Accounting Information Systems Controls & Processes 5th Edition by Turner & Weickgenannt TEST BANK

Accounting Information Systems Controls and Processes 5e Leslie Turner, Andrea Weickgenannt, Mary Kay Copeland (Test Bank All Chapters, 100% Original Verified, A+ Grade) ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 1: Introduction to AIS STUDY OBJECTIVES – Chapter 1 1. An overview of business processes 2. An overview of an accounting information system 3. The business process linkage throughout the supply chain 4. The IT enablement of business processes 5. Basic computer and IT concepts 6. Examples of IT enablement 7. The internal control structure of organizations 8. The importance of accounting information systems to accountants 9. The relation of ethics to accounting information systems TEXTBOOK QUESTIONS: End of Chapter Questions: SO1 1. When a company receives returned goods from a customer, the business process to accept the return would most likely be a(n): a. Administrative process b. Conversion process c. Expenditure process *d. Revenue process SO2 2. Which of the following is least likely to be an output of the accounting information system? a. A check b. A report c. An invoice *d. A bar code SO3 3. Which of the following is not true of the supply chain? a. The supply chain includes vendors. *b. The supply chain excludes customers. c. The supply chain includes information flows. d. The supply chain include secondary suppliers.

SO4 4. Which of the following is not an objective of IT enablement? a. Increased accuracy of data b. Reduced cost *c. Reduced security problems d. Increased efficiency

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SO5 5. The correct order of the computer data hierarchy is: a. Byte, bit, record, field, file, database b. Bit, byte, record, field, file, database *c. Bit, byte, field, record, file, database d. Bit, byte, field, record, database, file SO5 6. The process of searching for identifiable patterns in data is called: a. Sequential processing b. Data warehousing *c. Data mining d. Real-time processing SO6 7. An IT enabled system for purchasing that is an "invoice-less" system is called a(n): a. Automated matching system *b. Evaluated receipt settlement c. E-payables d. Point of sale system SO7 8. The COSO report written for the purpose of assisting managers in the challenge of managing risk in their organization is entitled: *a. Internal Control -- Integrated Framework b. Enterprise Risk Management -- Integrated Framework c. Corporate Governance Guidance d. IT Governance Guidance SO8 9. Accountants have some form of use of the AIS in all but which role? a. User *b. Programmer c. Auditor d. Designer SO9 10. Which of the following is not true of unethical behavior? *a. The only category of unethical behavior for accountants is inflating revenue. b. Accountants are often pressured to help commit or cover up unethical behavior. c. Hacking is an unethical behavior that accountants should be concerned about. d. An accounting information system can be used to cover up unethical behavior.

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TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 11. A prescribed sequence of work steps preformed in order to produce a desired result for the organization is called a(n): a. Accounting Information System *b. Business Process c. Financial Transaction d. Capital Transaction Process SO1 12. The process that must identify the transactions to be recorded, capture all the important details of the transactions, properly process the transaction details, and provide reports is termed the: a. Revenue Process b. Expenditure Process *c. Accounting Information System d. Business Process SO2 13. An accounting information system serves many functions. Which of the following is NOT one of those functions? a. Capture the details of a transaction *b. Implement the start of a transaction c. Provide reports of transactions d. Process the transactions details into appropriate accounts SO2 14. The proper order of activity in an accounting information system would be as follows: *a. Capture, Record, Process, Report b. Process, Record, Capture, Report c. Capture, Process, Report, Record d. Record, Capture, Process, Report SO2 15. Which of the following is not one of the general types of business processes identified by the textbook? a. Revenue Processes b. Expenditure Processes c. Conversion Processes *d. Human Resource Processes SO2 16. A company's ____________ encompasses the tone of an organization and sets the basis for how risk is viewed and addressed by an entity's people. *a. Internal Environment b. Internal Controls Framework

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c. Code of Ethics d. IT Governance Structure SO2 17. Which of the following statements, related to business processes, is false? *a. Each business process has a direct effect on the financial status of the organization. b. A business process is initiated by a particular kind of event. c. A business process has a well-defined beginning and end. d. Each business process is usually completed in a relatively short period.

SO2 18. Which of the following is least likely to be part of an accounting information system function? a. Record the accounting data in the appropriate records *b. Generation of data to be part of the information system. c. Process the detailed accounting data. d. Report the summarized accounting data.

SO2 19. Work steps that are internal controls within the business process would include: a. Using an electronic register to record all sales transactions. b. Combining both manual and computer based records. *c. Reconciling a cash register at the end of each day. d. Preparation of internal reports to monitor the performance of a specific department.

SO2 20. Five different components of the accounting information system were presented in the textbook.

Which of the following is not one of those components? a. Work steps within a business process intended to capture accounting data as the business process occurs. b. Work steps that are internal controls within the business process to safeguard assets and to ensure the accuracy and completeness of the data. c. Work steps that generate both internal and external reports. *d. Work steps to assure that all business processes are recorded using computer-based procedures.

SO2 21. Output from an accounting information system would NOT include: a. Checks to vendors *b. Invoices from vendors c. Customer statements d. Purchase orders

SO3

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22. The entities, processes, and information flows that involve the movement of materials, funds, and related information through the full logistics process, from the acquisition of raw materials to the delivery of the finished products to the end use is a set of linked activities referred to as: a. Management Information System *b. Supply Chain c. Accounting Information System d. Logistics Management SO3 23. The organization and control of all materials, funds, and related information in the logistics process, from the acquisition of raw materials to the delivery of finished products to the end user is referred to as: *a. Supply Chain Management b. Management Information System c. Logistics Management d. IT Enablement SO3 24. When discussing the supply chain: a. Any concern about vendors would relate only to those vendors with which a company has direct contact. b. Service providers would not be part of the supply chain. c. Concern would not extend beyond the point where the product is shipped to a customer. *d. An entity may not be able to directly control all of the interrelated activities within the supply chain.

SO3 25. Using IT systems to enhance efficiency and effectiveness of internal or supply chain processes is called: *a. Information Technology Enablement b. Information Systems Control c. Information Technology Process Engineering d. Information Technology Business Processes SO4 26. This chapter identifies four different phases of time and the corresponding terms used to describe the use of technlogy in business processes. The most recent time for approximately 2011 to now is most often referred to as: a. Information Technology Enablement (IT) b. Electronic Data Processing (EDP) *c. Digital Transformation d. Information Systems (IS)

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SO4 27. This chapter identifies four different phases of time and the corresponding terms used to describe the use of technlogy in business processes. The phase of time for approximately 1990s to about 2011 is most often referred to as: *a. Information Technology Enablement (IT) b. Electronic Data Processing (EDP) c. Digital Transformation d. Information Systems (IS) SO4 28. The purposeful and organized changing of business processes to make them more efficient is referred to as: a. Information Technology Engineering b. Information Systems Management *c. Business Process Reengineering d. Business Process Supply Chain SO4 29. The use of BPR (Business Process Reengineering) is twofold: (1) Aligns business processes with the IT systems used to recorded processes and, (2): *a. Improves the efficiency and effectiveness of these processes b. Reduces the cost of these processes c. Enhances the usefulness of these processes d. Increases the accuracy of the process SO5 30. The smallest unit of information in a computer system can have only one of two values, zero or one, and is referred to as a(n): a. Field b. Record c. Byte *d. Bit SO5 31. A unit of storage that represents one character is referred to as a: *a. Byte b. Bit c. Bat d. Field

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SO5 32. Which of the following statements is false? a. A data warehouse is an integrated collection of enterprise-wide data that generally includes multiple years of nonvolatile data *b. When performing month end close and preparing monthly financial statements, an accountant would typically run reports from information stored in the company’s data warehouse. c. Data in a data warehouse is used to support management in decision making and planning d. Data mining is the process of searching data within the data warehouse for identifiable patters than can be used to predict future behavior.

SO5 33. A set of related fields is referred to as a: a. File *b. Record c. Byte d. Binary Digit SO5 34. Each record is made up of related: a. Files b. Bytes c. Name *d. Fields SO5 35. A collection of data stored on a computer in a form that allows the data to be easily accessed, retrieved, manipulated, and stored is referred to as a(n): a. Accounting Information System b. Information Technology *c. Database d. Master File SO5 36. A collection of data stored in several small two-dimensional tables that can be joined together in many varying ways to represent many different kinds of relationships among the data is referred to as a(n): a. Database b. Master File *c. Relational Database d. Relation Based Accounting Software

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SO5 37. Accounting software traditionally uses two different types of files. The file type that is relatively permanent and used to maintain the detailed data for each major process is a(n): a. General Ledger *b. Master File c. Transaction File d. Subsidiary File SO5 38. Accounting software traditionally uses two different types of files. The file type that is the set of relatively temporary records that will be process to update the permanent file is referred to as a(n): a. Master File b. General File *c. Transaction File d. Subsidiary File SO5 39. The chart of accounts would be a good example of a: a. Transaction File *b. Master File c. Field d. Record SO5 40. The organization of files in a computer system normally uses one of two different access methods.

The access method where the files store records in sequence, with one record stored immediately after another, is referred to as: a. Chronological Access *b. Sequential Access c. Random Access d. Numerical Access SO5 41. The organization of files in a computer system normally uses one of two different access methods.

The access method where the files are not stored in sequence, one record not stored immediately after another, is referred to as: a. Indexed Access b. Batch Access c. Sequential Access *d. Random Access

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SO5 42. There are two modes of processing transactions in accounting systems. The mode that requires all similar transactions be grouped together and be processed at the same time, is referred to as: *a. Batch Processing b. Online Processing c. Real-time Processing d. Sequential Processing SO5 43. There are two modes of processing transactions in accounting systems. The mode that will record transactions, one at a time, is referred to as: a. Batch Processing *b. Online Processing c. Real-Time Processing d. Sequential Processing SO5 44. A type of online processing where a transaction is processed immediately so that the output is available immediately is termed: a. Virtual Processing b. Sequential Processing *c. Real-Time Processing d. Batch Processing SO5 45. An integrated collection of enterprise-wide data that includes five to ten fiscal years of non-volatile data, used to support management in decision making and planning is referred to as: a. Operational Database b. Relational Database c. Data Storage *d. Data Warehouse SO5 46. This type of database contains the data that are continually updated as transactions are processed and includes data for the current fiscal year and supports day-to-day operations is referred to as a(n): a. Data Warehouse b. Data Storage c. Relational Database *d. Operational Database

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SO5 47. The data in the data warehouse are said to be enterprise-wide because: a. The data relate to all areas of the business. *b. The data are pulled from each of the operational databases and maintained in the data warehouse for many fiscal periods. c. All areas of the business are able to access the data warehouse. d. All transactions across the all areas of the business are recorded in the data warehouse.

SO5 48. The process of searching data within the data warehouse for identifiable patterns that can be used to predict future behavior is referred to as: *a. Data mining b. Data digging c. Data housing d. Data querying SO5 49. Two or more computers linked together to share information and / or resources is referred to as a(n): a. Computer Intranet b. Computer Internet c. Computer System *d. Computer Network SO5 50. This type of computer network spans a relatively small area, often confined to a single building or group of buildings, and is intended to connect computers within an organization. *a. Local Area Network b. Land Arena Network c. Extranet d. Internet SO5 51. The global computer network, or "information super highway," is the: a. WAN b. Intranet *c. Internet d. LAN SO5 52. A company's private network, accessible only to the employees of that company is the: a. WAN *b. Intranet c. Internet d. LAN

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SO5 53. This computer network is similar to a company's intranet except that it does allow access to selected outsiders, such as buyers, suppliers, distributors, and wholesalers. a. Ultranet b. Internet *c. Extranet d. LAN SO5 54. A contemporary type of computer infrastructure that is used by an increasing number of companies involves the use of shared services, software, and/or data stored on servers at a remote location, which are accessible over a network, is referred to as: a. Database *b. Cloud Computing c. Internet d. Relational Internet SO6 55. The use of electronic means to enhance business processes is termed: *a. E-business b. Electronic data interchange c. Point of sale system d. E-commerce SO6 56. The intercompany, computer-to-computer transfer of business documents in a standard business format is called: a. E-business b. E-commerce c. Local area network *d. Electronic data interchange SO6 57. Which of the following is not an example of IT enablement? a. Point of Sales Systems b. Automated matching *c. Business Proecess Rengineering d. Electronic Data Exchange

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SO6 58. Which of the following is NOT one of the three components of electronic data interchange? *a. Commerce: encompasses all forms of electronic trading b. Intercompany: two or more companies conducting business electronically c. Standard business format: necessary so that the various companies can interact and trade electronically d. Computer to computer: indicates that each company's computers are connected via a network SO6 59. This term refers to a system of hardware and software that captures retail sales transactions by standard bar coding. a. E-business b. Electronic data interchange *c. Point of sale system d. E-commerce SO6 60. When a point of sale system is used and a customer checks out through a cash register, which of the following processes occur? a. Net income is computed *b. Inventory values are updated c. Accounts payable balances are updated d. Replacement inventory is purchased SO6 61. A system of computer hardware and software in which the software matches an invoice to its related purchase order and receiving report is called: a. Point of sale system b. Electronic data interchange *c. Automated matching d. Evaluated receipt settlement SO6 62. An invoice-less system in which computer hardware and software complete an invoice-less match that is a comparison of the purchase order with the goods received is termed: *a. Evaluated receipt settlement b. Automated matching c. Electronic invoice presentation and payment d. Enterprise resource planning

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SO6 63. This system enables a vendor to present an invoice to its trading partner via the internet, eliminating the paper, printing, and postage costs of traditional paper invoicing. a. Evaluated receipt settlement *b. Electronic invoice presentation and payment c. Automated matching d. Electronic data interchange SO6 64. A multi-module software system designed to manage all aspects of an enterprise usually broken down into modules such as financials, sales, human resources, and manufacturing, is referred to as a(n): a. Electronic data system b. Electronic data interchange *c. Enterprise resource planning d. Electronic resource program SO7 65. Management has the responsibility, and the ability, to take action to reduce risks or to lessen the impact al nearly all risks an organization faces. The steps taken by management to lessen the risk or reduce the impact of the risk, are referred to as: a. Programs b. Risk assessment c. Information evaluation *d. Controls SO7 66. IT Controls can be divided into two categories, general controls and application controls. Which of the following is an example of a general control? a. The alignment of a company's IT strategy with its business strategy *b. The use of passwords to allow only authorized users to log into an IT-based accounting system c. The use of an elaborate set of checks and balances whereby a company's leadership is held accountable for building shareholder value d. A company performing background checks on employees of its IT department SO7 67. Which of the following groups of professionals within an organization have a history of designing and implementing the controls to lessen risks? a. Management *b. Accountants c. Human Resources d. Lawyers

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SO7 68. Which of the following is not one of broad categories of controls? a. The risk that assets will be stolen or misused. b. The risk of errors in accounting data or information. *c. The risk of loss due to a natural disaster. d. The risk of fraudulent activity by employees.

SO7 69. Which of the following is not a risk inherent in an IT system? a. Computer security breaches *b. Computers being stolen c. Erroneous input of data d. Hardware or software failure SO7 70. A comprehensive report on enterprise risk management was issued by this organization. a. American Accounting Association b. New York Stock Exchange c. Institute of Internal Auditors *d. Committee on Sponsoring Organizations SO7 71. A process, effected by an entity's board of directors, management and other personnel, applied in strategy setting 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 is referred to as: a. Enterprise resource planning *b. Enterprise risk management c. IT system control structure d. Corporate governance structure SO7 72. In order to achieve the objective of managing risk, management should establish control structures that include, at a minimum: a. Accounting internal controls. b. Accounting internal controls, IT controls, corporate governance, enterprise risk management, and IT governance. *c. IT controls, IT governance, corporate governance, and accounting internal controls. d. IT controls and accounting internal controls.

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SO7 73. The company's development and adherence to this should reduce the opportunities for managements or employees to conduct fraud. *a. Code of ethics b. Internal control structure c. Application controls d. Corporate governance SO7 74. The COSO report, Internal Controls -- Integrated Framework, identified interrelated components of internal control. Which of the following is not one of those components? a. Monitoring b. Risk assessment c. Control activities *d. Enterprise risk management SO7 75. IT controls can be divided into two categories. Which of the following is a correct statement of one of those categories? a. Application controls apply overall to the IT accounting system. b. Application controls apply to the prevention of erroneous or incomplete input or processing of data. *c. Application controls are used specifically in accounting applications to control inputs, processing, and output. d. Application controls are used to prohibit fraudulent financial reporting.

SO7 76. ________ is accomplished through ongoing management activities, separate evaluations, or both. a. Control activities b. Risk Assessment c. Risk Response *d. Monitoring SO7 77. An elaborate system of checks and balances, whereby a company's leadership is held accountable for building shareholder value and creating confidence in the financial reporting processes, is referred to as: a. Enterprise risk management *b. Corporate governance c. Application controls d. Internal control structure

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SO7 78. The purpose of this 2002 act was to improve financial reporting and reinforce the importance of corporate ethics. a. Foreign Corrupt Practices Act *b. Sarbanes-Oxley Act c. Securities and Exchange Act d. Treadway Act SO7 79. Which of the following is not one of the corporate functions interrelated within the corporate governance system? a. Management Oversight b. Ethical Conduct *c. Risk Assessment d. Financial Stewardship SO7 80. The proper management, control, and use of IT systems are known as: *a. IT Governance b. IT Controls c. IT Risk Management d. IT Code of Ethics SO7 81. Which of the following are not part of risk analysis? *a. Risk management b. Event Identification c. Risk Response d. Risk Assessment SO8 82. Accountants have several possible roles related to accounting information systems. Which of the following is not normally one of those roles? a. Auditor of an AIS b. User of the AIS *c. Programmer of the AIS d. Design of the AIS SO9 83. There are many reasons for accountants to become aware of potential unethical behaviors. Which of the following is not one of the reasons identified by the authors? *a. Accountants are responsible for identifying unethical and illegal activities. b. Accounts assist in developing and implementing internal control structures that should decrease the chance of unethical actions. c. Accountants are often pressured to assist in, or cover up, unethical actions. d. Accountants deal with assets or records that could easily tempt accountants to engage in unethical behavior.

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FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE

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Question 1.SO 1

Types of business processes

Describe the four general types of business processes typical in organizations that were discussed in chapter 1 of the text. Describe two transaction types or transaction processes included in each business process.

Answer: 1. Revenue processes (Discussed in detail in chapter 8) a. Sales processes b. Sales return processes c. Cash collection processes 2. Expenditure processes (Discussed in detail in chapters 9 and 10) a. Purchasing processes b. Purchase return processes c. Cash disbursement processes d. Payroll processes e. Fixed asset processes 3. Conversion processes (Discussed in detail in chapter 11) a. Planning processes b. Resource management processes c. Logistics processes 4. Administrative processes (Discussed in detail in chapter 12) a. Capital processes b. Investment processes c. General ledger processes Question 2.SO2 Overview of Accounting Information Systems - Real World

One of the real word examples in chapter 1 discussed a recent trend in the fast food restaurant industry where remote order-taking is completed at a drive-through window. In the case of McDonald’s, an experimental order-taking center takes drive-through orders for several different McDonald’s locations.

Describe how this real world example relates to each of the components of an accounting information system.

Answer: Answers will vary. The following was discussed in the chapter.

Accounting information system comprises the processes, procedures, and systems that capture accounting data from business processes; record the accounting data in the appropriate records; process the detailed accounting data by classifying, summarizing, and consolidating; and report the summarized accounting data to internal and external users.

The accounting information system has several components. The following example from McDonalds lists each component of the accounting information system.

1) Work steps within a business process intended to capture accounting data as that business process occurs.  When McDonald’s employees greet a customer at the cash register, they have

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several work steps to complete a sale, some of which are accounting related and some of which are not. Greeting the customer with a smile may be an important step, but it has no impact on accounting records. However, using the touch screen at the cash register to conduct the sale does have an accounting effect: sales amounts in the sales records should be increased and cash amounts in cash records should be increased.

2) The manual or computer-based records to record the accounting data from business processes  As is true of most companies, McDonald’s has a system of computers and computer processes to record the appropriate data from the sale process. These systems usually have a combination of manual and computerized steps. For McDonald’s, the manual process is that a person must operate the cash register.

The remainder of the McDonald’s system is computer-based, and the computer records the sale and all related data.

3) Work steps that are internal controls within the business process to safeguard assets and to ensure accuracy and completeness of the data  As mentioned before, the requirement that a manager closes and reconciles the cash register at the end of the day is an example of an internal control within the sales processes.

4) Work steps to process, classify, summarize, and consolidate the raw accounting data  For example, sales at each McDonald’s franchise must be summarized and consolidated into a single total of sales revenue to be reported on the income statement. At McDonald’s, these steps are accomplished by the computer system and the accounting software. In some companies, there may be manual or handwritten accounting records, although currently most organizations use IT systems to conduct some or all of the accounting recording and summarizing processes.

5) Work steps that generate both internal and external reports.  McDonald’s needs many types of internal reports to monitor the performance of individual franchise locations and regions. In addition, year-end external financial statements such as the income statement, balance sheet, and statement of cash flows must be prepared for external users.

These five components are part of any accounting information system but are likely to be applied differently in different business organizations. Exhibit 1-1 provided an overview of an accounting information system:

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Question 3.SO3 Supply Chain Explain the term supply chain and identify the organizations or individuals that would be part of a supply chain for a company that produces products for sale.

Answer: Supply Chain - processes and information flows that involve the movement of materials, funds, and related information through the full logistics process, from the acquisition of raw materials to the delivery of finished products to the customer or end user. The supply chain includes all:  Vendors 

Service providers



Customers



Intermediaries

Question 4.SO4 IT Enablement Explain the term IT enablement and identify three objectives of adding IT enablement to an organization.

Answer: IT ENABLEMENT OF BUSINESS PROCESSES: Information technology is defined as the computers, ancillary equipment, software, services, and related resources as applied to support business processes.

IT enablement to support business processes accomplishes one or more of the following objectives: 1. Increased efficiency of business processes 2. Reduced cost of business processes 3. Increased accuracy of the data related to business processes Any business process has the potential to be improved by IT enablement. In many cases, using IT to enable processes leads to a completely different approach to those processes. Applying IT to business processes is an opportunity to “think outside the box” and consider completely different methods for business processes. This concept of revising processes as IT enabling occurs is called business process reengineering.

Question 5.

SO4 IT Enablement and Business Process Reengineering

Explain the term Business Process Reengineering (BPR) and identify BPR’s relationship to IT enablement at an organization.

Answer: Business process reengineering (BPR) is the purposeful and organized changing of business processes to make them more efficient. BPR not only aligns business processes with the

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IT systems used to record processes, it also improves efficiency and effectiveness of these processes Question 6.

SO5 IT Enablement and Business Process Reengineering

Explain the following data structure terms and the interrelationship of the terms in an accounting information system.

Bit, or binary digit Byte Field Record File Database Answer: Accounting data is stored in computer files, and an accountant should have some understanding of data structures in IT systems. Data is explained and organized in a data hierarchy in computer systems, as follows: (1) Bit, or binary digit a. Smallest unit of information in a computer system b. Can only have one of two values: zero or one (2) Byte a. Unit of storage represents one character b. One byte is made up of eight bits (3) Field a. One item within a record (4) Record a. Set of related fields for the same entity (5) File a. Entire set of related records (6) Database a. Collection of data stored on the computer in a form that allows data to be easily accessed, retrieved, manipulated, and stored Question 7.SO5 Batch verses online or real time processing Explain the two modes of processing transactions, batch processing and online or real time processing.

Answer: Two modes of processing transactions: (1) Batch processing a. Requires that all similar transactions be grouped together for a specified time; then this group of transactions is processed as a batch (2) Online processing a. Opposite of batch processing

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b. Transactions are not grouped into batches, but each transaction is entered and processed one at a time c. Some online processing systems are also real-time processing systems, meaning that the transaction is processed immediately, and in real time, so that the output is available immediately Question 8.SO6 IT Enablement Identify and explain three examples of IT systems that use IT enabled business processes.

Answer: Answers may include three of the following or other examples that you provided in class: Examples of systems applied by companies today that use IT-enabled business processes: •

• •

•

• •

•

E-Business o the use of electronic means to enhance business processes o encompasses all forms of online electronic trading—consumer- based e-commerce and business-to-business transactions, as well as the use of IT for process integration inside organizations Electronic Data Interchange (EDI) o the intercompany, computer-to-computer transfer of business documents in a standard business format Point of Sales system o a system of hardware and software that captures retail sales transactions by standard bar coding. Nearly all large retail and grocery stores use POS systems that are integrated into the cash register Automated Matching o a computer hardware and software system in which the software matches an invoice to its related purchase order and receiving report. Traditional systems rely on a person to do this matching, whereas an automated matching system does not.

Evaluated receipt Settlement o is an invoice-less system in which computer hardware and software complete an invoice-less match comparing the purchase order with the goods received E-Payables and Electronic Invoice Presentment and Payment o are both terms that refer to Web-enabled receipt and payment of vendor invoices.

EIPP enables a vendor to present an invoice to its trading partner via the Internet, eliminating the paper, printing, and postage costs of traditional paper invoicing.

Enterprise Resource Planning Systems o is a multi-module software system designed to manage all aspects of an enterprise o ERP software system is much more comprehensive and encompassing than traditional accounting software. ERP systems include modules to handle accounting functions, but, as previously mentioned, they also incorporate modules for manufacturing, marketing, logistics, and human resources

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Question 9.SO6 IT Enablement Define the term IT enablement and provide three examples of IT enablement in 21 st century organizations. .

Answers may include three of the following or other examples that you provided in class: • E-Business o the use of electronic means to enhance business processes o encompasses all forms of online electronic trading—consumer- based e-commerce and business-to-business transactions, as well as the use of IT for process integration inside organizations • Electronic Data Interchange (EDI) o the intercompany, computer-to-computer transfer of business documents in a standard business format • Point of Sales system o a system of hardware and software that captures retail sales transactions by standard bar coding. Nearly all large retail and grocery stores use POS systems that are integrated into the cash register • Automated Matching o a computer hardware and software system in which the software matches an invoice to its related purchase order and receiving report. Traditional systems rely on a person to do this matching, whereas an automated matching system does not.

• Evaluated receipt Settlement o is an invoice-less system in which computer hardware and software complete an invoice-less match comparing the purchase order with the goods received • E-Payables and Electronic Invoice Presentment and Payment o are both terms that refer to Web-enabled receipt and payment of vendor invoices.

EIPP enables a vendor to present an invoice to its trading partner via the Internet, eliminating the paper, printing, and postage costs of traditional paper invoicing.

• Enterprise Resource Planning Systems o is a multi-module software system designed to manage all aspects of an enterprise o ERP software system is much more comprehensive and encompassing than traditional accounting software. ERP systems include modules to handle accounting functions, but, as previously mentioned, they also incorporate modules for manufacturing, marketing, logistics, and human resources

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Question 10.

SO 7 IT Controls and Organizational Risks Addressed

Accountants have a long history of being the professionals within the organization who help design and implement controls to lessen risks that have an impact on the financial standing of the organization. List the four broad categories of risks described in the text that accountants design controls to mitigate.

Answer: 1.

2.

3.

4.

The risk that assets will be stolen or misused The risk of errors in accounting data or information The risk of fraudulent activity by employees, managers, customers, or vendors The risks inherent in IT systems, such as

Question 11.

SO 7 IT Controls and Organizational Risks Addressed

List four control risks that are inherent in an IT systems Answer: a. b. c. d. e. f.

Question 12.

Erroneous input of data Erroneous processing of data Computer fraud Computer security breaches Hardware or software failure Natural disasters that can interrupt computer system operations SO9 The relation of ethics to accounting information systems

List and explain three examples of potential unethical behaviors in the accounting process.

Possible Answers:



Examples of potential unethical behaviors: o

Fraudulent financial reporting

o

Revenue inflation

o

Expense account fraud

o

Computer fraud

o

Hacking

o

Browsing confidential data

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 2: Foundational Concepts of the AIS STUDY OBJECTIVES: This chapter will help you gain an understanding of the following concepts: 1. The interrelationships of business processes and the AIS 2. Types of accounting information systems 3. Client–server computing 4. Cloud computing 5. Accounting software market segments 6. Input methods used in business processes 7. The processing of accounting data 8. Outputs from the AIS related to business processes 9. Documenting processes and systems 10. Ethical considerations at the foundation of accounting information systems TEXTBOOK QUESTIONS: End of Chapter Questions: SO1 1. Which of the following statements is not true? a. Accounting information systems must maintain both detail and summary information. b. Business processes may vary from company to company. c. Regardless of the extent of computerization, all accounting information systems must capture data from the transactions within business processes. *d. Business processes categorized as expenditure processes are not intended to be processes that serve customers.

SO2 2. In a manual system, an adjusting entry would most likely be initially recorded in a: a. Special journal b. Subsidiary ledger *c. General journal d. General ledger SO2 3. Which of the following is not a disadvantage of maintaining legacy systems? a. There are fewer programmers available to support and maintain legacy systems. *b. They contain invaluable historical data that may be difficult to integrate into newer systems. c. Hardware or hardware parts may be unavailable for legacy systems. d. It can be difficult to integrate various legacy systems into an integrated whole.

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SO4 4. Which of the following is not an advantage of cloud computing when compared to clientserver computing? a. It is more scalable. b. It is less costly. *c. It increases the amount of computer infrastructure in a company. d. It has expanded availability.

SO2 5. Which of the following is a disadvantage of purchased accounting software, compared with software developed in-house? *a. It is custom designed for that company. b. It is less costly. c. The implementation time is shorter. d. There are fewer bugs.

SO2 6. Which of the following is not a method of updating legacy systems? a. Enterprise application integration *b. Back office ware c. Screen scraper d. Complete replacement SO5 7. When categorizing the accounting software market, a company with revenue of $8 million would most likely purchase software from which segment? a. Small company *b. Midmarket c. Beginning ERP d. Tier 1 ERP SO6 8. An IT system that uses touch-screen cash registers as an input method is called: a. Electronic data interchange b. E-business *c. Point-of-sale system d. Source documents and keying SO7 9. When similar transactions are grouped together for a specified time for processing, it is called: a. Online processing b. Real-time processing

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*c. Batch processing d. Group processing SO7 10. Which of the following is not correct regarding the differences in the ways that real-time systems differ from batch systems?

Real-Time Systems Batch Systems a. Must use direct access files. Can use simple sequential files. b. Processing occurs on demand. Processing must be scheduled. *c. Processing choices are menu-driven. Processing is interactive. d. Supporting documents are prepared Supporting documents are prepared as items are processed. during scheduled runs.

SO9 11. In documenting systems, which pictorial method is described as a method that diagrams the actual flow and sequence of events? a. Systems flowchart *b. Process map c. Data flow diagram d. Entity relationship diagram SO9 12. (CMA Adapted) A company in Florida provides certified flight training programs for aspiring new pilots of small aircraft. Although awarding a pilot’s license requires one-on-one flight time, there is also much preparatory training conducted in classroom settings. The company needs to create a conceptual data model for its classroom training program, using an entityrelationship diagram. The company provided the following information: Floridian Flight, Inc. has 10 instructors who can tach up to 30 pilot trainees per class. The company offers 10 different courses, and each course may generate up to eight classes.

Identify the entities that should be included in the entity-relationship diagram: a. Instructor, Floridian Flight Inc., Pilot Trainee b. Instructor, Floridian Flight Inc., Course, Enrollment, Class c. Floridian Flight Inc., Enrollment, Course, Class, Pilot Trainee *d. Instructor, Course, Enrollment, Class, Pilot Trainee TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 13. IT systems have dramatically affected many aspects of business. Which of the following is not one of the changes? a. Data input into accounting information systems. b. The way that data is processed in the system. *c. The accounting information that is reported by the system. d. The outputs of the system.

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SO1 14. Which of the following statements is false? a. Technology has allowed many industries to provide better, faster, and higher quality information. b. Business process must adapt to the new technologies. c. Business processes, IT systems, and the accounting information system are inextricably linked. *d. IT systems have not had a major impact on the input of data into the accounting information system.

SO1 15. The system that captures, records, processes, and reports accounting information is referred to as a(n): *a. Accounting information system b. Management information system. c. System of business processes. d. Client-server system.

SO1 16. Information captured by a system is generated by financial transactions: a. Within the organization only. b. Between an organization and its customers only. c. Between an organization and its vendors only. *d. Within the organization and between an organization and its customers and vendors.

SO1 17. A prescribed sequence of work steps completed in order to produced a desired result for an organization is the definition of: a. Accounting information system *b. Business process c. Business transaction d. Financial statement SO1 18. Which of the following statements, related to a business process, is not a true statement? a. It has a well-defined beginning and end. *b. Usually takes a long-period of time to complete. c. Occur so that the organization may serve its customers. d. Is initiated by a particular kind of event.

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SO1 19. When a transaction occurs there are systematic and defined steps that take place within the organization to complete all of the underlying tasks. These “defined steps†are referred to as: *a. Business Processes b. Financial Transactions c. Accounting Information Systems d. Customer Service Arenas SO1 20. The substance of an accounting information system includes: a. Initiate an event b. Steps taken to create a business process *c. Capturing, recording, processing and reporting accounting information d. Selection of client-server computing SO1 21. Which of the following is not one of the general categories of business processes? a. Revenue Processes *b. Inventory Processes c. Expenditure Processes d. Conversion Processes SO2 22. Which of the following correctly states the order of steps in a manual accounting system? *a. Source Documents, Journals, Ledgers, Reports b. Journals, Source Documents, Ledgers, Reports c. Source Documents, Ledgers, Journals, Reports d. Ledgers, Reports, Journals, Source Documents SO2 23. Which of the following statements is true? a. All accounting systems in use today are computerized systems. *b. All accounting systems, whether computerized or not, must capture data, process the data, and provide outputs c. It is not necessary for an accounting system to maintain summary information if it maintains detail information. d. The general ledger will be summarized and then posted to the subsidiary ledger.

SO2 24. The choice of accounting information system will depend on all of the following except: a. The size of the organization b. The philosophy of management *c. The ability of the company to capture information d. The nature of its processes

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SO2 25. The record that captures the key data of a transaction is called: a. Turnaround document b. Ledger c. Journal *d. Source document SO2 26. In order to organize the study of accounting information systems, the authors divided the systems in place into three categories. Which of the following is not one of those categories? a. Manual Systems *b. Client-Server Systems c. Legacy Systems d. Integrated IT Systems SO2 27. Chapter 2 discusses the different approaches that can be used to enhance existing legacy systems. Which approach intends to consolidate, connect, and organize all of the computer applications, data, and business processes (both legacy and new) into a seamlessly interfaced framework of system components? a. Screen scrapers b. Legacy replacement integration *c. Enterprise application integration d. Resource management integration SO2 28. Which of the following is one of the advantages of maintaining a legacy system? *a. The system often supports unique business processes not inherent in generic accounting software. b. The system is complicated and takes time to learn and understand c. The system focuses on source documents, journals, and ledgers. d. The system is cheap to maintain.

SO2 29. Which of the following statements is true related to manual systems? a. Few small organizations use computerized accounting systems. *b. Computerized systems often rely on some manual record keeping. c. Most medium sized organizations rely on manual accounting systems. d. When using a computerized system, it is not necessary to understand the manual system.

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SO2 30. Which of the following is an example of a source document? a. Purchase order b. Employee time card c. Cash receipts *d. All of the above are examples of source documents.

SO2 31. A source document serves important functions in the accounting system. Which of the following is not one of those functions? *a. Provides the output data for financial reports b. Serves as part of the permanent audit trail c. Triggers beginning of business processes d. Provides the input data to record the transaction SO2 32. An output of the accounting system that can be used as an input in a different part of the accounting system is referred to as: a. Round table document b. Source document *c. Turnaround document d. Financial report SO2 33. Which of the following provides details for the entire set of accounts used in the organization’s accounting systems? *a. General Ledger b. Special Journal c. Subsidiary Ledger d. General Journal SO2 34. The book of original entry for any transaction not recorded in a special journal is the: a. Special Ledger b. General Ledger *c. General Journal d. Subsidiary Journal SO2 35. Special journals are created, or established, to record specific types of transactions. Which of the following is not one of the special journals? *a. Fixed Asset Journal b. Cash Receipts Journal c. Purchases Journal d. Payroll Journal

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SO2 36. The purpose of this item is to maintain the detailed information regarding routine transactions, with an account established for each entity. a. Purchases Journal *b. Subsidiary Ledger c. General Journal d. General Ledger SO2 37. Which of the following items is not one of the manual records in a manual accounting system? a. Journals b. Ledgers c. Source Documents *d. Trial Balance SO2 38. An existing system within the organization that uses older technology is called a(n): a. Manual system *b. Legacy system c. Client-server system d. Modern integrated system SO2 39. Which of the following statements does not refer to a legacy system? *a. Includes source documents, journals, and ledgers. b. Have been in place for many years. c. Much time has been spent developing, maintaining, and customizing the system. d. Often based on old or inadequate technology.

SO2 40. Organizations are often reluctant to abandon their legacy systems because: *a. The system was customized to meet specific needs. b. The process to replace the systems is inexpensive. c. The time involved for replacement is minimal. d. Information contained on the system is outdated.

SO2 41. Which of the following is not one of the advantages of maintaining the legacy systems? *a. Legacy systems are inexpensive to maintain. b. The system contains invaluable historical data that may be difficult to integrate into a new system. c. The system is well supported and understood by existing personnel who are already trained to use the system. d. The system has been customized to meet specific needs of the organization.

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SO2 42. What time frame is required for a business processing system to be considered a legacy system? a. 30 years b. 10 years c. 20 years *d. None of the above SO2 43. Which of the following is one of the disadvantages of maintaining the legacy systems? a. Often support unique business processes not inherent in generic accounting software. *b. May not easily run on new hardware. c. Contain invaluable historical data. d. Existing personnel are already trained to use the system.

SO2 44. Which of the following is not one of the disadvantages of maintaining the legacy systems? a. They become difficult to integrate when companies merge or acquire other companies. b. They are often difficult to modify to make them web based. *c. They are well supported and understood by existing personnel. d. They lack adequate, up-to-date supporting documentation.

SO2 45. Frontware, which adds modern, user friendly screen interfaces to legacy systems are referred to as: a. Turnaround software b. Graphical user face c. COBOL *d. Screen scrapers SO2 46. Instead of completely replacing their systems, organizations often try to use new technology to enhance existing systems. Which of the following is not one of the approaches taken by these organizations? a. Enterprise application integration b. Screen scrapers *c. Enterprise resource planning d. Using interface bridges

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SO2 47. A set of processes, software and hardware tools, methodologies, and technologies to integrate software systems is referred to as: *a. Enterprise application integration b. Client-server interface c. Screen scrapers d. Complete integration SO2 48. A use of enterprise application integration would include: a. Bridge the legacy systems to the new hardware and software. b. Intended to consolidate, connect, and organize all of the computer applications, data, and business processes. c. Allow real-time exchange and management of all the critical information. *d. All of the listed items would be included.

SO2 49. Which of the following is not an advantage of a legacy system? a. They have been customized to meet specific needs in the organization b. Often support unique business processes not inherent in generic accounting software c. Contain invaluable historical data that may be difficult to integrate into a new system *d. Are less costly to maintain as compared to modern ERP systems SO2 50. Which of the following is typically a characteristic of a modern, cloud based, integrated ERP system? a. They can be easily customized to meet specific needs in the organization b. They often support unique business processes of a particular organization without extensive customization *c. Typically they are less costly to maintain than legacy systems d. None of the answers are correct SO2 51. The modern integrated systems discussed by the authors include different types of architectures or model. Which of the following is not one of those models? a. Client-server model *b. Legacy accounting c. Cloud computing d. All of the listed are examples of the modern integrated systems.

SO3 52. Characteristics of a client-server system include all of the following except: a. The client and the server are networked together. b. The client computer participates in either the processing or the data manipulation. c. Individual parts of processing are shared between the server and the client. *d. The client normally stores the large database.

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SO3 53. This type of computing means that there are two types of copmuters networked together to accomplish the application processing. a. Cloud computing b. IT-Software computing *c. Client-Server computing d. Web-Server computing SO3 54. The advantage of client-server computing is: *a. PC clients perform as “smart†terminals that can accomplish some share of the process tasks. b. The server is housed at the client’s location and is maintained by the client. c. The client PC works with the entire database, whereas the server works with only a portion of the client data. d. Each of the parts - the client PC and the server - work separately and are viewed separately by the users.

SO3 55. Which of the following is not a main characteristic of client-server system? a. Client and server computer are networked together. b. Individual parts of processing are shared between the server and the client. c. The system appears to users to be one integrated whole. *d. The client does not participate in the processing or data manipulation.

SO3 56. Which of the following statements is false related to client-server computing? *a. Tasks are assigned to either the server or the client based on the size of the task. b. A large number of client-server applications are moving toward a web-based model. c. The client is more efficient at manipulating subsets of data. d. The server is more efficient in managing large databases.

