unit of • measure, where used, order policy, lead time, and safety stock.

Raw materials and WIP inventory status data showing the current quantities on hand, and • quantities already reserved for production for the materials and subassemblies.

Open purchase order data showing the existing orders for materials.

• The process begins by exploding the bill of materials to determine the total of each component required to manufacture a given quantity of an upper level assembly or a subassembly specified in the master production schedule. Based on lead time data for producing and ordering materials and subassembly requirements are output in a time-phased order requirements schedule. Based on this schedule, and open PO data, purchase requisitions are generated and sent to purchasing.

Required: Refer to TB Figure 15.3. Prepare a Level 1 data flow diagram for the materials requirements planning process only.

ANS:

PTS: 1 3. TB Figure 15.5 displays a Level 0 DFD − Cost Accounting: Variance Analysis. Match the items in the following alphabetical list to the missing items (A − J) in the diagram.

1.

2.

3.

4.

5.

Budgets master data Close manufacturing orders Compute MOH variances Compute RM quantity variance DL variances report

6.

7.

8.

9.

10.

Employee/payroll master data General ledger process GL standard costs applied update Inventory process Production work centers

ANS: A. Inventory process (9) B. Compute RM quantity variance (4) C. GL standard costs applied update (8) D. DL variances report (5) E. Employee/payroll master data (6)

F. G. H. I. J.

Close manufacturing orders (2) Production work centers (10) Compute MOH variances (3) General ledger process (7) Budgets master data (1)

PTS: 1 4. Match the terms in the left column below with the definitions in the right column by placing the letter next to the term in the blank space next to the definition.

Term A. Push manufacturing

Definition 1.

B.

Throughput time

2.

C.

Parts master

3.

The time it takes from when authorization is made for goods to be produced to when the goods are completed.

The accumulation of the data on current inventories, sales commitments, and planned production to determine whether the production of finished goods will be sufficient to commit to additional sales orders.

A listing of all the subassemblies, parts, and raw materials that go into a parent assembly showing the quantity of each that is required to make an assembly.

D.

Master production schedule (MPS)

4.

E.

Available to promise planning

5.

F.

Pull manufacturing

6.

G.

Bill of materials (BOM)

7.

H.

Work center master

8.

I.

Routing master

9.

J.

Capable to promise planning

10.

ANS: 1.

B 2.

E 3.

G 4.

H 5.

J PTS: 1

Describes stations available for producing products, including information such as the machine available at the station, its capacity, its maintenance requirements, labor needs to operate it, and so on.

The accumulation of the data on current inventories, sales commitments, planned production and excess production capacity, or other planned production capacity that could be quickly converted to production of the desired finished goods necessary to fulfill a sales order request.

Process for which the sales forecast drives the production plan, and goods are produced in large batches.

Specifies the operations necessary to complete a subassembly or finished good and the sequence of these operations.

A statement of specific production goals developed from forecasts of demand, actual sales orders, or inventory information.

Lists the detailed specifications for each raw materials item.

This process is initiated as individual sales orders are received and theoretically each job consists of a "batch" of one unit.

6.

7.

8.

9.

10.

A I D C F

Chapter 16—The General Ledger and Business Reporting (GL/BR) Process TRUE/FALSE 1. The GL/BR process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish both operations and information system functions with the purpose of generating accounting and other reports.

ANS: T

PTS: 1

2. The business reporting process comprises accumulating, classifying, and recording data, fueling the financial reporting, business reporting, and other reporting subsystems.

ANS: F

PTS: 1

3. The general ledger process is concerned with preparing external financial statements, ensuring they conform to GAAP, generating Web-based forms of key financial statement and related business reporting via the Internet, and supporting the generation of both ad hoc and predetermined business reports.

ANS: F

PTS: 1

4. A feeder process is any business process that accumulates business event data that are then communicated to and processed within the GL. ANS: T

PTS: 1

5. The managerial reporting officer is responsible for reporting GAAP financial statements.

ANS: F

PTS: 1

6. The financial reporting officer is primarily responsible for budgeting.

ANS: F

PTS: 1

7. The controller notifies the business reporting process of investing and financing transaction activities, ANS: F

PTS: 1

8. The financial statements contain detailed information of all of an organization's business event data.

ANS: F

PTS: 1

9. A performance report compares actual results with budgeted expectations.

ANS: T

PTS: 1

10. Performance reports are often part of a managerial reporting system known as a responsibility accounting/reporting system.

ANS: T

PTS: 1

11. A journal voucher is an internal source document used to notify the GL to make an accounting entry.

ANS: T

PTS: 1

12. The general ledger master data contains summarized information of all of an organization's business event data.

ANS: T

PTS: 1

13. The source code field of each GL entry provides a beginning point of reference for developing a proper chart of accounts.

ANS: F

PTS: 1

14. Balanced scorecard is methodology for assessing an organization's business performance via four components: (1) financial, (2) external business process, (3) vendors, and (4) innovation and improvement activities.

ANS: F

PTS: 1

15. Business intelligence is the integration of statistical and analytical tools with decision support technologies to facilitate complex analyses of data warehouses by managers and decision makers.

ANS: T

PTS: 1

16. XBRL is an XML-based language consisting of a set of tags that are used to unify the presentation of business reporting information into a single format that can be easily read by almost any software package and can be easily searched by Web browsers.

ANS: T

PTS: 1

17. XML is a generalized system for the customized tagging of data to enable the definition, transmission, and interpretation of data over the Internet.

ANS: T

PTS: 1

18. The intent of the Sarbanes-Oxley Act of 2002 is to protect the company by improving the accuracy and reliability of all corporate disclosures made pursuant to the securities laws.

ANS: F

PTS: 1

19. The driving force in constructing a chart of accounts is to add structure to the classification of financial information.

ANS: T

PTS: 1

20. As we move toward an enterprise system environment, the chart of accounts becomes increasingly more important.

ANS: F

PTS: 1

21. When implementing an ERP system, it is best to provide all users with access to all menu systems, so they can see what is going on within the system.

ANS: F

PTS: 1

22. The general ledger process comprises accumulating, classifying, and recording data, fueling the financial reporting, business reporting, and other reporting subsystems.

ANS: T

PTS: 1

23. The business reporting process is concerned with preparing external financial statements, ensuring they conform to GAAP, generating Web-based forms of key financial statement and related business reporting via the Internet, and supporting the generation of both ad hoc and predetermined business reports.

ANS: T

PTS: 1

24. The financial reporting officer is responsible for reporting GAAP financial statements.

ANS: T

PTS: 1

25. The managerial reporting officer is responsible for preparing performance reports.

ANS: T

PTS: 1

26. The treasurer notifies the business reporting process of investing and financing transaction activities.

ANS: T

PTS: 1

27. The source code field of each GL entry provides a beginning point of reference for developing a proper audit trail.

ANS: T

PTS: 1

28. Balanced scorecard is methodology for assessing an organization's business performance via four components: (1) financial, (2) internal business process, (3) customers, and (4) innovation and improvement activities.

ANS: T

PTS: 1

29. XML is an XBRL-based language consisting of a set of tags that are used to unify the presentation of business reporting information into a single format that can be easily read by almost any software package and can be easily searched by Web browsers.

ANS: F

PTS: 1

30. The financial reporting officer typically prepares performance reports.

ANS: F

PTS: 1

31. The financial reporting system is also known as the responsibility accounting/reporting system.

ANS: F

PTS: 1

32. A limitation of the general ledger approach is that financial and non-financial information is combined and business event source data is retained.

ANS: T

PTS: 1

33. An instance document is an XBRL document that contains all information, at a given point in time, including tags, about the occurrence of an item.

ANS: T

PTS: 1

34. Convergence implies that GAAP and IFRS standards will blend together, with differences reconciled, and ultimately we will have one set of standards that can be used world-wide.

ANS: T

PTS: 1

35. Continuous assurance (continuous auditing) is the process by which assurance is provided through monitoring of automated controls and business events in real time or near real time.

ANS: T

PTS: 1

MULTIPLE CHOICE 1. The general ledger process comprises all of the following except: a. providing information for financial reporting b. servicing the needs of managerial reporting c. classifying data by general ledger accounts d. ensuring that the external financial statements conform to GAAP ANS: D

PTS: 1

2. The business reporting process comprises all of the following except: a. preparing general purpose external financial statements b. generating ad hoc and predetermined business reports for management c. ensuring that the external financial statements adhere to GAAP d. fueling the financial reporting, business reporting, and other reporting subsystems by providing the information needed to prepare external and internal reports ANS: D

PTS: 1

3. In contrast to the managerial reporting process, the financial reporting process prepares all of the following financial statements except: a. the balance sheet b. the income statement c. the standard costing variance report d. the statement of owner equity ANS: C

PTS: 1

4. Typically, you would expect general ledger updates for financing and investing activities to be fed to the GL/BR process by: a. the controller b. the treasurer c. the chief executive officer (CEO) d. one of the AIS feeder systems ANS: B

PTS: 1

5. Typically, you would expect general ledger updates for periodic adjusting entries to be fed to the GL/BR process by: a. the controller b. the treasurer c. the chief executive officer (CEO) d. one of the AIS feeder systems ANS: A

PTS: 1

6. Which of the following individuals should possess the greatest knowledge of GAAP? a. managerial reporting officer b. budgeting department manager c. financial reporting officer d. managerial reporting officer ANS: C

PTS: 1

7. Which of the following usually would be responsible for preparing operating center budgets? a. managerial reporting officer b. budgeting department manager c. financial reporting officer d. operating line managers ANS: D

PTS: 1

8. Which of the following usually would be responsible for preparing operating center performance reports? a. managerial reporting officer b. budgeting department manager c. financial reporting officer d. operating line managers ANS: A

PTS: 1

9. Normally, you would expect that business event updates would be sent to the GL/BR process by: a. the controller b. the treasurer c. the vice president of finance d. various feeder processes ANS: D

PTS: 1

10. Performance reports to various cost center, profit center, and investment center managers are usually sent by? a. the controller b. the treasurer c. the managerial reporting officer d. the budgeting department ANS: C

PTS: 1

11. GAAP based financial statements are sent by: a. the controller b. the treasurer c. the financial reporting officer d. the managerial reporting officer

ANS: C

PTS: 1

12. A responsibility accounting/reporting system includes the following: a. upward reporting of information b. aggregation of data as it flows upward c. appropriate information detail for each decision maker d. All of the above ANS: D

PTS: 1

13. Adjusted trial balance figures are usually sent from the business reporting department to the: a. the financial reporting officer b. the managerial reporting officer c. the treasurer d. the budgeting department ANS: A

PTS: 1

14. Which of the following has responsibilities and expertise to preparing internal reports? a. the financial reporting officer b. the managerial reporting officer c. the treasurer d. the budgeting department ANS: B

PTS: 1

15. Finalized budget figures are sent to the GL/BR process by: a. the financial reporting officer b. the budgeting department c. the treasurer d. the managerial reporting officer ANS: B

PTS: 1

16. Which of the following advises and assists the cost center, profit center, and investment center managers in preparing the budget? a. the financial reporting officer b. the budgeting department c. the treasurer d. the managerial reporting officer ANS: B

PTS: 1

17. Which of the following could be a journal voucher? a. general ledger cash disbursements update b. customer invoice c. receiving report d. purchase requisition ANS: A

PTS: 1

18. Which of the following statements related to journal vouchers is false for most ERP systems? a. The person completing the adjustment will enter it directly into the computer. b. The voucher will be electronic. c. Journal voucher should be signed by the person(s) authorized to initiate the entry.

d. To provide an adequate audit trail, a printed copy of journal vouchers is required.

ANS: D

PTS: 1

19. Which of the following provides data to the GL/BR process? a. the order entry/sales process b. the billing/accounts receivable/cash receipts process c. the purchasing/accounts payable/cash disbursements process d. All of the above ANS: D

PTS: 1

20. Inputs to a GL/BR process typically include all of the following except: a. adjusting entry journal voucher b. adjusted trial balance c. finalized budget d. GAAP-based financial statements ANS: D

PTS: 1

21. Limitations of the general ledger approach include the following: a. combining of financial and non-financial information b. purging of detailed event level data c. use of a chart of accounts d. inability to conform to GAAP ANS: B

PTS: 1

22. The general ledger master data does not contain: a. adjusting entry data b. customer number c. business event transaction d. source code field ANS: B

PTS: 1

23. Tracing back to individual business events that have been aggregated into account balances is done by means of a(n): a. electronic reference service b. general ledger account c. audit trail d. data dictionary ANS: C

PTS: 1

24. The coding system typically used in the general ledger chart of accounts is: a. serial coding b. hierarchical coding c. block coding d. mnemonic coding ANS: B

PTS: 1

25. An account in the chart of accounts has the number 7111. Which of the following does the 7 likely represent? a. Revenues

b. sales region c. merchandise sales d. golf merchandise sales ANS: A

PTS: 1

26. Which of the following items is not one of the four components of the balanced scoreboard methodology? a. Customers b. Financial c. competitive environment d. internal business processes ANS: C

PTS: 1

27. Which of the following statements related to XBRL is false? a. is an XML-based language consisting of a set of tags that are used to unify the presentation of business reporting information into a single format b. it is easily read by almost any software package, and easily searched by Web browsers c. it provides an identifying tag for each individual item of data that is computer readable d. it treats financial information as a block of text ANS: D

PTS: 1

28. The intent of the Sarbanes-Oxley Act of 2002 is to: a. protect investors by improving the accuracy and reliability of corporate disclosures b. establish who is responsible for financial reporting c. strengthen internal control d. All of the above ANS: D

PTS: 1

29. Sarbanes-Oxley Act of 2002 may lead to: a. convergence of GAAP and IFRS b. continuous or real-time reporting c. Worldwide acceptance of XBRL d. obscuring of the economic reality of business events ANS: B

PTS: 1

30. Which of the following should be considered when designing a coding scheme for a chart of accounts? a. Which internal reports will be required? b. Is there a need for segmental reporting? c. Both a. and b. d. Neither a. nor b.

ANS: C

PTS: 1

31. Which of the following items is a component of the balanced scoreboard methodology? a. Customers b. Financial c. Innovation and improvement d. All of the above ANS: D

PTS: 1

32. An instance document: a. is an XBRL document that contains all information, at a given point in time, including tags, about the occurrence of an item b. is a feature of a relational database c. is used to comply with SOX Section 409 regarding rapid disclosure of material changes d. summarizes instances of GAAP and IFRS reporting differences ANS: A

PTS: 1

33. GAAP and IFRS convergence will lead to: a. the end of the FASB b. the blending of GAAP and IFRS standards c. decreased role for the AICPA d. less costly processes for financial reporting ANS: B

PTS: 1

34. Continuous assurance (continuous auditing) will lead to: a. fewer financial statement audits b. use of audit modules embedded in ERP systems c. convergence of GAAP and IFRS d. All of the above ANS: B

PTS: 1

35. To be effectives business intelligence requires: a. a balanced scorecard b. XBRL c. integration of statistical and analytical tools with decision support technologies d. convergence of GAAP and IFRS ANS: C

PTS: 1

COMPLETION 1. The ______________________________ process is an interacting structure of people, equipment, activities, and controls that is designed to accomplish both operations and information system functions with the purpose of generating accounting and other reports.

ANS: general ledger and business reporting (GL/BR) general ledger and business reporting GL/BR PTS: 1 2. The ______________________________ process comprises accumulating, classifying, and recording data, fueling the financial reporting, business reporting, and other reporting subsystems.

ANS: general ledger PTS: 1

3. The ______________________________ process comprises preparing external financial statements, ensuring they conform to GAAP, generating Web-based forms of key financial statement and related business reporting information via the Internet, and supporting the generation of both ad hoc and predetermined business reports.

ANS: business reporting PTS: 1 4. A(n) ______________________________ process is any business process that accumulates business event data that are then communicated to and processed within the GL. ANS: feeder PTS: 1 5. The ______________________________ officer possesses expertise in generally accepted accounting principles.