SO4 57. All of the following are disadvantages to a cloud-based system except: a. Fewer manual controls over reporting transactions *b. Fewer IT employees would be needed to maintain the system c. Increased risk of fraudulent activities d. The system relies heavily on the functionality of the host server SO4 58. In the context of cloud computing, what does scalability mean for a growing company? *a. Scalability allows a growing company to purchase new capacity incrementally from a cloud provider. b. Scalability allows a growing company to offer its online services to a greater number of consumers at once.

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c. Scalability allows a growing company to purchase more hardware to improve its cloud network d. Scalability allows a growing company to gain the greatest return on capital of online investments.

SO4 59. A company that wishes to buy cloud computing services enters into an agreement with a cloud computing provider. This agreement is called a: a. Cloud Computing Contract (CCC) *b. Service Level Agreement (SLA) c. Agency Contract for Corporations (ACC) d. Cloud Provider Agreement (CPA) SO4 60. Which of the following is not an example of cloud computing? a. The current method that Apple now uses to manage iTunes. b. Google’s Gmail - e-mail software. *c. Purchasing songs from iTunes and downloading those songs onto your computer. d. Email accounts such as Yahoo.

SO4 61. Which of the following is not an advantage to a cloud model of e-mail? a. It may be accessed and read from any device you use. b. You are not required to maintain e-mail software and data storage. *c. Costs associated with maintaining are higher but are more controllable. d. Fewer IT employees would be needed.

SO4 62. There are a number of cloud computing services, and one of those services is called SaaS. This acronym stands for: *a. Software as a Service b. Systems at a Server c. Server adding another System d. Software as actual Services SO4 63. Databases that reside in the cloud are called Database as a Service (DaaS). Sometimes the database is combined with an operating system and is referred to as: a. Infrastructure as a Service *b. Platform as a Service c. Cloud computing d. Software as a Service

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SO4 64. There are a number of advantages to cloud computing. Which of the following is one of those advantages? a. As a company grows, it can easily purchase new capacity from the cloud provider. b. Once the software and data are stored in the cloud, it can be accessed by multiple devices from multiple locations. c. The company has a reduced need for servers and data storage. *d. All of the above.

SO5 65. There were four market segments identified by the authors in chapter 2. Which of the following is not one of those segments. a. Small Company Systems b. Midmarket Company Systems *c. Legacy Company Systems d. Beginning ERP Systems SO5 66. Which of the following market segments would SAP and Oracle ERP systems be categorized in? a. Midmarket Segment b. Tier 2 ERP Segment *c. Tier 1: ERP Segment d. Integrated Systems Segment SO5 67. Quickbooks and Peachtree would be part of which market segment of accounting software? *a. Small Segment b. Midmarket Segment c. Beginning ERP Segment d. Legacy Segment

SO5 68. SAP and PeopleSoft are part of which market segment of accounting software? a. Small Segment b. Midmarket Segment c. Beginning ERP Segment *d. Tier 1 ERP Segment

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SO6 69. Five different input methods were identified by the authors. Which of the following is one of those input methods. *a. EDI b. ERP c. EAI d. EPS SO6 70. Source documents are usually preprinted and sequentially prenumbered. Which of the following is not one of the reasons for this prenumbering and preprinting? a. To have an established format to capture data b. To assure that there are no duplicate source documents *c. To be sure that all of the documents have been recorded d. To be sure that all of the documents are accounted for SO6 71. This method of input for AIS is considered to be time consuming and error prone due to the human effort required to write on some documents and to manually key in the data: a. Bar Coding b. Key Punching *c. Source Documents and Keying d. Point of Sale Systems SO6 72. The use of employee prepared time cards and the entering of the time worked by the payroll department is a good example of which type of input method for AIS? a. EDI b. Bar Coding c. Point of Use System *d. Source Documents and Keying SO6 73. A printed code consisting of a series of vertical, machine readable, rectangular bars and spaces, that vary in width and are arranged in a specific ways to represent letters and numbers are referred to as: a. COBOL Coding *b. Bar Coding c. Key Coding d. EOS Coding

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SO6 74. Bar codes can be used in a number of different instances for input. Which does not represent an instance where barcodes are commonly used? a. Products that are sold b. Receiving of inventory from suppliers c. Track work in process *d. Prepare financial statements SO6 75. A method of using hardware and software that captures retail sales transactions by standard bar coding is referred to as: *a. Point of Sale System b. COBOL System c. Inventory Tracking System d. UPC System SO6 76. The letter UPC, when relating to bar codes, stands for: a. United Price Code *b. Universal Product Code c. Unity Product Cost d. Ulterior Price Company SO6 77. The inter-company, computer-to-computer transfer of business documents in a standard business format is referred to as: *a. Electronic Data Interchange b. E-Business Document Identification c. Earned Daily Interest d. Electronic Document Idea SO6 78. The major difference between EDI and e-business is: a. EDI uses the internet and e-business uses dedicated networks b. EDI does not require the use of computers *c. EDI uses dedicated networks and e-business uses the internet d. There is no difference between EDI and e-business SO7 79. After the accounting information has been input into the accounting system, it must be processed. Process accounting data involves: a. Source documents and keying b. Bar codes and point of sale c. Electronic data interchange and e-business *d. Calculations, classification, and summarization.

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SO7 80. Which of the following is not an advantage of batch processing? a. It is efficient for large volumes of similar transations b. The accounting audit trail is maintained *c. Integration across business processes is easier than when using a real-time processing system d. Batch controls can be used to check the accuracy of the data SO7 81. When all similar transactions are grouped together for a specified time and then processed together as a group, the process is referred to as: a. Grouped processing *b. Batch processing c. Bound processing d. Unit processing SO7 82. An organization that has applications having large volumes of similar transactions that can be processed at regular intervals is best suited to use which method of processing? a. Real-time processing b. Point of sale processing *c. Batch processing d. Sequential processing SO7 83. Which of the following is not one of the advantages of batch processing? a. It is generally easier to control than other types of computerized systems. b. It uses less costly hardware and software. c. It is very efficient for large volumes of like transactions when most items in the master file are used. *d. Information can be provided to users on a timely basis.

SO7 84. Which of the following is one of the disadvantages to batch processing? a. The hardware and software are more expensive. *b. Integration across business processes is difficult in legacy systems that are batch oriented. c. Batch systems can be difficult to audit because of the complexity of the system. d. Errors can be corrected immediately because the system checks for input errors as the data is entered.

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SO7 85. The processing system where transactions are processed immediately and where output is available immediately is referred to as: *a. Real-time processing b. Online processing c. Batch processing d. Sequential processing SO7 86. What is the main difference between e-business and e-commerce? a. E-business is the intercompany, computer-to-computer transfer of business documents, whereas e-commerce is the non-intercompany, computer-to-computer transfer of business documents b. An e-business is an online storefront, whereas e-commerce consists of the transactions that occur through the online storefront *c. E-business refers to all forms of electronic business transactions and processing, whereas e-commerce is a type of e-business specific to online buying and selling d. There is no difference between the two terms and they are used interchangeably SO7 87. The advantages to real-time processing include: a. As the data are entered, the system checks for input errors - therefore, errors can be corrected immediately. b. Information is provided to users on a timely basis. c. All files are constantly up-to-date. *d. All of the above are advantages.

SO7 88. The disadvantages to real-time processing include: a. Processing can take longer than normal if the master files are large. b. Adding or deleting records takes a considerable amount of time. *c. The single database that is shared is more susceptible to unauthorized access. d. Data duplication is likely because each process uses its own master file.

SO8 89. Many different types of output are generated by an accounting information system. The authors identified general categories of output. The category that would include any document that management determines would be useful to the business is: a. Internal documents *b. Internal reports c. External reports d. Trading partner documents

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SO9 90. Documentation of the accounting system allows: *a. The accountant to analyze and understand the procedures and business process and the systems that capture and record the accounting data. b. The non-accountant to create a picture or chart of what should happen within the accounting system. c. The investor to see inside the accounting system so that he / she can better understand the financial statements. d. The accountant to determine which financial statements will be necessary to properly report the results of operations.

SO9 91. Which of the following is not one of the popular documentation methods for processes and systems presented in the textbook? a. Process maps b. Document flowcharts c. Entity relationship diagram *d. Document creation map SO9 92. Which of the following symbols would not be seen in a process map? *a. Triangle b. Diamond c. Circle with a letter or number d. Oval SO9 93. A pictorial representation of business processes in which the actual flow and sequence of events in the process are presented in the diagram form - the start of the process, the steps within the process, and the finish of the process is referred to as: a. System flowchart b. ER Diagram *c. Process Map d. Data Flow Diagram

SO9 94. Which of the process map symbols is used to show the start and / or finish of a process? a. Rectangle *b. Oval c. Diamond d. Circle

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SO9 95. Which of the process map symbols is used to show a task or activity in the process? *a. Rectangle b. Oval c. Diamond d. Circle SO9 96. Which of the process map symbols is used to show a point in the process when a decision must be made? a. Rectangle b. Oval *c. Diamond d. Circle SO9 97. A process map shows a circle with a letter or number in the middle. This symbol is used to show: *a. That there is a break in the process. b. That there is a decision to be made. c. That a process is starting. d. That there is an activity that will take place.

SO9 98. This method of system documentation is intended to show the entire system, including inputs manual and computerized processes, and outputs. a. Procedure mapping *b. System flowcharting c. Data flow diagramming d. Entity relationship diagrams SO9 99. Systems professionals in the design and maintenance of IT systems use this documentation method. a. Document flowcharts b. Process maps c. Data flow diagrams *d. System flowcharting

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SO9 100. Accountants and auditors are less likely to use which of the following system documentation methods? a. Process maps *b. System flowcharting c. Document flowcharting d. Data flow diagrams SO9 101. When creating or reading a system flowchart, the triangle symbol represents a: *a. File b. Direct access storage c. Manual input d. Document SO9 102. When creating or reading a system flowchart, the diamond represents a(n): a. On-page connector *b. Decision c. Data d. Process SO9 103. When creating or reading a system flowchart, the rectangle represents a(n): a. Decision b. Off-page connector c. Document *d. Process SO9 104. The documenting system that shows the flow of documents and information among departments or units within an organization is called a: a. System Flowchart b. ER Diagram *c. Document Flowchart d. Data Flow Diagram SO9 105. This document system is used by systems professionals to show the logical design of a system. The advantage of the method is that it uses only four symbols. Identify the document system. *a. Data Flow Diagram b. ER Diagram c. System Flowchart d. Document Flowchart

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SO9 106. A Data Flow Diagram is used by systems professionals to show the logical design of a system. The advantage of the method is that it uses only four symbols. The symbol used to represent both sources and destinations of data is a(n): a. Rectangle with rounded corners b. Open-ended rectangle c. Arrow *d. Square with squared corners SO9 107. A Data Flow Diagram is used by systems professionals to show the logical design of a system. The advantage of the method is that it uses only four symbols. The symbol used to represent any task or function performed is a(n): *a. Rectangle with rounded corners b. Open-ended rectangle c. Arrow d. Rectangle with squared corners SO9 108. A Data Flow Diagram is used by systems professionals to show the logical design of a system. The advantage of the method is that it uses only four symbols. The symbol used to represent a data store or the storage of data is a(n): a. Rectangle with rounded corners *b. Open-ended rectangle c. Arrow d. Rectangle with squared corners SO9 109. A Data Flow Diagram is used by systems professionals to show the logical design of a system. The advantage of the method is that it uses only four symbols. The symbol used to represent the flow of data is a(n): a. Rectangle with rounded corners b. Open-ended rectangle *c. Arrow d. Rectangle with squared corners SO9 110. This document system is a pictorial representation of the logical structure of databases. It identifies the entities, the attributes of the entities, and the relationship between the entities. *a. Entity Relationship Diagram b. System Flowchart c. Entity Flowchart d. Process Map

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SO9 111. When discussing entity relationship diagrams, this is considered to be a noun, that represents items in the accounting system: a. Attribute b. Relationship *c. Entity d. Flow SO9 112. When discussing entity relationship diagrams, this is considered to be a characteristic of an entity. *a. Attribute b. Flow c. Relationship d. Field SO9 113. The rectangle used in an entity relationship diagram is used to represent a(n): a. Attribute b. Relationship *c. Entity SO9 114. The diamond used in an entity relationship diagram is used to represent a(n): a. Attribute *b. Relationship c. Entity SO9 115. The oval used in an entity relationship diagram is used to represent a(n): *a. Attribute b. Relationship c. Entity SO9 116. The term that refers to how many instances of an entity relates to each instance of another entity is: a. Supervisor b. Symbol c. Relationship *d. Cardinality

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SO10 117. Which of the following statements, regarding ethical considerations in an accounting information system is false? a. The accounting information system is often the tool used to either commit or cover up unethical behavior. *b. If there is only one person within the organization with responsibility for maintaining the computer systems, it is not difficult to detect instances of computer fraud. c. Fraud could be perpetrated and go undetected for a long time if the accounting information system is not carefully monitored. d. If accountants are well informed about the risks of unethical behavior, they will be better prepared to control those risks.

FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE

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Question 1:

SO2

Types of Accounting Information Systems

Describe the differences, benefits and weaknesses of manual AIS systems, legacy AIS systems and modern, integrated AIS Systems.

Answer: MANUAL SYSTEMS • Many small organizations use manual systems, in whole or in part, to maintain accounting records • Even those larger organizations that have computerized aspects of the accounting information system may still have parts of their processes that involve manual records • An entirely manual system would require source documents and paper-based ledgers and journals.

• Manual systems are less efficient, have a higher propensity for errors and often fail to provide the necessary financial information as timely as a fully integrated, automated system.

LEGACY SYSTEMS • an existing system in operation within an organization • uses older technology in which the organization has a considerable investment and that might be entrenched in the organization • In large companies, many legacy systems run on host-based mainframe computers.

“Host-based” means that all significant computer processing takes place on the mainframe host computer • Accounting software systems running on such computers are often written in programming languages that are nearing obsolescence.

• Legacy systems are also systems that were modern in their time, such as Enterprise Resource Systems from the era of the 1990's to early into the first decade of 2000.

Advantages of maintaining legacy systems: • have often been customized to meet specific needs in the organization • often support unique business processes not inherent in generic accounting software • contain invaluable historical data that may be difficult to integrate into a new system • are well supported and understood by existing personnel who are already trained to use the system Disadvantages of maintaining legacy systems: • are costly to maintain in both dollars and time • often lack adequate, up-to-date supporting documentation • may not easily run on new hardware, and the old hardware and parts needed for maintenance may become obsolete • are not usually based on user-friendly interfaces such as Microsoft Windows or Apple’s Mac OS • tend to use software written in older computer languages, and fewer programmers are available for maintenance

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• •

are often difficult to modify to make them Web-based or user-friendly become difficult to integrate when companies merge or acquire other companies, in which case consolidating subsidiary company information into one set of financial statements and reports can involve many manual and error-prone steps

Organizations do not always completely replace legacy systems with newer hardware and software systems, but they often try to use new technology to enhance the existing systems. One approach is to use screen scrapers, or front- ware, which add modern, user friendly screen interfaces to legacy systems. A second approach to upgrading is to use software that bridges legacy systems to new hardware and software systems and interfaces. These interface bridges are called enterprise application integration, or EAI. EAI is a set of processes, software and hardware tools, methodologies and technologies to integrate software systems. The third method is complete replacement of legacy systems MODERN, INTEGRATED SYSTEMS In today’s AIS environment, numerous accounting software systems are available for purchase that integrates many or all of the business processes within an organization. A fully integrated ERP or AIS system has the following advantages: • Is more efficient, as information is entered once and processed throughout the system • Reduces errors caused by redundant entry in non-integrated legacy systems • Faster to implement and generally lower cost as compared to legacy systems • Utilizes current technology (hardware and operating systems) • More easily integrates with other software and systems Question 2:

SO3

Client server computing systems

Describe the main characteristics of client-server computing systems.

Answer: This scenario is an example of client-server computing, and it exhibits the main characteristics of client server systems. Those characteristics are as follows: 1.

2.

3.

4.

Client and server computer are networked together.

The system appears to users to be one integrated whole.

Individual parts of processing are shared between the server and client.

The client computer participates in the processing or data manipulation in some meaningful way.

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Question 3:

SO4

Cloud computing systems

Describe four main advantages of cloud computing systems.

Answer: Advantages of Cloud Computing: 1. Scalability 2. Expanded access 3. Infrastructure is reduced 4. Cost savings Question 4:

SO6

Electronic data interchange (EDI)

Explain the term electronic data interchange (EDI) Answer: Electronic data interchange (EDI) is the intercompany, computer-to-computer transfer of business documents in a standard business format. EDI transmits purchase orders, invoices, and payments electronically between trading partners. Since transmission is electronic, the paper source documents and the manual keying of those documents are eliminated. For example, if Company A plans to purchase from Company B via EDI, Company A transmits a purchase order electronically to Company B. Company B’s computer system receives and processes the order electronically. The mailing of a paper purchase order and the keying of that order by Company B has been eliminated.

Therefore, we can see that EDI is a method of electronically inputting data into the accounting system Question 5:

SO9

Documenting Processes and Systems

Identify the term for the pictorial representations of processes and systems described in each paragraph. Choose from the following list: Process map System flowchart Document flowchart Data flow diagram Entity relationship diagram (ER diagram ) A _____________________________is intended to depict the entire system, including inputs, manual and computerized processes, and outputs. They do not necessarily show details of each process, but display the overall sequence of processes and the media used for processing and storage.

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________ _________________ are pictorial representations of the logical structure of databases. They identify the entities, the attributes of entities, and the relationship between entities. Some accountants find these diagrams to be an excellent tool to represent the accounting data and entities in accounting systems because the diagrams are a simple way to analyze the complex relationships between entities in an accounting system.

A _____________________________shows the flow of documents and information among departments or units within an organization. These documents are usually divided into columns, each representing a department or unit of the organization. This document traces each document in a process from its origin to its final destination. _________________________are pictorial representations of business processes in which the actual flow and sequence of events in the process are presented in diagram form—the start of a process, the steps within the process, and a finish of the process.

A _____________________is used by systems professionals to show the logical design of a system. The advantage of this document is that they use only four symbols and are simple to read and understand.

ANSWER: A system flowchart is intended to depict the entire system, including inputs, manual and computerized processes, and outputs. They do not necessarily show details of each process, but display the overall sequence of processes and the media used for processing and storage.

Entity relationship diagrams, or ER diagrams are pictorial representations of the logical structure of databases. They identify the entities, the attributes of entities, and the relationship between entities. Some accountants find these diagrams to be an excellent tool to represent the accounting data and entities in accounting systems because the diagrams are a simple way to analyze the complex relationships between entities in an accounting system.

A document flowchart shows the flow of documents and information among departments or units within an organization. These documents are usually divided into columns, each representing a department or unit of the organization. This document traces each document in a process from its origin to its final destination.

Process maps are pictorial representations of business processes in which the actual flow and sequence of events in the process are presented in diagram form—the start of a process, the steps within the process, and a finish of the process.

A data flow diagram, or DFD, is used by systems professionals to show the logical design of a system. The advantage of this document is that they use only four symbols and are simple to read and understand.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 3: Fraud, Ethics, and Internal Control STUDY OBJECTIVES – Chapter 3 1. An introduction to the need for a code of ethics and internal controls 2. The accounting-related fraud that can occur when ethics codes and internal controls are weak or not correctly applied 3. The nature of management fraud 4. The nature of employee fraud 5. The nature of customer fraud 6. The nature of vendor fraud 7. The nature of computer fraud 8. The policies that assist in the avoidance of fraud and errors 9. The maintenance of a code of ethics 10. The maintenance of accounting internal controls 11. The maintenance of information technology controls 12. The internal control requirements of the Sarbanes–Oxley Act of 2002 TEXTBOOK QUESTIONS: End of Chapter Questions: SO1 1. The careful and responsible oversight and use of the assets entrusted to management is called: a. Control environment *b. Stewardship c. Preventive control d. Security SO2 2. Which of the following is not a condition in the fraud triangle? a. Rationalization b. Incentive *c. Conversion d. Opportunity SO3 3. There are many possible indirect benefits to management when management fraud occurs.

Which of the following in not an indirect benefit of management fraud? *a. Delayed exercise of stock options b. Delayed cash flow problems c. Enhanced promotion opportunities d. Increased incentive-based compensation SO4 4. Which of the following is not an example of employee fraud? a. Skimming b. Larceny

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c. Kickbacks *d. Earnings management SO4 5. Which of the following is not a common form of employee fraud? a. Inventory theft b. Expense account fraud c. Payroll fraud *d. Refund fraud SO4 6. Segregation of duties is a fundamental concept in an effective system of internal controls.

Nevertheless, the effectiveness of this control can be compromised through which situation? a. A lack of employee training *b. Collusion among employees c. Irregular employee reviews d. The absence of an internal audit function SO4 7. The most difficult type of misstatement to discover is fraud that is concealed by: a. Over-recording the transactions *b. Nonrecorded transactions c. Recording the transactions in subsidiary records d. Related parties SO6 8. The review of amounts charged to the company from a seller that it purchased from is called a: *a. Vendor audit b. Seller review c. Collusion d. Customer review SO6 9. Which of the following is generally an external computer fraud, rather than an internal computer fraud? *a. Spoofing b. Input manipulation c. Program manipulation d. Output manipulation SO10 10. Which control activity is intended to serve as a method to confirm the accuracy or completeness of data in the accounting system? a. Authorization b. Segregation of duties

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c. Security of assets *d. Independent checks and reconciliations SO10 11. COSO describes five components of internal control. Which of the following terms is best described as "policies and procedures that help ensure management directives are carried out and management objectives are achieved"? a. Risk assessment b. Information and communication *c. Control activities d. Control environment SO10 12. Proper segregation of functional responsibilities calls for separation of the functions of: a. Authorization, execution, and payment *b. Authorization, recording, and custody c. Custody, execution, and reporting d. Authorization, payment, and recording SO11 13. AICPA Trust Principles identify five categories of risks and controls. Which category is best described by the statement, "Information process could be inaccurate, incomplete, or not properly authorized"€ ? a. Security b. Availability *c. Processing integrity d. Confidentiality SO10 14. A company's cash custody function should be separated from the related cash recordkeeping function in order to: a. Physically safeguard the cash b. Establish accountability for the cash c. Prevent the payment of cash disbursements from cash receipts *d. Minimize opportunities for misappropriations of cash TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 15. The chance for fraud or ethical lapses will not be reduced if management: a. Emphasizes ethical behavior b. Models ethical behavior c. Hires ethical employees *d. Is unethical

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SO1 16. The Phar-Mor fraud began when management: a. Forgot to change the budgeted figures that had been incorrectly computed. *b. Attempted to make the actual net income match the budgeted amounts. c. Overstated their expenses to cover amounts embezzled from the company. d. Understated the revenue in order to reduce the tax payable to the IRS. SO1 17. Each of the following companies was involved in fraudulent financial reporting during 2001 and 2002, except: a. Adelphia Communications Corp. *b. Microsoft Corporation c. Enron Corp. d. Xerox Corporation SO1 18. In addition to ethical practices, management has an obligation to maintain a set of processes and procedures to assure accurate financial reporting and protection of company assets. This obligation arises because: a. Many groups have expectations of management. b. Management has a stewardship obligation to investors. c. Management has an obligation to provide accurate reports to non-investors. *d. All of the above are reasons for the obligation.

SO1 19. Which of the following is not an obligation of management in an organization with strong ethical practices and internal controls? a. to safegauard the funds invested by owners of the company b. to maintain internal controlswithin the organization *c. to safeguard the personal assets and investments of each owner, and make recommendations of the proper investment vehicles for the owners to receive an adequate return on their investments. d. to enforce a code of ethics SO1 20. A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives related to the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations is: *a. COSO's definition of internal control b. AICPA's definition of stewardship c. ACFE's definition of confidentiality d. IMA's definition of competency

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SO1 21. If an organization's IT systems are not properly controlled, they may become exposed to the risks of: a. Unauthorized access b. Erroneous processing c. Service interruption *d. All of the above SO1 22. A set of documented guidelines for moral and ethical behavior within an organization is termed a(n): a. Accounting Information System *b. Code of Ethics c. Internal Control d. Sarbanes-Oxley

SO1 23. Which individual or group has the responsibility to establish, enforce, and exemplify the principles of ethical conduct within an organization? a. Board of Directors b. Securities and Exchange Commission *c. Management d. Audit Committee SO2 24. The theft, concealment, and conversion of personal gain of another's money, physical assets, or information is termed: a. Defalcation b. Skimming c. Larceny *d. Fraud SO2 25. Which is not one of the three conditions necessary for fraud perpetration *a. Desire to commit the fraud b. Incentive to commit the fraud c. Rationalization of the fraudulent action d. Opportunity to commit the fraud

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SO2 26. Changing the accounting records to hide the existence of a fraud is termed: a. Theft b. Conversion c. Collusion *d. Concealment SO2 27. The definition of fraud includes the theft of: a. Assets b. Money c. Information *d. All of the above SO2 28. The theft of any item of value is referred to as: a. Fraudulent financial reporting *b. Misappropriation of assets c. Misstatement of financial records d. Earnings management SO2 29. Financial pressures, market pressures, job-related failures, and addictive behaviors are all examples of which condition of the Fraud Triangle? a. Opportunity b. Conversion *c. Incentive d. Rationalization SO2 30. Circumstances that provide access to the assets or records that are the objects of the fraudulent activity describes which condition of the Fraud Triangle? a. Rationalization b. Incentive c. Concealment *d. Opportunity SO2 31. Fraudsters typically try to justify their behavior by telling themselves that they intend to repay the amount stolen or that they believe the organization owes them the amount stolen. This justification is referred to as: a. Opportunity *b. Rationalization c. Incentive d. Concealment

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SO2 32. According to the authors of this textbook, which of the following is not one of general categories of people who commit fraud? a. Employees *b. Government Agencies c. Customers d. Management SO2 33. Which of the following types of fraud is the most common, according to the Association of Certified Fraud Examiners? a. Corruption Schemes *b. Asset Misappropriation c. Earnings Management d. Financial Statement Misstatement SO2 34. Which of the following is the most common method of detecting occupational fraud? a. Financial Statement Audit b. Management Review c. Internal Audit *d. Tip from an employee, customer, or vendor SO2 35. The falsification of accounting reports is referred to as: a. Defalcation b. Internal Theft c. Misappropriation of Assets *d. Earnings Management SO3 36. Management fraud may involve: a. Overstating expenses b. Understating assets *c. Overstating revenues d. Overstating liabilities SO3 37. Internal controls can be effective in preventing or detecting all of the following types of fraud except: a. Customer Fraud *b. Management Fraud c. Vendor Fraud d. Employee Fraud

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SO3 38. Management misstatement of financial statements often occurs in order to receive indirect benefits such as: a. Decreased income taxes b. Delayed cash flows *c. Increased stock prices d. Increased dividends SO3 39. Management circumvention of systems or internal controls that are in place is termed: *a. Management override b. Management collusion c. Management stewardship d. Management manipulations SO4 40. The theft of assets by a non-management employee is termed: a. Inventory theft *b. Employee fraud c. Expense account fraud d. Skimming SO4 41. A situation where the organization's cash is stolen before it is entered in the accounting records is termed: a. Kickback b. Larceny c. Collusion *d. Skimming SO4 42. A kickback is an example of which type of fraud? a. Cash Receipts Fraud *b. Accounts Payable Fraud c. Accounts Receivable Fraud d. Expense Account Fraud SO4 43. An example of Cash receipts fraud would include: *a. An employee steals checks collected from customers b. An employee overstates hours worked on a timecard c. Management understates accounts payable amounts d. An employee steals checks before being paid to vendors

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SO4 44. A situation where the organization's cash is stolen after it is entered in the accounting records is termed: a. Kickback *b. Larceny c. Collusion d. Skimming SO4 45. A cash payment made by a vendor to an organization's employee in exchange for a sale to the organization by the vendor is termed: a. Bribery b. Collusion *c. Kickback d. Payment Fraud SO4 46. When two or more people work together to commit a fraud, it is called: *a. Collusion b. Larceny c. Skimming d. Override SO4 47. Jamie Stark, a sales employee, stole merchandise from her employer, and Frank Adams, the accounting clerk, covered it up by altering the inventory records. This is an example of: a. Inventory theft b. Financial journal fraud c. Skimming *d. Collusion SO4 48. Skimming is a type of employee fraud where a. An employee sets up an account as a vendor and collects payments for false invoices. b. Steeling a portion of inventory after it is received in teh warehouse, but before it is stored in its inventory location. c. Purchasing personal items on a company credit card or submitting a personal purchase as an employee expense reimbursement. *d. an employee steels cash before it is entered into the accounting records.

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SO5 49. When a customer improperly obtains cash or property from a company, or avoids liability through deception, it is termed: a. Check fraud *b. Customer fraud c. Credit card fraud d. Refund fraud SO5 50. Examples of customer fraud include all of the following except: a. Credit Card Fraud b. Check Fraud *c. Cash Fraud d. Refund Fraud SO6 51. Which of the following would be considered a vendor fraud? *a. The submission of duplicate or incorrect invoices. b. A customer tries to return stolen goods to collect a cash refund. c. The use of stolen or fraudulent credit cards. d. Inflating hours worked.

SO7 52. The theft of proprietary company information is called: a. Vendor fraud b. Customer fraud *c. Espionage d. Management fraud SO7 53. Which of the following is a characteristic of computer fraud? a. A computer is used in some cases to conduct a fraud more quickly and efficiently. b. Computer fraud can be conducted by employees within the organization. c. Computer fraud can be conducted by users outside an organization. *d. All of the above are characteristics SO7 54. A fraudster uses this to alter a program to slice a small amount from several accounts, crediting those small amounts to the perpetrator's benefit. a. Trap door alteration *b. Salami technique c. Trojan horse program d. Input manipulation

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SO7 55. A small, unauthorized program within a larger legitimate program, used to manipulate the computer system to conduct a fraud is referred to as a(n): a. Trap door alteration b. Salami technique *c. Trojan horse program d. Input manipulation SO7 56. When a person alters a system generated check or reports to commit fraud it is referred to as: a. Input manipulation *b. Output manipulation c. Program manipulation d. Collusion SO7 57. This type of external computer fraud is intended to overwhelm an intended target computer system with so much bogus network traffic so that the system is unable to respond to valid traffic. *a. DoS Attack b. Hacking c. Spoofing d. Phishing SO7 58. When a person, using a computer system, pretends to be someone else, it is termed: a. DoS Attack b. Hacking *c. Spoofing d. Phishing SO8 59. Which of the following is NOT one of the three critical actions that a company can undertake to assist with fraud prevention and fraud detection? a. Maintain and enforce a cost of ethics. *b. Maintain an accounting information system c. Maintain a system of accounting internal controls d. Maintain a system of information technology controls SO9 60. The Sarbanes-Oxley act was passed in 2002 as a Congress's response to the many situations of fraudulent financial reporting discovered during 2001. The intention of the Act was: a. Police the accounting firms responsible for auditing the corporations. b. Punish the companies that had been involved in the cases of fraudulent financial reporting.

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c. Establish accounting standards that all companies are to follow. *d. Reform accounting, financial reporting, and auditing functions of companies that are publicly traded.

SO9 61. The types of concepts commonly found in a code of ethics would not include: a. Obeying applicable laws and regulations that govern business. b. Avoiding all conflicts of interest. *c. Operating at a profit in all reporting periods. d. Creating and maintaining a safe work environment.

SO9 62. Establishing and maintaining a culture where ethical conduct is recognized, valued, and exemplified by all employees can be accomplished by doing all of the following except: a. Obeying applicable laws and regulations that govern business b. Protecting the Environment *c. Avoiding some conflicts of interest d. Conducting business in a manner that is honest, fair and trustworthy SO10 63. The objectives of an internal control system include all of the following except: *a. Maintain ongoing education b. Safeguard assets c. Maintain accuracy and integrity of accounting data d. Ensure compliance with management directives SO10 64. The authors presented their "picture" of internal control as a series of umbrellas which represent different types of controls. Which of the following is not one of those types of controls? a. Prevention *b. Investigation c. Detection d. Correction SO10 65. This type of control is designed to avoid errors, fraud, or events not authorized by management. *a. Prevention b. Judicial c. Detection d. Correction

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SO10 66. This type of control is included in the internal control system because it is not always possible to prevent all frauds. They help employees to discover or uncover errors, fraud, or unauthorized events. a. Investigation b. Judicial *c. Detection d. Correction SO10 67. The accounting profession has accepted this report as the standard definition and description of internal control. a. Sarbanes-Oxley Report b. FCPA Report c. ERI Report *d. COSO Report SO10 68. The COSO report is also known as: a. Fraud Triangle *b. Internal Control Integrated Framework c. Code of Ethical Behavior d. Report to the Nation SO10 69. All of the following are reasons why it is not possible to eliminate all fraud risks, except a. Human Error b. Human Behavior *c. Opportunity d. May not be cost effective SO10 70. According to the COSO report, there are five different interrelated components of internal control. Which of the following is not one of those five components? *a. Code of Ethics b. Control Environment c. Information and Communication d. Monitoring Activities SO10 71. Which of the following statements related to the COSO report is false? a. The COSO report provided the standard definition of internal control accepted be the accounting industry. b. The COSO report is commonly known as the Internal Control Integrated Framework. *c. The COSO report has not been updated since it was issued in 1992.

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d. The COSO report was the result of a comprehensive study of interest control.

SO10 72. The component of internal control, identified in the COSO report, that sets the tone of an organization and includes the consciousness of its employees is: a. Risk Assessment b. Control Activities *c. Control Environment d. Information and Communication SO10 73. The control environment component of internal control was identified to have a number of different factors. Which of the following is NOT one of those factors? a. Management's oversight responsibility, including its philosophy and operating style *b. The identification of sources of risk c. The integrity and ethical values of the entity's people d. The board of directors demonstrates independence from management and exercises oversight of internal controls.

SO10 74. One of the components of internal control identified by COSO required that management must be considering threats and the potential for risks, and stand ready to respond should these events occur. This component is referred to as: a. Control Environment b. Control Activities *c. Risk Assessment d. Communication SO10 75. The process of risk assessment would include all of the following actions, except: a. Identify sources of risk, both internal and external b. Determine the impacts of identified risks c. Develop and execute an action plan to reduce the impact and probability of identified risks *d. Report the risks to the audit committee SO10 76. The COSO report identified a component of internal control as the policies and procedures that help ensure that management directives are carried out and that management directives are achieved The component is: *a. Control activities b. Risk assessment c. Monitoring Activities d. Information and communication

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SO10 77. The range of actions that make up the component of internal control referred to as control activities includes each of the following, except: a. Segregation of duties *b. Risk assessment c. Independent checks and reconciliations d. Authorization of transactions SO10 78. The approval or endorsement from a responsible person or department of an organization that has been sanctioned by top management is the process of: a. Securing assets b. Segregating duties *c. Authorizing transactions d. Adequate recording SO10 79. Which of the following statements is false, related to the authorization of transactions? a. Every transaction that occurs must be properly authorized in some manner. b. General Authorization is the set of guidelines that allows transactions to be completed as long as they fall within established parameters. *c. It is not possible, nor is it important, to try to ensure that an organization engage only in transactions that are authorized. d. Specific authorization that explicit approval is needed for that single transaction to be completed.

SO10 80. The category of control activities referred to as segregation of duties requires that certain activities should be the responsibility of different person or department. The three duties that are to be separated are: a. Authorizing, recording, and paying b. Recording, custody, and disposition c. Authorizing, paying, and custody *d. Authorizing, recording, and custody SO10 81. If an accounting supervisor were allowed to hire employees, approve the hours worked, prepare the paychecks, and deliver the paychecks, which of the categories of control activities would be violated? a. Adequate records *b. Segregation of duties c. Authorization of transactions d. Independent checks

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SO10 82. A good system of internal control includes many types of documentation. Which of the following types of documentation is not part of the adequate records and documents category of internal control? a. Schedules and analyses of financial information b. Supporting document for all significant transactions c. Accounting cycle reports *d. All of the following are types of documentation SO10 83. The existence of verifiable information about the accuracy of accounting records is called a(n): *a. Audit trail b. Internal control c. Risk assessment d. Supporting documentation SO10 84. When discussing the security of assets and documents, there are many actions that can be taken. Which of the following would not be related to this category of internal control? a. Securing the assets and records so that they are not misused or stolen. b. Limiting access to certain assets to the extent that is practical. *c. Identifying sources of risk and estimating the possibility of that risk. d. Enacting physical safeguards, such as security cameras, to protect some assets.

SO10 85. Independent checks on the performance of others is one of the categories of internal control.

These independent checks would include all of the following, except: a. Reviewing batch totals b. Reconciliation c. Comparison of physical assets with records *d. Use of appropriate ID to enter restricted areas SO10 86. This activity serves as a method to confirm the accuracy and completeness of data in the accounting system: a. Compensating control *b. Independent checks c. Audit trail d. Supporting documentation

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SO10 87. Which of the following was NOT listed as a procedure to accomplish independent checks? a. Recalculation of amounts b. Analysis of reports *c. Review of auditing procedures d. Reconciliation SO10 88. Which of the following objectives were not identified as necessary to be provided by an effective accounting system? *a. Prepare the appropriate documents b. Identify all relevant financial events c. Capture the important data d. Proper recording and processing of the data SO10 89. The ongoing review and evaluation of a system of internal control is referred to as: a. Risk assessment *b. Monitoring Activities c. Segregating d. Communication SO10 90. This level of assurance means that controls achieve a sensible balance of reducing risk when compared with the cost of the control. a. Absolute assurance b. Probable assurance *c. Reasonable assurance d. Convincing assurance SO10 91. Factors that limit the effectiveness of internal controls include all of the following except: a. Flawed judgment applied in decision making b. Human error c. Controls can be circumvented or ignored *d. All of the above are factors that limit the effectiveness of internal controls SO10 92. In order to have the segregation of duties recommended by COSO, it would be necessary for a small organization to hire two additional individuals. At this time, there is not enough work for the one office employee to stay busy. The reason for not hiring the additional people would have to do with: a. Human error *b. Cost versus benefit c. Collusion

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d. Authorization SO11 93. In response to the need for internal controls above and beyond what was described by COSO, the Information Systems Audit and Control Association developed an extensive framework of IT controls entitled: a. Trust Principles *b. Control Objectives for Information Technology (COBIT) c. Control Instrument for Certified Accountants (CICA) d. American Internal Control Practice Association (AICPA) SO11 94. The Trust Services Principles document divided the risks and controls in IT into five categories. Which of the following is not one of those categories? *a. Certification b. Security c. Processing Integrity d. Confidentiality SO11 95. The main risk related to this category of Trust Services Principles is unauthorized access. a. Online privacy b. Confidentiality c. Processing integrity *d. Security SO11 96. The risk related to this category of Trust Services Principles could be inaccurate, incomplete, or improperly authorized information. a. Online privacy b. Confidentiality *c. Processing integrity d. Security SO11 97. The risk related to this category of Trust Services Principles is that personal information about customers may be used inappropriately or accessed by those either inside or outside the company. a. Confidentiality *b. Online privacy c. Security d. Availability

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SO11 98. The risk related to this category of Trust Principles is system or subsystem failure due to hardware or software problems. *a. Availability b. Security c. Integrity d. Confidentiality FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE

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Question 1.

SO 2

Accounting Related Fraud

In order for a fraud to be perpetrated, three conditions must exist. List and define the three conditions.

ANSWER  Incentive to commit the fraud  Opportunity to commit the fraud  Rationalization of the fraudulent action Question 2.

SO 3

Management Fraud

Explain the term management fraud and outline specific examples of management fraud and the incentives or impetus for such fraud.

ANSWER Management fraud, conducted by one or more top-level managers within the company, is usually in the form of fraudulent financial reporting. Oftentimes, the chief executive officer (CEO) or chief financial officer (CFO) conducts fraud by misstating the financial statements through elaborate schemes or complex transactions.

Managers misstate financial statements in order to receive such indirect benefits as the following: 1. Increased stock price. Management usually owns stock in the company, and it benefits from increased stock price.

2. Improved financial statements, which enhance the potential for a merger or initial public offering (IPO), or prevent negative consequences due to non- compliance with debt covenants or decreased bond ratings.

3. Enhanced chances of promotion, or avoidance of firing or demotion.

4. Increased incentive-based compensation such as salary, bonus, or stock options.

5. Delayed cash flow problems or bankruptcy.

Management fraud typically: 1.

2.

3.

4.

Is intended to enhance financial statements Is conducted or encouraged by the top managers Involves complex transactions, manipulations, or business structures Involves top management’s circumvention of the systems or internal controls that are in place—known as management override

Ch 3 Test bank – 5e

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Question 3.

SO 5

Customer fraud

Explain and outline specific examples of customer fraud ANSWER Customer fraud occurs when a customer improperly obtains cash or property from a company, or avoids a liability through deception. Credit card fraud and check fraud involve the customer’s use of stolen or fraudulent credit cards and checks. Refund fraud occurs when a customer tries to return stolen goods to collect a cash refund.

Question 4.