ANS: financial reporting PTS: 1 6. The ______________________________ officer possesses expertise in preparing internal management reports.

ANS: managerial reporting PTS: 1 7. The ______________________________ notifies the general ledger/business reporting process of investing and financing transaction activities, ANS: treasurer PTS: 1 8. The ______________________________ is a list of all the accounts in the general ledger.

ANS: chart of accounts PTS: 1 9. A(n) ______________________________ report compares actual results with budgeted expectations.

ANS: performance PTS: 1 10. Often, performance reports are part of a managerial reporting system known as a(n) ______________________________ system.

ANS: responsibility accounting/reporting

PTS: 1 11. A(n) ______________________________ is an internal source document used to notify the general ledger to make an accounting entry.

ANS: journal voucher PTS: 1 12. The ______________________________ data contains summarized information of all an organization's business event data.

ANS: general ledger master PTS: 1 13. The source code field of each GL entry provides a beginning point of reference for developing a proper ______________________________.

ANS: audit trail PTS: 1 14. Consider the GL account number "1132" where each successive digit is subordinate to the digit to its left (e.g., 2 = cash in the bank and 3 = cash accounts). This scheme is known as ______________________________ coding.

ANS: hierarchical PTS: 1 15. ______________________________ is methodology for assessing an organization's business performance via four components: (1) financial, (2) internal business process, (3) customers, and (4) innovation and improvement activities.

ANS: Balanced scorecard PTS: 1 16. ______________________________ is the integration of statistical and analytical tools with decision support technologies to facilitate complex analyses of data warehouses by managers and decision makers.

ANS: Business intelligence PTS: 1 17. ______________________________ is an XML-based language consisting of a set of tags that are used to unify the presentation of business reporting information into a single format, easily read by almost any software package, and easily searched by Web browsers.

ANS: eXtensible Business Reporting Language (XBRL) eXtensible Business Reporting Language

XBRL PTS: 1 18. ______________________________ is a generalized system for the customized tagging of data to enable the definition, transmission, and interpretation of data over the Internet. It uses predefined tags to let information providers create uniform information for users.

ANS: XML PTS: 1 19. The intent of the ______________________________ is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.

ANS: Sarbanes-Oxley (SOX) Act Sarbanes-Oxley Act SOX PTS: 1 20. Sarbanes-Oxley, Section 409 states that companies ''shall disclose to the public on a(n) ______________________________ and ______________________________ basis such additional information concerning material changes in the financial condition or operations of the issuer....''

ANS: rapid, current current, rapid PTS: 1 21. Sarbanes-Oxley Section 401 covers ______________________________ in financial reports.

ANS: disclosures PTS: 1 22. ______________________________ is the process by which assurance is provided through monitoring of automated controls and business events in real-time or near real time.

ANS: Continuous assurance (continuous auditing) Continuous assurance Continuous auditing PTS: 1 23. Changing account numbers and account structure can raise a significant information use problem called ______________________________.

ANS: comparability

PTS: 1 24. The XBRL framework is based on the concept of a(n) ______________________________, a group of definitions that together provide meaning to reporting concepts.

ANS: taxonomy PTS: 1 25. A(n) ______________________________ is an XBRL document that contains all information, at a given point in time, including tags, about the occurrence of an item.

ANS: instance instance document PTS: 1 26. Sarbanes-Oxley Section 302 states that the ______________________________ and ______________________________ of an organization must certify that the statements neither contain material untrue facts nor omit material facts.

ANS: CEO, CFO CFO, CEO PTS: 1 27. In the balanced scorecard methodology the ______________________________ component focuses on more traditional measures of business performance related to how shareholders view the organization's performance.

ANS: financial PTS: 1 28. In the balanced scorecard methodology the ______________________________ component relates to the organization's ability to identify its core competencies and to assess how well it performs in these identified areas of competency.

ANS: internal business processes PTS: 1 29. In the balanced scorecard methodology the ______________________________ component focuses on identifying how customers perceive the organization in terms of the value that it is creating for them.

ANS: customers PTS: 1 30. In the balanced scorecard methodology the ______________________________ component monitors and assesses how the organization is continuing to improve and how it is creating additional value.

ANS: innovation and improvement activities PTS: 1 31. ______________________________ implies that Generally Accepted Accounting Principles (GAAP) and International financial Reporting Standards (IFRS) will blend together, with differences reconciled, and ultimately we will have one set of standards that can be used worldwide.

ANS: Convergence PTS: 1 32. The ______________________________ is a standard-setting body, located in London, with the objective of developing globally accepted international financial reporting standards (IFRS).

ANS: International Accounting Standards Board (IASB) International Accounting Standards Board IASB PTS: 1 PROBLEM 1. TB Figure 16.1 is a Level 0 DFD for the general ledger and financial reporting (GL/BR) process.

Required: Explode bubble 3.0, for the "Record Adjustments" process into a level 1DFD

ANS:

PTS: 1 2. TB Figure 16.3 is a Level 0 DFD for the GL/BR process.

Required: Explode bubble 4.0, for the "Prepare Business Reports" process into a level 1DFD

ANS:

PTS: 1 ESSAY 1. Discuss the following components of the balanced scorecard: (1) financial (2) internal business processes (3) customers (4) innovation and improvement activities ANS: Balanced scorecard is a methodology for assessing an organizations business performance via four components: (1) financial, (2) internal business processes, (3) customers, and (4) innovation and improvement activities. The financial aspect focuses on more traditional measures of business performance related to how shareholders view the organizations performance. The internal business processes relate to the organizations ability to identify its core competencies and to assess how well it performs in these identified areas of competency. The customer component focuses on identifying how customers perceive the organization in terms of the value that it is creating for them. Innovation and improvement activities are monitored to assess how the organization is continuing to improve and how it is creating additional value.

PTS: 1

2. The important information services functions of the general ledger and business reporting (GL/BR) process emphasized in chapter 16 included two categories: (1) general ledger activities and (2) other business reporting. Briefly discuss what the general ledger (GL) process comprises and what comprises the business reporting process.

ANS: The general ledger process comprises accumulating data, classifying data by general ledger accounts, and recording data in those accounts. Fueling the financial reporting, business reporting, and other reporting subsystems by providing the information needed to prepare external and internal reports. In servicing the information needs of managerial reporting, the GL interacts with the budgeting modules.

The business reporting process is concerned with the following: Preparing general purpose, external financial statements (e.g., the conventional four that you have studied in other accounting courses: the balance sheet, income statement, statement of owner equity changes, and cash flow statement).

Ensuring that the external financial statements conform to GAAP; therefore, among other things, the statements must contain appropriate footnote disclosures. Generating Web-based forms of key financial statement and related business reporting information for dissemination via the Internet.

Supporting the generation of both ad hoc and predetermined business reports that support operational and strategic decision making.

PTS: 1 3. Chapter 16 includes a discussion The Sarbanes Oxley Act of 2002. Describe the three sections of Sarbanes Oxley that were discussed, and how these may impact financial reporting.

ANS: The following are the major concepts covered with each section of Sarbanes Oxley.

Section 401 - disclosures in financial reports - off balance sheet items - redefines GAAP - transparent reporting of economic effect of transactions Section 404 - reporting on internal controls - requires SEC to set rules - report must include responsibility of management - report must include attestation Section 409 - rapid and current disclosure - covers material items - speeding up reporting PTS: 1

Chapter 17—Acquiring and Implementing Accounting Information Systems TRUE/FALSE 1. An important segment of the outsourcing market is the application service provider (ASP), which hosts, manages, and provides access to hardware and software over the Internet to multiple users.

ANS: T

PTS: 1

2. It is always better to develop a system in-house than it is to purchase a standard package.

ANS: F

PTS: 1

3. The purpose of AIS implementation is to begin using the new system.

ANS: T

PTS: 1

4. The primary tasks of systems operation are to conduct post-implementation review and perform systems maintenance.

ANS: T

PTS: 1

5. The accountant as an implementer can become involved with systems survey and needs analysis tasks.

ANS: F

PTS: 1

6. As an analyst, the accountant could be involved in change management issues and/or technical aspects of converting data, software, and hardware from the old to the new AIS. ANS: F

PTS: 1

7. The internal auditor may review AIS development/acquisition projects to ensure that the process has been efficient and effective and that the acquisition team has followed the organization's standard procedures for systems development/acquisition.

ANS: T

PTS: 1

8. The external auditor may perform an independent review to assess if and how internal controls have been impacted by the AIS development/acquisition.

ANS: T

PTS: 1

9. A problem has an economically feasible solution if it can be solved with existing software and hardware technology.

ANS: F

PTS: 1

10. Users, managers, and auditors are required to participate in the systems development project. These people generally provide approvals, often called signoffs, at preestablished management control points.

ANS: T

PTS: 1

11. Structured systems analysis is a set of procedures conducted to generate the specifications for a new (or modified) information system or subsystem.

ANS: T

PTS: 1

12. Specific reports and other documentation, called process documents, must be produced periodically during systems development to make development personnel accountable for faithful execution of systems development tasks.

ANS: F

PTS: 1

13. Deliverables signify approval of the development process and the system being developed.

ANS: F

PTS: 1

14. The logical specification, physical requirements, and budget and schedule are all part of the systems analysis deliverable called an approved systems analysis document.

ANS: T

PTS: 1

15. Similar to the developer of an industrial park, an organization's management or IT steering committee approves a systems development project for further systems development.

ANS: T

PTS: 1

16. The analysis team conducts a cost/effectiveness study, which provides quantitative and certain qualitative information concerning each of the system alternatives.

ANS: T

PTS: 1

17. The cost/benefit study attempts to answer the questions, "which alternative accomplishes the user's goals for the least cost (or greatest benefit)?" and "which alternative best accomplishes a user's goals for the system being developed?"

ANS: F

PTS: 1

18. The cost/effectiveness study attempts to answer the questions, "which alternative accomplishes the user's goals for the least cost (or greatest benefit)?" and "which alternative best accomplishes the user's goals for the system being developed?"

ANS: T

PTS: 1

19. An indirect cost is one that is directly attributable to the system or the system.

ANS: F

PTS: 1

20. A tangible cost is one that can be reasonably quantified, such as software purchase and insurance.

ANS: T

PTS: 1

21. An intangible cost is one that cannot be reasonably quantified, such as productivity losses caused by low employee morale.

ANS: T

PTS: 1

22. A direct cost is one that is directly attributable to the system or the system change, such as reduced overhead costs.

ANS: F

PTS: 1

23. Indirect benefits are not directly attributable to the system or the system change.

ANS: T

PTS: 1

24. Tangible benefits are those that can be reasonably quantified, such as reduced equipment costs and increased revenues.

ANS: T

PTS: 1

25. Intangible benefits are those that cannot be reasonably quantified, such as those that result from having improved information.

ANS: T

PTS: 1

26. The first analysis deliverable, the logical specification, is used in systems selection to choose the appropriate software to be acquired from external sources.

ANS: T

PTS: 1

27. The second analysis deliverable, the physical requirements are used in systems selection to acquire computer equipment for the new system.

ANS: T

PTS: 1

28. Systems design is a set of procedures performed to choose the software specifications and hardware resources for an information system.

ANS: F

PTS: 1

29. As depicted in the text, the approved configuration plan is the final output of the software and hardware study.

ANS: F

PTS: 1

30. A service bureau is a firm providing information processing services, including hardware and software, for a fee.

ANS: T

PTS: 1

31. Outsourcing is a term that describes an organization's assigning any of its internal functions (e.g., accounting, legal, or IT) to an outside vendor.

ANS: T

PTS: 1

32. An RFP is a document sent to vendors that invites submissions of plans for providing hardware, software, and related services.

ANS: T

PTS: 1

33. To validate vendor proposals for supplying computer hardware, an organization will assess both a system's specifications and performance.

ANS: T

PTS: 1

34. A benchmark is a representative workload, processed on each vendor's proposed system configuration, to obtain comparative throughput measures.

ANS: T

PTS: 1

35. As data from the existing system are mapped into the new system, exception-reporting situations must be devised to ensure that the data are converted accurately.

ANS: T

PTS: 1

36. The design of interfaces involves how data from the existing system are mapped into the new system.

ANS: F

PTS: 1

37. Structured systems design is a set of procedures performed to convert the logical specification into a design that can be implemented on the organization's computer system.

ANS: T

PTS: 1

38. The approved systems design document documents the system design and summarizes the implementation training and test plans.

ANS: T

PTS: 1

39. The approved systems design document is used by programmers, the personnel department, and information systems personnel.

ANS: T

PTS: 1

40. Systems developed using structured systems design techniques are more costly over the life of the system because maintenance of such structured systems is problematic.

ANS: F

PTS: 1

41. Systems operation includes the post-implementation review.

ANS: T

PTS: 1

42. Systems maintenance is a set of procedures performed to complete the design contained in the approved systems design document and to test, install, and begin to use the new/revised information system.

ANS: F

PTS: 1

43. In the parallel approach to systems implementation, both the new and old systems operate together for a period of time.

ANS: T

PTS: 1

44. Of the three approaches to systems implementation presented in the text, the parallel approach is the riskiest.

ANS: F

PTS: 1

45. With the modular approach to systems implementation, the new system either is implemented one subsystem at a time or is introduced into one organizational unit at a time.

ANS: T

PTS: 1

46. Enterprise systems are often implemented using the direct approach.

ANS: T

PTS: 1

47. The direct approach is also known as the "big bang" or "cold turkey" approach.

ANS: T

PTS: 1

48. The modular approach forces the users to learn the new system because they do not have the old system to fall back on.

ANS: F

PTS: 1

49. The modular approach is also referred to as the phased approach.

ANS: T

PTS: 1

50. As an analyst, the accountant could be the development team member who conducts a preliminary survey.

ANS: T

PTS: 1

51. As an internal auditor the accountant could be called in to complete the design, help prepare the contracts, or help plan, conduct, and evaluate the system tests.

ANS: F

PTS: 1

52. As a user, the accountant might initiate the AIS acquisition.

ANS: T

PTS: 1

53. After the conversion is completed, the systems development project team writes the project completion report.

ANS: T

PTS: 1

54. Conversion to new computer programs must be undertaken using contingency plans to ensure that only authorized, tested, and approved versions of the programs are promoted to production status.

ANS: F

PTS: 1

55. The user, the programmer, and another member of the programming team do a walkthrough of the module specifications and the test plan to determine that the test plan is adequate; then the programmer codes the program.

ANS: T

PTS: 1

56. The removal of program errors is called debugging.

ANS: T

PTS: 1

57. Making program changes, correcting errors in the programs, and adding enhancements to the programs is called systems development.

ANS: F

PTS: 1

58. The systems development life cycle (SDLC) methodology is an informal, ad-hoc, set of activities used to manage a systems development project.

ANS: F

PTS: 1

59. The acceptance test is a user-directed test of the complete system in a test environment.

ANS: T

PTS: 1

60. Software as a Service (SaaS) is a Web-based model of software distribution where multiple users may simultaneously use the software.

ANS: T

PTS: 1

61. The post-implementation review is an examination of a working system, conducted soon after the system's implementation.