SO 6

Vendor Fraud

Explain and outline specific examples of vendor fraud ANSWER Vendor fraud occurs when vendors obtain payments to which they are not entitled.  Unethical vendors may intentionally submit duplicate or incorrect invoices, send shipments in which the quantities are short, or send lower-quality goods than ordered  Vendor fraud may also be perpetrated through collusion  More and more companies are conducting vendor audits as a way to protect themselves against unscrupulous vendors. Vendor audits involve the examination of vendor records in support of amounts charged to the company.

Question 5.

SO 7

Computer Fraud

Explain and outline specific examples of computer fraud Organizations must attempt to prevent or detect fraudulent activities involving the computer.

There are so many different kinds of computer fraud that it is not feasible to describe all the possibilities. A few types of computer fraud include:  Industrial espionage- the theft of proprietary company information, y digging through the rash of the intended target company  Software piracy- the unlawful copying of a software program INTERNAL SOURCES OF COMPUTER FRAUD When an employee of an organization attempts to conduct fraud through the misuse of a computer-based system, it is called internal computer fraud. Internal computer fraud is concerned with: 1. Input manipulation a. Involves altering data that is input into the computer 2. Program manipulation a. Occurs when a program is altered in some fashion to commit a fraud b. Salami technique-to alter a program to slice a small amount from several accounts then credit those small amounts to the perpetrator’s benefit c. Trojan horse program- small, unauthorized program within a larger program, used to manipulate the computer system

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d. Trap door alternation- a valid programming tool that is misused to commit fraud 3. Output manipulation EXTERNAL SOURCES OF COMPUTER FRAUD Two common types of external computer fraud are: 1. Hacking a. is the term commonly used for computer network break-ins b. Hacking may be undertaken for various reasons, including industrial espionage, credit card theft from online databases, destruction or alteration of data, or merely thrill-seeking c. A particular kind of hacking that has increased dramatically in recent years is denial of service (DoS) attacks. A denial of service attack is intended to over- whelm an intended target computer system with so much bogus network traffic that the system is unable to respond to valid network traffic 2. Spoofing a. occurs when a person, through a computer system, pretends to be someone else b. There are two kinds of spoofing that are currently prevalent: i. Internet spoofing ii. E-mail spoofing c. Internet spoofing is the most dangerous to the accounting and control systems, because a spoofer fools a computer into thinking that the network traffic arriving is from a trusted source d. Within the Internet, each computer server is identified by a unique Internet protocol (IP) address. Any network traffic between computers is broken into small “packets” of data. Each packet includes the IP addresses of both the sender and receiver of the packet. In spoofing, the originating IP address is intentionally changed to make it appear that the packet is coming from a different IP address e. E-mail spoofing might flood employees’ e-mail boxes with junk mail but usually does not result in defrauding their company. E-mail spoofing is usually used in an attempt to scam consumers Question 6.

SO 11

Risk and controls in IT Systems

Risk and controls in IT are divided into five categories in the Trust Services Principles. Match the risk below with corresponding definition of that risk: Security Availability Processing integrity Online privacy Confidentiality 1.

The risk related to _________________ is that information that should not be disclosed about the company or its business partners may be subject to unauthorized access during its transmission or storage in the IT system.

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2.

The risk related to _________________is system or subsystem failure due to hardware or software problems. An example of a risk that can cause interruptions to the system would be a virus that causes the system to slow down or fail.

3.

The risk in this area is that personal information about customers may be used inappropriately or accessed by those either inside or outside the company. An example is the theft of credit card numbers when orders are placed through the company website.________________________

4.

The risk related to __________________ could be inaccurate, incomplete, or improperly authorized information. An example of this type of risk would be an error in entering hours worked for a worker’s pay. The person keying hours worked into the payroll software might accidentally type an incorrect number of hours. Controls should be implemented to reduce erroneous, incomplete, or unauthorized transactions or data.

5.

The risk related to ______________is unauthorized access, which may be both physical access and logical access. An example of unauthorized physical access would be a person breaking into the computer room and damaging computer equipment. An example of logical access would be an unauthorized hacker stealing data such as credit card numbers.

Question 7.

SO 11

Risk and controls in IT Systems

Risk and controls in IT are divided into five categories in the Trust Services Principles. Match the risk below with corresponding definition of that risk: RISK

LETTE R

A. Security. The risk related to security is unauthorized access, which may be both physical access and logical access.

B. Processing integrity. The risk related to processing integrity could be inaccurate, incomplete, or improperly authorized information. An example of this type of risk would be an error in entering hours worked for a worker’s pay.

C. Online privacy. The risk in this area is that personal information about customers may be used inappropriately or accessed by those either inside or outside the company.

Ch 3 Test bank – 5e

EXAMPLE OF RISK An example of a risk that can cause interruptions to the system would be a virus that causes the system to slow down or fail. Internal controls can be implemented to limit the chances of failure and thereby help improve availability of the system to process information and support ongoing business.

An example is the theft of credit card numbers when orders are placed through the company website. Internal controls should be implemented to limit the chance of personal information being misused.

Examples of information of concern could be banking information and price lists. Most companies do not wish to allow price lists to be available to competitors.

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D. Availability. The risk related to availability is system or subsystem failure due to hardware or software problems.

An example of unauthorized physical access would be a person breaking into the computer room and dam- aging computer equipment. An example of logical access would be an unauthorized hacker stealing data such as credit card numbers. Internal controls must be designed and implemented to limit both types of unauthorized access.

E. Confidentiality. The risk related to confidentiality is that confidential information about the company or its business partners may be subject to unauthorized access during its transmission or storage in the IT system.

The person keying hours worked into the payroll software might accidentally type an incorrect number of hours.

Controls should be implemented to reduce erroneous, incomplete, or unauthorized transactions or data.

ANSWER A. Security. The risk related to security is unauthorized access, which may be both physical access and logical access.

B. Processing integrity. The risk related to processing integrity could be inaccurate, incomplete, or improperly authorized information. An example of this type of risk would be an error in entering hours worked for a worker’s pay.

C. Online privacy. The risk in this area is that personal information about customers may be used inappropriately or accessed by those either inside or outside the company.

D. Availability. The risk related to availability is system or subsystem failure due to hardware or software problems.

Ch 3 Test bank – 5e

D

An example of a risk that can cause interruptions to the system would be a virus that causes the system to slow down or fail. Internal controls can be implemented to limit the chances of failure and thereby help improve availability of the system to process information and support ongoing business.

C An example is the theft of credit card numbers when orders are placed through the company website. Internal controls should be implemented to limit the chance of personal information being misused.

E Examples of information of concern could be banking information and price lists. Most companies do not wish to allow price lists to be available to competitors.

A An example of unauthorized physical access would be a person breaking into the computer room and damaging computer equipment. An example of logical access would be an unauthorized hacker stealing data

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such as credit card numbers. Internal controls must be designed and implemented to limit both types of unauthorized access.

E. Confidentiality. The risk related to B confidentiality is that confidential information about the company or its business partners may be subject to unauthorized access during its transmission or storage in the IT system.

Ch 3 Test bank – 4e Page 25 of 25

Ch 3 Test bank – 5e

The person keying hours worked into the payroll software might accidentally type an incorrect number of hours. Controls should be implemented to reduce erroneous, incomplete, or unauthorized transactions or data.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 4: Internal Controls and Risks in IT Systems STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. An overview of internal controls for IT systems 2. General controls for IT systems 3. General controls from a Trust Services Criteria perspective 4. Hardware and software exposures in IT systems 5. Application software and application controls 6. Ethical issues in IT systems TEXTBOOK QUESTIONS: End of Chapter Questions: SO1 1. Internal controls that apply overall to the IT system are called: a. Overall Controls b. Technology Controls c. Application Controls *d. General Controls SO1 2. In entering client contact information in the computerized database of a telemarketing business, a clerk erroneously entered nonexistent area codes for a block of new clients. This error rendered the block of contacts useless to the company. Which of the following would most likely have led to discovery of this error into the company's computerized system? a. Limit check *b. Validity check c. Sequence check d. Record count SO2 3. Which of the following is not a control intended to authenticate users? a. User logâ€"in b. Security token *c. Encryption d. Biometric devices SO2 4. Management of an internet retail company is concerned about the possibility of computer data eavesdropping and wiretapping, and wants to maintain the confidentiality of its information as it is transmitted. The company should make use of: *a. Data encryption b. Redundant servers c. Input controls d. Password codes Ch 4 Test bank – 5e

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SO2 5. An IT governance committee has several responsibilities. Which of the following is least likely to be a responsibility of the IT governance committee? *a. Develop and maintain the database and ensure adequate controls over the database. b. Develop, monitor, and review security policies. c. Oversee and prioritize changes to IT systems. d. Align IT investments to business strategy.

SO3 6. AICPA Trust Principles describe five categories of IT risks and controls. Which of these five categories would be described by the statement, "The system is protected against unauthorized access"? *a. Security b. Confidentiality c. Processing integrity d. Availability SO3 7. The risk that an unauthorized user would shut down systems within the IT system is a(n): a. Security risk *b. Availability risk c. Processing integrity risk d. Confidentiality risk SO4 8. The risk of an unauthorized user gaining access is likely to be a risk for which of the following areas? a. Telecommuting workers b. Internet c. Wireless networks *d. All of the above SO5 9. Which programmed input validation check compares the value in a field with related fields which determine whether the value is appropriate? a. Completeness check b. Validity check *c. Reasonableness check d. Completeness check SO5 10. Which programmed input validation check determines whether the appropriate type of data, either alphabetic or numeric, was entered? a. Completeness check Ch 4 Test bank – 5e

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b. Validity check c. Reasonableness check *d. Field check SO5 11. Which programmed input validation makes sure that a value was entered in all of the critical fields? *a. Completeness check b. Validity check c. Reasonableness check d. Field check SO5 12. Which control total is the total of field values that are added for control purposes, but not added for any other purpose? a. Record count *b. Hash total c. Batch total d. Field total SO5 13. A company has the following invoices in a batch: Invoice No.

Product ID

Quantity

Unit Price

401

H42

150

$30.00

402

K56

200

$25.00

403

H42

250

$10.00

404

L27

300

$ 5.00

Which of the following numbers represents a valid record count? a. 1 *b. 4 c. 70 d. 900 TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 14. Which of the following is not a general control in an IT system: *a. Processing controls b. Authentication of Users and Limiting Unauthorized Access c. Establishment of an Organizational Structure d. Physical Security of IT equipment

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SO1 15. Unchecked risks and threats to the IT system could result in: a. An interruption of the computer operations b. Damage to an organization c. Incorrect or incomplete accounting information *d. All of the above SO1 16. In order to master risks and controls and how they fit together, which of the following is NOT one of the areas to fully understand? *a. The internal controls recommended by management b. The description of the general and application controls that should exist in IT system c. The type and nature of risks in IT systems d. The recognition of how controls can be used to reduce risk SO1 17. Internal controls that apply overall to the IT accounting system, that are not restricted to any particular accounting application, are referred to as a(n): a. Specific controls b. Application controls *c. General controls d. IT controls SO1 18. All of the following are general controls except for: a. Passwords b. Physical hardware controls c. Software controls *d. Inventory controls SO1 19. Internal controls used specifically in accounting applications to control inputs, processing, and outputs are referred to as a(n): a. Specific controls *b. Application controls c. General controls d. IT controls SO2 20. General controls are divided into five broad categories. Which of the following is not one of these categories? a. Authentication of users and limiting unauthorized access b. Hacking and other network break-ins *c. Fraud Prevention d. Business Continuity Ch 4 Test bank – 5e

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SO2 21. Hacking can be prevented by using which of the following? a. Firewalls b. Encryption c. Virtual Private Networks *d. All of the answers help prevent hacking SO2 22. General controls in IT systems are divided into five broad categories. Which of the following is NOT one of those categories? a. Authentication of uses and limiting unauthorized access *b. Output controls c. Organization structure d. Physical environment and physical security of the system.

SO2 23. A process or procedure in an IT system to ensure that the person accessing the IT system is valid and authorized is called: a. Hacking and other network break-ins b. Physical environment and physical security *c. Authentication of users and limiting unauthorized access d. Organizational structure SO2 24. This term relates to making the computer recognize a user in order to create a connection at the beginning of the computer session. a. User ID b. Password c. Smart card *d. Login SO2 25. All of the following are environmental control issues for physical hardware except for: a. High temperatures b. Fires c. Excessive humidity *d. All of the above e. None of the above SO2 26. Which of the following is NOT one of the rules for the effective use of passwords? *a. Passwords should not be case sensitive b. Longer passwords improve the strength of the password c. Passwords should contain at least one nonalphanumeric character. d. Password should be changed every 90 days.

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SO2 27. Which of the following is not a good example of an effective password? a. ABC*$123 *b. a1b2c3 c. A*1b?2C$3 d. MSU#Rules$ SO2 28. This item, that strengthens the use of passwords, is plugged into the computer's card reader and helps authenticate that the use is valid; it has an integrated circuit that displays a constantly changing ID code. These statements describe: a. Security token b. USB control key *c. Smart card d. Biometrics SO2 29. A new technology that is used to authenticate users is one that plugs into the USB port and eliminates the need for a card reader. This item is called a: a. Biometric reader b. Smart card c. USB smart key *d. Security token SO2 30. The use of the smart card or security tokens is referred to as a two factor authorization because: *a. It is based on something the user has, the token or card, and something the user knows, the password. b. It requires that the user is granted the card / token in a secure environment and that the user actually uses the card / token. c. It requires that the user has two different authorizations: (1) to receive the card / token, and (2) to use the card / token. d. It requires the use the card / token to (1) login to the system and (2) access the applications.

SO2 31. This type of authentication uses some unique physical characteristic of the user to identify the user and allow the appropriate access to the system. a. Nonrepudiation card *b. Biometric device c. Configuration table d. Computer log

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SO2 32. Which of the following is not an example of physical characteristics being used in biometric devices? a. Retina scans b. Fingerprint matching *c. Social security number d. Voice verification SO2 33. A complete record of all dates, times, and uses for each person is referred to as a(n): a. User password *b. Computer log c. User profile d. Configuration table SO2 34. This term means that a user cannot deny any particular act that he or she did on the IT system: a. Configuration b. Proliferation c. Verification *d. Nonrepudiation SO2 35. There are a number of reasons that all access to an IT system be logged. Which of the following is not one of the reasons for the log to be maintained? a. Any login or use abnormalities can be examined in more detail to determine any weaknesses in the login procedures. b. A user cannot deny any particular act that he or she did on the system. c. To establish nonrepudiation of sales transactions by a customer. *d. To establish a user profile.

SO2 36. This should be established for every authorized user and determines each user's access level to hardware, software, and data according to the individual's job responsibilities. *a. User profile b. User password c. User ID d. User log SO2 37. This table contains a list of valid, authorized users and the access level granted to each one. a. User table *b. Authority table c. Authentication table d. Configuration table Ch 4 Test bank – 5e

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SO2 38. The IT system includes this type of table for software, hardware, and application programs that contain the appropriate set-up and security settings. *a. Configuration table b. Authentication table c. User table d. Authority table SO2 39. Nonrepudiation means that: a. A user is not authorized to change configuration settings. b. A user is not allowed access to the authority tables. c. A user can prevent the unauthorized flow of data in both directions. *d. A user cannot deny any particular act that he or she did on the IT system.

SO2 40. Hardware, software, or a combination of both that is designed to block unauthorized access to an IT system is called: a. Computer log b. Biometric device *c. Firewall d. Security token SO2 41. The process of converting data into secret codes referred to cipher text is called: a. Deciphering *b. Encryption c. Nonrepudiation d. Enciphering SO2 42. This form of encryption uses a single encryption key that must be used to encrypt data and also to decode the encrypted data. a. Multiple encryption b. Public key encryption c. Wired encryption *d. Symmetric encryption SO2 43. This form of encryption uses a public key, which is known by everyone, to encrypt data, and a private key, to decode the data. a. Multiple encryption *b. Public key encryption c. Wired encryption d. Symmetric encryption Ch 4 Test bank – 5e

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SO2 44. This encryption method, used with wireless network equipment, is symmetric in that both the sending and receiving network nodes must use the same encryption key. It has been proven to be susceptible to hacking. *a. Wired Equivalency Privacy (WEP) b. Wired Encryption Policy (WEP) c. Wireless Protection Access (WPA) d. Wired Privacy Authentication (WPA) SO2 45. This encryption method requests connection to the network via an access point and that point then requests the use identity and transmits that identity to an authentication server, substantially authenticating the computer and the user. a. Wired Equivalency Privacy (WEP) b. Wired Encryption Provider (WEP) c. Wireless Provider Authentication (WPA) *d. Wireless Protection Access (WPA) SO2 46. This security feature, used on wireless networks, is a password that is passed between the sending and receiving nodes of a wireless network. a. Secure sockets layer *b. Service set identifier c. Wired provided access d. Virtual private network SO2 47. Authorized employees may need to access the company IT system from locations outside the organization. These employees should connect to the IT system using this type of network. a. Secure socket network b. Service set identifier *c. Virtual private network d. Wireless encryption portal SO2 48. The type of network uses tunnels, authentication, and encryption within the Internet network to isolate Internet communications so that unauthorized users cannot access or use certain data. a. Residential user network b. Service internet parameter network *c. Virtual private network d. Virtual public network

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SO2 49. This communication protocol is built into web server and browser software that encrypts data transferred on that website. You can determine if a website uses this technology by looking at the URL. *a. Secure sockets layer b. Service security line c. Secure encryption network d. Secure service layer SO2 50. Which of the following URL's would indicate that the site is using browser software that encrypts data transferred to the website? a. shttp://misu *b. https://misu c. http://smisus d. http.s://smisus SO2 51. A self-replicating piece of program code that can attach itself to other programs and data and perform malicious actions is referred to as a(n): a. Worm b. Encryption *c. Virus d. Infection SO2 52. A small piece of program code that attaches to the computer's unused memory space and replicates itself until the system becomes overloaded and shuts down is called: a. Infections b. Virus c. Serum *d. Worm SO2 53. This type of software should be used to avoid destruction of data programs and to maintain operation of the IT system. It continually scans the system for viruses and worms and either deletes or quarantines them. a. Penicillin Software *b. Antivirus Software c. Infection Software d. Internet Software

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SO2 54. The process of proactively examining the IT system for weaknesses that can be exploited by hackers, viruses, or malicious employees is called: a. Intrusion detection b. Virus management *c. Vulnerability assessment d. Penetration testing SO2 55. This method of monitoring exposure can involve either manual testing or automated software tools. The method can identify weaknesses before they become network break-ins and attempt to fix these weaknesses before they are exploited. *a. Vulnerability assessment b. Intrusion detection c. Encryption examination d. Penetration testing SO2 56. Specific software tools that monitor data flow within a network and alert the IT staff to hacking attempts or other unauthorized access attempts is called: a. Security detection b. Vulnerability assessment c. Penetration testing *d. Intrusion detection SO2 57. The process of legitimately attempting to hack into an IT system to find whether weaknesses can be exploited by unauthorized hackers is referred to as: a. Vulnerability assessment b. Intrusion detection *c. Penetration testing d. Worm detection SO2 58. The function of this committee is to govern the overall development and operation of IT systems. a. IT Budget Committee b. IT Audit Committee *c. IT Governance Committee d. IT Oversight Committee SO2 59. Which of the following would normally not be found on the IT Governance Committee? *a. Computer input operators b. Chief Executive Officer Ch 4 Test bank – 5e

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c. Chief Information Officer d. Heads of business units SO2 60. The IT Governance Committee has several important responsibilities. Which of the following is not normally one of those responsibilities? a. Align IT investments to business strategies b. Oversee and prioritize changes to IT systems c. Develop, monitor, and review security procedures *d. Investing excess IT funds in long-term investments SO2 61. The functional responsibilities within an IT system must include the proper segregation of duties. Which of the following positions is not one of the duties that is to be segregated from the others? a. Systems analysts *b. Chief information officer c. Database administrator d. Operations personnel SO2 62. The systematic steps undertaken to plan, prioritize, authorize, oversee, test, and implement large-scale changes to the IT system are called: a. IT Governance System b. Operations Governance *c. System Development Life Cycle d. Systems Analysis SO2 63. General controls for an IT system include: a. Controls over the physical environment only b. Controls over the physical access only *c. Controls over the physical environment and over the physical access d. None of the above SO2 64. A battery to maintain power in the event of a power outage meant to keep the computer running for several minutes after the power outage is an example of a(n): *a. Uninterruptible power supply b. System power supply c. Emergency power supply d. Battery power supply

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SO2 65. An alternative power supply that provides electrical power in the event that a main source is lost is called: a. Uninterruptible power supply b. System power supply *c. Emergency power supply d. Battery power supply SO2 66. Large-scale IT systems should be protected by physical access controls. Which of the following is not listed as one of those controls? a. Limited access to computer rooms b. Video surveillance equipment c. Locked storage of backup data *d. Encryption of passwords SO2 67. A proactive program for considering risks to the business continuation and the development of plans and procedures to reduce those risks is referred to as: a. Redundant business planning *b. Business continuity planning c. Unnecessary in the current safe environments d. Emergency backup power SO2 68. Examples of Business Continuity include all of the following except: a. Disaster Recovery Plan b. Backup Data *c. Environmental Backup Recovery Plan d. Offsite Backup SO2 69. Two or more computer network or data servers that can run identical processes or maintain the same data are called: a. Emergency power supply b. Uninterruptible power source *c. Redundant servers d. Business continuity planning SO2 70. Many IT systems have redundant data storage such that two or more disks are exact mirror images. This is accomplished by the use of: *a. Redundant arrays of independent disks b. Redundant mirror image disks c. Mirror image independent disks Ch 4 Test bank – 5e

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d. Redundant mirror image dependent disks SO3 71. The AICPA Trust Services Principles categorizes IT controls and risks into categories. Which of the following is not one of those categories? a. Confidentiality b. Security *c. Recovery d. Availability SO3 72. The establishment of log-in procedures can help prevent or lessen security risks and are referred to as: a. Reactive controls *b. Preventive controls c. Availability controls d. Confidentiality controls SO3 73. Availability risks, related to the authentication of users would include: *a. Shutting down the system and shutting down programs b. Altering data and repudiating transactions c. Stealing data and recording nonexistent transactions d. Sabotaging systems and destroying data SO3 74. The accuracy, completeness, and timeliness of the process in IT systems is referred to as: a. Availability Risks b. Security Risks c. Confidentiality Risks *d. Processing Integrity Risks SO4 75. The software that controls the basic input and output activities of the computer are called: *a. Operating System b. Application Software c. Data Base Management System d. Electronic Data Interchange SO4 76. Unauthorized access to the operating system would allow the unauthorized user to: a. Browse disk files for sensitive data or passwords b. Alter data through the operating system c. Alter application programs *d. All of the above Ch 4 Test bank – 5e

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SO4 77. A large disk storage for accounting and operating data is referred to as a(n): a. Operating system b. Application software *c. Database d. Binary monetary system SO4 78. A software system that manages the interface between many users and the database is called: a. Database security system *b. Database management system c. Database binary monetary system d. Database assessment SO4 79. A computer network covering a small geographic area, which, in most cases, are within a single building or a local group of buildings is called a: a. Land area network b. Local access network *c. Local area network d. Locality arena network SO4 80. A group of LANs connected to each other to cover a wider geographic area is called a: a. Connected local network *b. Wide area network c. Connected wide area d. Wide geographic network SO4 81. The work arrangement where employees work from home using some type of network connection to the office is referred to as: *a. Telecommuting b. Telemarketing c. Network Employment d. Electronic working SO4 82. The company-to-company transfer of standard business documents in electronic form is called: a. facsimile Transmission b. PDF Interchange *c. Electronic Data Interchange d. Tele-transmission Ch 4 Test bank – 5e

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SO4 83. Companies who provide mobile devices for employees, normally have a policy that allows the company's IT professional to remove company data and applications from the mobile device.

This process is referred to as: a. Cloud exchange b. Operations removal c. Data integrity synchronization *d. Remote wipe SO4 84. Many companies use a public cloud computing model for software, data storage or both.

Which of the following is an advantage to the public cloud computing model? a. Expanded access b. Cost savings c. Scalability *d. All of the above are advantages SO4 85. A company using public cloud computing has the ability to purchase new capacity from the cloud provider, instead of buyer servers or new data storage. This ability is referred to as: *a. Scalability b. Expanded access c. Infrastructure availability d. Provider expansion SO4 86. Risks associated with public cloud computing include all of the following, except: a. Security b. Availability c. Processing Integrity *d. Scalability SO4 87. To avoid the risks associated with a public cloud, many companies establish their own computing cloud structure. The cloud is developed, owned, maintained, and used by the user company. This cloud is referred to as: a. Company cloud b. User cloud *c. Private cloud d. Internal cloud

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SO5 88. The software that accomplishes end user tasks such as work processing, spreadsheets, and accounting functions is called: a. Operating Software b. Database Software *c. Application Software d. Management Software SO5 89. Internal controls over the input, processing, and output of accounting applications are called: a. Accounting Controls *b. Application Controls c. Network Controls d. LAN Controls SO5 90. This type of control is intended to ensure the accuracy and completeness of data input procedures and the resulting data: *a. Input Controls b. Internal Controls c. Processing Controls d. Output Controls SO5 91. This type of control is intended to ensure the accuracy and completeness of processing that occurs in accounting applications: a. Input Controls b. Internal Controls *c. Processing Controls d. Output Controls SO5 92. This type of control is intended to help ensure the accuracy, completeness, and security of outputs that result from application processing: a. Input Controls b. Internal Controls c. Processing Controls *d. Output Controls SO5 93. The process of converting data from human readable form to computer readable form is referred to as: a. Transcription *b. Data Input c. Keyboarding Ch 4 Test bank – 5e

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d. Scanning SO5 94. Which of the following is NOT one of the types of input controls? a. Source document controls b. Programmed edit checks *c. Confidentiality check d. Control totals and reconciliation SO5 95. The paper form used to capture and record the original data of an accounting transaction is called a(n): a. Input control *b. Source document c. Sales invoice d. General ledger SO5 96. Which of the following items is not one of the source document controls? *a. Validity check b. Form design c. Form authorization and control d. Retention of source documents SO5 97. The process where the details of individual transactions at each stage of the business process can be recreated in order to establish whether proper accounting procedures for the transaction were performed is called: a. Source document reconciliation b. Range check c. Validity verification *d. Audit trail SO5 98. The procedures to collect and prepare source documents are termed: a. Input validation procedures b. Form authorization procedures *c. Data preparation procedures d. Document retention procedures SO5 99. The data preparation procedures are to be well-defined so that employees will be sure of: a. Which forms to use b. When to use them c. Where to route them Ch 4 Test bank – 5e

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*d. All of the above SO5 100. Field check, limit check, range check and sequence check are all examples of: *a. Input Validation Checks b. Source Document Controls c. Control Reconciliation d. Application Controls SO5 101. This type of input validation check examines a field to ensure that the data entry in the field is valid compared with a preexisting list of acceptable values. a. Field Check b. Completeness Check *c. Validity Check d. Range Check SO5 102. This type of input validation check assesses the critical fields in an input screen to make sure that a value is in those fields. a. Field Check *b. Completeness Check c. Range Check d. Limit Check SO5 103. This type of input check ensures that the batch of transactions is sorted in order, but does not help to find the missing transactions. a. Completeness Check b. Range Check c. Self-checking Digit Check *d. Sequence Check SO5 104. An extra digit added to a coded identification number, determined by a mathematical algorithm is called a: a. Coded Digit Check *b. Self-Checking Digit Check c. Sequence Check d. Run to Run Check

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SO5 105. Which of the following is NOT one of the types of control totals? *a. Digit Count b. Record Count c. Batch Totals d. Hash Totals SO5 106. The totals of fields that have no apparent logical reason to be added are called: a. Record Totals b. Digit Totals c. Batch Totals *d. Hash Totals SO5 107. These controls are intended to prevent, detect, or correct errors that occur during the processing of an application. a. Application Controls b. Source Document Controls *c. Processing Controls d. Input Controls SO5 108. A primary objective of output controls would be: a. Manage the safekeeping of source documents *b. Assure the accuracy and completeness of the output c. Ensure that the input data is accurate d. Prevention and detection of processing errors SO6 109. The responsibility of management to safeguard assets and funds entrusted to them by the owners of an organization is referred to as: *a. Stewardship Responsibility b. IT System Controls c. Application Controls d. Internal Controls SO6 110. In addition to fraud, there are many kinds of unethical behaviors related to computers.

Which of the following is one of those behaviors? a. Misuse of confidential customer information b. Theft of data, such as credit card information, by hackers c. Employee use of the IT system hardware and software for personal use or personal gain *d. All of the above.

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SHORT ANSWER AND ESSAY QUESTIONS Question 1.

SO 2

Repudiation of sales

What does the term repudiation of sales transactions by the customer mean? Why should an organization be concerned about repudiation of sales transactions by the customer?

SOLUTION Repudiation is the attempt by a customer to claim that they were not part of a sales transaction that has taken place.

This is a concern for a company as:  an organization may suffer losses if customers repudiate sales transactions.  If companies do not have adequate controls to prevent repudiation, they may not be able to collect amounts due from customers.

Organizations may reduce the risk of such losses by requiring log-in of customers and if they maintain computer logs to establish undeniably which users take particular actions. This control can provide proof of online transactions.

Question 2.

SO 2

Firewalls and Other Controls

The director of sales has asked the CIO of the company to remove the firewall where sales transactions occurred online as he believes that the firewall is restricting legitimate sales from occurring online. Is the director of sales correct? Is it is possible for a firewall to restrict legitimate data flow?.

Required: Explain what a firewall is and what it is intended to accomplish. Identify if the director of sales correct. Is it is possible for a firewall to restrict legitimate data flow?

SOLUTION A firewall is designed to inspect incoming and outgoing data to limit the passage of unauthorized data. It is however, possible for a firewall to restrict legitimate data flow as well as unauthorized data flow.  A firewall should inspect incoming and outgoing data to limit the passage of unauthorized data flow.  Yes, it is possible for a firewall to restrict legitimate data flow as well as unauthorized data flow. This may occur if the firewall establishes limits on data flow that are too restrictive.  In order to prevent blocking legitimate network traffic, the firewall must examine data flow and attempt to determine which data is authorized or unauthorized. The packets of information that pass through the firewall must have a proper ID to allow it to pass through the firewall.

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Question 3.

SO 3,4

Operating System Risk

Required: Explain why accountants should be concerned about risks inherent in the operating system that runs the company’s accounting system.

SOLUTION Operating systems should be addressed as well as the application software that runs on top of the operating system. Operating systems have exposure areas that contain entry points for potential unauthorized access to software and/or data. Operating system and application software should both be controlled by the proper combination of general controls and application controls.

Question 4.

SO 4

Cloud Computing

Provide and explain three reasons a company would want to employ cloud computing for its ERP system.

SOLUTION There are a number of reasons why a company may elect to employ cloud computing for its ERP system.      

Cloud based ERP solutions can generally be implemented quicker and at a lower cost. ERP cloud deployments are much faster than on-premise because of the time saved in not having to procure and install the IT infrastructure.

Companies can more easily scale (add users) because they do not have to acquire additional hardware and software licenses.

Companies pay only for the usage they require at any given time, allowing greater efficiency as they do not have to size the system for the size they may be in the future.

Upgrades are simpler and less expensive, given that the cloud provider completes the upgrade over time by continually deploying changes to the software as opposed to providing a number of updates at some time in the future to the customer.

Cloud ERP customers don’t have to invest in or upgrade their servers, operating systems, databases, data centers, backup equipment, or programming environments.

All the relevant data and applications are stored remotely, so a separate offsite back up is not required.

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Question 5.

SO 4

Cloud Computing – Public verses Private

Define what is meant by (a) public and (b) private cloud computing for an ERP system. Is a private cloud less risky than a public cloud?

SOLUTION There are a number of reasons why a company may elect to employ cloud computing for its ERP system.

A private cloud is developed, owned, maintained, and used by the user company; therefore, the company controls the security, A public cloud is developed, owned and maintained by an external cloud vendor. This type of cloud computing is usually a pay-for-service model, which means that companies need to pay only for the level of service needed. In a public cloud, the cloud vendor, not the individual company invests in and controls the IT hardware, software and IT professionals supporting the system.

A private cloud is developed, owned, maintained, and used by the user company; therefore, the company controls the security, availability, processing integrity, and confidentiality of its data. Accordingly, there is less risk of losing data and applications.

Question 6.

SO 2,5

General controls and Application controls

Identify for each control whether they are a general control or an application control: No . a.

Control

G or A

b.

batch total

c.

output distribution

d.

firewall

e.

antivirus software

f.

encryption

g.

security token

h.

vulnerability assessment

validity check

SOLUTION

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Question 7.

No . a.

Control

G or A

validity check

A– application control (input)

b.

batch total

c.

output distribution

A– application control (input, processing, and output) A– application control (output)

d.

firewall

G- general control

e.

antivirus software

G- general control

f.

encryption

G- general control

g.

security token

G- general control

h.

vulnerability assessment

G- general control

SO 5

Input controls - Source document controls

Application controls include input, processing, and output controls. One type of input control is source document controls. List and briefly explain the role or importance of each of the source document controls listed in the text in chapter four.

SOLUTION a. Form design. A well-designed form will reduce the chance of erroneous or incomplete data. It could also increase the speed at which the form is completed. b. Form authorization and control. Forms should have a signature line to indicate that the underlying transaction was approved by the correct person. Blank documents should be properly controlled to limit access to them. c. Retention of source documents. Source documents should be maintained as part of the audit trail. They also serve as a way to look up data when queries are raised.

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Question 8.

SO 4

Input Validation Checks

Define each of the following input validation checks. Explain how each can prevent or detect errors.

Input Validation Check a. Field check

Definition

How the control prevents or detect errors:

b. Validity check

c. Limit check

d. Range check

e. Reasonablenes s check f.

Completeness check

g. Sign check

h. Sequence check i.

Self-checking digit

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SOLUTION Define each of the following input validation checks. Explain how each can prevent or detect errors. a. A field check examines a field to determine whether the appropriate type of data was entered. This will detect mistakes in input, such as erroneous input of numeric information in an alpha field. b. A validity check examines a field to ensure that the data entry in the field is valid compared with a preexisting list of acceptable values. This will detect mistakes in input, such as nonsense entries caused by the input personnel striking the wrong key. c. A limit check verifies field inputs by making sure that they do not exceed a preestablished limit. This prevents gross overstatements of the data beyond the acceptable limit. d. A range check verifies field inputs by making sure that they fall within a pre-established range limit. This prevents gross overstatements and understatements of the data beyond the acceptable limits. e. A reasonableness check compares the value in a field with similar, related fields to determine whether the value seems reasonable. This can detect possible errors by identifying “outliers”. f. A completeness check assesses the critical fields in an input screen to make sure that an entry has been input in those fields. This detects possible omissions of critical information. g. A sign check examines a field to determine that it has the appropriate positive or negative sign. This can prevent misstatements caused by misinterpretation of information. h. A sequence check ensures that a batch of transactions is sorted and processed in sequential order. This ensures that a batch will be in the same order as the master file.

This may prevent errors in the master file by ensuring that the sequence is appropriate to facilitate an accurate update of the master file. i. A self-checking digit is an extra digit added to a coded identification number, determined by a mathematical algorithm. This detects potential errors in input data.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 5: IT Governance STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. An introduction to IT governance and its role in strategic management 2. An overview of the system development life cycle (SDLC) 3. The elements of the systems planning phase of the SDLC 4. The elements of the systems analysis phase of the SDLC 5. The elements of the systems design phase of the SDLC 6. The elements of the systems implementation phase of the SDLC 7. The elements of the operation and maintenance phase of the SDLC 8. The critical importance of IT governance in an organization 9. Ethical considerations related to IT governance TEXTBOOK QUESTIONS: End of Chapter Questions: SO1 1. IT governance includes all but which of the following responsibilities? a. Aligning IT strategy with the business strategy *b. Writing programming code for IT systems c. Insisting that an IT control framework be adopted and implemented d. Measuring IT's performance SO2 2. Which phase of the system development life cycle includes determining user needs of the IT system? a. Systems planning *b. Systems analysis c. Systems design d. Systems implementation SO2 3. Which of the following is not part of the system design phase of the SDLC? a. Conceptual design b. Evaluation and selection *c. Parallel operation d. Detailed design SO3 4. Which of the following feasibility aspects is an evaluation of whether the technology exists to meet the need identified in the proposed change to the IT system? *a. Technical feasibility b. Operational feasibility c. Economic feasibility d. Schedule feasibility Ch 5 Test bank – 5e

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SO3 5. The purpose of the feasibility study is to assist in a. Selecting software b. Designing internal controls c. Designing reports for the IT system *d. Prioritizing IT requested changes SO4 6. Within the systems analysis phase of the SDLC, which of the following data collection methods does not involve any feedback from users of the IT system? *a. Documentation review b. Interviews using structured questions c. Interviews using unstructured questions d. Questionnaires SO5 7. A request for proposal (RFP) is used during the a. Phase-in period. *b. Purchase of software c. Feasibility study d. In-house design SO6 8. Which of the following steps within the systems implementation phase could not occur concurrently with other steps, but would occur at the end? a. Employee training b. Data conversion c. Software programming *d. Post-implementation review SO6 9. Each of the following are methods for implementing a new application system except: a. Direct cutover b. Parallel c. Pilot *d. Test SO6 10. A retail store chain is developing a new integrated computer system for sales and inventories in its store locations. Which of the following implementation methods would involve the most risk? *a. Direct cutover b. Phased-in implementation c. Parallel running d. Pilot testing Ch 5 Test bank – 5e

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SO8 11. The use of the SDLC for IT system changes is important for several reasons. Which of the following is not part of the purposes of the SDLC processes? a. As a part of strategic management of the organization b. As part of the internal control structure of the organization *c. As part of the audit of an IT system d. As partial fulfillment of management's ethical obligations SO9 12. Confidentiality of information is an ethical consideration for which of the following party or parties? a. Management b. Employees c. Consultants *d. All of the above.

TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 13. The process of determining the strategic vision for the organization, developing the long-term objectives, creating the strategies that will achieve the vision and objections, and implementing those strategies is referred to as a. IT Governance b. Strategic Governance *c. Strategic Management d. IT Management SO1 14. A structure of relationships and processes to direct and control the enterprise in order to achieve the enterprise's goals by adding value while balancing risk versus return over IT and its processes is called: *a. IT Governance b. Strategic Governance c. Strategic Management d. IT Management SO1 15. To fulfill the management obligations that are an integral part of IT governance, management need not focus on: a. Aligning IT strategy with the business strategy *b. Hiring an acceptable IT manager c. Measuring IT's performance d. Insisting that an IT control framework be adopted and implemented

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SO1 16. Which of the following is not one of the approaches used to achieve the management of an IT control framework? a. Information Systems Audit and Control Association control objectives for IT b. The International Organization for Standardization 17799, Code of Practice for Information Security Management c. The Information Technology Infrastructure Library *d. Sarbanes-Oxley Act section on IT Controls SO1 17. COBIT is an acronym for which of the following? *a. Control Objectives for Business and Information Technology b. Control Objectives for Information and related Technology c. Center for Business and Informative Technology d. Control Operations for Business and Information Technology SO1 18. A group of senior managers selected to oversee the strategic management of IT is called: a. IT Strategic Committee *b. IT Governance Committee c. Chief Information Officer (CIO) d. IT Management SO1 19. The formal process that many organizations use to select, design, and implement IT systems is the: *a. Systems Development Life Cycle b. Control Objectives for IT c. Practice for Security Management d. Information Technology Development SO1 20. The IT governance committee is made up of many different individuals within the organization. Which of the following would not be one of those individuals? a. Chief Information Officer *b. Chief External Auditor c. Chief Executive Officer d. Top Managers from User Departments SO2 21. The evaluation of long-term, strategic objectives and prioritization of the IT systems in order to assist the organizations in achieving its objectives is called: *a. Systems Planning b. Systems Analysis Ch 5 Test bank – 5e

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c. Systems Design d. Systems Implementation SO2 22. The phases of the SDLC include all of the following except: a. Systems Planning b. Systems Implementation c. Systems Analysis *d. Systems Purchasing SO2 23. This phase of SDLC involves the planning and continuing oversight of the design, implementation, and use of the IT systems. a. Systems Analysis b. Systems Implementation *c. Systems Planning d. Systems Design SO2 24. Which is the correct flow of the SDLC? a. Systems Planning, systems design, Systems Analysis, operation and maintenance, systems implementation *b. Systems Planning, Systems Analysis, systems design, systems implementation, operation and maintenance c. Systems design, Systems Analysis, Systems Planning, systems implementation, operation and maintenance d. Systems design, Systems Planning, systems implementation, operation and maintenance, Systems Analysis SO2 25. The decision to buy or design software directly follows which step in the system design flowchart? a. Conceptual design b. Systems analysis *c. Evaluation and selection d. Systems planning SO2 26. The study of the current system to determine the strengths and weaknesses and the user needs of that system is called: *a. Systems Analysis b. Systems Design c. Systems Planning d. Systems Implementation

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SO2 27. This phase of SDLC requires the collection of data about the system and the careful scrutiny of those data to determine areas of the system that can be improved. a. Systems Planning b. Systems Implementation *c. Systems Analysis d. Systems Purchasing SO2 28. The creation of the system that meets user needs and incorporates the improvements identified by the systems analysis phase is called: a. Systems Planning *b. Systems Design c. Systems Analysis d. Operation and Maintenance SO2 29. The set of steps undertaken to program, test, and activate the IT system as designed in the system design phase is called: a. Systems Planning *b. Systems Implementation c. Systems Design d. Systems Analysis SO2 30. Which of the following is true with regards to the systems development life cycle (SDLC) *a. The exact steps in the SDLC and/or their sequence are not as important as is the need to formalize and conduct those steps completely and consistently. b. Once the systems development life cycle (SDLC) is complete, it is not necessary to restart the cycle unless something is brought to the attention of the IT governance committee to indicate that another cycle is required. c. It is unlikely that the IT governance committee will go back through the phases of the SDLC to design new and improved IT systems d. In the modern IT environment, it is necessary for an organization to follow each of the steps in the SDLC in the order presented.