ANS: T

PTS: 1

62. Systems maintenance is the modification of existing applications.

ANS: T

PTS: 1

63. Perfective maintenance is performed to fix errors.

ANS: F

PTS: 1

64. Corrective maintenance is conducted to improve the performance of an application.

ANS: F

PTS: 1

65. Adaptive maintenance adjusts applications to reflect changing business needs and environmental challenges.

ANS: T

PTS: 1

66. The Sarbanes-Oxley Act prohibits CPA firms from serving as system consultants.

ANS: F

PTS: 1

MULTIPLE CHOICE 1. Which of the following is the assignment of an internal function to an outside vendor? a. outsourcing b. application service provider c. Insourcing d. Benchmarking ANS: A

PTS: 1

2. Which of the following hosts, manages, and provides access to software and hardware over the Internet to multiple customers? a. Outsourcing b. application service provider c. Insourcing d. Benchmarking ANS: B

PTS: 1

3. Which of the following functions cannot be outsourced? a. Accounting b. Legal c. IT d. all of these functions can be outsourced ANS: D

PTS: 1

4. Which of the following has the task of evaluating alternative AIS solutions? a. AIS analysis b. AIS selection c. AIS implementation d. AIS operations ANS: B

PTS: 1

5. Which development phase has the purpose of developing specifications for the new or revised system? a. analysis b. design c. implementation d. operation ANS: A

PTS: 1

6. Which development phase has the task of post-implementation review? a. analysis b. design c. implementation d. operation ANS: D

PTS: 1

7. Which of the following includes activities for the successful switch from the old to the new AIS? a. analysis b. design

c. implementation d. operation ANS: C

PTS: 1

8. Which of the accountant roles involves contributing to systems survey and needs analysis? a. programmer b. analyst c. purchaser d. implementer ANS: B

PTS: 1

9. Which role in the AIS Development/Acquisition process requires the accountant to be equally adept at dealing with people, accounting, and technology? a. User b. analyst c. purchaser d. implementer ANS: D

PTS: 1

10. In which role might the accountant be the person who initiates the AIS acquisition cycle, and is in a prime position to recognize deficiencies and incompatibilities related to the existing AIS? a. User b. analyst c. purchaser d. implementer ANS: A

PTS: 1

11. In which role might the accountant help meet the organization's AIS needs by selecting the final system for purchase? a. consultant b. internal auditor c. external auditor d. none of the above ANS: D

PTS: 1

12. Outputs of the systems analysis phase of development typically would include all of the following except: a. requests for proposal (RFPs) for software/hardware acquisition b. the logical specifications for the selected system design alternative c. the physical requirements for the selected system design alternative d. a budget for the systems design and systems implementation phases of development ANS: A

PTS: 1

13. The system development step that immediately precedes the structured system design step is: a. structured systems analysis b. systems implementation and operations c. systems survey d. systems selection ANS: D

PTS: 1

14. Which of the following is a deliverable from the structured systems analysis step of systems development? a. selected hardware and software b. logical specification c. approved configuration d. project completion report ANS: B

PTS: 1

15. Which of the following is not a task required to complete structured systems analysis? a. develop the physical requirements for the selected design b. develop the budget for the next two system development phases c. develop logical specifications for the selected design d. develop the system survey ANS: D

PTS: 1

16. Determination of user requirements in the analysis step of systems development is more difficult in an e-business implementation because: a. user requirements inside and outside the organization must be determined b. users are more resistant to change to an e-business implementation c. e-business software is inherently more complex d. users fear e-business implementations will negatively impact their jobs ANS: A

PTS: 1

17. Which of the following would be the likely trigger for the structured systems analysis step of systems development? a. a request for proposal (RFP) b. the logical specifications c. an approved feasibility document d. the physical requirements ANS: C

PTS: 1

18. Software as a Service (SaaS) may include: a. video hosting and streaming b. word processing c. e-mail d. all of the above ANS: D

PTS: 1

19. In structured systems analysis, the analysis preferably should start with analysis and documentation of: a. the current physical system b. the current logical system c. the future logical system d. the future physical system ANS: A

PTS: 1

20. After the analysis team studies and documents the current physical system they should next: a. study and document the current logical system b. define user requirements for the new/modified system c. design alternative future physical systems

d. determine the cost of the new/modified system ANS: B

PTS: 1

21. The following is a jumbled list of the four steps in structured systems analysis that were presented in the text: I. II. III. IV.

Define the future logical system.

Document the current logical system.

Study the current physical system.

Design the future physical system.

Which of the following is the logically correct sequence of steps? a. II, IV, I, III b. III, II, I, IV c. III, II, IV, I d. II, I, III, IV ANS: B

PTS: 1

22. After defining the requirements for the new system, the current logical DFD should be modified to reflect the components of the future system. The development team may propose logical design alternatives for the future logical system that may involve derivatives of the following except: a. internal entities b. Activities c. data stores d. control activities ANS: A

PTS: 1

23. Which of the following ranks each alternative on its relative capability to satisfy the user's requirements (goals) for the system? a. the cost/effectiveness study b. the cost/benefits analysis c. the effectiveness analysis d. the intangible benefits analysis ANS: C

PTS: 1

24. The cost of computer hardware to be purchased for a new system is an example of a(n) ____ cost for that system. a. direct cost b. indirect cost c. intangible cost d. recurring cost ANS: A

PTS: 1

25. Personnel fringe benefits are an example of a(n) ____ cost. a. direct cost b. indirect cost c. intangible cost d. nonrecurring cost ANS: B

PTS: 1

26. Which of the following benefits can be reasonably quantified? a. direct benefits b. tangible benefits c. indirect benefits d. intangible benefits ANS: B

PTS: 1

27. Insurance on a computer installation is an example of a(n) ____ cost. a. tangible b. intangible c. indeterminate d. variable ANS: A

PTS: 1

28. Productivity losses caused by reduced employee morale are an example of a(n) ____ cost. a. direct cost b. indirect cost c. intangible cost d. nonrecurring cost ANS: C

PTS: 1

29. Which of the following is a cost that cannot be reasonably quantified? a. nonrecurring cost b. recurring cost c. tangible cost d. intangible cost ANS: D

PTS: 1

30. Reduced salaries and wages that will result from a systems change are an example of a(n) ____ benefit. a. direct b. indirect c. intangible d. nonrecurring ANS: A

PTS: 1

31. Following a systems development methodology during systems development: a. is more costly in the long run than not following such a methodology b. should ensure that development efforts are efficient and consistently lead to information systems that meet organizational needs c. applies only to in-house systems development d. increases user resistance to the new or modified system ANS: B

PTS: 1

32. The physical requirements of a proposed system would include all of the following except: a. functional layouts for computer inquiry screens and reports b. user requirements c. response times d. workload and volume

ANS: B

PTS: 1

33. Structured systems design in the systems development process is analogous to which of the following tasks required in constructing an industrial park? a. finalizing blueprints and other construction-related plans b. choosing the construction contractors c. the architect's determining each building's specific use, required room sizes, electrical and plumbing requirements, etc. d. estimating the construction costs and preparing the forecasted construction schedule ANS: A

PTS: 1

34. The systems selection tasks include all of the following except: a. determine what computer software design will implement the logical specification developed in structured systems analysis b. determine what computer hardware will satisfy the physical requirements established in structured systems analysis c. determine miscellaneous environmental needs d. determine appropriate acquisition ancillaries ANS: C

PTS: 1

35. Which of the following is not specified in the approved configuration plan? a. chosen software configuration and expected performance specifications b. results of testing alternative software design and hardware resources c. assessment of financing and outsourcing activities d. appropriate acquisition ancillaries ANS: D

PTS: 1

36. Which of the following triggers the systems selection process? a. logical specification b. physical requirements c. both a and b d. neither a nor b ANS: C

PTS: 1

37. Which of the following is a characteristic of internal hardware sources? a. costs are mainly fixed b. management and staff are provided c. additional capacity may be available d. costs are mostly variable ANS: A

PTS: 1

38. Which of the following is a characteristic of external hardware sources? a. costs are mainly fixed b. management and staff are provided c. capacity is limited d. can determine the level of control, security and privacy ANS: B

PTS: 1

39. Which of the following issues is not a task of systems selection? a. determine what software design will implement the logical specification

b. choose acquisition financing methods c. determine appropriate acquisition ancillaries d. develop an implementation plan ANS: D

PTS: 1

40. An organization might request bids for computer resources from only one vendor for all of the following reasons except: a. to reduce training cost by staying with its present vendor b. to satisfy a specialized need c. to improve its bargaining position by maintaining a competitive selection posture d. to minimize conversion cost by staying with its present vendor ANS: C

PTS: 1

41. Which of the following statement regarding use of a service bureau is false? a. a service bureau provides information processing services b. a service bureau is more expensive than using an in-house computer c. a service bureau can provide both hardware and software for a fee d. a service bureau contract generally includes company involvement with the system.

ANS: B

PTS: 1

42. Which of the following statements regarding software acquisition (purchase vs. in-house development) is false? a. software developed in house can cost 10 times more than purchased software b. when a suitable software package is available for purchase, it is better to buy it rather than try to reinvent it in-house c. the annual maintenance of in-house software is typically 25% of the development cost, whereas the annual maintenance of purchased software is typically 50% of the purchase price d. none of the statements are false ANS: C

PTS: 1

43. The process of evaluating the vendor proposals includes all of the following except: a. determine to which vendors the RFPs will be sent b. validate vendor proposals c. consider other data and criteria d. suggest resources ANS: A

PTS: 1

44. The goal of validating vendor proposals is to determine: a. which vendor has the equipment that is easiest to use b. which vendor proposal costs the least c. which proposed systems meet the organization's requirements d. which vendor proposal should be selected ANS: C

PTS: 1

45. A representative workload, processed on a vendor's proposed system configuration, to obtain comparative throughput measures is called a(n): a. benchmark b. RFP test c. time trial

d. systems analysis test ANS: A

PTS: 1

46. The number of sales transactions that can be entered within a specified period of time is a measure of the computer system's: a. throughput b. computing capacity c. outsource production d. performance ratio ANS: A

PTS: 1

47. A detailed vendor comparison would normally include all of the following except: a. documentation volume b. cost of typical configuration c. maximum number of workstations d. benchmark results ANS: A

PTS: 1

48. Typically, all of the following are tasks of structured systems design except: a. to recommend which computer hardware to use for the new system b. to convert the structured specification into a reliable, maintainable design c. to develop a plan and budget that will ensure an orderly and controlled implementation of the new system d. to develop a user manual which facilitates efficient and effective use of the new system ANS: A

PTS: 1

49. Which of the following statements regarding SDLC methodology is false? a. Following this type of methodology should ensure that development efforts are efficient and consistently lead to information systems that meet organizational needs. b. These guidelines are appropriate only when an organization is going to acquire an AIS, not when they plan to develop it in-house. c. Users, manages, and auditors provide approvals called signoffs. d. Specific reports and other documentation, called deliverables, must be produced periodically during systems development.

ANS: B

PTS: 1

50. To write computer programs and interfaces, programmers use: a. the approved systems design document b. the approved systems analysis document c. the approved feasibility document d. the approved configuration plan ANS: A

PTS: 1

51. As presented in this text, systems operation comprises two steps⎯namely, ____ and ____. a. systems implementation, systems maintenance b. systems maintenance, post-implementation review c. systems implementation, post-implementation review d. systems design, systems implementation ANS: B

PTS: 1

52. A building inspection shortly after completing the construction of an industrial park is analogous to the ____ step in the systems development process. a. systems implementation b. systems maintenance c. post-implementation review d. systems operation ANS: C

PTS: 1

53. Making repairs and modifications to the system is known as: a. systems implementation b. systems maintenance c. post-implementation review d. systems operation ANS: B

PTS: 1

54. Checking to see if the new system is doing what it is supposed to do is part of: a. systems implementation b. systems maintenance c. post-implementation review d. systems operation ANS: C

PTS: 1

55. Which of the following is not a task of systems implementation? a. complete the design contained in the approved systems design document b. write, test, and document the programs and procedures required by the approved systems design document c. complete the preparation of user manuals d. determine, by thoroughly testing the system with programmers, that the system satisfies the programmer's requirements ANS: D

PTS: 1

56. Which of the following statements related to implementation approaches is false? a. The parallel approach provides a high level of control. b. In very large implementations, such as enterprise systems, it is often best to take the parallel approach. c. The modular approach can be combined with either of the other two approaches. d. The direct approach is the riskiest of the three approaches.

ANS: B

PTS: 1

57. Which of the following statements related to implementation approaches is true? a. The parallel system significantly decreases employee's work load during the conversion period. b. The parallel system terminates the operation of the old system and then compares the outputs of the two systems c. The modular approach can only be combined with the direct approach. d. The direct approach is the riskiest of the three approaches ANS: D

PTS: 1

58. If a new payroll system is installed for the employees of plant 1 at time A, followed by plant 2 at time B, and finally plant 3 at time C, this is an example of the ____ approach to systems implementation. a. parallel b. direct c. modular d. indirect ANS: C

PTS: 1

59. The following picture from the text illustrates the ____ approach to systems implementation:

a. b. c. d.

parallel direct modular Indirect

ANS: A

PTS: 1

60. The following picture from the text illustrates the ____ approach to systems implementation:

a. b. c. d.

parallel direct modular indirect

ANS: B

PTS: 1

61. The following picture from the text illustrates the ____ approach to systems implementation:

a. b. c. d.

parallel direct modular indirect

ANS: C

PTS: 1

62. Which of the following statements regarding the modular approach is false? a. It is also referred to as the phased approach. b. It can be combined with the parallel or the direct approach. c. It is always a faster approach than parallel. d. It can combine the safety and control of a parallel implementation with cost/time savings of the direct approach.

ANS: C

PTS: 1

63. Which of the following is not typically a role for the accountant in a system's implementation? a. user b. programmer c. analyst d. consultant ANS: B

PTS: 1

64. The final step in the in the implementation process is to write: a. the approved configuration plan b. the project completion report c. the post-implementation review report d. the user manual(s) ANS: B

PTS: 1

65. A feasibility study is conducted to determine: a. if funds are available for the proposed project b. the scope of the problem c. user requirements for the proposed system d. if outsourcing might solve this problem ANS: B

PTS: 1

66. Which of the following is not a significant activity during the systems implementation phase? a. computer resource acquisition b. system maintenance c. software and hardware installation d. site preparation ANS: B

PTS: 1

67. Systems implementation is triggered by: a. the approved configuration plan b. the approved system design document c. both a and b d. neither a or b ANS: C

PTS: 1

68. The project completion report will include all of the following except: a. summary of requirements satisfied by the new system b. request for proposals c. estimated and actual duration of each development stage d. system documentation ANS: B

PTS: 1

69. A user-directed test of the complete system in a test environment is called a(n) ____ test. a. Unit b. integration c. Stub d. acceptance ANS: D

PTS: 1

70. The ____ runs a subset of the system in the actual production environment. a. unit test b. integration test c. systems test d. operations test ANS: D

PTS: 1

71. Which of the following statements regarding systems maintenance is false? a. It should include analysis, cost/benefit study, design, implementation, and approvals for each development step. b. To ensure that all necessary maintenance requests are submitted, users should never be charged for maintenance costs. c. A formal procedure for submitting change requests should be adopted. d. High-quality documentation must be created and maintained.

ANS: B

PTS: 1

72. Which of the following is conducted as a follow up to a system's recent implementation? a. a post-implementation review b. systems maintenance c. a systems survey d. Troubleshooting

ANS: A

PTS: 1

73. All of the following would be tasks of post-implementation review except: a. ensure a correct conversion by planning, controlling, and conducting an orderly installation of the new system b. determine if the user is satisfied with the new system c. identify how well the system's performance corresponds to the performance requirements d. evaluate the quality of the new system's documentation ANS: A

PTS: 1

74. The type of maintenance that is conducted to improve the performance of an application is referred to as: a. preventive b. perfective c. adaptive d. corrective ANS: B

PTS: 1

75. The type of maintenance that is conducted to fix errors of an application is referred to as: a. preventive b. perfective c. adaptive d. corrective ANS: D

PTS: 1

76. The type of maintenance that is conducted to adjust applications for changing business needs and environmental challenges of an application is referred to as: a. preventive b. perfective c. adaptive d. corrective ANS: C

PTS: 1

COMPLETION 1. ______________________________ is the assignment of an internal function to an outside vendor.

ANS: Outsourcing PTS: 1 2. A(n) ______________________________ offers a traditional outsourcing mechanism whereby it hosts, manages, and provides access to application software and hardware over the Internet to multiple customers.