SO2 31. The regular, ongoing, functioning of the IT system and the processes to fix smaller problems, or bugs, in the IT system is called: a. Systems Analysis b. Systems Planning *c. Operation and Maintenance d. Systems Implementation

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SO2 32. During this phase of the SDLC, management should request and receive ongoing reports about the performance of the IT system. *a. Operation and Maintenance b. System Analysis c. Systems Design d. Systems Planning SO2 33. Which of the following is not one of the steps outlined in systems development life cycle (SDLC)? a. Systems Planning b. Systems Design *c. Systems Major Release Upgrade Plan d. Systems Implementation SO2 34. The expanded SDLC presented in the textbook expands the processes within the system design phase. This is necessary because: a. It necessary for most companies to create their own software. b. The design phase needs to include the programming activities of self-created software. *c. There is usually more than one software or system type that will meet the needs of the organization. d. Many organizations require a change in the type of operating system along with any changes in software.

SO2 35. The Evaluation and Selection cycle of the expanded SDLC would not include which of the following steps? a. Design or buy the system selected. b. Identify the alternative system approaches. c. Evaluate the fit of each of the alternatives to company needs. *d. Implement the alternative selected.

SO2 36. The process of matching alternatives system models to the needs identified in the system analysis phase is called: *a. Conceptual Design b. Systems Analysis c. Systems Planning d. Evaluation and Selection SO2 37. Which of the following is false with regards to the systems development life cycle (SDLC) a. The systems development lifecycle eventually loops back to systems planning

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b. The systems development lifecycle has changed over time as systems have become more complex c. Systems planning, analysis, design, implementation and maintenance are all steps in the SDLC. *d. When purchasing packaged, automated accounting software, it is not necessary to follow the SDLC steps.

SO2 38. The process of assessing the feasibility and fit of each of the alternative conceptual approaches and selecting the one that best meets the organization's needs is termed: a. Conceptual Design *b. Evaluation and Selection c. Systems Analysis d. Systems Implementation SO2 39. The process of designing the outputs, inputs, user interfaces, databases, manual procedures, security and controls, and documentation of the new system is referred to as: a. Conceptual Design b. Software Selection c. Systems Design *d. Detailed Design SO2 40. When attempting to prioritize IT projects, the IT governance committee needs to consider: a. The assessment of IT systems and their match to strategic organizational objectives. b. The feasibility of each of the requested modifications or upgrades. *c. Both of the above. d. None of the above.

SO3 41. A company has stated that the main strategic objective is to improve the accounts payable function within the organization. There are limited resources for IT upgrades and modifications.

The IT governance committee has received IT update requests from the public relations department, human services, and vendor satisfaction department. Given this information, which would likely be the first upgrade implemented? a. Public relations would be first because it would include all areas of the business vendors, employees, and customers. *b. Vendor satisfaction would be first because it would be most in line with the strategic objective of the company. c. Human services would be the first because the employees are the ones who are most affected by changes in the IT departments. d. It is not possible to make a decision without further information.

SO3 42. The need to match IT systems to organizational objectives emphasizes the need for the IT governance committee to include top management as its members because: Ch 5 Test bank – 5e

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a. These managers establish strategic objectives and are in the best position to assess the fit of the IT systems to those objectives. b. These managers are in a position to allocate resources and or time to the projects. *c. Both of the above d. None of the above SO3 43. The realistic possibility of affording, implementing, and using the IT systems being considered is referred to as: *a. Feasibility b. Rationality c. Sequentially d. Ranking SO3 44. The assessment of the realism of the possibility that technology exists to meet the need identified in the proposed change to the IT system is called: a. Operational Feasibility b. Economic Feasibility c. Schedule Feasibility *d. Technical Feasibility

SO3 45. The assessment of the realism of the possibility that the current employees will be able to operate the proposed IT system is referred to as: *a. Operational Feasibility b. Economic Feasibility c. Schedule Feasibility d. Technical Feasibility SO3 46. The assessment of the costs and benefits associated with the proposed IT system is referred to as: a. Operational Feasibility *b. Economic Feasibility c. Schedule Feasibility d. Technical Feasibility SO3 47. The assessment of the realistic possibility that the proposed IT system can be implemented within a reasonable amount of time is called: a. Operational Feasibility Ch 5 Test bank – 5e

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b. Economic Feasibility *c. Schedule Feasibility d. Technical Feasibility SO4 48. Typical steps within the systems analysis phase of the SDLC would not include which of the following? a. Preliminary Investigation b. Survey of the Current System *c. Economic Feasibility d. Determination of User Information Needs SO4 49. The purpose of this step in the systems analysis phase is to determine whether the problem or deficiency in the current system really exists and to make a "go"€ or a "no-go" decision. a. Survey of the Current System b. Determination of User Information Needs c. Business Process Reengineering *d. Preliminary Investigation SO4 50. A detailed study of the current system to identify weaknesses to improve upon and strengths that should be maintained is referred to as: a. Preliminary Investigation *b. System Survey c. Process Reengineering d. Determination of User Information Needs SO4 51. Watching the steps that employees take as they process transactions in the system is referred to as: a. Investigation b. Interrogation *c. Observation d. Interview SO4 52. The detailed examination of documentation that exists about the system to gain an understanding of the system under study is called a(n): *a. Documentation Review b. Systems Audit c. System Survey d. Records Observation

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SO4 53. Face-to-face, verbal questioning of users of an IT system to determine facts or beliefs about the system are called: a. Interrogation b. User Review *c. Interviews d. System Survey SO4 54. This type of question is designed such that the format and range of the answer is known ahead of time. *a. Structured Question b. Oral Question c. Unstructured Question d. Range Question SO4 55. This type of question is completely open ended, and the respondent is free to answer in any way that he / she feels addresses the question. a. Structured Question b. Oral Question *c. Unstructured Question d. Range Question SO4 56. A written, rather than an oral, form or questioning of users to determine facts or beliefs about a system is referred to as a(n): a. Interview *b. Questionnaire c. Interrogation d. System Survey SO4 57. The purpose of this phase is to question the current approaches in the system and to think about better ways to carry out the steps and processes of the system. a. Systems Analysis b. Systems Survey *c. Analysis of Systems Survey d. Preliminary Investigation SO4 58. The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in performance is called: *a. Business Process Reengineering b. Process Redesign Ch 5 Test bank – 5e

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c. Business Analysis and Design d. Business Process Design and Analysis SO4 59. The many sets of activities within the organization performed to accomplish the functions necessary to continue the daily operations are referred to as: a. Business Systems *b. Business Processes c. Business Activities d. Business Functions SO4 60. The systems analysis report, which is sent to the IT governance committee, will inform the committee of all of the following, except: a. The results of the systems survey b. User needs determination *c. Detailed design d. Recommendations regarding the continuation of the project SO5 61. This document is sent to each software vendor offering a software package that meets the user and system needs and is sent to solicit proposals. a. Requested Software Package *b. Request for Proposal c. System Software Request d. Software Vendor Needs SO5 62. When a vendor returns a request for proposal, it will include all of the following, except: *a. Match of the system and user needs b. Description of the software c. The technical support it intends to provide d. Prices for the software SO5 63. After all of the RFPs have been received, either the IT governance committee or the project team will evaluate the proposals in order to select the best software package. Things that must be considered would include: a. The match of the system and the user needs to the features of the software b. Testimonials from other customers who use the software c. Reputation and reliability of the vendor *d. All of the above

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SO5 64. This phase of the systems design for in-house development of software involves the identifying the alternative approaches to systems that will meet the needs identified in the system analysis phase. a. Request for proposal *b. Conceptual design c. Systems concept d. Systems analysis SO5 65. The process of assessing the feasibility and fit of each of the alternative conceptual approaches and selecting the one that best fits the organization's needs is called: a. Conceptual Design b. Systems Design *c. Evaluation and Selection d. Systems Implementation SO5 66. During this process, the project team must consider the number of employees, their capabilities and expertise, and any supporting systems necessary to operate each alternative design. *a. Operational feasibility b. Technical feasibility c. Economic feasibility d. Schedule feasibility SO5 67. The purpose of this analysis is to determine which of the alternative designs is the most cost effective. a. Operational feasibility b. Technical feasibility *c. Economic feasibility d. Schedule feasibility SO5 68. In this feasibility, the project team must estimate the total amount of time necessary to implement the each alternative design. a. Operational feasibility b. Technical feasibility c. Economic feasibility *d. Schedule feasibility SO5 69. Which of the following is NOT one of the approaches to cloud computing? a. Software as a Service Ch 5 Test bank – 5e

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*b. Internet Clouds c. Platform as a Service d. Private Clouds SO5 70. Which of the following is NOT considered an issue with cloud computing? a. Decreased physical security protocols *b. Increased accessibility c. Increased reliance on 3rd party providers d. Increased risk of hackers SO5 71. Considerations related to adopting or increasing cloud computing usage, include: a. The customer support provided by the cloud vendor b. The service level agreement with the cloud provider c. The manner of monitoring the could service usage *d. All of the above SO5 72. The purpose of this phase of systems design is to create the entire set of specifications necessary to build and implement the system. *a. Detailed design b. Evaluation and selection c. Operational design d. Detailed analysis SO5 73. In the detailed design stage of systems design it is necessary that the various parts of the system be designed. The parts of the system to be designed at this point would include all of the following, except: a. Outputs b. Inputs *c. Program Code d. Data Storage SO5 74. Reports and documents, such as income statements, aged accounts receivable reports, checks, and invoices are referred to as: *a. Outputs of the system b. Data storage c. Internal controls d. Inputs of the system

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SO5 75. The forms, documents, screens, or electronic means used to put data into the accounting system are called: a. Outputs of the system b. Data storage c. Internal controls *d. Inputs of the system SO5 76. All of the following steps come after the evaluation of RFPs and Software in the system design process except: a. Selecting Software b. Purchasing software c. Determining modifications to software *d. Hiring a consultant SO6 77. Which of the following is not a method of data input? a. Keying in data with a keyboard from data on a paper form b. Electronic data interchange c. Bar code scanning *d. Viewed on the screen SO6 78. There are many different types of documentation necessary to operate and maintain an accounting system. These types of documentation include all of the following, except: a. Flowcharts b. Operator Manuals *c. Output Examples d. Entity Relationship Diagrams SO6 79. A system conversion method in which the old and the new systems are operated simultaneously for a short time. a. Direct cutover conversion b. Phase-in conversion c. Pilot conversion *d. Parallel conversion SO6 80. A system conversion method in which on a chose date the old system operation is terminated and all processing begins on the new system. *a. Direct cutover conversion b. Phase-in conversion Ch 5 Test bank – 5e

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c. Pilot conversion d. Parallel conversion SO6 81. A system conversion method in which the system is broken into modules, or parts, which are phased in incrementally and over a longer period. a. Direct cutover conversion *b. Phase-in conversion c. Pilot conversion d. Parallel conversion SO6 82. A system conversion method in which the system is operated in only one or a few sub-units of the organization. a. Direct cutover conversion b. Phase-in conversion *c. Pilot conversion d. Parallel conversion SO6 83. When the manager of the primary users of the system is satisfied with the system, a (an)_____________________ will be executed. This process allows the project teams to receive user input and verify that meet user needs have been met. a. System Conversion b. Post-Implementation Acceptance c. User Review *d. User Acceptance SO6 84. A review of the feasibility assessments and other estimates made during the projects, the purpose of which is to help the organization learn from any mistakes that were made and help the company avoid those same errors in the future. a. System Design Life Cycle *b. Post-Implementation Review c. User Acceptance d. System Conversion Review SO6 85. The most common way to test software is to use which of the following? *a. Test data b. Parallel testing c. Process conversion testing d. Process testing

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SO6 86. Software Programming involves all of the following except: a. Training Employees b. Software Testing *c. Data Conversion d. Documenting the System SO7 87. During the operation of an IT system, it is necessary that regular reports are received by management to monitor the performance of the system. These reports would include all of the following, except: a. IT Security and Number of Security Problems b. IT Customer Satisfaction c. Downtime of IT System *d. User Acceptance of the IT System SO7 88. Which of the following is not a part of IT performance? a. IT load usage and excess capacity b. Downtime of IT systems c. Maintenance hours on IT systems *d. IT security and breach issues SO8 89. Which of the following is not a major purpose served by the continual and proper use of the IT governance committee and the SDLC? a. The fulfillment of ethical obligations b. The strategic management process of the organization *c. The conversion of the system d. The internal control structure of the organization SO9 90. The careful and responsible oversight and use by management of the assets entrusted to management is called: a. IT Governance *b. Stewardship c. Fiduciary Control d. System Access SO9 91. Employee Ethical considerations, related to IT governance, would include which of the following? a. Maintain a set of processes and procedures that assure accurate and complete records. *b. Confidentiality for those who serve on the project teams. c. Not to disclose proprietary information from the company to clients.

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d. Carefully consider the impact of system changes and to be ethical in the manner it which the changes are processed.

SO9 92. When an organization hires consultants to assist with any phase or any phases of the SDLC, there are at least four ethical obligations. Which of the following is not one of those obligations? a. Bid the engagement fairly, and completely disclose the terms of potential cost increases. b. Bill time accurately to the client and do not inflate time billed. c. Do not oversell unnecessary services or systems to the client. *d. Make an honest effort to participate, learn the new system processes, and properly use the new system.

SO9 93. Which of the following relationships would be allowed for a CPA firm? a. Offering IT consulting services and completing the external audit. b. Completing the external audit and maintaining the bookkeeping work. *c. Internal audit outsourcing and financial information systems design and implementation. d. Providing fairness opinions and completing the external audit.

FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1. SO 1

Management obligations in IT governance

Describe the activities that IT management should focus on when working to fulfill the obligations that are inherent in IT governance.

SOLUTION To fulfill the management obligations that are inherent in IT governance, management must focus on the following activities:     

Aligning IT strategy with the business strategy Cascading strategy and goals down into the enterprise Providing organizational structures that facilitate the implementation of strategy and goals Insisting that an IT control framework be adopted and implemented Measuring IT’s performance

Question 2. SO 2

Systems Development Life Cycle

List and briefly describe each of the five stages in the Systems Development Life Cycle (SDLC) SOLUTION The phases of the SDLC are as follows: 1. Systems planning is the evaluation of long-term, strategic objectives and the prioritization of the IT systems in order to assist the organization in achieving its objectives. Systems planning also involve the planning and continuing oversight of the design, implementation, and use of those IT systems.

2. Systems analysis is a study of the current system to determine the strengths and weaknesses and the user needs of that system. Analysis requires the collection of data about the system and the careful scrutiny of those data to determine areas of the system that can be improved.

3. Systems design is the creation of the system that meets user needs and that incorporates the improvements identified by the systems analysis phase.

4. Systems implementation is the set of steps undertaken to program, test, and activate the IT system as designed in the system design phase.

5. Operation and maintenance is the regular, ongoing functioning of the IT system and the processes to fix smaller problems, or “bugs,” in the IT system. During operation, management should request and receive ongoing reports about the performance of the IT system.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 6: ERP Systems STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. An overview of an ERP system 2. The history of ERP systems 3. Current ERP system characteristics 4. The modules of an ERP system 5. The market segments, cloud computing and digital transformation.

6. Implementation issues of ERP systems 7. The benefits and risks of ERP systems 8. ERP systems and the Sarbanes–Oxley Act END OF CHAPTER QUESTIONS SO1 1. Which of the following advantages is least likely to be experienced by a company implementing an enterprise resource planning (ERP) system? *a. Reduced cost b. Improved efficiency c. Broader access to information d. Reduced errors SO1 2. An ERP system is a software system that provides each of the following except: a. Collection, processing, storage, and reporting of transactional data b. Enhancement of e-commerce and e-business c. Coordination of multiple business processes *d. Physical controls for the prevention of inventory theft SO1 3. Which of the following is NOT a feature of an ERP system's database? a. Increased efficiency *b. Increased need for data storage within functional areas c. Increased customer service capability d. Increased data sharing across functional areas SO1 4. Manufacturing companies implement ERP systems for the primary purpose of a. Increasing productivity b. Reducing inventory quantities *c. Sharing information d. Reducing investments SO2 5. What company developed the first true ERP systems?

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a. Microsoft b. PeopleSoft *c. SAP d. IBM SO2 6. In the late 1990s, the Y2K compatibility issue was concerned primarily with computer systems' a. File retrieval capability *b. Data storage c. Human resource comparisons d. Capital budgeting SO2 7. The primary difference between ERP and ERP II systems is that ERP II may include *a. Internet EDI b. Logistics modules c. Reporting modules d. A data warehouse SO3 8. Which of the following is NOT one of the reasons for increased spending on ERP systems in recent years? a. The need for Sarbanes-Oxley compliance b. Globalization and increased competitive pressures *c. The need for earnings management d. The need for customer service enhancements SO4 9. Supply chain management (SCM) is a critical business activity that connects a company more closely with its a. Customers b. Suppliers c. Subsidiaries *d. Customers and suppliers SO5 10. The type of ERP system used by large, multinational corporations is known as a. Big bang implementation b. Modular implementation *c. Tier one software d. Tier two software

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SO6 11. Which of the following ERP approaches accomplishes the ERP implementation beginning with one department? a. The pilot method *b. The modular implementation approach c. The big bang approach d. The location-wise implementation method SO7 12. Which of the following statements best describes the risks of ERP systems? a. The risks of implementing and operating ERP systems are nearly identical to the risks of implementing and operating IT systems. *b. The risks of operating and implementing ERP systems are greater than the risks of implementing and operating IT systems, due to the scope, size, and complexity of ERP systems. c. The risks of implementing ERP systems are greater than the risks of implementing IT systems, but the operating risks are nearly identical. d. The risks of operating ERP systems are greater than the risks of operating IT systems, but the implementation risks are nearly identical.

TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 13. Select the true statement from those provided below. a. An ERP system is designed to interact with a stand-alone sales and inventory application to create general ledger information. *b. An ERP system is designed to be a stand-alone software application to accomplish revenue, expenditures, conversion, and administrative processes. c. An ERP system will accomplish e-commerce but relies on other software applications for the accomplishment of e-business transactions. d. An ERP system will not collect, process, store, and report the data resulting from ebusiness transactions.

SO1 14. An ERP system uses: a. One database for each module associated with the organization's sales, inventory, human resources, etc. b. One database for manufacturing, one database for sales, one database for administrative, and one database for design and research *c. One database which contains all data items associated with the organization d. Relational databases for interactive queries between modules and departments SO1 15. Which of the following is used to produce management reports that would be used to oversee day-to-day operations? *a. Operational Database Ch 6 Test bank – 4e

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b. Data Warehouse c. Functional Database d. Organizational Database SO1 16. A(An) _________ contains the data necessary to conduct day-to-day operations and produce management reports used to oversee day-to-day operations. a. Data warehouse b. Data center *c. Operational database d. none of the answers are correct SO1 17. The _________ is an integrated collection of enterprise-wide data that ideally should include 5 to 10 years of nonvolatile data. *a. Data warehouse b. Data center c. Operational database d. Enterprise resource planning system SO1 18. An enterprise resource planning (ERP) system would: a. Update both accounts receivable and inventory when purchased goods are received from a vendor. b. Update both accounts payable and accounts receivable when inventory purchased from a vendor is received. c. Update both accounts payable and sales when purchased goods are received from a vendor. *d. Update both accounts payable and inventory when purchased goods are received from a vendor.

SO1 19. An enterprise resource planning (ERP) system allows a sales representative to provide a customer with all of the following information except: a. Is the product in stock? b. What is the price of the product? *c. What is the cost of the product? d. When will it be shipped?

SO1 20. MRP applications are: a. Management resource programs software *b. Manufacturing resources planning software c. Management reporting programs software d. Manufacturing reporting programs software Ch 6 Test bank – 4e

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SO1 21. ERP modules include all except: a. Financial *b. Operational database c. Sales and services d. Product development and manufacturing SO1 22. What type of database does ERP software operate on? a. Operational b. Warehouse *c. Relational d. Enterprise SO1 23. Data within an ERP system may be stored in a(n): a. Operational database b. Relational database c. Data warehouse *d. Both an operational database and a data warehouse SO1 24. Within an ERP program: a. The operational database contains five to ten years of transaction histories. b. The data warehouse is updated as daily transactions are recorded. *c. The data warehouse contains five to ten years of transaction histories. d. The data warehouse information is available to sales personnel for customer histories.

SO1 25. Interfaces between modules of ERP systems would be accepted for all of the following except: a. Sales and inventory. *b. Sales and human resources. c. Sales and accounts receivable. d. Sales and manufacturing.

SO2 26. Material requirements planning (MRP) software: a. Calculated raw materials quantities needed for manufacturing, calculated lead times on raw materials orders, and calculated material needs on accounts payable data *b. Calculated raw materials quantities needed for manufacturing and calculated lead times on raw materials orders c. Calculated lead times on raw materials orders and calculated material needs on accounts payable data Ch 6 Test bank – 4e

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d. Calculated raw materials quantities needed for manufacturing and calculated material needs on accounts payable data SO2 27. The purpose of MRP II was to integrate all of the following into a single database except: *a. Human resources b. Manufacturing c. Marketing d. Finance SO2 28. SAP R/3 operates on a: a. Mainframe environment with closed architecture *b. Client-server environment with open architecture c. Client-server environment with closed architecture d. Mainframe environment with open architecture SO2 29. Which company developed the first true ERP system? *a. SAP b. Oracle c. Hyperion d. Microsoft SO2 30. The systems transition responsible for moving business processes from an internal management perspective to an interactive, internal, and external perspective is? a. The evolution of Customer Relationship Management (CRM) into Supply Chain Management (SCM) *b. The evolution of ERP systems into ERP II systems c. The evolution of Electronic Data Interchange (EDI) into ERP II systems d. None of the above SO2 31. Y2K compatibility issues arose because: a. Older computer systems recorded dates in mm/dd/yyyy formats and memory for these was expensive. b. Older computer systems recorded dates in mm/dd/yyyy formats and memory in older systems was unreliable. *c. Old computer systems kept dates in mm/dd/yy formats. d. Memory in older systems would fail when challenged with a mm/dd/yy formatted date.

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SO2 32. Select the correct statement from those provided below: *a. MRP II allows interaction between suppliers and their customers via the internet or other electronic means. b. While MRP II provides automatic inventory reordering, it does not allow suppliers to see customer inventory levels. c. MRP II systems preclude e-commerce and e-business transactions due to internal security measures to protect data. d. To increase operational response times, MRP II systems utilize operational databases but not data warehouses.

SO3 33. After 2004, spending on ERP systems increased or decreased based on several factors. These factors include all of the following except: *a. Y2K compliance concerns b. The need for better customer service c. Multi-national sites of operation d. Compliance with the Sarbanes-Oxley Act SO3 34. Which of the following is NOT one of the reasons for the increased spending on ERP systems since 2004? a. Bigger IT budgets replaced leaner budgets as economic conditions improved. b. Many companies needed upgraded systems to enhance compliance with the SarbanesOxley Act. *c. Business processes were separated and standardized. d. ERP has become so important to daily operations that many companies cannot allow their ERP system to become outdated.

SO3 35. Over the next few years, spending on ERP systems is expected to: a. Fall b. Stay Constant *c. Rise d. Spending habits are uncertain for the future SO4 36. The financials module of an ERP such as SAP would include all of the following components except: *a. Inventory b. Financial accounting c. Management accounting d. Corporate governance

Ch 6 Test bank – 4e

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SO4 37. The sales and services module of an ERP such as SAP would include all of the following components except: a. Sales order management *b. Procurement c. Professional service delivery d. Incentive and commissions management SO4 38. The analytics module of an ERP system such as SAP would include all of the following except: a. Financial analysis b. Strategic enterprise management *c. Project portfolio management d. Workforce analysis SO4 39. The human capital management module of an ERP such as SAP would include all of the following components except: a. Talent management b. Workforce process management c. Workforce development *d. Workforce termination management SO4 40. Management would use the _____________ module for feedback from the ERP system to assist in the proper management and control of operations. a. Financials b. Corporate services *c. Analytics d. Human capital management SO4 41. To employ analytical processes on the organization's data: a. Data mining is performed on the operational database. b. Data is uploaded to the analytics module's database. *c. Data mining is performed on the data warehouse. d. Data is uploaded to the financials module's database.

SO4 42. The term for software solutions that help businesses manage customer relationships in an organized way is: a. Sales and service *b. Customer relationship management c. Corporate services Ch 6 Test bank – 4e

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d. Human capital resources SO4 43. All of the following are types of integration strategies utilized by an ERP system except: a. People Integration b. Process Integration c. Information Integration *d. Supply Chain Integration SO5 44. The two tiers of ERP systems are: a. The internal tier and external tier b. The vendor & customer tier and the employee tier *c. The large, multinational corporation tier and the midsize business tier d. The acquisitions tier and the sales tier SO5 45. Which of the following companies would be most likely to use a Tier-Two ERP software? a. AT&T b. Walmart c. Rite Aid, a national pharmacy store chain *d. None of the above SO5 46. The ERP program that uses the term "back office" in reference to managerial functions and "front office" in reference to customer and sales functions is: a. SAP R/3 *b. Oracle Applications c. PeopleSoft d. mySAP SO5 47. The first "pure Internet" architecture, with no programming code residing on the client computer was: a. SAP R/3 b. Oracle Applications *c. PeopleSoft d. mySAP SO5 48. Select the true statement from the following: a. The strength of SAP is its human resources capabilities. b. The strength of PeopleSoft is its manufacturing capabilities. c. The strength of SAP is its financial reporting capabilities. *d. The strength of PeopleSoft is its human resources capabilities.

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SO6 49. ERP implementation: a. Must accomplish a full ERP system implementation *b. May install only selected modules c. Must be done one module at a time d. Is a short duration process due to total integration of the software SO6 50. Best of breed means: a. Picking the best ERP software on the market for the particular type of business or organization *b. Picking the best software on the market for a particular type of business process for this size of an organization c. Picking the best consulting firm to accomplish implementation of the ERP software d. Utilizing the most capable employees within the organization to work with the implementation of the ERP application SO6 51. The advantage of "best of the breed" is: a. The best functionality of the ERP system as a result of total implementation *b. The best functionality of a unique process of the organization c. Best cost of implementation of the ERP system d. Total integration of the ERP modules SO6 52. When computerized technology is introduced into processes, the processes a. Must utilize standardized forms and screens for data entry *b. Can be radically redesigned to take advantage of the speed and efficiency of computers to improve processing efficiency c. Data retrieval from the databases will be restricted to upper management for analysis d. Both B and C are correct SO6 53. Business process reengineering means: a. Configuring the business processes to conform to the functionality of the IT system b. Configuring the IT system to the business process for best processing speed *c. Matching the IT and business processes to achieve the greatest mutual benefit from each d. Configuring both IT and business processes to meet the goals of ERP SO6 54. Business process reengineering means: a. Reconfiguring the ERP system to fit the current methods of the organization b. Retaining general software applications as legacy systems to reduce training and implementation costs Ch 6 Test bank – 4e

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*c. Modifying business processes to take advantage of the capabilities of the ERP system d. Acquiring additional computer networking resources to effectively handle current business processes SO6 55. A consulting firm helping a company with the implementation of an ERP system will typically perform all of the following actions except: a. Evaluating and selecting an ERP system *b. Hiring specialized technicians to maintain the system c. Implementing the software d. Training employees to use the system SO6 56. The big bang approach to implementation means that the company: a. Will buy one integrated system to accomplish all business processes *b. Implements all modules and all function areas of the ERP system at one time c. Commences training and data cleansing throughout the organization on one date d. Implements the business process reengineering process on a predetermined date SO6 57. All of the following are implementation of software systems except: a. The big bang implementation b. Location-wise implementation *c. Progressive implementation d. Modular implementation SO6 58. Which of the following ERP implementation methods is rarely used today due to its high rate of failure? *a. Big Bang b. Location-Wise c. Modular d. Micro-Enterprise Approach (MEA) SO6 59. More than one-half of ERP implementations by the ________ approach experienced significant failures or problems in the 1990s, and nearly one-third of these implementations abandoned in progress. *a. Big bang b. Location-wise c. Progressive d. Modular

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SO6 60. When one site is utilized as the pilot approach to ERP, the implementation method is referred to as: a. Big bang implementation b. Hardware implementation *c. Location-wise implementation d. Modular implementation SO6 61. The advantages and disadvantages of modular implementation are: a. Full system integration is available but hardware incompatibilities exist. *b. It reduces the risks associated with installation and operation of the system, but full system integration is not available. c. All employees are exposed to some portion of the ERP system but critical information is still in the legacy system. d. Critical information is still available in the legacy system but technical support is not readily available for the legacy system.

SO7 62. Benefits of an ERP system include all of the following except: *a. The real-time nature of processing increases the total processing time. b. The interactive nature of the modules allows processes to interact with each other. c. ERP systems have evolved from many years of software experience so the software reflects tried and true practices. d. There is the capability to analyze large amounts of data in a single database.

SO7 63. ERP system benefits include all except: a. ERP systems are built to interact with the IT systems of trading partners such as customers and suppliers. *b. ERP systems are configured upon implementation to exceed any reasonable business growth in the future. c. The ERP systems incorporate modules to conduct e-commerce and e-business. d. Analytical tools that enable detailed analysis of the data are incorporated into ERP systems.

SO7 64. Organizational benefits of ERP implementation include all except: *a. Retaining long-held work patterns and work focus b. Facilitating organizational learning c. Building a common vision d. Increased employee morale and satisfaction

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SO7 65. Factors which adversely affect the implementation of an ERP system do NOT include: *a. Cost b. Complexity c. Size d. Scope SO7 66. If one module in the ERP system fails, a. The rest of the system will operate correctly. *b. It has the potential to stop or disrupt all processes across the entire enterprise. c. That one module will automatically revert to the legacy system. d. Will result in the entire system reverting to the legacy system.

SO7 67. Operation risks with an ERP system includes all of the following except: a. Security is a greater risk because processes are integrated. *b. An unauthorized user can affect more processes in the legacy system. c. Incorrect data generated in a given process can automatically post flawed data to other processes. d. Online privacy and confidentiality risks are magnified.

SO7 68. All of the following are operation risks of ERP systems except: a. Availability b. Online Privacy c. Confidentiality *d. Duplicate Information SO8 69. The assigning of access and authority for a specific user ID is called a ________. *a. User profile b. User access account User account Profile of access SO8 70. Which of the following is true with regard to the proper implementation of an ERP system: a. Fraud due to inappropriate transaction recording is eliminated. *b. Employee IDs, passwords, and segregated duties aid in internal control measures. c. Audit trails are not necessary due to ID and password security concepts. d. All of the answers are correct answers.

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SO8 71. To prevent issues with segregation of duties within an ERP system, the system may do which of the following? *a. Limit the types of transactions each employee can perform b. Limit access to physical hardware c. Both answers are correct d. Both answers are incorrect SO8 72. To resolve discrepancies on invoices so that they can be paid on a timely basis, management may issue which of the following? a. Report on purchase orders created after the invoice date *b. Blocked invoice Report c. Requisition Invoice Report d. Purchase Order Transcription Report FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

Ch 6 Test bank – 4e

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Question 1.

SO6

Implementation of an ERP system

There are many important factors and issues to consider when an organization attempts to implement an ERP system. List and describe the issues outlined in the text that organizations should consider when implementing an ERP system.

No.

Factors to Consider

Explanation

1.

SOLUTION Ch 6 Test bank – 4e

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IMPLEMENTATION OF ERP S Y S T E M S There are many important factors and issues to bear in mind when an organization considers implementation of an ERP system. The management of an organization must consider each of these issues either before or during the ERP implementation. These issues include the following: 1. Hiring a consulting firm 2. The best-fit ERP system 3. Which modules to implement 4. Best of breed versus ERP modules 5. Business process reengineering 6. Customization of the ERP system 7. The costs of hardware and software 8. Testing the ERP system 9. Data conversion 10. Training of employees 11. Method of conversion, or “going live” HIRING A CONSULTING FIRM Very frequently, organizations considering an ERP implementation hire a consulting firm to assist with all or part of the implementation. If a consultant is hired to assist in the entire process, the consulting firm will help with the remaining factors 2 through 11 described in the next subsections.

THE BEST-FIT ERP SYSTEM An organization must choose the ERP system that best suits its needs. Those concepts apply also in selecting an ERP system; however, there are additional factors unique to ERP systems that must be considered. One such factor is the system’s area of specialization. The organization must consider its business processes and how well each ERP system operates for those processes.

Consulting firms are often used to assist in selecting an ERP system.

WHICH MODULES TO IMPLEMENT ERP systems have modules available for all typical processes and functions of an organization.

However, each additional module that an organization chooses to purchase and implement adds cost, implementation time, and implementation difficulties. For some processes, a company may choose to keep a legacy system rather than purchase an ERP module.

BEST OF BREED VERSUS ERP MODULES While ERP systems usually are intended to fit all business processes of an organization, some experts believe that ERP systems do not necessarily offer the best solution for all processes. It is difficult for any single software system to offer the best possible modules in all areas of business processes. This is especially true since ERP systems are designed to have a very broad appeal across many different kinds of organizations. This broad appeal is accomplished by building ERP modules around standard, generic business processes. Therefore, some experts believe that an organization is better served by using one brand of ERP system for many processes, but to select some modules from other vendors that are “best of breed.” Best of breed means the best software on the market for a particular type of business process for this size of an organization.

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A best of breed approach is usually applied when an organization has some processes that may be different from the generic processes. Those processes that may be unique or a little more specialized might be better handled by a best of breed rather than the ERP module.

BUSINESS PROCESS REENGINEERING Business process reengineering (BPR) is the purposeful and organized changing of business processes to make them more efficient. BPR not only aligns business processes with the IT systems used to record processes, but it also improves the efficiency and effectiveness of these processes. Thus, the use of sophisticated IT systems usually leads to two kinds of efficiency improvements. First, the underlying processes are reengineered so as to be conducted more efficiently. Second, the IT systems improve the efficiency of the underlying processes through automation.

BPR is an important aspect of ERP system implementation. Since most organizations’ processes do not match the processes in the ERP system for any individual module, BPR is usually undertaken to make the business processes more compatible with the ERP modules.

CUSTOMIZATION OF THE ERP SYSTEM As often as possible, organizations should attempt to undertake BPR to match their processes to the ERP system. However, there are cases in which it may be necessary to customize the ERP system rather than change the business processes. Most consultants and experts would recommend that the number of customizations be limited to the least amount necessary. The two primary reasons for limiting customization is cost and upgrading of the system. Any customizations may require changing or writing new programming code, which can be a very expensive and time-consuming task. The cost of customization can easily exceed the cost of packaged ERP software. Second, customizations cannot be automatically incorporated when the ERP vendor provides an upgraded version of the ERP system. Therefore, upgrading to the next version may mean losing any customization.

THE COSTS OF HARDWARE AND SOFTWARE Implementation of ERP systems usually requires the purchase of new computer hardware, systems software, network equipment, and security software. The cost of hardware is dependent on the size of the organization, its current hardware and software, and the scope of implementation of the ERP system. The decision whether to adopt cloud-based ERP systems will also have a tremendous impact on the computer hardware and IT infrastructure needed. A cloudbase system will require less IT structure at the company. For ERP implementation in large organizations, hardware costs often exceed 1 million dollars; while in midsized organizations, hardware typically costs about half a million dollars.

DATA CONVERSION The implementation of an ERP system will involve converting data from legacy systems. Second generation ERP systems use relational database management systems (RDBMS) to store enterprise data. An appropriate amount of time, effort, and dollars must be devoted to the proper cleansing and conversion of data.

TRAINING OF EMPLOYEES Since ERP system implementation usually requires BPR, many processes that employees are involved with will change. Thus, training is necessary because workers will often have to learn a new set of processes. As is true of data conversion, it is expensive and time-consuming to train employees.

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Question 2.

SO6

Implementation of an ERP system

There are several methods of making the final conversion from an old system to a new ERP system. List and describe the three most common approaches.

Method

Description

SOLUTION THE METHODS OF CONVERSION TO THE ERP SYSTEM Near the end of the implementation process, the organization must “go live” with the new ERP system. That is, after data conversion, training, software installation, and related tasks, a shift to the new ERP system must take place. There are several methods of making this switch-over. The usual approaches are  Big bang, o implements all modules and all functional areas of the ERP system at once o requires that all functional areas of the company are ready to make the change at the same time o big bang approach has the potential to reduce the time and cost of implementation. However, it is extremely difficult to execute a big bang conversion well  Location-wise, and o Organization chooses a specific location or subunit of the organization and implements the ERP system in that place only o Considered a “pilot” approach in which the ERP is first carried out in a subunit of a larger organization  Modular implementation o Is implemented one module at a time o Implementation team will normally focus on the most critical module first and then complete in descending order Ch 6 Test bank – 4e

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Normally limits the scope of implementation to one functional department Reduces the risk associated with installation and operation of ERP systems

o o

Question 3.

SO7

Benefits of ERP Systems

There are a number of benefits associated with implementation of a new ERP system. Describe six benefits that your text outlines for the implementation of a new ERP system.

BENEFITS AND RISKS OF ERP SYSTEMS (STUDY OBJECTIVE 7) No.

Benefit of an ERP System

Explanation

1.

2.

3.

4.

5.

6.

SOLUTION BENEFITS OF ERP SYSTEMS The characteristics that allow organizations to benefit are the following: 1. The interactive nature of the modules allows processes to interact with each other. For example, the ordering and receiving processes can automatically trigger payment processes.

2. The real-time nature of processing decreases the total processing time and allows more immediate feedback to management.

3. The “best practices” nature of the processes in ERP systems—ERP systems have evolved from many years of software experience with various companies, and the software reflects tried and true practices.

4. The single database enhances sharing of information between the business’s functional areas and between processes.

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5. There is the capability to analyze large amounts of data in a single data- base. Analytical tools that enable detailed analysis of the data are incorporated into ERP systems.

6. The capability to enhance e-commerce and e-business—the ERP systems of today incorporate modules to fully incorporate e-commerce and e-business.

7. ERP systems have the capability to interact in real-time with trading partners. ERP systems are built to interact with the IT systems of trading partners such as customers and suppliers.

8. ERP systems are scalable, which means they can grow with the business.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 7: Auditing Information Technology – Bases Processes STUDY OBJECTIVES: Chapter 7 1. An introduction to auditing IT processes 2. The various types of audits and auditors 3. Information risk and IT-enhanced internal control 4. Authoritative literature used in auditing 5. Management assertions used in the auditing process and the related audit objectives 6. The phases of an IT audit 7. The use of computers in audits 8. Tests of controls 9. Tests of transactions and tests of balances 10. Audit completion/reporting 11. Other audit considerations 12. Ethical issues related to auditing End of Chapter Questions: SO2 1. Which of the following types of audits is most likely to be conducted for the purpose of identifying areas for cost savings? a. Financial statement audits *b. Operational audits c. Regulatory audits d. Compliance audits SO2 2. Financial statement audits are required to be performed by: a. Governmental auditors *b. CPAs c. Internal auditors d. IT auditors SO3 3. Which of the following is not considered a cause for information risk? a. Management's geographic location is far from the source of the information needed to make effective decisions. b. The information is collected and prepared by persons who use the information for very different purposes. c. The information relates to business activities that are not well understood by those who collect and summarize the information for decision makers. *d. The information has been tested by internal auditors and a CPA firm.

Ch 7 Test bank – 5e

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SO4 4. Which of the following is not one of the principles of generally accepted auditing standards? a. Responsibilities b. Performance *c. IT Compliance d. Reporting SO4 5. Which of the following best describes what is meant by the term "generally accepted auditing standards"? a. Procedures used to gather evidence to support the accuracy of a client's financial statements *b. Measures of the quality of an auditor’s conduct in carrying out professional responsibilities c. Professional pronouncements issued by the Auditing Standards Board d. Enforceable rules acknowledged by the accounting profession because of their widespread application SO4 6. In an audit of financial statements in accordance with generally accepted auditing standards, auditors are required to: *a. Document their understanding of the client company's internal controls b. Search for weaknesses in the operation of the client company's internal controls c. Perform tests of controls to evaluate the effectiveness of the client company's internal controls d. Determine whether controls are appropriately operating to prevent or detect material misstatements SO5 7. Auditors should develop a written audit program so that: a. All material transactions will be included in substantive testing. b. Substantive testing performed prior to year-end will be minimized. *c. The procedures will achieve specific audit objectives related to specific management assertions. d. Each account balance will be tested under either a substantive test or a test of controls.