ANS: application service provider (ASP) application service provider ASP

PTS: 1 3. The purpose of the ______________________________ phase of the Information System Development process is to develop specifications for a new or revised system.

ANS: analysis PTS: 1 4. ______________________________ is a Web-based model of software distribution where multiple users may simultaneously use the software.

ANS: Software as a Service (SaaS) Software as a Service SaaS PTS: 1 5. One task of the ______________________________ phase is to convert to the new or revised system.

ANS: implementation PTS: 1 6. Tasks of the ______________________________ phase are to conduct post-implementation review and to perform systems maintenance.

ANS: operation PTS: 1 7. As a(n) ______________________________, the accountant can become involved with any or all of the AIS acquisition phases.

ANS: consultant PTS: 1 8. In particular, intricate knowledge of accounting and information technology helps the accountant be successful in the role of ______________________________.

ANS: implementer PTS: 1 9. As agents of management and the board of directors, ______________________________ ensure that the acquisition team has followed the organization's standard procedures for systems acquisition and that the process has been efficient and effective.

ANS: internal auditors PTS: 1

10. ______________________________ review the acquisition cycle and assess if and how internal controls have been impacted.

ANS: External auditors PTS: 1 11. A problem has a(n) ______________________________ feasible solution if it can be solved with existing technology.

ANS: technically PTS: 1 12. If the payback and internal rate of return estimates are sufficient to allow the development project to proceed it is said to have ______________________________ feasibility.

ANS: economic PTS: 1 13. ______________________________ reflects a set of procedures conducted to generate the specifications for a new (or modified) information system or subsystem.

ANS: Structured systems analysis PTS: 1 14. The logical specification, physical requirements, and budget and schedule are all part of the systems analysis deliverable called a(n) ______________________________.

ANS: approved systems analysis document PTS: 1 15. Similar to the developer of an industrial park, an organization's management or IT ______________________________ approves a systems development project for further systems development.

ANS: steering committee PTS: 1 16. The systems analysis team conducts a(n) ______________________________ which provides quantitative and certain qualitative information concerning each of the system alternatives.

ANS: cost/effectiveness study PTS: 1 17. The ______________________________ analysis or study is performed before an effectiveness analysis because the data are relatively easy to obtain and are more objective than the data on effectiveness.

ANS: cost/benefit PTS: 1 18. A(n) ______________________________ cost is one that is directly attributable to the system or the system change.

ANS: direct PTS: 1 19. ______________________________ costs are associate with but not directly attributable to the system or the system change.

ANS: Indirect PTS: 1 20. A(n) ______________________________ cost is one that can be reasonably quantified, such as software purchase and insurance.

ANS: tangible PTS: 1 21. A(n) ______________________________ cost is one that cannot be reasonably quantified, such as productivity losses caused by low employee morale.

ANS: intangible PTS: 1 22. ______________________________ are incurred only once to get the system operational.

ANS: Nonrecurring costs PTS: 1 23. A(n) ______________________________ benefit is one that is directly attributable to the system or the system change, such as reduced personnel costs.

ANS: direct PTS: 1 24. ______________________________ benefits are not directly attributable to the system or the system change.

ANS: Indirect PTS: 1 25. ______________________________ benefits are those that can be reasonably quantified, such as reduced equipment costs and increased revenues.

ANS: Tangible PTS: 1 26. ______________________________ benefits are those that cannot be reasonably quantified, such as those that result from having improved information.

ANS: Intangible PTS: 1 27. Structured system design is a set of procedures performed to convert the ______________________________ into a design that can be implemented on the organization's computer system.

ANS: logical specification PTS: 1 28. Defining requirements such as the amount of data to be stored, functional layouts for computer inquiry screens and reports, and processing response times are part of developing the ______________________________ for the selected design.

ANS: physical requirements PTS: 1 29. A(n) ______________________________ is a firm providing information processing services, including hardware and software for a fee.

ANS: service bureau PTS: 1 30. A(n) ______________________________ is a document sent to vendors that invite submission of plans for providing hardware, software, and services.

ANS: request for proposal (RFP) request for proposal RFP PTS: 1 31. A computer system's ______________________________ is the quantity of work performed in a period of time.

ANS: throughput PTS: 1 32. A(n) ______________________________ is a representative user workload, processed on each vendor's proposed system configuration, to obtain comparative throughput measures.

ANS: benchmark PTS: 1 33. Interviews that are conducted with personnel outside the organization are called ______________________________.

ANS: external interviews PTS: 1 34. The ______________________________ documents the system design and summarizes the implementation, training, and test plans.

ANS: approved systems design document PTS: 1 35. Systems operation includes systems maintenance and ______________________________.

ANS: post-implementation review PTS: 1 36. ______________________________ reflects a set of procedures performed to complete the design contained in the approved systems design document and to test, install, and begin to use the new or revised information system.

ANS: Systems implementation PTS: 1 37. In the ______________________________ approach to systems implementation, both the new and old systems operate together for a period of time.

ANS: parallel PTS: 1 38. Of the three approaches to systems implementation presented in the text, the ______________________________ approach is the riskiest.

ANS: direct PTS: 1 39. With the ______________________________ approach to systems implementation, the new system either is implemented one subsystem at a time or is introduced into one organizational unit at a time.

ANS: modular PTS: 1

40. When implementing ______________________________ systems, it is often capacity or cost prohibitive to take the parallel approach.

ANS: enterprise PTS: 1 41. The direct approach is also known as the ______________________________ or ______________________________ approach.

ANS: big bang, cold turkey cold turkey, big bang PTS: 1 42. The ______________________________ approach forces the users to learn the new system because the old system is not available to fall back on.

ANS: direct PTS: 1 43. The ______________________________ approach is also referred to as the phased approach.

ANS: modular PTS: 1 44. As a(n) ______________________________, the accountant could be the person who initiates the AIS acquisition cycle because (s)he will be in a prime position to recognize deficiencies and incompatibilities related to the existing AIS. ANS: user PTS: 1 45. The ______________________________ summarizes the implementation activities and provides documentation for operating the new system and for conducting the post-implementation review and systems maintenance.

ANS: project completion report PTS: 1 46. The two main inputs that trigger systems implementation are the ______________________________ and the ______________________________.

ANS: approved configuration plan, approved systems design document approved systems design document, approved configuration plan PTS: 1

47. The user, the programmer, and another member of the programming team do a(n) ______________________________ of the module specifications and the test plan to determine that the test plan is adequate; then the programmer codes the program.

ANS: walkthrough PTS: 1 48. The removal of program errors is called ______________________________.

ANS: debugging PTS: 1 49. Making program changes, correcting errors in the programs, and adding enhancements to the programs is called systems ______________________________.

ANS: maintenance PTS: 1 50. The ______________________________ verifies the new system against the original specifications.

ANS: system test PTS: 1 51. A user-directed test of the complete system in a test environment is called a(n) ______________________________ test.

ANS: acceptance PTS: 1 52. The ______________________________ test runs a subset of the system in the actual production environment.

ANS: operations environmental PTS: 1 53. The ______________________________ is an examination of a working system, conducted soon after the system's implementation.

ANS: post-implementation review PTS: 1 54. ______________________________ is the modification of existing applications.

ANS: Systems maintenance

PTS: 1 55. ______________________________ maintenance is performed to fix errors.

ANS: Corrective PTS: 1 56. ______________________________ maintenance is conducted to improve the performance of an application.

ANS: Perfective PTS: 1 57. ______________________________ maintenance adjusts applications to reflect changing business needs and environmental challenges.

ANS: Adaptive PTS: 1 58. The ______________________________ should describe operating procedures for both manual and automated procedures.

ANS: user manual PTS: 1 ESSAY 1. Briefly discuss application service providers (ASP) and Software as a Service (SaaS).

ANS: An application service provider (ASP) offers a traditional outsourcing mechanism whereby it hosts, manages, and provides access to application software and hardware over the Internet to multiple customers. The fee is really a rental based on usage. Some ASPs provide service for free, obtaining revenue from advertising and the sale of other services. ASPs relieve the organization of the burden of developing or buying and installing software and hardware. Because ASPs are accessed over the Internet, a user needs only a Web browser and a basic PC or other method of accessing the Internet (such as a browser-enabled mobile phone) to obtain the ASP service. When using an ASP, a user obtains constantly updated software. The user does not need the technical resources to install or support the application. ASPs are a good choice for applications where the user does not want to purchase and maintain the application or simply wants access from any Internet access point.

QuickBooks Online Edition and TurboTax, both from Intuit, Inc., are two consumer products that traditionally have been sold as "purchase and install" but are now available as an ASP service.

Software as a service (SaaS) is a Web-based model of software distribution where multiple users may simultaneously use the software. SaaS provides results similar to an ASP, with some underlying differences. ASPs are generally traditional applications with Web interfaces, whereas SaaSs are typically created for the Web environment and are frequently implemented in a cloud computing setting. With an ASP, the hosting site may have application knowledge as well as hardware configured to optimize the software, whereas SaaS applications may be hosted by third parties unrelated to the software provider or developer. One of the more widely adopted examples of SaaS is Google Apps.a Google Apps' offerings include on-demand, net-based document creation and management (Docs), e-mail (Gmail), video hosting and streaming (Video), and sharing capabilities (Sites).

PTS: 1 2. Discuss four ways that an accountant is often involved with the AIS acquisition?

ANS: Students should discuss four of the following items: User Analyst Purchaser Implementer Consultant Internal auditor External auditor User: Whether you are a staff accountant, controller, or CFO, you will be using an AIS on a regular basis. In any of these roles, you might be a business process owner as well, which means that you will be responsible for (or own) certain data sets (such as payroll, general ledger, or customer billing data).

As such, you very well could be the person who initiates the AIS acquisition cycle because you will be in prime position to recognize deficiencies and incompatibilities related to the existing AIS. Analyst: Because you will be intimately familiar with functionality and controllability aspects of accounting systems, you could be asked to participate on a systems analysis team to conduct a preliminary survey used to determine what is needed in a new AIS. Even when the accountant is not familiar with a particular business process, he or she can contribute skills in acquiring and documenting descriptions of processes.

Purchaser: You could also become a member of the AIS selection team. In this capacity, you will have to match the organization's requirements with the capability of various commercially available accounting systems, evaluate a set of potential AIS solutions, and help to make the final purchase selection.

Implementer: After the AIS is purchased, it is time to switch the old with the new, which is much easier said than done. You could become involved with this vitally important phase of the acquisition cycle. If so, you will have to be equally adept at dealing with people, accounting, and technology. In particular, your intimate knowledge of accounting and information technology will help you be successful in this role.

Consultant: Although the Sarbanes-Oxley Act prohibits CPA firms who audit a public company to also serve as systems consultants for the same company, AIS consulting is nevertheless alive and well.

Even though most CPA firms have spun off their consulting divisions into separate entities, these new consulting companies continue to need accountants. There are also many opportunities for traditional management consulting firms. Furthermore, CPA firms still consult (they often call themselves "business advisors"), just not for their audit clients. As a consultant, you can become involved with any or all of the AIS acquisition phases.

Internal auditor: Because internal auditors are knowledgeable about AIS function and control requirements, they often serve as advisors or consultants during the acquisition cycle. Also, as agents of management and the board of directors, internal auditors ensure that the acquisition team has followed the organization's standard procedures for systems acquisition and that the process has been efficient and effective.

External auditor: As an external auditor, you will conduct an internal control assessment. During your assessment, you will have to determine how changes in the AIS might have affected overall audit risk.

As discussed in Chapter 7 of this textbook, professional guidance in this regard is found in the Statement on Auditing Standards (SAS) 94, entitled "The Effect of Information Technology on the Auditor's Consideration of Internal Control in a Financial Statement Audit." Thus, external auditors will review the acquisition cycle and assess if and how internal controls have been impacted.

PTS: 1 3. Discuss the accountant's involvement in systems selection including: 1.

As an analyst 2.

As consultant 3.

As a user 4.

As an internal auditor ANS: An accountant might become involved in systems selection in a number of ways. As an analyst, the accountant could be the evaluation team member with the most expertise in internal control and possess expertise in computer applications for the AIS. As a consultant, the accountant might be called on to provide such expertise, as well as objectivity. The accountant has a great deal of knowledge in making software and hardware selections for the AIS. As a user of the system, the accountant could provide guidance on the tax and financial implications of alternative financing methods. The accountant might also be called upon to comment on the adequacy of the proposed resource choices.

The accountant as an internal auditor could be a member of the evaluation team regarding auditability and controllability of the system. Also, as an internal auditor, the accountant could be responsible for reviewing and reporting on the efficiency and effectiveness of the system.

PTS: 1 PROBLEM 1. Growing State University (GSU) is planning to change from its batch-oriented grade reporting system (BGRS) to a new, online grade reporting system (OGRS). The partial organization chart for GSU appears in TB Figure 17.1. TB Figure TB 17.2 is reproduced from Chapter 17 and shows three possible system implementation approaches.

Required: Demonstrate your understanding of the three approaches in TB Figure 17.2 by constructing an example from the GSU scenario to explain (in one paragraph for each) how each approach might be applied at GSU. Be specific as to which of GSU's organizational units would convert to OGRS and when. Assume that time X in TB Figure 17.2 is the start of the 20X8 fall semester. Make and state any other assumptions you feel are necessary.

ANS: INSTRUCTOR NOTE: Obviously, several alternative solutions are possible and acceptable. The following solution assumes that GSU wants to isolate any conversion problems that might arise by confining them to the smallest population possible. Therefore, GSU decides to start the conversion at the lowest level in the organization chart⎯namely, sections 001 through 005 of AIS. Parallel Approach: For the fall semester, 20X8, all AIS sections report grades on both the old (BGRS) and new (OGRS) systems. The output results are compared and, if satisfactory, BGRS is abandoned and OGRS is adopted for all AIS sections, effective with the spring 20X9 semester. Similar pilot projects could then be extended to higher levels in the organization in spring 20X9.

Direct Approach: All sections of AIS abandon BGRS and adopt OGRS for fall 20X8, without any pilot project to compare the old and new systems in parallel operation.

Modular Approach: For the fall semester, 20X8, section 001 of AIS only reports grades on both the old (BGRS) and new (OGRS) systems. Sections 002 through 005 continue to use BGRS as before. The output results for section 001 under both the old and new systems are compared and, if satisfactory, BGRS is abandoned and OGRS is adopted for section 001, effective with the spring 20X9 semester. Also in spring 20X9, section 002 (perhaps all other AIS sections) runs BGRS and OGRS in parallel. If the results for 002 are also satisfactory, it switches to OGRS in summer 20X9 and so on.

PTS: 1 2. TB Figure 17.3 is taken from the text figure showing the systems selection task and documents.

Required: Explode bubble 3.0 Systems Selection into a Level 1 DFD. The DFD should include the items listed below. The data flows for available hardware and physical requirements are listed twice because these data flows will each appear twice in the Level 1 DFD. Process bubbles 3.1 Prepare requests for proposal 3.2 Evaluate vendor proposals 3.3 Assess software plan 3.4 Complete configuration plan External entities External sources

Hardware/ software vendors Data flows Approved configuration plan Available hardware Available hardware Logical specification Physical requirements Physical requirements Request for proposal Software specifications Suggested hardware resources Vendor proposals ANS:

PTS: 1 3. Figure TB 17.5 is the DFD of the systems development life cycle as presented in the text.

Required: Explode bubble 4.0 Structured Systems Design into a Level 1 DFD. All of the process bubbles and data flows are presented below. The data flows for implementation plan and budget and logical specification are listed twice because these data flows will appear twice in the Level 1 DFD. Process Bubbles 4.1 Specify modules 4.2 Develop implementation plan and budget 4.3 Develop implementation test plan 4.4 Develop user manual 4.5 Develop training program 4.6 Complete systems design document

Data Flows Approved configuration plan Approved systems design document Design specifications Implementation plan and budget Implementation test plan Implementation plan and budget Logical specification Logical specification Training plan User manual ANS:

PTS: 1