SO5 8. Which of the following audit objectives relates to the management assertion of existence? a. A transaction is recorded in the proper period. *b. A transaction actually occurred (i.e., it is real). c. A transaction is properly presented in the financial statements. d. A transaction is supported by detailed evidence.

Ch 7 Test bank – 5e

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SO6 9. Which of the following statements regarding an audit program is true? a. An audit program should be standardized so that it may be used on any client engagement. b. The audit program should be completed by the client company before the audit planning stage begins. c. An audit program should be developed by the internal auditor during the audit's completion/reporting phase. *d. An audit program establishes responsibility for each audit test by requiring the signature or initials of the auditor who performed the test.

SO6 10. Risk assessment is a process designed to: *a. Identify possible circumstances and events that may affect the business b. Establish policies and procedures to carry out internal controls c. Identify and capture information in a timely manner d. Review the quality of internal controls throughout the year SO6 11. Which of the following audit procedures is most likely to be performed during the planning phase of the audit? *a. Obtain an understanding of the client's risk assessment process b. Identify specific internal control activities that are designed to prevent fraud c. Evaluate the reasonableness of the client's accounting estimates d. Test the timely cutoff of cash payments and collections SO7 12. Which of the following is the most significant disadvantage of auditing around the computer rather than through the computer? a. The time involved in testing processing controls is significant. b. The cost involved in testing processing controls is significant. *c. A portion of the audit trail is not tested. d. The technical expertise required to test processing controls is extensive.

SO8 13. The primary objective of compliance testing in a financial statement audit is to determine whether: a. Procedures have been updated regularly. b. Financial statement amounts are accurately stated. *c. Internal controls are functioning as designed. d. Collusion is taking place.

SO8 14. Which of the following computer-assisted auditing techniques processes actual client input data (or a copy of the real data) on a controlled program under the auditor's control to periodically test controls in the client's computer system?

Ch 7 Test bank – 5e

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a. Test data method b. Embedded audit module c. Integrated test facility *d. Parallel simulation SO8 15. Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without client personnel being aware of the testing process? a. Test data method b. Embedded audit module *c. Integrated test facility d. Parallel simulation SO8 16. Which of the following is a general control to test for external access to a client's computerized systems? *a. Penetration tests b. Hash totals c. Field checks d. Process mining SO9 17. Suppose that during the planning phase of an audit, the auditor determines that weaknesses exist in the client's computerized systems. These weaknesses make the client company susceptible to the risk of an unauthorized break-in. Which type of audit procedures should be emphasized in the remaining phases of this audit? a. Tests of controls b. Penetration tests *c. Substantive tests d. Rounding errors tests SO9 18. Generalized audit software can be used to: *a. Examine the consistency of data maintained on computer files b. Perform audit tests of multiple computer files concurrently c. Verify the processing logic of operating system software d. Process test data against master files that contain both real and fictitious data SO12 19. Independent auditors are generally actively involved in each of the following tasks except: *a. Preparation of a client's financial statements and accompanying notes b. Advising client management as to the applicability of a new accounting standard c. Proposing adjustments to a client's financial statements d. Advising client management about the presentation of the financial statements Ch 7 Test bank – 5e

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SO12 20. Which of the following is most likely to be an attribute unique to the financial statement audit work of CPAs, compared with work performed by attorneys or practitioners of other business professions? a. Due professional care b. Competence *c. Independence d. A complex underlying body of professional knowledge SO12 21. Which of the following terms in not associated with a financial statement auditor's requirement to maintain independence? a. Objectivity b. Neutrality c. Professional skepticism *d. Competence TEST BANK - CHAPTER 7 - MULTIPLE CHOICE SO1 22. Accounting services that improve the quality of information provided to the decision maker, an audit being the most common type of this service, is called: a. Compliance services *b. Assurance services c. Substantive services d. Operational services SO2 23. A type of assurance services that involves accumulating and analyzing support for the information provided by management is called an: *a. Audit b. Investigation c. Financial statement examination d. Control test SO2 24. The main purpose of an audit is to assure users of the financial information about the: a. Effectiveness of the internal controls of the company b. Selection of the proper GAAP when preparing financial statements c. Proper application of GAAS during the examination *d. Accuracy and completeness of the information SO2 25. Which of the following is not one of the four primary types of audits? a. Compliance audits Ch 7 Test bank – 5e

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b. Financial statement audits *c. Application audits d. Operational audits SO2 26. This type of audit is completed to determine whether a company has adhered to the regulations and policies established by contractual agreements, governmental agencies, or some other high authority. *a. Compliance audit b. Operational audit c. Information audit d. Financial statement audit SO2 27. This type of audit is completed to assess the operating policies and procedures of a client for efficiency and effectiveness. a. Efficiency audit b. Effectiveness audit c. Compliance audit *d. Operational audit SO2 28. This type of audit is completed to determine whether or not the client has prepared and presented its financial statements fairly, in accordance with established financial accounting criteria. a. GAAP audit *b. Financial statement audit c. Compliance audit d. Fair application audit SO2 29. Financial statement audits are performed by _________ who have extensive knowledge of generally accepted accounting principles (GAAP) in the US and/or International Financial Reporting Standards (IFRS). a. Public auditors b. Governmental auditors *c. Certified Public Accountants d. Internal auditors SO2 30. This type of auditor is an employee of the company he/she audits. a. IT auditor b. Government auditor c. Certified Public Accountant *d. Internal auditor Ch 7 Test bank – 5e

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SO2 31. This type of auditor specializes in the information systems assurance, control, and security.

They may work for CPA firms, government agencies, or with the internal audit group. *a. IT auditor b. Government auditor c. Certified Public Accountant d. Internal auditor SO2 32. This type of auditor conducts audits of government agencies or income tax returns. a. IT auditor *b. Government auditor c. Certified Public Accountant d. Internal auditor SO2 33. An important requirement of CPA firms is that they must be ________ with regard to the company being audited. The requirement allows CPA firms to provide a completely unbiased opinion on the information it audits. *a. Neutral b. Well-informed c. Materially invested d. All of the above SO2 34. This type of audit is performed by independent auditors who are objective and neutral with respect to the company and the information being audited. a. Compliance audit b. Operational audit c. Internal audit *d. External audit SO2 35. Which of the following scenarios does NOT impair the independence of a CPA firm from its client? a. The lead audit partner is the sister-in-law of the client's VP of Accounting. *b. One of the auditors owns stock in a competitor of the client. c. One of the auditors is the golf partner of the client's CEO. d. The lead audit partner owns stock in the client.

SO2 36. The independence of a CPA could be impaired by: a. Having no knowledge of the company or the company management b. Owning stock of a similar company *c. Having the ability to influence the client's decisions Ch 7 Test bank – 5e

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d. Being married to a stockbroker SO2 37. The IT environment plays a key role in how auditors conduct their work in all but which of the following areas: a. Consideration of risk *b. Consideration of information fairness c. Design and performance of audit tests d. Audit procedures used SO3 38. Decision makers are typically forced to rely on others for information. When the source of the information is removed from the decision maker, the information stands a greater chance of being misstated. A decision maker may become detached from the source of information due to geography, organizational layers, or other factors. This describes which cause of information risk? a. The lack of CPA independence b. The volume and complexity of underlying data c. The motive of the preparer *d. The remoteness of information SO3 39. The chance that information used by decision makers may be inaccurate is referred to as: a. Sample risk b. Data risk c. Audit trail risk *d. Information risk SO3 40. Which of the following is not one of the identified causes of information risk? *a. Audited information b. Remote information c. Complexity of data d. Preparer motive SO3 41. It's necessary to study information-based processing and the related audit function because: a. Information users often do not have the time or ability to verify information themselves. b. It may be difficult for decision makers to verify information contained in a computerized accounting system. *c. Both of the above d. Neither of the above

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SO3 42. The existence of IT-based business processes often result in details of transactions being entered directly into the computer system, results in a lack of physical evidence to visibly view.

This situation is referred to as: a. Physical evidence risk *b. Loss of audit trail visibility c. Transaction summary chart d. Lack of evidence view SO3 43. The existence of IT-based business processes that result in the details of the transactions being entered directly into the computer system increases the likelihood of the loss or alternation of data due to all of the following, except: a. System failure b. Database destruction *c. Programmer incompetence d. Environmental damage SO3 44. The advantages of using IT-based accounting systems, where the details of transactions are entered directly into the computer include: *a. Computer controls can compensate for the lack of manual controls b. Loss of audit trail view c. Increased internal controls risks d. Fewer opportunities to authorize and review transactions SO4 45. The standards that provide broad guidelines for an auditor's professional responsibilities are referred to as: a. Generally accepted accounting standards b. General accounting and auditing practices c. Generally accepted auditing practices *d. Generally accepted auditing standards SO4 46. The generally accepted auditing standards include four principles. Which of the following is not one of them? a. Responsibilities *b. Guidelines c. Performance d. Reporting

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SO4 47. GAAS, generally accepted auditing standards, provide a general framework for conducting quality audits, but the specific standards--or detailed guidance--are provided by all of the following groups except: a. Public Company Accounting Oversight Board b. Auditing Standards Board *c. Certified Fraud Examiners d. International Auditing and Assurance Standards Board SO4 48. This organization, established by the Sarbanes-Oxley Act, was organized in 2003 for the purpose of establishing auditing standards for public companies. a. Auditing Standards Board *b. Public Company Accounting Oversight Board c. International Audit Practices Committee d. Information Systems Audit and Control Association SO4 49. This organization is part of the AICPA and was the group responsible for issuing statements on auditing standards which were historically widely used in practice. *a. Auditing Standards Board b. Public Company Accounting Oversight Board c. International Audit Practices Committee d. Information Systems Audit and Control Association SO4 50. This organization was established by the IFAC to set International Standards on Auditing (ISAs) that contribute to the uniform application of auditing practices on a worldwide basis. a. International Systems Audit and Control Association b. Auditing Standards Board c. Public Company Accounting Oversight Board *d. International Auditing and Assurance Standards Board (IAASB) SO4 51. This organization issues guidelines for conducting the IT audit. The standards issued address practices related to control and security of the IT system. a. Auditing Standards Board b. Public Company Accounting Oversight Board c. International \Audit Practices Committee *d. Information Systems Audit and Control Association

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SO4 52. Auditors maintain competence, comply with ethical requirements, and maintain professional skepticism. This is one of the principles of generally accepted auditing standards referred to as: *a. Responsibilities b. Purpose c. Performance d. Reporting SO4 53. Auditors obtain reasonable assurance about whether the financial information is free of material misstatement. This is one of the principles of generally accepted auditing standards referred to as: *a. Performance b. Purpose c. Responsibilities d. Reporting SO4 54. Generally accepted auditing standards, which include the purpose of an audit and the premise upon which it is conducted, state that management of the company and those charged with governance are responsible for: a. Preparing and presenting the company’s financial information b. Maintaining the company’s systems and internal controls c. Providing the auditor with the access necessary to obtain audit evidence *d. All of the above SO4 55. Generally accepted auditing standards, which include the purpose of an audit and the premise upon which it is conducted, set forth the responsibilities of management of the company and those charged with governance. Those responsbilities include all of the following except: a. Preparing and presenting the company’s financial information b. Maintaining the company’s systems and internal controls c. Providing the auditor with the access necessary to obtain audit evidence *d. Providing an opinion on whether the financial information is presented fairly SO5 56. The role of the auditors is to analyze the underlying facts to decide whether information provided by management is fairly presented. Auditors design ____1_____ to analyze information in order to determine whether ____2_____ is/are valid. a. 1=audit objectives; 2=management's assertions b. 1=audit tests; 2=audit objectives c. 1=audit tests; 2=audit evidence *d. 1=audit tests; 2=management's assertions

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SO5 57. Although there are a number of organizations that provide detailed guidance, it is still necessary for auditors to rely on other directions regarding the types of audit tests to use and the manner in which the conclusions are drawn. These sources of information come from: *a. Industry Guidelines b. The PCAOB c. The ASB d. The ASACA SO5 58. Claims regarding the condition of the business organization and in terms of its operations, financial results, and compliance with laws and regulations, are referred to as: a. Financial Statements *b. Management Assertions c. External Audit d. Presentation and Disclosure SO5 59. Which management assertion determines that transactions and related asset accounts balances are actually owned and that liability account balances represent actual obligations? a. Accuracy, Valuation and Allocation b. Existence *c. Rights and Obligations d. Classification and Presentation SO5 60. Audit tests developed for an audit client are documented in a(n): *a. Audit Program b. Audit Objective c. Management Assertion d. General Objectives SO5 61. The management assertion related to valuation of transactions and account balances would include all of the following, except: a. Accurate in terms of dollar amounts and quantities b. Supported by detailed evidence *c. Real d. Correctly summarized SO5 62. There are four primary phases of the IT audit. Which of the following is not one of those phases? a. Planning Ch 7 Test bank – 5e

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*b. Evidence audit c. Tests of controls d. Substantive tests SO6 63. The main difference between substantive testing and controls testing is: *a. Substantive testing verifies whether information is correct, whereas control tests determine whether the information is managed under a system that promotes correctness. b. Substantive testing determines whether the information is managed under a system that promotes correctness, whereas control testing verifies whether information is correct. c. Substantive testing goes further in depth into the internal controls of a company, whereas controls testing just identifies which controls need further review. d. Substantive testing identifies which controls need further review, whereas controls testing goes further in depth into the internal controls of a company.

SO6 64. During substantive testing, if material misstatements have been found to exist, which of the following actions should be taken next? a. Proceed to the audit completion in the reporting phase *b. Re-evaluate the audit risk in the planning phase c. Re-perform detailed tests of balances d. Re-perform an internal controls systems analysis SO6 65. The proof of the fairness of the financial information is: a. Tests of controls b. Substantive tests c. Audit completion *d. Audit evidence SO6 66. Techniques used for gathering evidence include all of the following, except: a. Physical examination of assets or supporting documentation b. Observing activities *c. Adequate planning and supervision d. Analyzing financial relationships SO6 67. During this phase of the audit, the auditor must gain a thorough understanding of the client's business and financial reporting systems. When completing this phase, the auditors review and assess the risks and controls related to the business. a. Tests of controls b. Substantive tests c. Audit completion / reporting *d. Audit planning Ch 7 Test bank – 5e

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SO6 68. During the planning phase of the audit, auditors estimate the monetary amounts that are large enough to make a difference in decision making. This amount is referred to as: a. Risk *b. Materiality c. Substantive d. Sampling SO6 69. The likelihood that errors or fraud may occur is referred to as: *a. Risk b. Materiality c. Control tests d. Sampling SO6 70. A large part of the work performed by an auditor in the audit planning process is the gathering of evidence about the company's internal controls. This can be completed in any of the following ways, except: a. Interviewing key members of the accounting and IT staff b. Observing policies and procedures c. Review IT user manuals and systems *d. Preparing memos to summarize their findings SO6 71. Auditing standards address the importance of understanding both the automated and manual procedures that make up an organization's internal controls and consider how misstatements may occur, including all of the following, except: a. How transactions are entered into the computer *b. How financial statement are printed from the computer c. How nonstandard journal entries and adjusting entries are initiated, recorded, and processed d. How standard journal entries are initiated, recorded, and processed SO6 72. IT auditors may need to be called in to: a. Consider the effects of computer processing on the audit b. To assist in testing the automated processes *c. Both of the above d. Neither of the above SO7 73. Many companies design their IT systems so that all documents and reports can be retrieved from the system in readable form. Auditors can then compare the documents used to input the data into the system with reports generated from the system, without needing any extensive Ch 7 Test bank – 5e

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knowledge of the computer system or evaluation of computer controls. This process is referred to as: a. Auditing through the system *b. Auditing around the system c. Computer-assisted audit techniques d. Auditing with the computer SO7 74. The audit practice of "auditing around the computer" is also referred to as: a. The white box approach *b. The black box approach c. Computer-assisted audit techniques (CAATs) d. The gray box approach SO7 75. Which of the following is the most effective way of auditing the internal controls of an IT system? a. Auditing with the computer *b. Auditing through the computer c. Auditing around the computer d. Auditing in the computer SO7 76. This approach, referred to as the white box approach, requires auditors to evaluate IT controls and processing so that they can determine whether the information generated from the system is reliable. *a. Auditing through the system b. Auditing around the system c. Computer assisted audit techniques d. Auditing with the computer SO7 77. The IT auditing approach referred to as "auditing through the system" is necessary under which of the following conditions? a. Supporting documents are available in both electronic and paper form. b. The auditor does not require evaluation of computer controls. *c. The auditor wants to test computer controls as a basis for evaluating risk and reducing the amount of substantive audit testing required. d. The use of the IT system has a low impact on the conduct of the audit.

SO8 78. Audit procedures designed to evaluate both general controls and application controls are referred to as: a. Substantive tests b. Audit planning Ch 7 Test bank – 5e

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c. IT auditing *d. Test of controls SO8 79. The automated controls that affect all computer applications are referred to as: *a. General controls b. Specific controls c. Input controls d. Application controls SO8 80. Which of the following describes a mathematical sum of data that is meaningless to the financial statements but useful for controlling the data and detecting possible missing items? *a. Hash total b. Batch total c. Validation check d. Sequence verification total SO8 81. The two broad categories of general controls that relate to IT systems include which of the following: a. IT systems documentation *b. IT administration and the related operating systems development and maintenance processes c. Authenticity table d. Computer security and virus protection SO8 82. Related audit tests to review the existence and communication of company policies regarding important aspects of IT administrative control include all of the following, except: a. Personal accountability and segregation of incompatible responsibilities b. Job description and clear lines of authority *c. Prevention of unauthorized access d. IT systems documentation SO8 83. Auditors may send text messages through a company's system to find out whether encryption of private information is occurring properly. In addition, special software programs are available to help auditors identify weak points in a company's security measures. These are examples of: a. Penetration tests b. Authenticity tests *c. Vulnerability assessments d. Process mining

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SO8 84. Controls meant to prevent the destruction of information as the result of unauthorized access to the IT system are referred to as: a. IT administration b. System controls c. Information administration *d. Security controls SO8 85. In addition to testing system documentation, auditors should test the three main functions of computer applications. Which of the following is not one of these functions? a. Output b. Input c. Processing *d. Data storage SO8 86. All of the following are examples of security controls except: a. Biometric access controls b. Swipe key access controls c. Online firewall protection controls *d. All of the above are examples of security controls SO8 87. Auditors should perform this type of test to determine the valid use of the company's computer system, according to the authority tables. *a. Authenticity tests b. Penetration tests c. Vulnerability assessments d. IT systems documentation SO8 88. These tests of the security controls involve various methods of entering the company's system to determine whether controls are working as intended. a. Authenticity tests *b. Penetration tests c. Vulnerability assessments d. IT systems documentation SO8 89. These tests of security controls analyze a company's control environment for possible weaknesses. Special software programs are available to help auditors identify weak points in a company's security measures. a. Authenticity tests b. Penetration tests Ch 7 Test bank – 5e

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*c. Vulnerability assessments d. IT systems documentation SO8 90. One of the most effective ways a client can protect its computer system is to place physical controls in the computer center. Physical controls include all of the following, except: *a. Proper temperature control b. Locks c. Security guards d. Cameras SO8 91. One of the most effective ways a client can protect its computer system is to place environmental controls in the computer center. Environmental controls include: a. Card keys *b. Emergency power supply c. Alarms d. Security guards SO8 92. This type of application control is performed to verify the correctness of information entered into software programs. Auditors are concerned about whether errors are being prevented and detected during this stage of data processing. a. Security controls b. Processing controls *c. Input controls d. Output controls SO8 93. IT audit procedures typically include a combination of data accuracy tests where the data processed by computer applications are reviewed for correct dollar amounts or other numerical values. These procedures are referred to as: a. Security controls *b. Processing controls c. Input controls d. Output controls SO8 94. This type of processing control test involves a comparison of different items that are expected to have the same values, such as comparing two batches or comparing actual data against a predetermined control total. a. Validation checks b. Batch totals c. Run-to-Run totals *d. Balancing tests Ch 7 Test bank – 5e

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SO8 95. This law, also known as the first-digit law, was named after a physicist who discovered a specific but non-uniform pattern in the frequency of digits occurring as the first number in a list of numbers: a. Number-Up Law *b. Benford's Law c. Adams' Digit Law d. Jackson First-Digit Law SO8 96. This is one of the computer-assisted audit techniques, related to processing controls, that involves processing company data through a controlled program designed to resemble the company's application. This test is run to find out whether the same results are achieved under different systems. a. Integrated test facility b. Embedded audit module *c. Parallel simulation d. Test data method SO8 97. Regardless of whether the results are printed or retained electronically, auditors may perform all of the following procedures to test application outputs, except: *a. Integrated tests b. Reasonableness tests c. Audit trail tests d. Rounding errors tests SO8 98. Auditors use process mining technology in the planning and controls testing phases of an audit to *a. Identify bottlenecks and control deficiencies within processes b. Locate duplicates in large data sets c. Mimic routine human tasks and logic d. Verify the mathematical accuracy of large data sets SO9 99. The auditor's test of the accuracy of monetary amounts of transactions and account balances is known as: a. Testing of controls *b. Substantive tests c. Compliance tests d. Application tests SO9 100. A process of constant evidence gathering and analysis to provide assurance on the information as soon as it occurs or shortly thereafter is referred to as: Ch 7 Test bank – 5e

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a. Real-time auditing b. Virtual auditing c. E-auditing *d. Continuous auditing SO9 101. Robotic process automation (RPA) is useful for: a. Quantifying materiality during the planning phase b. Preparing a letter of representation *c. Automating structured, repetitive tasks d. Performing visual perception tasks SO9 102. Artificial Intelligence (AI) is useful for: a. Analyzing patterns and outliers to identify misstatements b. Analyzing trends to aid in problem-solving c. Performing visual perception tasks *d. All of the above SO10 103. This phase of auditing occurs when the auditors evaluate all the evidence that has been accumulated and makes a conclusion based on that evidence. a. Tests of controls b. Audit planning *c. Audit completion / reporting d. Substantive testing SO10 104. This piece of audit evidence is often considered to be the most important because it is a signed acknowledgment of management's responsibility for the fair presentation of the financial statements and a declaration that they have provided complete and accurate information to the auditors during all phases of the audit. *a. Letter of Representation b. Audit Report c. Encounter Statement d. Auditors' Contract SO10 105. Which of the following is a proper description of an auditor report? a. Unqualified opinion: identifies certain exceptions to the clean opinion *b. Adverse opinion: notes that there are material misstatements presented c. Qualified opinion: states that the auditors believe the financial statements are fairly and consistently presented in accordance with GAAP d. Unqualified opinion: states that the auditors were not able to reach a conclusion Ch 7 Test bank – 5e

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SO11 106. When PCs are used for accounting instead of mainframes or client-server system, they face a greater risk of loss due to which of the following: a. Authorized access b. Segregation of duties *c. Lack of backup control d. All of the above SO11 107. When companies rely on external, independent computer service centers to handle all or part of their IT needs, it is referred to as: a. External processing b. WAN processing c. Database management system *d. IT outsourcing SO11 108. Because it is not possible to test all transactions and balances, auditors rely on this to choose and test a limited number of items and transactions and then make conclusions about the balance as a whole. *a. Sampling b. Materiality c. Compliance d. Substance SO11 109. Which type of SOC 1/SOC 2 report provides the most persuasive conclusion regarding internal controls? a. Type I *b. Type II c. The answer depends upon the type of audit being conducted d. The answer depends upon the type of auditor conducting the audit SO12 110. All types of auditors must follow guidelines promoting ethical conduct. For financial statement auditors, the PCAOB/AICPA has established a code of professional conduct, commonly called the Code of Ethics, which consists of two sections. Which of the following correctly states the two sections? a. Integrity and responsibility *b. Principles and rules c. Objectivity and independence d. Scope and nature SO12 Ch 7 Test bank – 5e

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111. The rule in the PCAOB/AICPA Code of Professional Conduct that is referred to as Responsibilities can be stated as: a. CPAs should act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism. b. To maintain and broaden public confidence, CPAs should perform their professional duties with the highest sense of integrity. *c. In carrying out their professional duties, CPAs should exercise sensitive professional and moral judgments in all their activities. d. CPAs in public practice should observe the principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

SO12 112. This concept means that the auditors should not automatically assume that their clients are honest, but that they (the auditors) must have a questioning mind and a persistent approach to evaluating evidence for possible misstatements. a. Independence b. Integrity c. Due care *d. Professional skepticism FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO2

Types of Audits

Main purpose of an audit is to assure users of financial information about the accuracy and completeness of the information. Identify and describe the four primary types of audits, discussed in the text and class.

Type of Audit

Explanation

1.

2.

3.

4.

Answer: TYPES OF AUDITS (SO 2) Four primary types of audits include  compliance audits,  operational audits  financial statement audits, and  IT audits The main purpose of the audit is to assure users of financial information about the accuracy and completeness of the information. To carry out an audit, accountants collect and evaluate proof of procedures, transactions, and/or account balances and compare the information with established criteria.

Compliance audits determine whether the company has complied with regulations and policies established by contractual agreements, governmental agencies, company management, or other high authority.

Operational audits assess operating policies and procedures for efficiency and effectiveness Financial statement audits determine whether the company has prepared and presented its financial statements fairly, and in accordance with established financial accounting criteria.

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

financial statement audits are performed by certified public accountants who have extensive knowledge of generally accepted accounting principles (GAAP) in the United States and/or International Financial Reporting Standards (IFRS)

Information Systems (IT) audits evaluate controls over the various aspects of a company's computerized accounting information systems including the processing and security of those systems and the related software and data.

Question 2.

SO6

Four Primary Phases of an IT Audit

Identify and explain, in order of occurrence, the four primary phases to an IT audit Phase

Explanation

1.

2.

3.

4.

Steps in an IT audit are the same four steps as in a traditional audit.

There are four primary phases of the audit:  planning,  tests of controls,  substantive tests, and  audit completion/reporting

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During the planning phase of an audit, the auditor must gain a thorough understanding of the company’s business and financial reporting systems. In doing so, auditors review and assess the risks and internal controls related to the business, establish materiality guidelines, and develop relevant tests addressing the assertions and objectives The tests of controls involve audit procedures designed to evaluate both general controls and application controls. During audit planning, auditors must learn about the types of controls that exist within their client’s IT environment. Then they may test those controls to determine whether they are reliable as a means of reducing risk. Tests of controls are sometimes referred to as “compliance tests,” because they are designed to determine whether the controls are functioning in compliance with management’s intentions.

Audit tests of the accuracy of monetary amounts of transactions and account balances are known as substantive testing  Substantive tests verify whether information is correct, whereas control tests determine whether the information is managed under a system that promotes correctness  Some level of substantive testing is required regardless of the results of control testing.  If weak internal controls exist or if important controls are missing, extensive substantive testing will be required.  If controls are found to be effective, the amount of substantive testing required is significantly lower, because there is less chance of error in the underlying records The completion phase includes many tasks that are needed to wrap up the audit. For many types of audits, the most important task is obtaining a letter of representations from company management. The letter of representations is often considered the most significant single piece of audit evidence, because it is a signed acknowledgment of management’s responsibility for the reported information. In this letter, management must declare that it has provided complete and accurate information to its auditors during all phases of the audit.

Question 3.

SO6

Primary objectives of compliance testing

The primary objective of compliance testing in a financial statement audit of a company with an automated AIS or ERP system is to determine whether _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Answer: The purpose of compliance testing in a financial statement audit of a company with an automated AIS or ERP system is to determine whether internal controls are in place and functioning as designed.

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Question 4.

SO7

Computers User in Audits

The text identifies three ways in which computers are used in audits, i.e., Auditing __________ the computer. Identify, explain and provide examples of each of the ways in which computers are used in audits.

Way in which used Auditing

Explanation

____________ the computer Auditing ____________ the computer Auditing ____________ the computer

ANSWER  Use of Computers in Audits. The audit planning tasks of evaluating internal controls and designing meaningful audit tests is more complex for automated accounting systems than for manual systems. In recognition of the fact that accounting records and files often exists in both paper and electronic form, auditing standards address the importance of understanding both the automated and manual procedures that make up an organization’s internal control.

Misstatements may occur through the data entry and processing functions of the system.

Auditors must consider the effects of such computer processing on the audit. Three options may exist for the auditor in deciding upon a testing approach for a client’s automated process, including auditing around the computer, auditing through the computer, and auditing with the computer. 



Auditing around the computer is commonly known as the “black box” approach because auditors are not required to gain detailed knowledge about the company’s computer system; rather, documents used to input data into the system can be compared with reports generated from the system. Computer controls are not considered.

Auditing through the computer is commonly known as the “white box” approach because it involves directly testing the internal controls within the IT system. It requires the auditors to understand the computer system logic and related IT controls.

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

Auditing through the computer is necessary when the auditor wants to test computer controls as a basis for reducing the amount of substantive testing required, when the auditor is required to report on internal controls of a public company, and when supporting documents are available only in electronic form.

Auditing with the computer involves the auditors’ use of their own computer systems and audit software to perform audit testing. A variety of computer assisted audit techniques (CAATs) are available for auditing with the computer.

Question 5.

SO8

Compliance and Substantive Testing

Keperlsky and Bennuchi, and audit firm was auditing EDJ consulting. EDJ is a large consulting firm that has consistently had very strong internal controls over IT functions at the company. The company uses SAP, a sophisticated, Tier 1 ERP system that has not been customized. Keperlsky and Bennuchi’s audit team has reviewed and tested the internal controls and concluded that the controls are very effective (strong) and they can be relied upon. Mr Keperlsky, a partner, has said that it is not necessary to complete substantive testing in this case, given the strength of the internal controls and strong ERP system. Is Mr Keperlsky’s conclusion correct?

Answer:

Yes

No

(Circle one)

Provide justification for your answer: _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Ch 7 Test bank – 5e

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_____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ Answer: No 5 No, Mr. Keperlsky is not correct. It is ALWAYS necessary to complete substantive testing.

Compliance testing tests if internal controls are in place and functioning. Substantive test verify the accuracy of financial amounts. If controls are in place and functioning, su Question 6.

SO7

Computer Assisted Audit Techniques (CAATs)

The text discusses several computer assisted audit techniques (CAATs). Lists 4 of the 5 CAATs and describe the technique.

Technique 1.

Description of Computer Assisted Audit Technique

2.

3.

4.

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SOLUTION

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 8: Revenue and Cash Collection Processes STUDY OBJECTIVES This chapter will help studnets gain an understanding of the following concepts: 1. An introduction to revenue processes 2. Sales processes and the related risks and controls 3. Sales return processes and the related risks and controls 4. Cash collection processes and the related risks and controls 5. An overview of IT systems of revenue and cash collection that enhance the efficiency of revenue processes 6. E-business systems and the related risks and controls 7. Electronic data interchange (EDI) systems and the related risks and controls 8. Point of sale (POS) systems and the related risks and controls 9. Ethical issues related to revenue processes 10. Corporate governance in revenue processes END OF CHAPTER QUESTIONS SO2 1. Within the revenue processes, a signed approval of a sales order indicates all of the following except: *a. The date of delivery b. The sale is to an accepted customer. c. The customer's credit has been approved. d. The sales price is correct.

SO2 2. An example of an independent verification in the sale process is: a. Preparation of packing lists on prenumbered forms b. Initialing the sales order *c. Proof of recorded dates, quantities, and prices on an invoice d. Physical controls in record storage areas SO2 3. The purpose of tracing shipping documents to prenumbered sales invoices would be to provide evidence that: *a. Shipments to customers were properly invoiced. b. No duplicate shipments or billings occurred. c. Goods billed to customers were shipped. d. All prenumbered sales invoices were accounted for.

SO2 4. The purpose of tracing sales invoices to shipping documents would be to provide evidence that: a. Shipments to customers were properly invoiced.

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b. No duplicate shipments or billings occurred. *c. Goods billed to customers were shipped. d. All prenumbered sales invoices were accounted for.

SO2 5. To ensure that all credit sales transactions of an entity are recorded, which of the following controls would be most effective? a. On a monthly basis, the accounting department supervisor reconciles the accounts receivable subsidiary ledger to the accounts receivable control account. b. The supervisor of the accounting department investigates any account balance differences reported by customers. c. The supervisor of the billing department sends copies of approved sales orders to the credit department for comparison of authorized credit limits and current customer balances. *d. The supervisor of the billing department matches prenumbered shipping documents with entries recorded in the sale journal.

SO3 6. Under a system of sound internal controls, if a company sold defective goods, the return of those goods from the customer should be accepted by the: *a. Receiving Clerk b. Sales Clerk c. Purchasing Clerk d. Inventory Control Clerk SO3 7. The source document that initiates the recording of the return and the adjustment to the customer's credit status is the: a. Pick list b. Sales journal *c. Credit memorandum d. Sales invoice SO4 8. Which of the following is not a document that is part of the cash collection process? a. Remittance advice b. Cash receipts journal c. Bank deposit slip *d. Packing slip SO4 9. Which of the following would represent proper segregation of duties? a. The employee who has custody of cash also does accounts receivable record keeping. b. The employee who has custody of cash completes the bank reconciliation. *c. The employee who opens mail containing checks prepares a list of checks received.

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d. The employee who opens mail containing checks records transactions in the general ledger.

SO4 10. Immediately upon receiving checks from customers in the mail, a responsible employee working in an environment of adequate internal control should prepare a listing of receipts and forward it to the company's cashier. A copy of this cash receipts listing should also be sent to the company's *a. Treasurer for comparison with the monthly bank statement b. Internal auditor for investigation of any unusual transactions c. Accounts receivable clerk for updating of the accounts receivable subsidiary ledger d. Bank for comparison with deposit slips SO4 11. If a company does not prepare an aging of accounts receivable, which of the following accounts is most likely to be misstated? a. Sales revenues b. Accounts receivable c. Sales returns and allowances *d. Allowance for uncollectible accounts SO6 12. When a company sells items over the Internet, it is usually called e-commerce. There are many IT risks related to Internet sales. The risk of invalid data entered by a customer would be a(n): a. Availability risk *b. Processing integrity risk c. Security risk d. Confidentiality risk SO6 13. When a company sells items over the Internet, there are many IT risks. The risk of hardware and software failures that prevent website sales would be a(n): *a. Availability risk b. Processing integrity risk c. Security risk d. Confidentiality risk SO7 14. The use of electronic data interchange (EDI) to conduct sales electronically has both risks and benefits. Which of the following is a benefit of EDI, rather than a risk? a. Incomplete audit trail b. Repudiation of sales transactions c. Unauthorized access *d. Shorter inventory cycle time SO8 Ch 8 Test bank – 5e

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15. An IT system that uses touch screens, bar coded products, and credit card authorization during the sale is called a(n): a. Electronic data interchange system b. E-commerce system *c. Point of sales system d. E-payables system SO9 16. Which of the following is not a method of unethically inflating sales revenue? a. Channel stuffing b. Holding sales open c. Premature recognition of contingent sales *d. Promotional price discounts TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 17. In a large company, there are hundreds, possibly thousands, of sales transactions each day.

The company needs to have in place, systems and processes to: a. Capture the results of the sales transactions b. Record the proper and complete sales transactions c. Summarize and report the results of the transactions *d. All of the above SO1 18. Which of the following displays the correct order of operations within the sales process? *a. Verify prices, prepare sales order, verify credit limit, verify item is in stock b. Verify prices, verify credit limit, prepare sales order, verify item is in stock c. Verify prices, verify credit limit, verify item is in stock, prepare sales order d. Verify item is in stock, verify prices, verify credit limit, prepare sales order SO1 19. When a sale occurs, the information resulting from that sale must flow into the sales recording systems, the accounts receivable and cash collection systems, and the inventory tracking systems. In IT accounting systems, these recording and processing systems are referred to as: *a. Transaction Processing Systems b. Revenue and Cash Processing Systems c. Point of Sale System d. E-business System SO1 20. The business processes that are common in company-to-company sales business types include all of the following, except:

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a. Collect order data b. Record receivable and bill the customer *c. Update affected records, such as accounts payable and cash d. Handle any product returns from the customer SO1 21. The business processes that are common in company-to-company sales business are divided into three groups. Which of the following is not one of those groups? a. Sales processes, including ordering, delivery, and billing *b. Purchase of inventory, including ordering, delivery, and billing c. Sales returns processes d. Cash collection processes SO1 22. The risks that may affect the revenue and cash collection processes include all of the following, except: *a. Transactions recorded by the wrong company b. Valid transactions may have been omitted from the records. c. Transactions may not have been recorded in a timely manner. d. Recorded transactions may not be valid or complete.

SO1 23. The risks that may affect the revenue and cash collection processes include all of the following, except: a. Transactions may have been recorded in the wrong customer account. b. Transactions may be recorded in the wrong amount. *c. Invalid transactions may have been omitted from the records. d. Transactions may not have been accumulated or transferred to the accounting records correctly.

SO1 24. Which of the following is a risk that may affect the revenue and cash collection process? a. Transactions may have been recorded by the wrong company. b. Invalid transactions may have been omitted from the records. *c. Transactions may be recorded in the wrong amount. d. Quantities of products returned are often difficult to determine.

SO1 25. Common means of presenting the revenue and cash collections processes pictorially include: a. Data flow diagram b. Document flowchart c. Business process map *d. All of the above SO2 26. The sales and cash collections process begins when: Ch 8 Test bank – 5e

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a. Merchandise is shipped to a customer. *b. A customer places an order with the company. c. Merchandise is purchased. d. A vendor places an order with the company.

SO2 27. The form, or source document, that conveys the details about a customer's order, prepared by the customer, is referred to as: a. Sales order b. Sales invoice *c. Purchase order d. Purchase invoice SO2 28. Which of the following two terms both refer to the same document? a. Price list & sales order b. Packaging slip & bill of lading c. Shipping log & packing slip *d. Sales order & purchase order SO2 29. Which of the following documents will be received by a customer after a sale? a. Shipping log b. Pick list *c. Monthly account statement d. Purchase order SO2 30. Sales orders are calculated based on current selling prices of the items sold. The source of these prices, which would include the entire set of preestablished and approved prices for each product, is referred to as a(n): *a. Price list b. Purchase order c. Packing slip d. Pick list SO2 31. The maximum dollar amount that a customer is allowed to carry as an accounts receivable balance: a. Maximum limit b. Credit balance c. Maximum balance *d. Credit limit SO2 Ch 8 Test bank – 5e

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32. This item documents the quantities and descriptions of items ordered. Items from this document should be pulled from the warehouse shelves and packaged for the customer. a. Packing slip b. Price list *c. Picking ticket d. Purchase order SO2 33. A ________ is prepared by warehouse personnel and lists all items included in a shipment. a. Bill of lading *b. Packing slip c. Shipping log d. Pick list SO2 34. The terms of agreement between the company and the common carrier are documented in a(n): a. Pick list *b. Bill of lading c. Invoice d. Packing slip SO2 35. A chronological listing of shipments that allows management to track the status of sales and to answer customer inquiries regarding order status is called a(n): a. Invoice b. Bill of lading c. Pick list *d. Shipping log SO2 36. This document is prepared and sent to the customer once the shipment has occurred. The document provides the details of the sale and requests payment. *a. Sales invoice b. Accounts receivable statement c. Bill of lading d. Sales order SO2 37. A special journal that is used to record sales transactions and is periodically posted to the general ledger. a. General journal b. Subsidiary journal *c. Sales journal d. Accounts receivable journal Ch 8 Test bank – 5e

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SO2 38. This document is prepared on a regular basis to accumulated and summarize all the transactions that have taken place between the customer and the company within the period. a. Accounts receivable journal b. Sales invoice c. Subsidiary journal *d. Customer account statements SO2 39. When a sales transaction has been authorized, by the signature of the designated employee, it means that the designated employee has done all of the following, except: a. Verified the sale is to an accepted customer *b. The vendor's credit has been approved c. The price is correct d. Approval documented by a signature or initials of the designated employee SO2 40. Which of the following relationships does not violate the rules of segregation of duties? a. Credit authorization and preparation of the sales order *b. Preparation of the sales order and sales invoice c. Preparing goods for shipment and accounting for inventory d. Entering sales in the sales journal and handling the inventory SO2 41. The internal control activity related to the adequate records and documents, related to sales, includes which of the following? *a. Those responsible for recording sales should ensure that the supporting documentation is retained and organized. b. Information systems duties included in the revenue process includes the preparation of sales orders and shipping logs. c. All records are to be prepared by someone other than the person who has custody of the assets. d. The authorization process is to remain separate from the recording process.

SO2 42. Which of the following is not one of the stated physical controls for inventory in a warehouse? a. Surveillance cameras b. Alarm systems *c. Backup copies d. Security guards SO2 Ch 8 Test bank – 5e

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43. In order to protect data files, production programs, and accounting records from unauthorized access, each of the following may be used, except: a. Passwords b. Physical controls (locked cabinets) c. Backup copies *d. Surveillance cameras SO2 44. Common types of independent checks within the revenue process include all of the following, except: a. Verification of information in the sales journal and on sales invoices *b. Verification of the bank statement and the cash account in the general journal c. Reconciliation of accounts receivable detail with invoices and with the general ledger d. Reconciliation of inventory records with actual (counted) quantities on hand SO2 45. Examples of characteristics that indicate a company may be more risky with respect to the revenue process include all of the following, except: *a. Changes in sales prices or customers are infrequent. b. The pricing structure is complex or is based on estimates. c. There is a large volume of transactions is carried out. d. The company depends on a single or on very few customers.

SO2 46. The comparison of the shipping records with the sales journal and invoices is completed to minimize the related risk of: a. Invalid transactions b. Fictitious customers *c. Omitted transactions d. Duplicate transactions SO2 47. The preparation of packing lists and shipping records on prenumbered forms will help to minimize the related risk of: a. Incorrect amounts b. Invalid sales c. Wrong customers *d. Omitted transactions SO2 48. The separation of the responsibility for the authorization of new customers from the custody of inventory will help to minimize the related risk of: a. Invalid sales *b. Fictitious customers Ch 8 Test bank – 5e

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c. Incorrect amounts d. Timing issues SO3 49. A document prepared that lists the chronological sequence of all returned items is referred to as a(n): *a. Receiving log b. Receiving report c. Invoice d. Packing list SO3 50. A source document prepared by the personnel in the receiving dock that documents the quantity and condition of the items received is called a(n): a. Invoice b. Receiving log *c. Receiving report d. Credit memorandum SO3 51. All of the following indicate a high level of risk associated with sales returns, EXCEPT: a. There is a high volume of credit memo activity. b. The company depends on a single customer or very few key customers. *c. Transactions may be recorded in the wrong amount. d. Returns are received by consignees or under other arrangements not directly controlled by the company.

SO3 52. According to the textbook, after receiving a returned product and checking its condition, all of the following options are available to a company except: a. Resell the product *b. Record an allowance for doubtful accounts on the product c. Repair the product d. Dispose of the product SO3 53. A _______ is a credit to the customer account made to compensate the customer for a defective product or a late shipment. *a. Sales allowance b. Refund check c. Remittance advice d. Credit memorandum SO3 54. A document completed to prepare a record of the sales return and to adjust the amount of the customer's credit status is called a(n): Ch 8 Test bank – 5e

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a. Receiving log *b. Credit memorandum c. Sales invoice d. Sales journal SO3 55. The authorization of sales returns requires that certain individuals within the company be assigned the authority for all of the following, except: a. Authorize sales returns b. Approve credit memos c. Develop sales return policies *d. Record the credit memos SO3 56. The segregation of duties related to sales returns would ideally separate the function of performing the credit memo activity and all of the following, except: a. Credit approval *b. Approve the credit memos c. Billing d. Data entry SO3 57. Circumstances within a company, related to sales returns, that indicate a high level of risk include all of the following, except: *a. Returns are received a one location with credit memos issued at the same location. b. Quantities of products returned are often difficult to determine. c. There is a high volume of credit memo activity. d. Returns are received by consignees or under other arrangements not directly controlled by the company.

SO3 58. The separation of the custody of inventory from the accounts receivable record keeping will help to minimize the related risk of: a. Incorrect amounts *b. Invalid returns c. Fictitious customers d. Timing issues SO4 59. The documentation accompanying payment that identifies the customer account number and invoice to which the payment applies is referred to as a(n): a. Cash receipts journal b. Promissory note c. Deposit list *d. Remittance advice Ch 8 Test bank – 5e

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SO4 60. In the cash receipts process, what must take place directly after preparing the cash receipts journal? a. A deposit should be prepared and all cash and checks received should be deposited. b. The cash receipt should be matched with the original sales invoice. *c. Both answers are correct d. Neither answer is correct SO4 61. A special journal used to record all cash collections is called a(n): *a. Cash receipts journal b. Remittance advice c. Check register journal d. Customer subsidiary journal SO4 62. All of the following documents are necessary in the cash receipts process except: a. Remittance advice *b. Accounts payable subsidiary ledger c. Sales invoice d. Deposit slip SO4 63. In order to ensure that all records are updated only for authorized transactions, appropriate individuals should be assigned all of the following duties, except: a. Opening and closing all bank accounts *b. Preparing the bank reconciliation c. Approving bank deposits d. Approving electronic transfers of funds SO4 64. The recording responsibilities for cash receipts includes all of the following, except: a. Maintaining a cash receipts journal b. Updating accounts receivable records for individual customers c. Posting subsidiary ledger totals to the general ledger *d. Preparing bank deposits SO4 65. In following proper segregation of duties, those who handle cash should not be granted any of the following authorities EXCEPT: a. Information systems programming b. Access to the company's accounting records Ch 8 Test bank – 5e

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c. Authorization to reconcile the company bank account *d. Inventory management duties SO4 66. The custody responsibilities for cash receipts includes all of the following, except: *a. Updating accounts receivable records b. Opening mail c. Preparing a list of collections d. Handling receipts of currency and checks SO4 67. The internal control of cash receipts related to adequate records and documents would include which of the following? a. Cash receipts listings prepared on a daily basis and reconciled to supporting documentation from the bank deposit b. Bank deposit receipts should be retained and filed chronologically. c. Detailed customer accounts should also be maintained and reconciled with customer statements regularly. *d. All of the above SO4 68. Independent checks and reconciliations, related to cash receipts, include all of the following, except: a. Cash counts should occur on a surprise basis and be conducted by someone not responsible for cash receipts functions. *b. Cash collections should be deposited in the bank in a timely manner to prevent the risk of theft. c. Physical count of cash needs to be conducted from time to time in order to compare actual cash on hand with the amounts in the accounting records. d. Daily bank deposits should be compared with the detail on the related remittance advice and in the cash receipts journal.

SO4 69. Bank reconciliation tasks include: a. Procedures to ensure that deposits are examined for proper dates b. Procedures to ensure that all reconciling items are reviewed and explained *c. Both of the above d. None of the above SO4 70. The following circumstances may indicate risks related to cash collections, except: a. High volume of cash collections *b. Centralized cash collections c. Lack of consistency in the volume or source of collections d. Presence of cash collections denominated in foreign currencies

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SO4 71. Whenever a company grants credit to customers, there is a danger that customers will not pay.

In fact, most companies have occasional problems with customers who fail to pay which leads to writing off the accounts receivable. Proper controls related to these uncollectible accounts include all of the following, except: a. Segregation of responsibilities so that no one has the opportunity to write off an account to cover up stolen cash. b. Thorough guidelines are to be established for determining the amount of an allowance for uncollectible accounts. c. An accounts receivable aging report should be generated to analyze all customer balances and the lengths of time that have elapsed since the payments were due. *d. Mathematical verification of the cash receipts journal and the accounts receivable ledger.

SO4 72. The separation of the responsibility for custody of cash from the responsibility for reconciling the bank accounts will help to minimize the related risk of: a. Wrong customers *b. Incorrect amounts c. Invalid bank account d. Invalid transactions SO4 73. The separation of the custody of cash from the accounts receivable record keeping will help to minimize the related risk of: *a. Invalid cash receipts b. Incorrect amounts c. Invalid transactions d. Duplicate transactions SO4 74. The preparation of deposit slips on prenumbered forms will help to minimize the related risk of: a. Invalid transactions b. Incorrect amounts c. Duplicate transactions *d. Omitted transactions SO4 75. The security of having cash receipts deposited in the bank on a daily basis will help to minimize the related risk of: a. Invalid receipts b. Invalid bank account *c. Lost or stolen cash d. Duplicate transactions

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SO4 76. In order to properly monitor customer payments and determine the amount of an allowance for uncollectible accounts, a(n) _________ should be generated to analyze all customer balances and the respective lengths of time that have elapsed since payments were due. a. Bank reconciliation b. Accounts receivable report *c. Accounts receivable aging report d. Uncollectible accounts report SO5 77. General controls in an IT system that processed sales transactions would include all of the following, except: a. Authentication of users *b. Review of transaction accuracy c. Physical access controls d. Business continuity planning SO5 78. Application controls in an IT system that processed sales transactions would include: a. Availability *b. Accuracy and completeness c. Security d. Processing integrity SO5 79. Input controls in an IT system that processed sales transactions would include all of the following EXCEPT: a. Data preparation and error handling procedures b. Control totals c. Programmed input validation checks *d. Physical access controls SO5 80. This type of highly integrated IT system incorporates electronic processing of sales-related activities and, generally, the sales processes are transacted over the internet. *a. E-commerce b. Virtual commerce c. Electronic data interchange d. Point of sale SO5 81. Which of the following is NOT an example of a programmed input validation check that would help to detect and prevent keying errors?

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a. Field checks b. Validity checks c. Reasonableness checks *d. Input checks SO5 82. This type of highly integrated IT system, inter-company, computer-to-computer, communicates sales documents electronically with a standard business format. a. E-commerce b. Virtual commerce *c. Electronic data interchange d. Point of sale SO5 83. This type of highly integrated IT system processes sales at a cash register in retail stores. a. E-commerce b. Virtual commerce c. Electronic data interchange *d. Point of sale SO5 84. The purposeful and organized changing of business processes to make the processes more efficient is known as: *a. Business process reengineering b. Business process remediation c. Electronic data reengineering d. Electronic data interchange SO5 85. This chapter describes the usual differences between manual accounting systems and modern, complex systems (such as ERP). Which of the following is not true of the usual differences? a. Many matching and reconciliation processes become automated b. The auditor’s audit software can perform reconciliations and matching *c. All paper records and paper documents no longer exist and the data is in data tables d. Some documents may remain in paper form SO5 86. This chapter describes the usual differences between manual accounting systems and modern, complex systems (such as ERP). Which of the following is not true of the usual differences? a. Segregation of duties is accomplished by access based on user ID and password b. All journals and ledgers would be data tables and not in paper form c. The system automatically checks for balance agreement between the subsidiary ledger and control account *d. No documents remain in paper form

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SO6 87. The advantages of e-commerce, or e-business, include all of the following, except: a. Reduced cost through lower marketing, employee, and paperwork costs. b. Shorter sales cycles *c. Repudiation of sales transactions d. Increased accuracy and reliability of sales data SO6 88. The risks of e-commerce, or e-business, include all of the following, except: a. Confidentiality *b. Accuracy c. Security d. Processing Integrity SO6 89. Availability risks of e-commerce, or e-business, include all of the following, except: a. Hardware and software system failures b. Virus and work attacks c. Denial-of-service attacks by hackers *d. Incomplete audit trail SO7 90. Important characteristics of electronic data interchange (EDI) include all of the following, except: *a. Sales register is used to record all transactions. b. Inter-company refers to two or more companies conducting business electronically. c. Computer-to-computer aspect indicates that each company's computers are connected via a network. d. A standard business format is necessary so that companies can interact and trade with a variety of buyers and sellers.

SO7 91. The standard format used with electronic data interchange (EDI) allows all vendors and buyers to speak the same language. This group has developed the standard format for the common documents used in the sales process: a. Electronic Data Systems b. American Common Forms Institute c. Association of Naturalized Documents *d. American National Standards Institute

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SO7 92. The standard format for common forms used in the United States for electronic data interchange (EDI) data transmission is divided into three parts. Which of the following is one of those "parts"? a. Availability Segment *b. Labeling Interchanges c. Security Trailer d. Processing Data SO7 93. This section of the common forms used as the standard format in EDI data transmission contains data about the file or transmission and identify the end of a particular transaction. *a. Header and trailer Data b. Labeling interchanges c. Data segments d. Footer data SO7 94. Because it can be expensive to develop and maintain a system that links two companies directly, the companies often use a third-party network. This third-party network provides other valuable services such as translation and encryption of the EDI data and authentication of a valid and authorized training partner. These third-party networks are called: a. EDI Mailboxes b. American National Standards Provider *c. Value Added Networks d. Secured EDI Networks SO7 95. EDI systems have many advantages within the revenue and cash collection processes. Which of the following is not one of those benefits? a. Reduction or elimination of data keying *b. Trading partners gaining access to data c. Elimination of postage costs d. Competitive advantage through better customer service SO7 96. The process of user identification to ensure that only authorized users are accessing the IT system, which occurs through the use of user ID, password, and other unique identifiers, is called: a. Processing Integrity b. Virtualization c. Availability *d. Authentication

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SO7 97. A control that limits the risk of network break-ins is the coding of data that makes data unreadable to those without the appropriate key. This process does not stop the breaches, but will make the data useless. *a. Encryption b. Encoding c. Repudiation d. Hacking SO7 98. This occurs when the IT system automatically makes a list of users and the actions they take within the IT system. a. Control totals *b. Transaction logging c. Encryption keys d. Acknowledgment SO8 99. The Point-of-sales (POS) systems capture all relevant sales data at the point of sale - the cash register. The data that is captured includes all of the following, except: a. Prices are determined by accessing inventory and price list data. b. Sales revenue is recorded. *c. Ordering for low-inventory items d. Inventory values are updated.

SO8 100. Features that assist management and accountants, as the result of the point-of-sale systems, include all of the following, except: a. Bar code scanning eliminates the need to manually enter product codes, quantities, or prices. b. Real-time update of cash, sales, and inventory records allows for immediate analysis of sales trends, inventory needs, and cash on hand. *c. List prices can be changed by the check-out clerks to take advantage of any price changes. d. Credit card authorization during the sale saves time and helps prevent credit card fraud.

SO8 101. In a point of sale system, which of the following is NOT one of the processing integrity risks reduced by having an automated POS system? a. Pricing errors *b. shrinkage due to theft c. cash shortages d. Erroneous or invalid sales invoices or voids

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SO9 102. This term refers to moving the current accounting period's cut-off date forward to include sales that correctly occur in a future period. This activity occurs so that the selling company can inflate their sales in the current period. a. Channel stuffing *b. Leaving sales open c. Shipping reversal d. Sales deferral SO10 103. Financial Stewardship can be ensured in the revenue process by establishing and maintaining which of the following? a. reliable revenue processes b. internal controls c. ethical practices *d. All of the above

FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO4

Sales Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the sales cycle.

Control Category

Example of one Internal Control in this category a. Example: Approval of sales order prior to shipment, including establishing sales prices, payment terms, and credit limits

What risk does the control minimize a. Invalid customers, over extended customers, unapproved pricing or incorrect amounts.

b.

b.

2.

a.

a.

3.

a.

a.

4.

a.

a.

5.

a.

a.

1. Authorization

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Question 1 ANSWER: See Exhibit 8-8 in text, provided below

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Question 2.

SO4

Cash Receipts Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the cash receipts cycle.

Control Category

Example of one Internal Control in this category a. Example: Only a designated person opens and closes bank accounts.

1.

What risk does the control minimize a. Minimizes the risk that an invalid bank account would be opened or that transactions would be incorrectly omitted. b.

b.

2.

a.

a.

3.

a.

a.

4.

a.

a.

5.

a.

a.

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Question 2 ANSWER: See Exhibit 8-17 in text repeated below

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Question 3.

SO 8 Point of Sale Systems

You have graduated from college and decided to purchase and operate a Macaroni and Cheese Food Tuck, a rage in your town . You would accept cash and credit card payments, which would be handled primarily by your servers. You also plan to offer unique dishes and specials to differentiate yourself from competitors.

You are trying to launch the business with minimal investment. Your sister has recently graduated with an MBA in Accounting and argues that you must minimally invest in a Point of Sale system.

Identify some advantages and disadvantages of investing in a POS system as part of this new business venture.

What internal controls should be implemented to reduce the risk of theft or error related to the handling of cash, credit card payments, and coupons?

Answer: The advantages of investing in a POS system as part of a new business venture include the following:  Ease of use and ease of training servers. This is expected to lead to fewer errors and more accurate sales and inventory data.  Time savings related to the elimination of manual input processes. This includes increased efficiency and reduced fraud related to processing of credit card payments from customers.  Increased accuracy due to the real-time access to inventory and price data. For instance, if the company’s daily special is sold out, that information can be immediately changed online so that servers can quickly inform customers of the change.  Enhanced accounting features such as real-time update of cash, sales, and inventory records, immediate summaries and analyses, and the potential for integration with a general ledger system will save manual steps and provide timely information for management purposes.

Despite these many advantages, a new business venture would:  need to be especially careful of the extensive hardware and software costs that are necessary to support a POS system  availability risks may be significant, as any hardware and software failures could make the system unavailable and interrupt efficient business processes It is important that a new business venture consider these risks, analyze the costs and benefits of the system, and implement backup systems that should be in place to reduce the availability risk.

In order to reduce the risk of theft or error related to the handling of cash, credit card payments, and coupons, the company should be sure that its POS system includes all relevant payment information, including options to enter the use of coupons and method of payment. In addition, summaries can be provided immediately, so servers should be required to reconcile their transactions at the end of their shifts.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 9: Expenditures Processes and Controls - Purchases STUDY OBJECTIVES 1. An introduction to expenditures processes 2. Purchasing processes and the related risks and controls 3. Purchase return processes and the related risks and controls 4. Cash disbursement processes and the related risks and controls 5. An overview of IT systems of expenditure and cash disbursement processes that enhance the efficiency of expenditures processes 6. Computer-based matching of purchasing documents and the related risks and controls 7. Evaluated receipt settlement systems and the related risks and controls 8. E-business and electronic data interchange (EDI) systems and the related risks and controls 9. E-payables systems 10. Procurement cards 11. Ethical issues related to expenditures processes 12. Corporate governance in expenditures processes END OF CHAPTER QUESTIONS SO2 1. Within the purchases processes, which of the following is the first document prepared and thereby the one that triggers the remaining purchasing processes? a. The invoice b. The receiving report c. The purchase order *d. The purchase requisition SO2 2. Personnel who work in the receiving area should complete all of the following processes, except: a. Counting the goods received b. Inspecting goods received for damage c. Preparing a receiving report *d. Preparing an invoice SO2 3. Which of the given departments will immediately adjust the vendor account for each purchase transaction so that the company will know the correct amount owed to the vendor? a. Purchasing b. Receiving *c. Accounts Payable d. Shipping Ch 9 Test bank – 4e

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SO2 4. One of the most critical controls to prevent theft of inventory purchased is to: a. Require authorization of the purchase requisition *b. Segregate inventory custody from inventory record keeping c. Compare the purchase order, receiving report, and invoice d. Segregate the authorization of purchases from the inventory record keeping SO2 5. Internal control is strengthened by the use of a blind purchase order, upon which the quantity of goods ordered is intentionally left blank. This blind copy is used in which department? a. The department that initiated the purchase request *b. The receiving department c. The purchasing department d. The accounts payable department SO2 6. Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness of purchasing transactions? a. Is an authorized purchase order required before the receiving department can accept a shipment or the accounts payable department can record a voucher? b. Are prenumbered purchase requisitions used and are they subsequently matched with vendor invoices? c. Is there a regular reconciliation of the inventory records with the file of unpaid vouchers? *d. Are prenumbered purchase orders, receiving reports, and vouchers used, and are the entire sequences accounted for?

SO2 SO4 7. Which of the following controls is not normally performed in the accounts payable department? a. The vendor's invoice is matched with the related receiving report. b. Vendor invoices are approved for payment. c. Asset and expense accounts to be recorded are assigned. *d. Unused purchase orders and receiving reports are accounted for.

SO2 / SO4 8. In a system of proper internal controls, the same employee should not be allowed to: a. Sign checks and cancel the supporting voucher package b. Receive goods and prepare the related receiving report *c. Prepare voucher packages and sign checks d. Initiate purchase requisitions and inspect goods received SO3 9. The document prepared when purchased items are returned is a(n): Ch 9 Test bank – 4e

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*a. Debit memo b. Invoice c. Receiving report d. Shipping notice SO4 10. Within cash disbursements, all of the following should be true before a check is prepared, except that: a. The purchase order, receiving report, and invoice have been matched. *b. The purchased goods have been used. c. Sufficient cash is available. d. The invoice discount date or due date is imminent.

SO4 11. A manager suspects that certain employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment. After the invoices are paid, the employee destroys the invoices and related vouchers. To trace whether this is actually happening, it would be best to begin tracing from the: *a. Cash disbursements b. Approved vouchers c. Receiving reports d. Vendors' invoices SO4 12. Within accounts payable, to ensure that each voucher is submitted and paid only once, each invoice approved to be paid should be: a. Supported by a receiving report *b. Stamped "paid" by the check signer c. Prenumbered and accounted for d. Approved for authorized purchases SO4 13. For proper segregation of duties in cash disbursements, the person who signs checks also: a. Reviews the monthly bank reconciliation *b. Returns the checks to accounts payable c. Is denied access to the supporting documents d. Is responsible for mailing the checks SO4 14. Which of the following internal controls wold help prevent overpayment to a vendor or duplicate payment to a vendor? *a. Review and cancellation of supporting documents after issuing payment b. Requiring the check signer to mail the payment to the vendor c. Review of the accounts where the expenditure transaction has been recorded d. Approving the purchase before the goods are ordered from the vendor Ch 9 Test bank – 4e

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SO4 15. Which of the following is not an independent verification related to cash disbursements? a. The cash disbursements journal is reconciled to the general ledger. *b. The stock of unused checks should be adequately secured and controlled. c. The bank statement is reconciled on a monthly basis. d. The accounts payable subsidiary ledger is reconciled to the general ledger.

SO7 16. Which of the following IT systems is designed to avoid the document matching process and is an "invoiceless" system? a. Computer-based matching system b. Electronic data interchange *c. Evaluated receipt settlement d. Microsoft Dynamics SO5 17. Input controls such as field check, validity check, limit check, and reasonableness check are useful in IT systems of purchase to lessen which of the following risks? a. Unauthorized access *b. Invalid data entered by vendors c. Repudiation of purchase transactions d. Virus and worm attacks SO11 18. Which of the following is most likely to be effective in deterring fraud by upper level managers? a. Internal controls *b. An enforced code of ethics c. Matching documents prior to payment d. Segregating custody of inventory from inventory record keeping TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 19. The policies and procedures that employees follow when completing the purchase of goods or materials, capturing vendor data and purchase quantities, and routing the resulting purchasing documents to the proper departments within the company are called: a. Systems *b. Processes c. Activities d. Requisitions

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SO1 20. Which of the following must a company have in place to capture, record, summarize, and report transactions? *a. Systems and processes b. Systems and activities c. Processes and requisitions d. Activities and requisitions SO1 21. The information from a purchase must flow into the purchase recording systems, the accounts payable and cash disbursement systems, and the inventory tracking systems. In an IT accounting system, these recording and processing systems are called: a. General Ledger Systems b. Integrated Accounting Systems c. Journal Application Systems *d. Transaction Processing Systems SO1 22. The acquisition of materials and supplies and the related cash disbursements is referred to as: *a. The Procurement Process b. Systems and Control Process c. Expenditure and Return Process d. Conversion Process SO1 23. Which of the following would be referred to as a common carrier? a. Taxi-cab *b. Trucking company c. City bus d. Fire department vehicle SO1 24. The expenditure and return process is similar to the _______ process, except that goods and cash flow in the opposite direction. a. Procurement b. Conversion *c. Revenue d. Systems and control SO1 25. Common expenditure processes would include all of the following, except: a. Preparation of a purchase requisition b. Receipt of the goods or services c. Recording the liability *d. Payment received on account Ch 9 Test bank – 4e

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SO1 26. The textbook referred to the three primary categories of processes in the typical purchasing system. Which of the following is not one of those categories? a. Purchase Processes b. Cash Disbursement Processes *c. Receiving Processes d. Purchase Return Processes

SO1 27. Each category of processes in the typical purchasing system would include controls and risks.

For each of the categories, the goal of the internal controls system is to reduce specific types of business risks. Which of the following is not one of those risks? a. Recording invalid transactions b. Recording transactions at the wrong amounts c. Omitting actual transactions from the accounting records *d. Transactions properly accumulated or transferred to the correct accounting records SO2 28. Which of the following events would not constitute the start of the purchasing process? a. A warehouse attendant notices a particularly low stock level. b. An operations manager becomes aware of additional quantities of material that will be needed to fulfill sales orders. c. An accountant detects potential shortages in documented inventory quantities. *d. The purchasing manager receives a shipment of raw materials that she had ordered.

SO2 29. Which of the following departments is not a part of the purchasing process? a. Receiving b. Warehouse *c. Cash Disbursements d. Accounts Payable SO2 30. All of the following are external reports except: a. Balance Sheet b. Income Statement c. Cash Flows Statement *d. Aged Accounts Receivable Schedule

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SO2 31. This form is prepared to document the need to make a purchase and requests that the specific items and quantities be purchased. a. Purchase order *b. Purchase requisition c. Purchase invoice d. Purchase journal SO2 32. This form is issued by the buyer, and presented to the seller, to indicate the details for products or services that the seller will provide to the buyer. Information included on this form would be: products, quantities, and agreed-upon prices. *a. Purchase order b. Purchase requisition c. Purchase invoice d. Purchase journal SO2 33. A record keeping tool used to record purchases in a manual accounting system. This "tool" would consist of recording all of the purchased orders issued to vendors in a chronological order. a. Purchase order b. Purchase requisition c. Purchase invoice *d. Purchase journal SO2 34. There are different ways to issue a purchase order to a vendor. Which of the following is not one of the ways? a. Hard copy via fax or mail *b. Hard copy by hand c. Electronically via e-mail d. Directly through the computer network SO2 35. This document, prepared and maintained by the receiving department, is a sequential listing of all receipts. a. Receiving report b. Packing slip c. Bill of lading *d. Receiving log SO2 36. This document, prepared by the purchasing department, for use by the receiving department, is copy of the purchase order that eliminates all data about the price and quantity of the items ordered.

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a. Packing slip *b. Blind purchase order c. Empty purchase order d. Receiving report SO2 37. The main reason that receiving clerks are denied access to purchase order quantities and prices is to: *a. Ensure that the receiving clerk actually takes the time to verify the accuracy of a delivery before accepting it b. Prevent the receiving clerk from stealing delivered goods and manipulating the quantities and prices of received goods c. Prevent fraudulent collusion between the common carrier and the receiving clerk d. N/A: the receiving clerk is NOT denied access to purchase order quantities and prices SO2 38. Which department maintains copies of purchase orders and receiving reports so that the documents can be compared before the accounting records are updated? a. Receiving *b. Accounts Payable c. Cash Disbursements d. Warehouse SO2 39. This document, prepared by the vendor, provides details of the items included in the delivery and is normally signed by the receiving clerk as verification of receipt. a. Packing slip b. Receiving report *c. Bill of lading d. Purchase order SO2 40. Immediate preparation of receiving reports for all actual receipts of goods helps to minimize the risk of: a. Timing issues b. Omitted transactions c. Invalid purchases *d. All of the above SO2 41. This document, prepared by the vendor, is intended to show the quantities and descriptions of items included in the shipment. *a. Packing slip b. Sales invoice c. Bill of lading d. Purchase order Ch 9 Test bank – 4e

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SO2 42. When goods are received at the end of the accounting period, and the invoice is not received until after the start of the following period, a problem may arise as to when to record the liability.

This is referred to as a(n): a. Obligation referral *b. Cutoff issue c. Liability deferral d. Channel stuffing SO2 43. The date that is the end of the accounting period is referred to as the: a. Fiscal date b. Change off c. Accounting cut *d. Cutoff SO2 44. The accounting record that includes the details of amounts owed to each vendor is called the: *a. Accounts payable subsidiary ledger b. Purchases journal c. Accounts receivable subsidiary ledger d. Receiving log SO2 45. The internal control activities within the purchasing process, related to authorization of transactions, would include which of the following? a. The accounting duties related to requisitioning, ordering, and receiving goods should be performed by different individuals. b. The custody of inventory and the recording of inventory transactions are required to be maintained. *c. Specific individuals should be given authoritative responsibility for preparing purchase requisitions and purchase orders which would include which items to purchase, how many items, and which vendor. d. Periodic physical inventory counts are to be reconciled with the inventory ledger and general ledger.

SO2 46. Internal control activities within the purchasing process, identified as segregation of duties, would include all of the following, except: a. Responsibility for authorization, custody, and record keeping are to be assigned to different individuals. b. Duties related to requisitioning, ordering, purchase approval, receiving, inventory control, accounts payable, and general accounting are to be delegated to separate departments or individuals. c. Complete separation of inventory custody from inventory accounting.

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*d. Purchasing records and programs must be protected from unauthorized access.

SO2 47. Internal control activities within the purchasing process, identified as adequate records and documents, would include which of the following? *a. Files are to be maintained for purchase requisitions, purchase orders, receiving reports, and invoices. b. Periodic physical inventory counts are to be reconciled with the inventory ledger. c. Companies are to implement controls where the corresponding benefit exceeds the related cost. d. Avoid having the same individuals who handle the inventory also have access to the related accounting records.

SO2 48. A company should study risks common to its system prior to deciding the mix of controls needed. High-risk characteristics that might justify the need for extensive internal controls include all of the following, except: a. Goods received are especially difficult to differentiate, count, or inspect. b. High volumes of goods are often received, or the goods are of high value. *c. Receiving and/or record keeping are performed at one centralized location. d. Changes in price or vendors are frequent.

SO2 49. The internal control process of having the receiving reports prepared on pre-numbered forms so that the sequence of receipts can be reviewed for proper recording will help to minimize the related risk of: a. Invalid vendors *b. Omitted purchases c. Fictitious purchases d. Timing issues SO2 50. The internal control process of separating the custody of inventory from the accounts payable record keeping will help to minimize the risk of: *a. Fictitious purchases b. Invalid vendors c. Duplicate purchases d. Incorrect amounts SO2 51. The internal control process of requiring physical controls in the warehouse and receiving areas, in order to limit access to inventory items, will help to minimize the risk of: a. Incorrect posting b. Omitted purchases c. Invalid vendors *d. Stolen goods Ch 9 Test bank – 4e

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SO2 52. The internal control process that requires purchase records to be matched and verified for item descriptions, quantities, dates, authorized prices, and mathematical accuracy, will help to minimize the risk of: a. Stolen goods b. Omitted transactions *c. Invalid purchases d. Incorrect accumulation SO2 53. The internal control process that requires the performance of end of period review to determine whether purchases are recorded in the proper period will help to minimize the risk of all of the following EXCEPT: a. Timing issues b. Omitted purchases c. Duplicate purchases *d. Stolen goods SO3 54. A company may reject goods received due to a number of reasons. The process related to this is referred to as: a. Purchases *b. Purchase Returns c. Accounts Payable d. Receiving SO3 55. Goods received are unacceptable due to may different situations. Which of the following is not one of those situations? a. Damage or defects *b. Changes in the company needs regarding future sales or production c. Errors in the type of goods delivered or ordered d. Timing issues SO3 56. The monthly review and reconciliation of vendor statements and accounts payable records minimizes the risk of all of the following except a. ommitted or fictitious returns b. recording an invoice with an incorrect vendor c. timing issues *d. invoices from a fictitious vendor SO3 57. Which of the following is the correct chronological order of events in the purchase return process?

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a. 1 = receive return authorization; 2 = prepare debit memo; 3 = receive credit or check; 4 = goods returned b. 1 = prepare debit memo; 2 = receive credit or check; 3 = goods returned; 4 = receive return authorization *c. 1 = receive return authorization; 2 = prepare debit memo; 3 = goods returned; 4 = receive credit or check d. 1 = receive return authorization; 2 = goods returned ; 3 = prepare debit memo; 4 = receive credit or check SO3 58. The document that identifies the items being returned, along with the relevant information regarding the vendor, quantity and price, is called: a. Credit memo b. Receiving report c. Purchase requisition *d. Debit memo SO3 59. Internal controls related to the purchase returns would include all of the following, except: *a. The accounts payable employee who prepares the debit memo should also be responsible for handling the inventory and approving the return. b. Special authorization should be required to officially reject and return the items. c. Debit memos should be issued on pre-numbered forms in numerical sequence. d. Accounts payable records and data files should be restricted to those who are specifically authorized to approve or record the related purchase return.

SO3 60. The internal control process that requires the approval of the purchase return transaction take place before the preparation of the debit memo, will help to minimize the risk of: a. Fictitious returns b. Omitted returns *c. Invalid returns d. Wrong vendor SO3 61. The internal control process that requires the segregation of the authorization of purchase returns and the accounts payable record keeping and the custody of inventory, will help to minimize the risk of: a. Incorrect amounts *b. Fictitious returns c. Timing issues d. Duplicate returns SO3 62. The internal control process that requires vendor statements to be reviewed monthly and reconciled with accounts payable records, will help to minimize the risk of: Ch 9 Test bank – 4e

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a. Invalid returns b. Stolen goods c. Wrong account numbers *d. Omitted returns SO3 63. The internal control process that requires purchase return records be matched with the original purchase documentation and verified for item descriptions, quantities, dates, and prices, will help to minimize the risk of: *a. Incorrect amounts b. Omitted returns c. Fictitious returns d. Invalid vendors SO3 64. The internal control process that requires physical controls in the warehouse and shipping areas with access to inventory helps to minimize the risk of: a. Incorrect amounts *b. Stolen goods c. Omitted returns d. Duplicate purchase returns SO4 65. The careful oversight of cash balances, forecasted cash payments, and forecasted cash receipts to insure that adequate cash balances exist to meet obligations is called: a. Cash disbursements *b. Cash management c. Independent checks d. Accounts payable management SO4 66. Which department is generally responsible for the notification of the need to make cash disbursements and the maintenance of vendor accounts? a. Accounting department b. Purchasing department *c. Accounts payable department d. Shipping department SO4 67. Within the cash disbursement process, specific steps should be taken to enhance the effectiveness and efficiency of making payments to vendors. Which of the following is NOT one of those steps? a. Vendor account reconciliation *b. Maintenance of the general ledger c. Cash management techniques d. Payment authorization Ch 9 Test bank – 4e

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SO4 68. It is important that documentation support or agree with an invoice before payment is approved and a check is issued. Which documents should be matched to make sure that the invoice received relates to a valid order that was placed and that the goods were received? a. Purchase requisition, purchase order, and receiving report b. Purchase order, receiving log, and invoice c. Purchase requisition, receiving report, and statement *d. Purchase order, receiving report, and invoice SO4 69. It is necessary for a company to maintain good control over their accounts payable and paying by the due date, for all of the following reasons, except: a. Avoid late payment fees *b. Maintain relationships with customers c. To take advantage of discounts for early payment d. To stay on good terms with its vendors SO4 70. A tear-off part of a check that has a simple explanation of the reasons for the payment is called: *a. Remittance advice b. Disbursement journal c. Transaction description d. Cash register SO4 71. When a payment has been made, the cash disbursements clerk will clearly mark the invoice with information pertaining to the date and the check number used to satisfy the obligation. This process is called: a. Marking the invoice b. Retiring the invoice *c. Cancelling the invoice d. Destroying the invoice SO4 72. A chronological listing of all payments is referred to as a(n): a. Remittance Advice *b. Cash Disbursements Journal c. Accounts Payable Ledger d. Purchases Journal SO4 73. This control requires the approval and signature of two authorized persons, on checks over the predetermined threshold amount, which reduces the risk of significant fraud or error.

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a. Double Remittance b. Duo-Authorization c. Bi-Sign *d. Dual Signature SO4 74. The security of assets and documents related to cash disbursements would include all of the following, except: a. Access to cash should be limited to the authorized check signers. b. Physical controls should be in place where the cash is retained and disbursed. *c. Access to records should be limited to persons with the authority to sign checks. d. The company's stock of unused checks should be protected and controlled.

SO4 75. Which of the following statements regarding the maintenance of adequate records and documentation in the cash disbursement process is NOT true? a. An accounts payable subsidiary ledger and a cash disbursement journal are fundamental records in the cash disbursement process. b. The practice of issuing checks on prenumbered forms creates a record of the sequence of transactions. c. The orderly maintenance of accounts payable records facilitates effective cash management techniques. *d. Physical controls should be in place in the areas where cash is retained and disbursed.

SO4 76. The internal control process that requires the approval of a cash disbursement transaction to take place prior to the preparation of the check, will help to minimize the risk of: a. Fictitious payments *b. Invalid payments c. Timing issues d. Stolen cash SO4 77. The internal control process that requires that the bank reconciliation be performed monthly, will help to minimize the risk of: *a. Invalid payments b. Invalid vendors c. Incorrect posting d. Duplicate payments SO5 78. The matching of a purchase order to the related receiving report and invoice is known as: *a. Three-way match b. Document matching c. Automated matching d. Disbursement authorization Ch 9 Test bank – 4e

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SO6 79. A computer software technique in which the computer software matches a Purchase Order to its related receiving report and invoice is called a(n): a. Three way matching b. Document matching c. Disbursement approval *d. Automated matching SO6 80. Advantages of an automated system includes all of the following, except: a. Reduce time, costs, errors, and duplicate payments *b. Increased cost of the system c. Provides management more timely information to forecast future cash outflows for payment of invoices d. Summarized detailed transactions into summary amounts that are posted to the general ledger accounts SO6 81. The security and confidentiality risks of computer-based matching would include: *a. Unauthorized access to the system's ordering and matching functions would allow the insertion of fictitious vendors and / or invoices. b. Errors in system logic can cause systematic and repetitive errors in matching. c. The criteria used to identify duplicate payments may be too tightly defined and will overlook duplicate payments. d. System breakdowns or interruptions can stop or slow the processing of invoices and payments.

SO7 82. This type of system matching takes place without invoices. The receipt of goods is carefully evaluated and, if it matches the purchase order, settlement of the obligation occurs through the system. a. Business Process Engineering b. Controlled Access Invoicing *c. Evaluated Receipt Settlement d. Double Matching System SO8 83. In order to help safeguard the security and confidentiality in an electronic business environment, a company should implement controls such as user ID, password, log-in procedures, access levels, and authority tables in order to reduce the risk of: *a. Unauthorized access b. Incomplete audit trail c. Virus and worm attacks d. Repudiation of purchase transactions

Ch 9 Test bank – 4e

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SO8 84. In order to help safeguard the processing integrity in an electronic business environment, a company should implement input controls such as field check, validity check, limit check, reasonableness check, and computer logs in order to reduce the risk of: a. Worm attacks b. Hackers c. Unauthorized access *d. Invalid data entry SO8 85. In order to help safeguard the availability in an electronic business environment, a company should implement controls such as business continuity planning, backup data and systems, in order to reduce the risk of: a. Unauthorized access *b. System failures c. Repudiation of purchase transactions d. Invalid data entry SO8 86. The examination of the system to determine the adequacy of security measures and to identify security deficiencies is called: a. Intrusion detection b. Penetration testing *c. Vulnerability testing d. Integrity testing SO8 87. Intentionally attempting to circumvent IT system access controls to determine whether there are weaknesses in any controls is called: *a. Penetration testing b. Intrusion detection c. Integrity testing d. Vulnerability testing SO8 88. This type of software alerts the organization to hacking or other unauthorized use of the system or network. a. Penetration testing *b. Intrusion detection c. Integrity testing d. Vulnerability testing SO9 89. One of the newest technologies related to payables is one where invoices are exchanged and payments are made via the internet. The name given to this process is: Ch 9 Test bank – 4e

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a. Random Array of Invoice and Disbursements (RAID) b. Electronic Invoice Payment Procedures (EIPP) *c. Electronic Invoice Presentment and Payment (EIPP) d. Routing Application Invoice Delivery (RAID) SO10 90. Credit cards given to employees by the organization in order for the employees to make designated purchases are called: a. Employee Debit Cards b. Organization Purchase Cards c. Expenditure Cards *d. Procurement Cards SO11 91. Which of the following groups has an ethical obligation to establish the proper tone at the top, strong internal controls, and high ethical standards? a. Stockholders *b. Board of Directors and Management c. Employees d. Audit Committee SO12 92. There are four primary functions of corporate governance. Which of the following is NOT one of those functions? *a. Availability b. Management Oversight c. Internal Controls and Compliance d. Financial Stewardship FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

Ch 9 Test bank – 4e

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Question 1.

SO 2

Risk in the Purchasing Process

Certain factors in a company’s purchasing processes result in an increase risk in the organization. Identify and explain four scenarios that increase a company’s risk in the purchasing process.

1.

2.

3.

4.

ANSWER: Characteristics indicating risk with purchasing processes: 1. Goods received difficult to differentiate, count, or inspect.

2. High volumes of goods are received, or goods are of high value.

3. Inventory pricing arrangements are complex or based on estimates.

4. Frequent changes occur in purchase prices or vendors.

5. Company depends on one or few key vendors.

6. Receiving and/or record keeping are performed at multiple locations.

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Question 2.

SO 2,34

Internal Controls and Reducing Risks

Identify an internal control procedure that would reduce the following risks in a manual system: Risk

Internal control procedure to reduce the risk

a.

Payments may be made for items not received.

b.

Amounts paid may be applied to the wrong vendor account.

c.

The purchasing department may not be notified when goods need to be purchased.

d.

Accounts payable may not be updated for items received.

e.

Purchase orders may be prepared based on unauthorized requisitions.

f.

Receiving clerks may steal purchased goods.

g.

Payments may be made for items previously returned.

h.

Receiving clerks may accept delivery of goods in

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excess of quantities ordered. i.

Duplicate payments may be issued for a single purchase transaction.

ANSWER a. Payments may be made for items not received. b. Amounts paid may be applied to the wrong vendor account.

c. The purchasing department may not be notified when goods need to be purchased. d. Accounts payable may not be updated for items received. e. Purchase orders may be prepared based on unauthorized requisitions. f. Receiving clerks may steal purchased goods.

g. Payments may be made for items previously returned. h. Receiving clerks may accept delivery of goods in excess of quantities ordered.

Require a three-way match of the purchase order, receiving report, and invoice before a payment can be approved.

Assuming that the payment was to the correct vendor, but posted to the wrong account, it is very difficult to uncover this error. A reconciliation of subsidiary ledge to the accounts payable account may not uncover this because the total balance would be the same. It may be uncovered if someone notices that the records show payments to a vendor are in excess of that owed. There is no method to completely eliminate errors in posting.

Require that an inventory control department monitor inventory records and request purchases (purchase requisition) when goods need to be reordered.

Require that the receiving department complete a receiving report for all goods received, and that a copy of the report is forwarded to accounts payable.

Require that the appropriate manager approve each purchase requisition by signing the requisition form.

Require good physical security such as security cameras and good supervision of receiving employees. Using a “blind” PO at receiving may also help since constant shortages when goods are stolen is more likely to be noticed.

Require a debit memorandum be completed for any goods returned, and that a copy of this be forwarded to accounts payable so that the balance owed can be changed.

First, there must be a clear policy on overshipments that receiving personnel can apply. For example, a policy may be written that overshipments under 5% can be accepted, but all others should be rejected and returned.

Second, there must be a policy that all

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i.

Duplicate payments may be issued for a single purchase transaction.

Question 3.

SO 2,34

received goods are compared against a purchase order. Also, the use a “blind” PO to force receiving personnel to count goods and they might therefore more easily detect overshipments.

Require that payment documentation be “cancelled’ when payment is made. This stamp on the documents should help prevent duplicate payments.

Internal Controls and Reducing Risks

For each internal control procedure provided, identify the risk that the procedure is designed to minimize.

Risk a. b.

c.

d.

.

e. f.

g.

Internal Control Procedure Require a three-way match of the purchase order, receiving report, and invoice before a payment can be approved.

Assuming that the payment was to the correct vendor, but posted to the wrong account, it is very difficult to uncover this error. A reconciliation of subsidiary ledge to the accounts payable account may not uncover this because the total balance would be the same. It may be uncovered if someone notices that the records show payments to a vendor are in excess of that owed. There is no method to completely eliminate errors in posting.

Require that an inventory control department monitor inventory records and request purchases (purchase requisition) when goods need to be reordered.

Require that the receiving department complete a receiving report for all goods received, and that a copy of the report is forwarded to accounts payable.

Require that the appropriate manager approve each purchase requisition by signing the requisition form.

Require good physical security such as security cameras and good supervision of receiving employees. Using a “blind” PO at receiving may also help since constant shortages when goods are stolen is more likely to be noticed.

Require a debit memorandum be completed for any goods returned, and that a copy of this be

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forwarded to accounts payable so that the balance owed can be changed.

First, there must be a clear policy on overshipments that receiving personnel can apply. For example, a policy may be written that overshipments under 5% can be accepted, but all others should be rejected and returned.

Second, there must be a policy that all received goods are compared against a purchase order.

Also, the use a “blind” PO to force receiving personnel to count goods and they might therefore more easily detect overshipments.

Require that payment documentation be “cancelled’ when payment is made. This stamp on the documents should help prevent duplicate payments.

h.

i.

Question 2 Answer: Risk a. Payments may be made for items not received. b. Amounts paid may be applied to the wrong vendor account.

c. The purchasing department may not be notified when goods need to be purchased. d. Accounts payable may not be updated for items received. e. Purchase orders may be prepared based on unauthorized requisitions. f. Receiving clerks may steal purchased goods.

Internal Control Procedure Require a three-way match of the purchase order, receiving report, and invoice before a payment can be approved.

Assuming that the payment was to the correct vendor, but posted to the wrong account, it is very difficult to uncover this error. A reconciliation of subsidiary ledge to the accounts payable account may not uncover this because the total balance would be the same. It may be uncovered if someone notices that the records show payments to a vendor are in excess of that owed. There is no method to completely eliminate errors in posting.

Require that an inventory control department monitor inventory records and request purchases (purchase requisition) when goods need to be reordered.

Require that the receiving department complete a receiving report for all goods received, and that a copy of the report is forwarded to accounts payable.

Require that the appropriate manager approve each purchase requisition by signing the requisition form.

Require good physical security such as security cameras and good supervision of receiving employees. Using a “blind” PO at

Ch 9 Test bank – 4e

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g. Payments may be made for items previously returned. h. Receiving clerks may accept delivery of goods in excess of quantities ordered.

i.

Duplicate payments may be issued for a single purchase transaction.

receiving may also help since constant shortages when goods are stolen is more likely to be noticed.

Require a debit memorandum be completed for any goods returned, and that a copy of this be forwarded to accounts payable so that the balance owed can be changed.

First, there must be a clear policy on overshipments that receiving personnel can apply. For example, a policy may be written that overshipments under 5% can be accepted, but all others should be rejected and returned.

Second, there must be a policy that all received goods are compared against a purchase order.

Also, the use a “blind” PO to force receiving personnel to count goods and they might therefore more easily detect overshipments.

Require that payment documentation be “cancelled’ when payment is made. This stamp on the documents should help prevent duplicate payments.

Ch 9 Test bank – 4e

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ACCOUNTING INFORMATION SYSTEMS/4e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 10: Expenditures Processes and Controls – Payroll and Fixed Assets STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. An introduction to payroll and fixed asset processes 2. Payroll processes 3. Risks and controls in payroll processes 4. IT systems of payroll processes 5. Fixed asset processes 6. Risks and controls in fixed asset processes 7. IT Systems of fixed asset processes 8. Ethical issues related to payroll and fixed assets processes 9. Corporate governance in payroll and fixed asset processes END OF CHAPTER QUESTIONS SO1 1. Which of the following statements about payroll and fixed asset processes is true? a. Both have only routine processes b. Both have only nonroutine processes *c. Both have routine and nonroutine processes d. Payroll has only routine processes, while fixed assets has only nonroutine processes SO2 2. For a given pay period, the complete listing of paychecks for the pay period is a: *a. Payroll register b. Payroll ledger c. Payroll journal d. Paymaster SO2 3. A payroll voucher a. Authorizes an employee paycheck to be written *b. Authorizes the transfer of cash from a main operating account to a payroll account c. authorizes the transfer of cash from a payroll account to a main operating account d. Authorizes the paymaster to distribute paychecks SO3 4. For proper segregation of duties, the department that should authorize new employees for payroll would be: a. Payroll *b. Human resources c. Cash disbursements

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d. General ledger SO3 5. Which of the following is not an independent check within payroll processes? a. Time sheets are reconciled with production records. b. Time sheets are reconciled with the payroll register. *c. Paychecks are prepared on prenumbered checks. d. The payroll register is reconciled with the general ledger.

SO4 6. An integrated IT system of payroll and human resources may have extra risks above those of a manual system. Passwords and access logs are controls that should be used in these integrated systems to lessen the risk of: a. Hardware failures b. Erroneous data input c. Payroll data that does not reconcile to time cards *d. Unauthorized access to payroll data SO3 7. Internal control problems would be likely to result if a company's payroll department supervisor was also responsible for: a. Reviewing authorization forms for new employees b. Comparing the payroll register with the batch transmittal *c. Authorizing changes in employee pay rates d. Hiring subordinates to work in the payroll department SO3 8. Which of the following procedures would be most useful in determining the effectiveness of a company's internal controls regarding the existence or occurrence of payroll transactions? *a. Observe the segregation of duties concerning personnel responsibilities and payroll disbursement b. Inspect evidence of accounting for prenumbered payroll checks c. Recompute the payroll deductions for employee fringe benefits d. Verify the preparation of the monthly payroll account bank reconciliation SO3 9. In meeting the control objective of safeguarding of assets, which department should be responsible for distribution of paychecks and custody of unclaimed paychecks, respectively? *a. Treasurer is responsible for distribution of paychecks and for custody of unclaimed paychecks. b. Payroll is responsible for distribution of paychecks and treasurer for custody of unclaimed paychecks. c. Treasurer is responsible for distribution of paychecks and payroll for custody of unclaimed paychecks. d. Payroll is responsible for distribution of paychecks and for custody of unclaimed paychecks.

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SO3 10. A company's internal controls policies may mandate the distribution of paychecks by an independent paymaster in order to determine that: a. Payroll deductions are properly authorized and computed. b. Pay rates are properly authorized and separate from the operating functions. c. Each employee's paycheck is supported by an approved time sheet. *d. Employees included in the period's payroll register actually exist and are currently employed.

SO3 11. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the: *a. Authorization of transactions from the custody of related assets b. Operational responsibility from the record keeping responsibility c. Human resources function from the controllership function d. Administrative controls from the internal accounting controls SO3 12. Which of the following departments or positions most likely would approve changes in pay rates and deductions from employee salaries? *a. Personnel b. Treasurer c. Controller d. Payroll SO5 13. The purchase of fixed assets is likely to require different authorization processes than the purchase of inventory. Which of the following is not likely to be part of the authorization of fixed assets? a. Specific authorization b. Inclusion in the capital budget c. An investment analysis or feasibility analysis of the purchase *d. Approval of the depreciation schedule SO6 14. Which of the following is not a part of adequate documents and records for fixed assets? *a. Fixed asset journal b. Fixed asset subsidiary ledger c. Purchase order d. Fixed asset tags

SO6

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15. Which of the following questions would be least likely to appear on an internal control questionnaire regarding the initiation and execution of new property, plant, and equipment purchases? a. Are requests for repairs approved by someone higher than the department initiating the request? b. Are prenumbered purchase orders used and accounted for? c. Are purchase requisitions reviewed for consideration of soliciting competitive bids? *d. Is access to the assets restricted and monitored?

SO6 16. Which of the following reviews would be most likely to indicate that a company's property, plant, and equipment accounts are not understated? *a. Review of the company's repairs and maintenance expense accounts b. Review of supporting documentation for recent equipment purchases c. Review and recomputation of the company's depreciation expense accounts d. Review of the company's miscellaneous revenue account SO7 17. Which of the following is not an advantage of fixed asset software systems when compared with spreadsheets? a. Better ability to handle non-financial data such as asset location b. Easier to apply different depreciation policies to different assets *c. Manual processes to link to the general ledger d. Expanded opportunities for customized reporting SO8 18. The term "ghost employee" means that: a. Hours worked has been exaggerated by an employee. b. False sales have been claimed to boost commission earned. c. Overtime hours have been inflated. *d. Someone who does not work for the company receives a paycheck.

TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 19. Routine business transactions would include which of the following? *a. Purchase of merchandise inventory b. Payment of principal on a note c. Purchase of fixed asset d. Paying wages and salaries to employees SO1 20. This type of transaction is one that a business encounters on a regular, recurring basis. The volume of the transactions is so large that transactions and the related accounting activities become second nature to the employees responsible for handling them. Specific authorization for each of these transactions is not necessary. The type of transaction referred to is:

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a. Non-routine transaction b. Payroll transaction c. Fixed asset transaction *d. Routine transaction SO1 21. Which of the following is a characteristic of a nonroutine transaction? a. A business encounters this type of transaction on a regular, recurring basis. *b. Required to have specific authorization c. Volume of transactions become second nature to the employees responsible. d. Specific authorization for the specific transaction is not necessary.

SO1 22. A company must have systems in place to take care of all activities related to both routine and nonroutine processes. The activities would include all of the following, except: a. Record b. Summarize *c. Review d. Report SO1 23. The policies and procedures that employees following in acquiring and maintaining human resources, capturing and maintaining employee data, paying employees for time worked, and recorded the related cash payroll liabilities and expenses are collectively referred to as: *a. Payroll processes b. Human resources c. Salary administration d. Administrative procedures SO1 24. The policies and procedures involved in purchasing property, capturing and maintaining relevant data about the assets, paying for and recording the related assets, depreciation and other expenses, and gains or losses are collectively referred to as: a. Capital resources *b. Fixed asset processes c. Property administration d. Capital procedures SO1 25. There are many risks that may affect the payroll and fixed asset transactions. Which of the following is not one of those risks? a. Recorded transactions may not be valid. b. Expenditure transactions may be recorded in the wrong account. *c. Valid expenditures recorded properly by the wrong employee. d. Transactions may not be recorded in a timely manner.

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SO2 26. The payroll process is initiated when: a. An employee submits his time sheet for the pay period *b. An employee is hired c. A payroll check is released to the employee d. A prospective employee is interviewed and given a wage estimate SO2 27. This department is responsible for maintaining records for each job and each employee within the organization, as well as tracking job vacancies and supporting the company's recruitment efforts. a. Salary and Wage Administration Department b. Vice President for Employees Department c. Employee Services Department *d. Human Resources Department SO2 28. The document is prepared in order to map out the jobs and reporting relationships within an organization. This may include only top branches of an organization or may include all positions within the company. a. Employee List *b. Organization Chart c. Hierarchy Tree d. Human Resources Listing SO2 29. This item would include explanations concerning the qualifications and responsibilities of each position shown on organization chart. The item is also supported by policies and procedures manuals that outline specific activities performed by each position. *a. Job profile b. Human resources listing c. Organization chart description d. Position description SO2 30. Personnel records will typically include all of the following, except: a. Documentation related to the initial hiring b. Personal information, such as the employee address *c. Medical history subsequent to hiring d. Social security number

SO2

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31. Each of the following items would likely be found in an employee's personnel records related to the initial hiring, except: a. Employment application b. Recommendation letters c. Background investigation results *d. Overtime and commission rates SO2 32. It is necessary for employees to maintain adequate records of the hours worked and the projects worked on. The record of hours worked by an employee for a specific payroll period is reported on a document called: a. Time ticket *b. Time sheet c. Salary document d. Wage report SO2 33. Which of the following correctly lists activities of the Payroll Process in chronological order? *a. Time sheet submitted by employee, time sheet approved, paycheck signed by management, update General Ledger b. Time sheet submitted by employee, paycheck signed by management, time sheet approved, update General Ledger c. Time sheet submitted by employee, update General Ledger, paycheck signed by management, time sheet approved d. Time sheet submitted by employee, update General Ledger, time sheet approved, paycheck signed by management SO2 34. Which of the following types of employees are typically required to prepare very detailed (tothe-minute) time reports, identifying the types of projects worked on and the exact time spent on each? a. Salary employees *b. Production employees c. Accounting employees d. Management SO2 35. Which of the following would be a correct way to compute the gross pay for an employee? *a. Hours Worked times Authorized Pay Rate b. Hours Worked times Authorized Pay Rate minus Withholding Taxes c. Net Pay minus Authorized Deductions d. Net Pay times Withholding Taxes SO2 36. Which of the following would be a correct way to compute the net pay for an employee?

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a. Hours Worked times Authorized Pay Rate b. Gross Pay minus Withholding Taxes *c. Gross Pay minus Authorized Deductions d. Hours Worked times Withholding Tax Rate SO2 37. This record, prepared by the payroll department, is a complete listing of salary or wage detail for all employees for a given time: a. Payroll journal b. General ledger c. Employee record *d. Payroll register SO2 38. When accounting software is used to prepare the periodic payroll, which of the following items is necessary to input for each employee? a. Employee Name *b. Hours Worked c. Pay Rate d. Social Security Number SO2 39. This document authorizes the transfer of cash from the company's main operating account into the payroll cash account. a. Payroll register b. Payroll disbursements journal *c. Payroll voucher d. Paycheck SO2 40. This record, prepared by the cash disbursements department, provides a listing of all paychecks written, in check-number sequence, with the total supporting the amount of payroll funds to transfer to the payroll bank account. *a. Payroll Disbursements Journal b. Payroll Register c. Payroll Journal d. Cash Disbursements Journal SO2 41. This individual is responsible for distributing the signed paychecks on the designated pay day: a. Human Resources Director b. Department Supervisor c. Payroll Department Manager *d. Paymaster

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SO3 42. Types of fraud that may occur in the payroll function includes all of the following, except: a. Overstated hours *b. Incorrectly computed tax withholdings c. False claims of sick leave d. Pay claims made by ghost employees SO3 43. Which of the following is NOT a reconciliation process to be completed related to payroll? a. Time sheets reconciled to the payroll register b. Payroll register to the general ledger c. Time sheets to the production reports *d. Production reports to the general ledger SO3 44. Internal control activities within the payroll process, identified as adequate records and documents, would include which of the following? a. Manager approval of payroll prior to signing checks b. Independent paymaster c. Physical controls in areas where cash and paychecks are held *d. Paychecks are prepared on prenumbered checks SO3 45. Internal control activities within the payroll process, identified as authorization, would include which of the following? a. Preparation of a bank reconciliation b. Independent paymaster *c. Manager approval of payroll prior to signing checks d. Physical controls in areas where cash and paychecks are held SO3 46. Internal control activities within the payroll process, identified as segregation of duties, would include which of the following? *a. Payroll preparation, authorization of new hiring and pay rates, information systems, and general accounting should all be performed by different departments and / or different people. b. IT controls over computer records and physical controls in records storage areas. c. The payroll register is checked for mathematical accuracy and agreement with authorized pay rates and deductions. d. Supervisor approval of time sheets prior to preparation of payroll documents.

SO3 47. Internal control activities within the payroll process, identified as independent checks and reconciliations, would include which of the following?

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a. IT controls over computer records and physical controls in records storage area. *b. Time sheets reconciled with the payroll register. c. The payroll register is checked for mathematical accuracy and agreement with authorized pay rates and deductions. d. Supervisor approves time sheets prior to preparation of payroll documents.

SO4 48. The internal control activity requiring that the manager approves payroll prior to signing paycheck is intended to minimize the risk of: a. Omitted paychecks b. Incorrect amounts *c. Fictitious employees d. Stolen paychecks SO4 49. The internal control process of requiring an independent paymaster, will help to minimize the risk of: *a. Fictitious employees b. Incorrect amounts c. Omitted paychecks d. Timing issues SO4 50. The internal control process of requiring the payroll register to be reconciled with the time sheets, will help to minimize the risk of: a. Invalid payroll transactions *b. Omitted paychecks c. Duplicate paychecks d. Fictitious employees SO4 51. The internal control activity requiring the preparation of a bank reconciliation will minimize the risk of all of the following EXCEPT: a. Timing issues b. Stolen cash *c. Fictitious employees d. Invalid or omitted paychecks SO4 52. When payroll is processed using batch processing, which of the following would not be part of the payroll process? a. Human resources department would be responsible for keying employee information into the master file. b. The timekeeper will accumulate all time sheets and enter them into the computer system in batches. c. The timekeeper should prepare control totals and hash totals in order to check the system before the paychecks are generated.

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*d. Human resources should prepare control totals and hash totals in order to check the system before the paychecks are generated.

SO4 53. Conditions that warrant the need for strong controls relating to the payroll process include all of the following EXCEPT: a. Irregular pay schedules b. Complex withholding arrangements c. Frequent changes in pay rates *d. Low employee turnover SO4 54. An electronic payroll time keeping device that collects time and attendance data when employees enter their time sheets is called: a. Timekeeper b. Paymaster *c. Electronic time clock d. Badge readers SO4 55. An electronic payroll time keeping device that collects data when employee identification badges are swiped through an electronic reader are called: a. Timekeeper *b. Badge reader c. Paymaster d. Electronic time clock SO4 56. In order to smooth out the payroll process and avoid the heavy workload that falls at the end of the payroll period, many companies will use this type of system--one that integrates their human resources and payroll functions. This system makes real-time personnel data available and the general ledger and production system can be automatically updated at the end of the payroll period. *a. Online software systems b. Batch processing c. Electronic timekeeping d. Outsourcing of payroll services SO4 57. Many companies use independent, internet-based service providers to handle their payroll processing. These payroll providers specialize in offering solutions and constant access to payroll information. a. Online software systems b. Batch processing c. Electronic timekeeping

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*d. Outsourcing of payroll services SO4 58. Payroll outsourcing has become popular due to all of the following reasons EXCEPT: a. It offers increased convenience. *b. It offers full protection from internet fraud. c. It offers protection from the risk of liability for failure to submit tax withholdings d. It offers increased confidentiality.

SO4 59. There are many uses of electronic funds transfer related to the payroll process. Which of the following is not one of those uses? a. Payments to the employees b. Payments to the federal taxing agencies c. Transfers to the payroll checking account *d. All of the above are uses of electronic funds transfer SO4 60. Which of the following is NOT a benefit of the electronic transfer of payroll funds? a. Ensures the timely deposit of funds into employee bank accounts b. Eliminates the need for an independent paymaster *c. Removes the need for bank statement reconciliations d. Saves time and check-cashing fees for employees SO5 61. Assets to be included in the fixed asset pool would include all of the following, except: a. Vehicles b. Furniture *c. Office Supplies d. Real Estate SO5 62. The fixed assets owned by a company are considered to be long-term because: a. The high cost of the fixed assets demands that they not be considered short term. *b. They are purchased with the intent of benefitting the company for a long period of time. c. The assets will last for a long period of time. d. All of the above are reasons the fixed assets are considered to be long-term.

SO5 63. The three phases of fixed assets processes, that span the entire useful life of the assets, include all of the following, except: *a. Depreciation b. Acquisition

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c. Disposal d. Continuance SO5 64. Which of the following is false with regard to fixed asset processes a. Often fixed assets require a large outlay of cash and companies should have in place special processing for expenditures that exceed a given dollar limit. b. A capital budget is a document that outlines all fixed assets that are budgeted to be purchased. c. Fixed assets require recording in both the general ledger as well as a subsidiary ledger *d. A capital budget is a document that outlines the capital that is to be rased for fixed assets that are budgeted to be purchased.

SO5 65. Which of the following correctly lists the correct chronological order of data flow in the fixed asset acquisitions process? a. Prepare requisition, approve purchase, receive goods, prepare purchase order b. Prepare purchase order, prepare requisition, receive goods, approve purchase c. Prepare purchase order, prepare requisition, approve purchase, receive goods *d. Prepare requisition, approve purchase, prepare purchase order, receive goods SO5 66. This document is a financial plan detailing all of the company's investments in fixed assets and other investments. a. Investment Analysis b. Feasibility Study c. Operating Budget *d. Capital Budget SO5 67. A detailed listing of the company’s fixed assets, divided into categories consistent with the general ledger accounts is called a: a. Fixed Asset Journal *b. Fixed Asset Subsidiary Ledger c. Fixed Asset Schedule d. Fixed Asset Budget SO5 68. Which of the following is NOT a piece of relevant information that should be entered into the fixed asset subsidiary ledger upon the acquisition of a fixed asset? a. Acquisition date b. Cost c. Useful life *d. The seller of the fixed asset

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SO5 69. This phase of the fixed asset processes relates to those required to maintain accurate and upto-date records regarding all fixed assets throughout their useful lives. a. Depreciation b. Acquisition c. Disposal *d. Continuance SO5 70. Activities involved with the fixed assets continuance phase of the fixed assets processes include all of the following, except: *a. Updating depreciation prior to the disposal of fixed assets b. Updating cost data for improvements to assets c. Adjusting for periodic depreciation d. Keeping track of the physical location of the assets SO5 71. The record detailing the amounts and timing of depreciation for all fixed asset categories, except land and any construction-in-progress accounts, is called: a. Fixed asset subsidiary ledger b. Capital budget *c. Depreciation schedule d. Depreciation method SO5 72. This phase of the fixed asset processes relates to discarding fixed assets when they become old, outdated, inefficient, or damaged. a. Depreciation b. Acquisition *c. Disposal d. Continuance SO5 73. Activities involved with the fixed assets disposal phase of the fixed assets processes include all of the following, except: *a. Adjusting periodic depreciation b. Disposed assets are removed from the fixed asset subsidiary ledger c. Gains or losses resulting from disposal are computed d. The depreciation amounts related to the disposed assets are removed from the depreciation schedule and the fixed asset subsidiary ledger SO5 74. Disposing of a fixed asset could include all of the following methods, except: a. Throwing it away *b. Sending it to another department

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c. Exchanging it for another asset d. Donating it to another party SO6 75. When high-dollar fixed assets are purchased, there should be a strict approval process which would include three formal steps. Which of the following is not one of those steps? a. Review of the proposal and specific approval by the appropriate level of management b. Investment analysis c. Comparison with the capital budget *d. Feasibility study SO6 76. The first part of the strict approval process for high-dollar fixed assets is the investment analysis. Which of the following is part of that analysis? a. Capital budget comparison b. Review of the proposal *c. Financial justification d. Written requisition SO6 77. Which of the following is a correct statement related to segregation of duties related to fixed assets? *a. Custody of fixed assets is to be separate from the related record keeping b. Custody of fixed assets need not be separate from the purchasing of fixed assets c. The IT function of programming need not be separated from the accounting for fixed assets. d. All of the above are correct statements related to the segregation of duties.

SO6 78. The security of assets and documents would include all of the following, except: a. Supervisors need to make certain that the assets are being used for their intended purpose. *b. Designated members of management should be assigned responsibility for the disposal of any assets c. Maintaining adequate insurance coverage d. Electronic controls are needed to control access to automated records SO6 79. Which of the following independent checks would be part of the internal controls for fixed assets? a. Comparing actual fixed asset expenditures with the capital budget. b. Periodic counts of fixed assets should be made by someone not otherwise responsible for fixed asset related activities. c. Physical counts should be reconciled with the accounting records. *d. Book value of the assets should be compared to the insurance records.

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SO6 80. The internal control process of requiring management approval of fixed asset changes prior to recording the transaction, will help to minimize the risk of: a. Incorrect amounts b. Lost or stolen assets *c. Duplicate transactions d. Omitted transactions SO6 81. The internal control process of computing and recording the gains/losses for all fixed asset disposals will minimize the risk of: *a. Omitted transactions b. Stolen goods c. Fraudulent acquisitions d. Invalid vendors SO6 82. The internal control process of requiring physical controls in place in areas where fixed assets are held, will help to minimize the risk of: a. Incorrect amounts *b. Lost or stolen assets c. Duplicate transactions d. Omitted transactions SO6 83. The internal control process of requiring the check of the fixed asset subsidiary ledger and depreciation schedule for mathematical accuracy and agreement with authorized documentation, will help to minimize the risk of: *a. Incorrect amounts b. Lost or stolen assets c. Duplicate transactions d. Omitted transactions SO6 84. Factors that indicate the need for internal controls over fixed assets processes include all of the following, except: a. General nature of fixed assets makes the susceptible to theft because they are distributed throughout the business and are in the hands of many b. Large quantities of fixed assets c. High likelihood of obsolescence due to technological changes *d. The high cost of assets SO7 85. Most companies can justify the use of specialized asset management software programs instead of the spreadsheets or traditional manual systems for all of the following reasons, except:

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a. The abundance of fixed asset data b. The time-consuming and tedious requirements for tracking changes *c. The number of different methods of accounting for depreciation d. The intricacy of the tax laws SO7 86. The shortcomings of a spreadsheet-based system include all of the following, except: a. The design of spreadsheets is very time consuming *b. The abundance of fixed asset data c. It is difficult to apply varying depreciation policies within spreadsheets d. It is difficult to establish an audit trail with spreadsheets SO7 87. The control environment related to the fixed asset processes can be enhanced through the implementation of various access controls, such as: a. Passwords b. Number of employees who have access to the system c. Limits on the number of computer workstations where information may be entered *d. All of the above SO8 88. An entity who receives a paycheck, but who does not actually work for the company is called: *a. Ghost employee b. Shell employee c. Abundant employee d. Absent employee SO8 89. There are a number of ways that frauds may be carried out to try to receive excess compensation. Which of the following is not one of those methods? a. Exaggeration of hours worked b. Falsification of overtime or holiday time worked, payable at a higher rate *c. Understatement of job related expenses d. Falsification of sales in order to increase commission payouts SO8 90. Clues that a ghost employee may exist in the company would include all of the following, except: a. Payroll register identifies paychecks without adequate tax withholdings. *b. The personnel file contains no duplicate addresses. c. Payroll expenses are over budget. d. Paychecks were not claimed when the paymaster distributed them.

FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO3

Controls in the Payroll Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the Payroll Process cycle.

Control Category

Example of one Internal Control in this category a. Example: Superior approves timesheet prior to the preparation of payroll documents. b.

What risk does the control minimize a. Invalid paycheck or fictitious employees, inaccurate paychecks. b.

2.

a.

a.

3.

a.

a.

4.

a.

a.

5.

a.

a.

1. Authorization

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Question 1 ANSWER: See Exhibit 10-7 in the text, provided below

Question 2.

(SO 3)

Segregation of duties in payroll

Explain why and how duties are segregated in the payroll process Answer:  Authorizing, timekeeping, record keeping, and custody of the paychecks should all be separated.  The human resources department, which is responsible for authorizing new employee hiring and maintaining personnel files, should be separate from the payroll time reporting and record keeping functions.  The payroll department should perform the cash disbursements  Employees in each of these departments should not have check-signing authority and should not have access to the signed checks or cash account.

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  

The person who distributes paychecks to employees, often referred to as a paymaster, should not have responsibility for any of the related payroll accounting functions and should not have custody of cash.

The paymaster should also be independent of the departmental supervision responsibilities, so that it can be determined that paychecks are being distributed to active employees.

Finally, information systems operations and programming related to the payroll processing should be separate from those responsible for custody of payroll cash and record keeping for these processes.

Question 3.

(SO 3)

Reconciliation procedures in payroll

Explain the various reconciliation procedures that should occur in payroll.

Answer:  The number of hours reported on time sheets should be reconciled to the payroll register  The time sheets should be reconciled with production reports.  Each of these reconciliations should be performed before paychecks are signed in order to ensure the accuracy of the underlying payroll information.  The payroll register should be reconciled to the general ledger on a regular basis.  Someone separate from the payroll processing functions should reconcile the bank statement for the payroll cash account on a monthly basis.

Question 4.

(SO 4)

Electronic transfer of funds in payroll

Explain the ways in which electronic transfer of funds and direct deposit can improve payroll processes.

Answer:  EFT can be used to directly deposit pay to employee bank accounts. This eliminates the printing and distribution of pay checks. This saves time and is more secure than distributing paper checks.  The company can also use EFT to deposit taxes withheld and other employee withholdings. This saves time and is more secure than mailing paper checks.  W-2 and wage attachments that result from court proceedings can be transmitted via EFT.  All of these EFT processes are faster and more efficient than the use of printed checks and mailing of checks.

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Question 5.

SO6

Risks and controls in the Fixed Asset Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the fixed asset process.

Control Category

Example of one Internal Control in this category a. Example: Requirement for specific approval for acquisition of large dollar value items or inclusion in the capital budget.

1. Authorization of Transactions

What risk does the control minimize a. Minimizes the risk of invalid or fraudulent acquisitions, invalid vendors, unapproved pricing, timing issues, inaccurate records. b.

b.

2.

a.

a.

3.

a.

a.

4.

a.

a.

5.

a.

a.

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Question 5 ANSWER: See Exhibit 10-14 in the text, provided below

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ACCOUNTING INFORMATION SYSTEMS/4e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 11: Conversion Processes and Controls STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. Basic features of conversion processes 2. Components of the logistics function 3. Cost accounting reports generated by conversion processes 4. Risks and controls in conversion processes 5. IT systems of conversion processes 6. The supply chain and enterprise (ERP) systems 7. Ethical issues related to conversion processes 8. Corporate governance in conversion processes END OF CHAPTER QUESTIONS SO1 1. Manufacturing has changed in recent years as a result of each of the following factors except: a. Globalization b. Technological advances c. Increased competition *d. Lack of economic prosperity SO2 2. The term conversion processes is often used synonymously with: a. Operations b. Production c. Manufacturing *d. All of the above SO2 3. Which of the following activities is not part of the planning component of the logistics function? a. Research and development b. Capital budgeting *c. Human resource management d. Scheduling SO2 4. Which of the following activities is an inventory control activity? a. Engineering b. Maintenance *c. Routing d. Quality control Ch 11 Test bank – 4e

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SO2 5. Which of the following statements concerning an operations list is true? *a. It is an engineering document that describes the chain of events within a company's conversion process. b. It is an engineering document that specifies the descriptions and quantities of component parts within a product. c. It is a capital budgeting document that describes the chain of events within a company's conversion process. d. It is a capital budgeting document that specifies the descriptions and quantities of component parts within a product.

SO2 6. Which of the following terms relates to the control of materials being held for future production? a. Routing b. Work-in-process *c. Stores d. Warehousing SO2 7. Which of the following questions is most likely to be found on an internal control questionnaire concerning a company's conversion processes? a. Are vendor invoices for materials purchases approved for payment by someone who is independent of the cash disbursements function? b. Are signed checks for materials purchased mailed promptly without being returned to the department responsible for processing the disbursement? *c. Are approved requisitions required when materials are released from the company's warehouse into production? d. Are details of payments for materials balanced to the total posted to the general ledger?

SO2 8. When additional procedures are necessary to bring a defective product up to its required specifications, this is referred to as *a. Rework b. Scrap c. Work-in-process d. Variance reporting SO2 9. A firm expects to sell 1,000 units of its best-selling product in the coming year. Ordering costs for this product are $100 per order, and carrying costs are $2 per unit. Compute the optimum order size, using the EOQ model. a. 10 units b. 224 units *c. 317 units Ch 11 Test bank – 4e

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d. 448 units SO4 10. Which of the following internal controls is typically associated with the maintenance of accurate inventory records? a. Performing regular comparisons of perpetual records with recent costs of inventory items b. Using a just-in-time system to keep inventory levels at a minimum c. Performing a match of the purchase request, receiving report, and purchase order before payment is approved *d. Using physical inventory counts as a basis for adjusting the perpetual records SO4 11. If a manufacturing company's inventory of supplies consists of a large number of small items, which of the following would be considered a weakness in internal controls? a. Supplies of relatively low value are expensed when acquired. b. Supplies are physically counted on a cycle basis, whereby limited counts occur quarterly and each item is counted at least once annually. *c. The stores function is responsible for updating perpetual records whenever inventory items are moved. d. Perpetual records are maintained for inventory items only if they are significant in value.

SO4 12. The goal of a physical inventory reconciliation is to a. Determine the quantity of inventory sold *b. Compare the physical count with the perpetual records c. Compare the physical count with the periodic records d. Determine the quantity of inventory in process SO5 13. Which of the following is not considered a benefit of using computerized conversion systems? a. Automatic computation of materials requirements *b. Increased sales and cost of sales c. Increased efficiency and flexibility d. Early error detection and increased accuracy SO5 14. Which of the following represents a method of managing inventory designed to minimize a company's investment in inventories by scheduling materials to arrive at the time they are needed for production? a. The economic order quantity (EOQ) b. Material resource planning (MRP) c. First-in, first-out (FIFO) *d. Just-in-time (JIT) Ch 11 Test bank – 4e

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SO5 15. For which of the following computerized conversion systems is Wal-Mart well known? a. CAD/CAM b. MRP-II c. CIMs *d. JIT TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 16. A company's conversion processes includes all of the following except: a. Materials *b. Office supplies c. Labor d. Overhead SO1 17. A company must have systems in place to accomplish all of the following except: a. Capture data *b. Vocalize data c. Record data d. Summarize data SO1 18. The conversion process is initiated when the company recognizes: a. The receipt of raw materials b. The shipment of finished goods to customers *c. The need to conduct operations d. None of the above SO1 19. According to the textbook, which of the following are the two specific ways in which a company may recognize the need to conduct operations? *a. A sales order is received and a sales forecast is made. b. A sales order is received and a production schedule is created. c. A production schedule is created and a physical inventory count is conducted. d. A sales forecast is made and a production schedule is created.

SO1 20. Overhead includes all of the following except: a. Various other expenses necessary to run the operating facility *b. The president's salary Ch 11 Test bank – 4e

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c. Indirect labor d. Indirect materials SO1 21. The major activities within the conversion process include all but *a. Strategic planning that supports the company's operational goals b. Optimizing the use of the employees, property, and inventories that are needed in operations c. Controlling production flows, ensuring product quality d. Preparing the related cost accounting and financial accounting records SO1 22. Which of the following company activities would NOT be considered a productive activity? a. The manufacture of automobiles b. The treatment of patients in a medical facility c. Providing consulting services *d. All of the above are considered productive activities SO2 23. The process of logical, systematic flow of resources throughout the organization is referred to as: *a. Logistics b. Planning c. Reporting d. Sales forecast SO2 24. Which of the following is NOT a primary component of the logistics function? a. Planning b. Resource management c. Operations *d. Production SO2 25. The component of the logistics function that directs the focus of operations is referred to as: a. Logistics *b. Planning c. Reporting d. Sales forecast SO2 26. The form that specifies the components of a product, including descriptions and quantities of materials and parts needed is the: a. Operations list *b. Bill of materials Ch 11 Test bank – 4e

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c. Engineering d. Capital budgeting SO2 27. The form that describes the chain of events that constitute a product's production is referred to as the: *a. Operations list b. Bill of materials c. Engineering d. Capital budgeting SO2 28. Within the planning component of the logistics function, which of the following processes is responsible for preparing bill of materials and the operations list? a. Research and development b. Capital budgeting *c. Engineering d. Scheduling SO2 29. The process that plans the timing for production activities is referred to as: a. Operations list b. Bill of materials *c. Scheduling d. Capital budgeting SO2 30. Which of the following processes focuses on product improvement? a. Engineering *b. Research and development c. Production d. Capital budgeting SO2 31. The form that authorizes production activities for a particular sales order or forecasted needs is referred to as the: a. Production schedule *b. Production orders c. Maintenance and control process d. Human resources process SO2 32. The process that is concerned with maintaining the capital resources used to support production is referred to as: a. The production schedule Ch 11 Test bank – 4e

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b. Production orders *c. Maintenance and control d. The human resources process SO2 33. This schedule outlines the specific timing required for a sales order, including the dates and times designated for the production run: *a. Production schedule b. Production orders schedule c. Maintenance and control schedule d. Human resources schedule SO2 34. The responsible for managing the placement and development of sufficient qualified personnel which includes hiring and training workers, as well as maintaining records of their performance, is the task of the: a. Production schedule department b. Production orders department c. Maintenance and control department *d. Human resources department SO2 35. The responsibility for managing and recording the movement of inventory in the many different directions that it may go throughout the conversion process is assigned to the: a. Production schedule department *b. Inventory control department c. Maintenance and control department d. Human resources department SO2 36. One inventory control function that is important to the conversion process is the determination of _______ _______ ______, or the most efficient quantity of products to purchase. a. Economic purchase amount *b. Economic order quantities c. Materials resource quantities d. Resource purchase quantities SO2 37. The issuance and movement of materials into the various production phases is referred to as: a. Production scheduling process b. Inventory control process *c. The routing process d. The production orders process

Ch 11 Test bank – 4e

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SO2 38. The ________ _________ function concerns the control of raw materials inventory held in storage or in holding areas, waiting for processing. a. Raw materials b. Inventory warehousing *c. Inventory stores d. Quality control SO2 39. Which document provides the descriptions and quantities of materials taken into production for a specified sale or other authorized production activity? *a. The routing slip b. The shipping notice c. The purchase requisition d. The sales order SO2 40. Which of the following involves managing the holding area for finished goods awaiting sale? a. Purchase orders b. Shipping notices c. Purchase requisitions *d. Inventory warehousing SO2 41. The major function within the conversion process is the: a. Sales order function b. Sales forecast function *c. Logistics function d. Reporting function SO2 42. The component of the logistics function that directs the focus of operations is the: a. Operations component b. Resource management component *c. Planning component d. The sales component SO2 43. The planning component of the logistics function has all of the following elements except: *a. Maintenance and control b. Engineering c. Scheduling d. Capital budgeting

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SO2 44. The resource management component of the logistics function has all of the following elements except: a. Maintenance and control b. Human resources c. Inventory control *d. Capital budgeting SO2 45. The operations component of the logistics function has which of the following elements? a. Maintenance and control *b. Production c. Inventory control d. Capital budgeting SO2 46. The responsibility to conduct make/buy decisions is usually given to: a. Engineering b. Capital budgeting c. Operations *d. Research and development SO2 47. Capital budgeting: a. Is responsible for the issuance of stocks and bonds to finance operations *b. Plans the capital resources needed to support operations c. Is responsible for the procurement of production materials d. Is not a function of a company once established and functioning SO2 48. Engineering is responsible for: a. Designing the product while operations is responsible the bill of materials and the operations list b. Designing the plant and equipment used in manufacturing c. Is responsible for the procurement of production equipment *d. Designing the product and creating the bill of materials and the operations list SO2 49. The bill of materials is the: a. Cost of raw materials purchased from a vendor b. Document of instructions utilized to assemble a product *c. Form that specifies the components of a product d. Designing the product and creating the bill of materials and the operations list

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SO2 50. The operations list is the: a. Schedule of production for the day, week, or month as specified by the company. *b. Document that includes each operation to be performed, including the location of the activity and resources required to produce a product. c. Form that specifies the components of a product. d. Outlines the design of the product and the creation of the bill of materials.

SO2 51. Scheduling: a. Plans the timing for acquisition of fixed assets b. Does not take into account machine breakdowns *c. Takes into consideration all the open sales orders d. Does not take inventory needs SO2 52. Production orders: a. Outline the specific timing required for sales orders *b. Authorize production activities for a particular need or order c. Are forecasts of needs based on known and anticipated sales d. Are issued by the engineering department to correct product deficiency issues SO2 53. A production schedule: a. Does not contain requirements due to sales forecasts b. Does not contain information from the bill of materials *c. Contains information from the operations list d. Are issued by the maintenance and control department SO2 54. The department responsible for training production personnel is the: a. Production department *b. Human resources department c. Engineering department d. None of the above SO2 55. Economic order quantity (EOQ) is a function: a. Of the purchasing customer or client b. Of the sales force to provide the purchasing customer or client with the greatest value c. Of the responsibility of engineering through the operations list *d. Associated with inventory control

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SO2 56. Routing is the: a. Path electronic messages follow in the inventory system *b. Issuance and movement of materials into the various production phases c. Physical movement of materials from the point of sale to the customer d. Physical movement of materials from the vendor to the inventory stores facility SO2 57. Inventory status reports are: a. Generated only for raw materials b. Only generated for finished goods *c. Prepared at various stages of the production process d. Only generated for work in process SO2 58. Select the true statement from the choices below. a. Inventory stores and warehousing are both concerned with raw materials. b. Neither inventory stores nor warehousing are concerned with raw materials. *c. Inventory stores is concerned with raw materials and warehousing is concerned with finished goods. d. Inventory stores is concerned with finished goods and warehousing is concerned with raw materials.

SO2 59. All of the following are classifications of inventory EXCEPT: a. Raw materials b. Finished goods *c. Sold goods d. Work-in-process SO2 60. The term "operations" is commonly used to refer to: *a. The main function of the business b. Any function of the business which generates revenues c. Only those functions of the business accomplished by the operations department d. Only those functions which move inventory through the production cycle SO2 61. Operations may be performed by all of the following except: a. Continuous processing of homogeneous products b. Batch processing c. Custom, made-to-order processing *d. Each of the above is a valid form of operations

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SO2 62. The final hub in the logistics function is: a. Packaging *b. Quality control c. Sales d. Shipping to the customer SO2 63. Rework refers to: a. Generating a better quote for a customer b. Overhaul of a manufacturing machine *c. Additional procedures to bring a product up to specifications d. Parts that are beyond repair at any cost SO2 64. Which of the following correctly lists activities within the conversion process in chronological order? a. Prepare bill of materials, initiate production, inspect goods, prepare purchase requisition b. Prepare purchase requisition, prepare bill of materials, initiate production, inspect goods c. Inspect goods, prepare bill of materials, initiate production, prepare purchase requisition *d. Prepare bill of materials, prepare purchase requisition, initiate production, inspect goods SO2 65. The final hub in the logistics function which involves a follow-up to production, where the products are inspected before they are moved to the warehouse or shipping area is referred to as: *a. Quality control b. Shipping notice c. Purchase requisition d. Warehousing SO3 66. The expected cost based on projections of a product's required resources which includes direct materials, direct labor and overhead is referred to as: a. Quality control costs b. Sales order cost c. Rework costs *d. Standard costs SO3 67. A system which involves recording purchases of raw materials inventory, recording all the components of work in process, and recording the total cost of sales for products completed and sold is referred to as: Ch 11 Test bank – 4e

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*a. A perpetual inventory system b. The accounting information system c. A periodic inventory system d. None of the above SO3 68. Perpetual inventory systems: a. Record changes in inventory categories only at the end of each period b. Record changes in inventory categories only when sales are made *c. Record changes in inventory categories whenever material is moved from one category to another d. Does not address raw materials SO3 69. Variances represent the differences between: *a. Actual costs and the standard costs applied b. Raw materials ordered and raw materials received c. The sales targets and sales accomplishments d. Actual quantity on hand and quantity according to the inventory system SO3 70. Standard costs are the: a. Responsibility of production accountants *b. Expected costs based on required resources c. Costs normally paid for a component d. Prices the customer is expected to pay upon sale SO3 71. Standard costs take into consideration all of the following except: a. The cost of materials utilized to maintain production equipment b. The cost of labor used to operate the production machinery *c. The cost of the sales manager's salary d. Factory overhead items that cannot be directly correlated to product production SO3 72. Perpetual inventory systems: a. Are only updated at the end of each fiscal period b. Are concerned only with finished goods c. Are not concerned with raw materials *d. Involve every level of inventory necessary for production SO3 73. Periodic inventory systems: a. Are only updated at the end of each fiscal period Ch 11 Test bank – 4e

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b. Are concerned only with finished goods c. Are not concerned with raw materials *d. May not reflect current inventory levels SO3 74. Variances: *a. Represent the differences between actual costs and the standard costs applied b. Represent the difference between design specifications and production results c. Represent flaws in the production results d. Each of the answers is correct.

SO3 75. Variances: a. Are only investigated if they are unfavorable b. Are always investigated c. Will always result in the improvement of the logistics function *d. Understanding the cause of both favorable and unfavorable variances can be important SO4 76. Which of the following is NOT a responsibility given to the individuals making purchases for the company? a. Purchasing raw materials for production *b. Specifying the order and sequence of payments to vendors c. Selecting vendors d. Specifying the quantities to be ordered SO4 77. Which of the following activities in the conversion process does NOT require express authorization? a. Initiation of production orders b. Issuance of materials into the production process c. Transfer of finished goods to the warehouse or shipping areas *d. Initiation of a sales order SO4 78. Segregation of duties is accomplished by which of the following? *a. Accounting personnel having restricted access to physical inventory b. Warehouse personnel signing all documents related to material movements c. Production personnel restricted to one manufacturing station at all times d. None of the above SO4 79. Security of assets and documents include all of the following except: a. Water sprinklers Ch 11 Test bank – 4e

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b. Adequate insurance coverage *c. Restricted movement of office supplies d. Security guards SO4 80. In inventory systems, when the actual quantity and the accounting records quantity are compared it is referred to as: a. Perpetual inventory b. Inventory resolution *c. The physical inventory reconciliation d. Periodic inventory SO4 81. Cost-benefit can be defined as: a. Gross profit after sales are made b. Cameras and security guards to protect construction materials in a restricted access warehouse c. Verifying inventory levels at the end of each working shift *d. Alarm systems and vaults for fine jewelry inventories SO4 82. The activity in the conversion process that does NOT require express authorization is the: a. Initiation of production orders b. Issuance of materials into the production process c. Transfer of finished goods to the warehouse or shipping areas *d. Movement of production pieces from one stage of production to the next SO4 83. Within the logistics function, segregation of duties means: *a. One person should not have both inventory and accounting responsibilities. b. One person should not have production responsibilities over more than one station. c. One person should not have quality assurance responsibilities over a work station other than his own. d. Each person can only have one duty or function in the production function.

SO4 84. Physical controls include all but: a. Fences and alarm systems b. Security guards c. High tech security tools *d. Each of the answers is correct.

SO4 85. Physical inventory counts should only include: a. Finished goods Ch 11 Test bank – 4e

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b. Finished goods and raw materials c. Finished goods and work-in-process *d. Raw materials, work-in-process, and finished goods SO4 86. When there is a difference between the inventory records quantity and the physical count of inventory: a. There is a variance. b. The difference can be ignored if minor. *c. The difference is resolved through inventory reconciliation. d. The difference is ignored if the physical quantity exceeds inventory record quantity.

SO4 87. Which of the following factors influences the need to safeguard and monitor inventory movement? a. Inconsistent or high levels of inventory movement b. If the inventory is held at various locations c. If a company's inventory items are difficult to differentiate *d. Each of the answers is correct SO4 88. The preparation of production orders and routing slips on prenumbered forms minimizes the related risk of: *a. Omitted transactions b. Incorrect amounts c. Duplicate payroll transactions d. Invalid orders SO4 89. The reconciliation of time sheets with production reports for work-in-process and finished inventories minimizes the related risk of all of the following EXCEPT: a. Omitted or duplicate payroll transactions b. Timing issues c. Incorrect amounts *d. Lost or stolen inventory SO5 90. This software allows engineers to work with advanced graphics at electronic work stations to create 3-D models that depict the production environment. a. Computer-integrated manufacturing systems (CIMs) *b. Computer-aided design (CAD) c. Material resource planning (MRP) d. Computer-aided manufacturing (CAM)

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SO5 91. ____________________ involves the automated scheduling of production orders and movement of materials in the production process. a. Computer-integrated manufacturing systems (CIMs) b. Computer-aided design (CAD) *c. Material resource planning (MRP) d. Computer-aided manufacturing (CAM) SO5 92. _____________ integrates all of the conversion processes to allow for minimal disruptions due to reporting requirements or inventory movement issues. *a. Computer-integrated manufacturing systems (CIMs) b. Computer-aided design (CAD) c. Material resource planning (MRP) d. Computer-aided manufacturing (CAM) SO5 93. IT systems permit or allow all of the following except: a. Automatic computation of materials requirements based on sales orders *b. Reduced internal security measures c. Automatic updating of inventory status reports d. Timely transfer of inventories throughout the process SO5 94. Computerization of the conversion process results in all except: *a. Automatic computation of materials requirements based on purchase orders b. Timely transfer of inventories throughout the process c. Automatic updating of inventory status reports d. Automatic computation of materials requirements based on sales orders SO5 95. Select the false completion to the statement which starts "A computer-based conversion process. . ." *a. Requires less data input into the system b. Automatically prepares financial accounting entries and cost accounting reports c. Yields greater benefits in terms of workforce efficiency d. Permits more systematic scheduling which allows for greater flexibility SO5 96. Select the statement that is not true with respect to blockchain technology a. Blockchain’s greatest potential is adding value to the company’s logistics process b. Blockchain can increase the visibility of each aspect of the production process *c. Blockchain technology is only utilized in the general ledger process d. All of the answers are true

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SO5 97. Just-in-time (JIT) production systems: a. Require close communications with the engineering department b. Do not require close communications with vendors *c. Require closely controlled inventory levels d. Do not require additional monitoring SO6 98. The act of misstating financial information in order to improve financial statement results is referred to as: a. Just-in-time production systems b. Manufacturing resource planning *c. Earnings management d. Absorption costing SO6 99. Which of the following involves the inclusion of both variable and fixed costs in the determination of unit costs for ending inventories and cost of goods sold? a. Just-in-time production systems b. Manufacturing resource planning c. Earning management *d. Absorption costing SO6 100. Ethical issues of manufacturing include all except: a. Reassignment or retraining employees terminated due to automation *b. Absorption costing c. Production of excessive inventory levels d. Earnings management SO6 101. When absorption costing is used: a. Production inefficiencies are immediately identified. b. Production to absorb the cost of waste and yield factors not considered in other costing methods. *c. Both variable and fixed costs are included in unit costs. d. The transfer of values to the income statement through inventory accounts.

SO6 102. Earnings management: *a. Is the act of misstating financial information b. Is the goal of cost/benefit relationships c. Accomplished through the proper management of inventory and sales d. Is an ethical goal of management

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SO6 103. Manpower displacement through automation: a. Is considered a benefit through cost/benefit analysis *b. Should be a concern of management c. Is the goal of proper engineering d. Seldom results in termination of employees SO7 104. Functions of corporate governance includes all of the following except: a. Management oversight *b. Earnings management c. Financial stewardship d. Internal control system SO7 105. When the proper tone of corporate governance is in place: a. Encouraging ethical conduct is unnecessary. b. Effectiveness is not improved. c. Risk of fraud tends to increase. *d. Proper stewardship of assets increases.

FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO4

Controls in the Conversion Process

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the Conversion Process.

Control Category

Example of one Internal Control in this category a. Example: Approval of a production order prior to commencing production. b.

What risk does the control minimize a. Invalid order or fictitious transactions, inaccurate cost accounting reports. b.

2.

a.

a.

3.

a.

a.

4.

a.

a.

5.

a.

a.

1. Authorization

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Question 1 ANSWER: See Exhibit 11-8 in the text, provided below

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Question 2.

SO 5

Technological Developments and the Conversion Process

Recent technological developments have resulted in significant changes in the way that many companies conduct their conversion processes. Describe the benefits and efficiencies that companies may experience when utilizing computerized systems in the conversion process.

Answer:       

Automatic computation of materials requirements based on sales orders and sales forecasts Systematic scheduling that allows for greater flexibility and increased efficiencies Timely transfer of inventories throughout the process, due to the automatic notification features Validation of data entries that detect errors before they are recorded Automatic updating of inventory status reports that saves time and increases accuracy Automatic preparation of financial accounting entries and cost accounting reports In addition to these advantages, integration of all or part of the company’s processing applications, planning, resource management, operations functions, and cost accounting system will yield even greater benefits in terms of workforce efficiency, paperwork reduction, and other cost reductions.

Question 3.

SO 5

Conversion Process Terminology

Describe and explain the following terms with respect to the conversion process.

1. Computer-aided design (CAD) 2. Computer-aided manufacturing (CAM) 3. Materials resource planning (MRP) 4. Manufacturing resource planning (MRP-II) 5. Computer-integrated manufacturing systems (CIMs) 6. Just-in-time (JIT) production 7. Radio-frequency identification (RFID) ANSWER: Computer-aided design (CAD) techniques are be used to enhance the engineering function.

CAD software allows engineers to work with advanced graphics at electronic work stations to create 3D models that depict the production environment.

Computer-aided manufacturing (CAM) involves the complete automation of the production process, including the full replacement of human resources with computers. Industrial robots may

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also be used in a CAM environment. Industrial robots are computers that are programmed to perform repetitive procedures.

Materials resource planning (MRP) involves the automated scheduling of production orders and movement of materials in the production process.

Manufacturing resource planning (MRP-II) considers all manufacturing resources, rather than focusing on materials. MRP-II systems are an expansion of MRP. MRP-II adds features that provide for the forecasting of capacity requirements and for developing schedules for future production processing.

Enterprise-wide resource planning (ERP) systems have evolved from MRP-ERP systems integrate all of the conversion processes into a single software program while still meeting the needs of each functional area. In addition to the manufacturing applications included in MRP-II systems, ERP offers additional functions such as purchasing, accounts payable, human resources, and payroll Computer-integrated manufacturing systems (CIMs) integrate all of the con- version processes to allow for minimal disruptions due to reporting requirements or inventory movement issues. They are similar to ERP systems in that they integrate all of the functional areas of the conversion process. However, CIMs are unique because they also integrate the financial and cost accounting applications.

Just-in-time (JIT) production systems are concerned with minimizing or eliminating inventory levels and the related costs of maintaining those inventories. This is accomplished by carefully controlling each stage of the production process so that products are completed just in time to sell them.

The use of radio-frequency identification (RFID) systems within conversion processes are on the rise. RFID uses pin-head-sized tags to monitor and account for inventories through the receiving, stores, production, warehousing, and ship- ping functions.

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ACCOUNTING INFORMATION SYSTEMS/4e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 12: Administrative Processes and Controls STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. An introduction to administrative processes 2. Financial capital processes 3. Investment processes 4. Risks and controls in capital and investment processes 5. General ledger processes 6. Risks and controls in general ledger processes 7. Reporting as an output of the general ledger processes 8. Ethical issues related to administrative processes and reporting 9. Corporate governance in administrative processes and reporting END OF CHAPTER QUESTIONS SO1 1. Which of the following is NOT part of an administrative process? a. The sale of stock b. The sale of bonds *c. The write-off of bad debts d. The purchase of marketable securities SO2 2. Which of the following statements is NOT true regarding source of capital transactions? a. These processes should not be initiated unless there is specific authorization by management at a top level. b. Source of capital processes will result in potential dividend or interest payments. c. Retirement of debt is a source of capital process. *d. The fact that these transactions and processes cannot occur without oversight by top management means other controls are not necessary.

SO3 3. The officer within a corporation that usually has oversight responsibility for investment processes is the a. Controller *b. Treasurer c. Chief executive officer (CEO) d. Chief accounting officer (CAO) SO4 4. Which of the following statements is true regarding internal controls of capital and investment processes? a. Internal controls aimed at preventing and detecting employee fraud in capital and investment processes are not as effective. *b. Top management fraud, rather than employee fraud, is more likely to occur.

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c. Any fraud is likely to involve manipulating capital and investment processes. d. Because of top management oversight, the auditor need not review these processes.

SO5 5. Which of the following statements is true? a. Routine transactions are recorded in the general journal. *b. Nonroutine transactions are entered in the general journal. c. Nonroutine transactions are recorded in a subsidiary ledger. d. Nonroutine transactions are recorded in a special journal.

SO5 6. Regarding subsidiary ledgers and general ledger control accounts, which of the following is NOT true? a. Total balances in a subsidiary ledger should always equal the balance in the corresponding general ledger account. *b. The general ledger maintains details of subaccounts. c. Control is enhanced by separating the subsidiary ledger from the general ledger. d. Reconciling a subsidiary ledger to the general ledger can help to detect errors or fraud.

SO6 7. Which of the following statements regarding the authorization of general ledger posting is NOT true? *a. Posting to the general ledger always requires specific authorization. b. User IDs and passwords can serve as authorization to post transactions to the general ledger. c. A journal voucher serves as authorization for manual systems. d. As IT systems become more automated, the authorization of general ledger posting is moved to lower levels of employees.

SO6 8. In a manual system with proper segregation of duties, an employee in the general ledger department should only a. Authorize posting to the general ledger *b. Post transactions to the general ledger c. Reconcile the subsidiary ledger to the general ledger d. Post transactions to the subsidiary ledger SO7 9. Which of the following statements about reporting is true? a. External users need detailed, rather than summarized, information. b. All reports, internal and external, are derived only from general ledger data. c. All organizations need similar internal reports. *d. Internal reports are tailored to the specific needs of each management level and function.

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SO8 10. Which of the following is NOT generally an area of measure in a balanced scorecard? *a. Vendor b. Customer c. Financial d. Learning and growth TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 11. Within the conversion processes, systems and controls result from transactions that are: *a. Large volumes of daily materials transactions b. Large volumes of daily sales and cash inflow transactions c. Periodic d. Infrequent SO1 12. Within the revenue and return processes, systems and controls result from transactions that are: a. Large volumes of daily materials transactions *b. Large volumes of daily sales and cash inflow transactions c. Periodic d. Infrequent SO1 13. Within the administrative processes, systems and controls result from transactions that are: a. Large volumes of daily materials transactions b. Large volumes of daily sales and cash inflow transactions *c. Periodic d. Infrequent or intermittent SO1 14. Raw material events can be found in which two processes? a. (1) Revenue and return processes, systems & controls and (2) expenditures and return processes, systems & controls *b. (1) Expenditures and return processes, systems & controls and (2) conversion processes, systems & controls c. (1) Conversion processes, systems & controls and (2) administrative processes, systems & controls d. (1) Administrative processes, systems & controls and (2) revenue and return processes, systems & controls

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SO1 15. Payroll transactions are considered: a. Large-volume daily events b. Small-volume daily events *c. Periodic events d. Intermittent or infrequent events SO2/SO3 16. Capital or investment processes: a. Are a regular and frequent event b. Only require the specific approval of someone such as a senior accountant *c. Require the specific approval of top management or board of directors d. Can be considered revenue since they result in cash inflows SO2/SO3 17. Capital or investment processes: a. Are a regular and frequent event b. Do not require established procedures or internal controls due to their infrequency *c. Require established procedures and internal controls even though they are considered infrequent events d. Do not involve the company's own bond issues SO2 18. External reports do not include: a. Balance sheets b. Income statements *c. Sales reports d. Cash flows SO2 19. Internal reports do not include: *a. Balance sheets b. Sales reports c. Cash flows d. Inventory status reports SO2 20. Select the answer that contains only external reports: *a. Balance sheet, income statement, cash flow statement b. Sales, balance sheet, income statement c. Balance sheet, income statement, aged receivables d. Sales, inventory, aged receivables SO2 21. Select the answer that contains only internal reports: Ch 12 Test bank – 4e

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a. Balance sheet, income statement, cash flow statement b. Sales, balance sheet, income statement c. Balance sheet, income statement, aged receivables *d. Sales, inventory, aged receivables SO2 22. Capital is/are the funds: a. Utilized to acquire long-term and short-term or current assets b. Received from customers from accounts receivable *c. Utilized to acquire long-term assets d. That are cash inflows regardless of source SO2 23. The decision to raise or acquire capital funds is: a. Is the responsibility of contract stock underwriters b. Is the responsibility of contract bond underwriters c. Affects only bonds *d. Is the responsibility of the board of directors SO2 24. The processes that authorize the raising of capital, execute the raising of capital, and properly account for that capital are called: a. Capital-raising processes *b. Source of capital processes c. Administrative processes d. Investment processes SO2 25. Capital funds are acquired through the issuance of: a. Bonds only *b. Stocks and/or bonds c. Stocks only d. Debt instruments only SO2 26. Long-term debt results from borrowing funds via: *a. Bonds and loans with payment schedules several years in the future b. Stocks c. Loans with payment due in the near future d. All of the above are examples of long-term debt.

SO2 27. Equity is considered:

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a. Bonds and loans with payment schedules several years in the future *b. Stocks c. Loans with payment due in the near futur d. All of the above are examples of long-term debt.

SO2 28. The transactions and resulting processes related to loans, bonds payable, and stock should be executed only when: a. Received funds have been expended through the purchase of fixed assets. b. The transactions are completed. c. Top supervisors authorize them. *d. Top management or the board of directors authorize them.

SO2 29. Select the correct statement from those listed below: *a. Issuance of bonds and the origination of loans are considered debt, while the issuance of stock is considered equity. b. Issuance of bonds and the origination of loans are considered debt, while the issuance of stock is considered revenue. c. Issuance of bonds, the origination of loans, and the issuance of stock are all considered debt. d. Issuance of bonds, the origination of loans, and the issuance of stock are all considered equity.

SO2 30. Items associated with debt do NOT include: a. Interest b. Maturity date *c. Dividends d. Changes in stockholders’ equity SO2 31. Items associated with equity include all but: *a. Interest b. Maturity date c. Dividends d. Changes in stockholders' equity SO3 32. Investment processes: a. Issue stock b. Issue bonds c. Purchase fixed assets *d. Invest excess funds

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SO3 33. Which of the following, within the corporation, has the responsibility for making investment decisions? a. Board of directors b. Chief financial officer *c. Treasurer d. President/CEO SO3 34. Corporations with complex IT systems: *a. May automate their investment process b. Still handle all investment processes manually c. Generally isolate the investment process from their accounting application d. Cannot forecast surplus cash levels SO4 35. Select the true statement from those given below: a. Capital processes require top management approval while investment processes only require treasurer approval. b. Both the capital process and the investment process require only treasurer approval. *c. Both the capital process and the investment process require top management approval. d. Neither the capital process nor the investment processes require top management approval.

SO4 36. Fraud associated with the capital and investment process is: a. Generally the actions of the employees handling the cash associated with transactions. *b. Usually related to management fraud. c. Prevented by the use of electronic funds transfers. d. Usually not pursued by the Securities and Exchange Commission.

SO5 37. The proper sequence of events for the accounting cycle is: *a. Journalize, post, trial balance, adjusting entries, financial statements, and closing entries b. Journalize, post, trial balance, adjusting entries, closing entries, and financial statements c. Journalize, post, adjusting entries, trial balance, closing entries, and financial statements d. Trial balance, adjusting entries, journalize, post, closing entries, and financial statements SO5 38. The ________ _______ provide(s) details for all the account within the chart of accounts and are (is) the entire set of T-accounts for the organization.

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a. Trial balance b. Adjust entries c. Financial statements *d. General ledger SO5 39. Special journals include: a. Accounts receivable journal, cash receipts journal, payroll journal, purchases journal, and sales journal b. Accounts payable journal, cash disbursements journal, payroll journal, purchases journal, and sales journal c. Cash disbursements journal, cash receipts journal, general journal, payroll journal, purchases journal, and sales journal *d. Cash disbursements journal, cash receipts journal, payroll journal, purchases journal, and sales journal SO5 40. Which of the following is NOT a special journal? a. Sales journal *b. Inventory journal c. Cash receipts journal d. Payroll journal SO5 41. Special journals include the: a. Accounts receivable journal b. Accounts payable journal *c. Purchases journal d. Inventory journal SO5 42. When a transaction occurs in a business, the accountant must decide if it is a regular and recurring transaction. If the transaction IS regular and recurring, it will be recorded in a ____1_____. If it is NOT regular and recurring, it will be recorded in a _____2_____. a. 1=General journal; 2=Special journal b. 1=General ledger: 2=Special ledger *c. 1=Special journal; 2=General Journal d. 1=Special journal; 2=Subsidiary Ledger SO5 43. Select the correct statement from the following. a. To review purchases from a vendor, inspect the purchases journal; to review payments to a vendor, inspect the cash receipts journal. b. To review purchases from a vendor and review payments to a vendor, inspect the cash disbursements journal.

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*c. To review the purchases from a vendor, inspect the purchases journal; to determine inventory levels of a specific item, inspect the subsidiary ledger for inventory. d. To review the payments to a vendor, inspect the cash receipts journal; to determine inventory levels of a specific item, inspect the inventory journal.

SO5 44. Select the correct statement from the following: *a. The accounts payable journal will not show detail of purchases from a vendor. b. Details of amounts owed by a customer in are the accounts payable journal. c. The sales journal contains all sales information. d. Details of amounts owed to a vendor are contained in the purchases journal.

SO5 45. Select the correct statement from the following: a. If the trial balance debits equal the trial balance credits, adjusting entries are not necessary. b. Adjusting entries are made after the adjusted trial balance report is printed. c. Accounts payable information in detail can be found in both the general ledger and the accounts payable subsidiary ledger. *d. Financial statements must be prepared before the closing entries are journalized.

SO5 46. Sales and sales returns can affect which journals? a. Accounts receivable, accounts payable, inventory, and sales *b. Accounts receivable, cash, inventory, and sales c. Accounts receivable, accounts payable, purchases, and inventory d. Sales, cash receipts, cash disbursements, inventory, and purchases SO5 47. Special journals are: a. Utilized for infrequent special journal entries *b. For regular and recurring transactions c. Not utilized in automated accounting processes d. Often the source of information regarding a specific customer SO5 48. The sales journal would have columns for a a. Debit to sales, a credit to accounts receivable b. Debit to cash, a debit to accounts receivable, and a credit to sales c. Debit to accounts receivable and a credit to cost of goods sold *d. Debit to accounts receivable and a credit to sales SO5 49. Subsidiary ledgers: a. Would not contain the detailed information of a customer's account Ch 12 Test bank – 4e

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*b. Would contain the detailed information of a customer's account c. Would contain only information related to secondary interests of the organization d. Would not be utilized in automated accounting processes SO5 50. When special journals are utilized: a. A general journal is not required. b. Segregation of duties is required. *c. A general journal is still utilized for infrequent and unique journal entries. d. A general ledger is not required.

SO5 51. Corrections to posting errors are made: a. Before the first trial balance b. Only after the first trial balance *c. When discovered d. Only when directed by top management SO5 52. Closing entries are: a. Journalized in all of the special journals *b. Journalized in the general journal c. Journalized in the subsidiary ledgers d. Journalized in the general ledger SO5 53. Closing entries: a. Close all of the general ledger accounts *b. End the fiscal period c. Close all of the subsidiary ledger accounts d. Are journalized in the subsidiary ledgers SO5 54. Today's automated accounting process: a. Is built on a structure independent of manual accounting b. Does not require special journals or subsidiary ledgers *c. Is built on an operational structure similar to manual accounting d. Eliminates errors in the accounting process SO5 55. Today's automated accounting process: *a. Helps the user by identifying modules for activities. b. Precludes the use of subsidiary ledgers. c. Requires manual posting of general journal transactions. d. All of the above are correct.

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SO5 56. Transactions are recorded in the special journals and subsidiary ledgers: *a. At the time of the transaction b. Only when approved by top management c. Only during the adjusting process d. Only during the closing process SO5 57. Posting to the general ledger occurs: a. As the transaction is recorded in the special journals b. Is not required if special journals are utilized c. Automatically at the end of each business day *d. Only when proper authorization has been given SO6 58. In the case of a manual accounting system, wages and payroll deductions would not be posted to the general ledger until the ________ forwards a signed journal voucher, giving the authorization. a. Accounting manager b. Controller *c. Payroll department d. Upper management SO6 59. In automated accounting: a. Paper vouchers are still required before the posting process is started. *b. Transaction information may be held in a special module awaiting posting. c. General ledger accounts are updated as transactions are recorded in special journals. d. Authorization is required for each specific transaction.

SO6 60. As computerized accounting systems get more and more complex and integrated: a. The level of authorization for posting gets higher in the level of responsibilities. b. The level of authorization for posting has not changed. *c. The level of authorization for posting gets lower in the level of responsibilities. d. More levels of authorization are required.

SO6 61. Which of the following statements is FALSE? a. As computerized accounting systems become more complex, there are usually fewer manual processes. b. With more automation in computerized accounting systems, responsibility for authorization gets moved to lower levels of employees.

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c. Approvals for each journal voucher are general authorizations instead of a specific authorization. *d. None of the above are false.

SO6 62. Select the correct statement from the following: a. General ledger employees should not have custody of any assets that they record in the general ledger. b. General ledger employees should never be given responsibility for authorizing any journal vouchers. c. General ledger employees should only record journal vouchers that have been authorized by the appropriate manager. *d. All of the above are correct.

SO6 63. General ledger employees should record journal vouchers, but they should not: a. Have recording responsibility for any special journals or subsidiary ledgers b. Authorize journal vouchers c. Have custody of assets *d. All of the above are correct.

SO6 64. Segregation of duties: a. Remains unchanged between computerized and manual accounting *b. May be more difficult in less complex computerized accounting systems c. Is not a factor with computerized accounting systems d. Is not a factor with manual accounting systems SO6 65. When transactions are posted in a computerized accounting system: a. The user must post all transactions awaiting in the module. b. Segregation of duties is not a factor. *c. The user can select which batches of transactions to post. d. Anyone with general ledger access can post the transactions.

SO6 66. Which of the following is not true with regards to internal controls in the general ledger process? a. General ledger employees should never have custody of assets that they record in the general ledger. b. A proper segregation of duties in a general ledger system is that general ledger functions should be segregated from special journal recording tasks. c. A proper segregation of duties in a general ledger system is that general ledger functions should be segregated from subsidiary ledger tasks. *d. In a manual and automated accounting system, the same written authorization (signed sign off on a journal voucher) is required to process transactions in the general ledger.

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SO6 67. While using a manual general ledger system, which of the following items would be included in the audit trail: general ledger, electronic images, journal vouchers, paper documents, source documents, special journals, and subsidiary ledgers? a. All of those listed *b. Everything except electronic images c. Everything except journal vouchers d. Everything except source documents SO6 68. To maintain adequate records and documents in a manual general ledger system, there are two important requirements. These are: a. A well-defined chart of accounts & adequate general ledger b. An adequate audit trail & adequate internal controls *c. A well-defined chart of accounts & adequate audit trail d. An adequate general ledger & adequate internal controls SO6 69. While using a computerized IT accounting system, which of the following items would be included in the audit trail: general ledger, electronic images, journal vouchers, paper documents, source documents, special journals, and subsidiary ledgers? a. All of those listed *b. Electronic images and paper documents c. Electronic images, paper documents, source documents, and subsidiary ledgers d. General ledger, paper documents, special journals, and subsidiary ledgers SO6 70. Audit trails: a. Can proceed only from the source document to the journal entry b. Can proceed only from the journal entry to the source document c. Are only utilized by the CPA auditors *d. Can be from the source document to the journal entry or from the journal entry to the source document SO6 71. Security of source documents: *a. Is essential for both manual general ledger systems and IT accounting systems b. Is not a factor with IT accounting systems since the source documents are electronic images c. Is not a factor with manual general ledger systems since they are printed documents in archive files d. None of the options are correct.

SO6 72. IT controls over computer records and physical controls in general ledger storage areas minimize the related risk of: Ch 12 Test bank – 4e

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a. Fraud and errors *b. Invalid general ledger postings c. Theft and fraud d. Amounts posted to wrong accounts SO6 73. By maintaining a well-defined, complete chart of accounts, an organization minimizes the related risk of: a. Fraud and errors b. Invalid general ledger postings c. Theft and fraud *d. Amounts posted to wrong accounts SO7 74. Select the correct statement from those listed below: a. Investors and creditors use nonfinancial feedback to evaluate business performance. b. Internal managers need only nonfinancial feedback for proper planning and control of operations. c. Internal managers need reports at the same frequency as external users. *d. Internal managers need much more frequent and detailed reports than external users.

SO7 75. Internal users: a. Need more frequent reports than external users *b. Need more frequent reports than external users and utilize nonfinancial information in the planning and control of operations c. Need more frequent reports than external users and need the same reports as external users to manage the operation d. Utilize nonfinancial information in the planning and control of operations SO7 76. The external general purpose financial statements/reports include which of the following: aged accounts payable report, aged accounts receivable report, balance sheet, income statement, inventory statement, statement of cash flows, statement of retained earnings a. All those listed b. All those listed except for the inventory statement *c. Only balance sheet, income statement, statement of cash flows, and statement of retained earnings d. Only aged accounts payable report, balance sheet, income statement, statement of cash flows, and statement of retained earnings SO7 77. Financial statements: a. Are generated from the values of the special journals and subsidiary ledgers b. Are presented with complete chart of account detail Ch 12 Test bank – 4e

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*c. May contain condensed data from the general ledger d. Show units in inventory and dollar value of those units SO7 78. The four general purpose financial statements are: a. Generated at the end of each month *b. Generated at the end of each fiscal period c. Distributed only to external users d. Distributed only to internal users SO7 79. Internal reports of financial information: a. Are standardized by the AICPA b. Are the same as those distributed to the external users *c. Vary by the user d. Are distributed on the same time schedule as external reports SO7 80. The factor that does NOT affect internal reports is: a. The type of organization *b. The audit status of the organization c. The underlying function being managed d. The time horizon SO7 81. The account that a manufacturing operation and a retail firm would have in common would be: a. Raw materials b. Work in process c. Manufacturing Labor *d. Inventory SO7 82. A service firm would focus on: a. Raw materials and work in process *b. Sales and project status c. Work in process and labor d. Raw materials and labor SO7 83. A common interest for manufacturing, retail, and service firms is: a. Inventory b. Revenues c. Profitability *d. Both revenues and profitability Ch 12 Test bank – 4e

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SO7 84. Not-for-profit organizations would be interested in: a. Cash flows, revenues, and expenditures *b. Cash flows, funding sources, and expenditures c. Revenues, expenses, and funding sources d. Cash inflows, cash outflows, and profits SO7 85. Select the true statement from those listed below: a. Managers only need reports showing dollar values. b. Managers only need reports showing unit data. c. All managers need the same information. *d. Managers need the information associated with their area of responsibility.

SO7 86. Studies show that: *a. For day-to-day operations, unit data is the critical element. b. For day-to-day operations general ledger dollar value is the critical element. c. The general ledger dollar values have little impact on long-term time horizons. d. For day-to-day operations, both unit data and general ledger dollar value are critical elements.

SO8 87. Which of the following statements about unethical or fraudulent behavior in an organization is true: *a. Unethical or fraudulent behavior within the administrative process can occur in administrative processing of an organization or in the reporting functions of an organization, and is much more likely to be initiated by management. b. Unethical or fraudulent behavior within the administrative process can occur in administrative processing of an organization or in the reporting functions of an organization, and is much more likely to be initiated by employees. c. Unethical or fraudulent behavior within the administrative process can occur in administrative processing of an organization and is much more likely to be initiated by management. d. Unethical or fraudulent behavior within the administrative process can occur in the reporting functions of an organization and is much more likely to be initiated by employees.

SO8 88. Select the true statement from the following: *a. Employee fraud is more prevalent in the routine processes. Management fraud is more prevalent in administrative processes and reporting. b. Employee fraud is less prevalent in the routine processes and administrative processes.

Management fraud is more prevalent in operational processes and reporting.

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c. Employee fraud is less prevalent in the administrative processes. Management fraud is more prevalent in operational processes and reporting. d. Employee and managerial fraud is prevalent in the routine processes as well as the administrative processes and reporting equally.

SO8 89. Which of the following statements is most true? In a properly controlled system of administrative and reporting functions: a. Employees have access to related assets or source documents, and on processes such as sales and cash receipts employees are given general authorization to initiate and process transactions. b. Employees have access to related assets or source documents, administrative processes are tightly controlled by supervisors, and on processes such as sales and cash receipts employees are given general authorization to initiate and process transactions. *c. On processes such as sales and cash receipts, employees are given general authorization to initiate and process transactions. d. Employees have access to related assets or source documents and employees have the authority to initiate processes such as investing.

SO8 90. Examples of employee-initiated fraud would NOT include: a. The writing off uncollectible accounts of a friend even when it could be collected b. The inflation of hours worked on time card c. The release of false or misleading general purpose financial statements *d. All answers are examples of employee-initiated fraud.

SO8 91. Fraud is: a. Harder to conceal in the routine events of conversion and sales b. Harder to conceal in the administrative processes such as investments because they are nonroutine and the number of transactions varies c. Harder to conceal when initiated by top management due to limited access to the records *d. Potentially avoided by proper internal control processes SO8 92. The raising of capital: a. Requires the complete and honest details of the utilization of the funds b. Should be supported by correct and factual financial statement values c. Should be supported by correct and factual financial statement footnotes *d. All of the above are correct.

SO9 93. The four primary functions of corporate governance do not include: a. Management oversight *b. Inventory control Ch 12 Test bank – 4e

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c. Financial stewardship d. Ethical conduct SO9 94. A proper corporate governance structure must be in place in order to properly deter instances of: a. Fraud b. Theft c. Misuse or manipulation of administrative resources *d. All of the above are correct SO9 95. When management designs and implements effective administrative processes: a. Delegation of responsibility is prohibited. b. The ability to steal or misuse capital is eliminated. *c. Constant monitoring is necessary. d. The responsibility of executing related capital functions to employees is prohibited.

SO9 96. When management designs and implements effective administrative processes: a. Delegation of responsibility is prohibited. *b. A budgeting process is a method of corporate governance. c. The responsibility of executing related capital functions to employees is prohibited. d. The ability to steal or misuse capital is eliminated.

SO9 97. There are a number of increased reporting requirements as the result of Sarbanes-Oxley and IFRS. These requirements have made it imperative for companies to: a. Adjust the systems and controls b. Collect additional information needed for compliance. c. Well organized with the right resources to carry out the new tasks. *d. All of the above are required.

SO9 98. When management has designed, implemented, and continually manages processes and internal controls, it is helping to ensure proper ________. *a. Stewardship b. Ethics c. Administrative processes d. Capital processes SO9 99. Good corporate governance depends mainly upon ________.

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*a. The ethical conduct of management b. The organization's profit margin c. The ethical conduct of low-level employees d. The internal controls of the organization FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO6

Characteristics of Administrative Processes

Describe how the administrative processes are different from revenue, expenditure, and conversion processes?

ANSWER: The characteristics of administrative processes that are different from revenue, expenditure, or conversion processes are: 1) the frequency of occurrence Revenue, expenditure, and conversion processes typically occur on a regular, recurring basis (usually daily), administrative processes occur on a non-regular basis, either as the need arises or on a periodic basis.

2) the extent of management authorization.

Revenue, expenditure, and conversion processes usually involve established procedures and controls that allow these processes to occur without intervention or specific authorization by management.

Administrative processes, on the other hand, typically require that specific authorization for each transaction would be necessary.

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Question 2.

SO6

General Ledger Controls and Risks

For each transaction cycle and each type of transaction, there are internal controls that help to minimize certain risk to the company. Using the terminology and framework developed in the text, describe the following for the General Ledger Process.

Control Category

1. Authorization

Example of one Internal Control in this category a. Example: Log in procedures such as user ID and password limit authority to designated employees. b.

What risk does the control minimize a. Fraudulent posting to cover theft; errors caused by posting batches before errors are corrected in the batch b.

2.

a.

a.

3.

a.

a.

4.

a.

a.

5.

a.

a.

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ANSWER: See Exhibit 12-10 from the text below.

Question 3.

SO 6

General Ledger Processes

The text outlines a number of processes within an accounting system and provides examples from Microsoft Dynamics GP ERP software. ERP software is often broken down into modules where different transactions are completed for different transaction cycles. The following are examples of some of the modules found in Microsoft Dynamics GP software: Financial Sales Purchasing Inventory Payroll Manufacturing Fixed Assets For each of the transactions listed, explain which module would you choose and why. a. Entering an invoice received from a supplier. b. Entering the receiving of materials at the shipping dock. c. Enter a check received in payment of an account receivable. d. Posting a batch of sales invoices to the general ledger. e. Enter hours worked by employees.

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f. Print checks for suppliers ANSWER: a. Entering an invoice received from a supplier- this would fall under the Purchasing module. The purchasing module is appropriate because it would record the purchase or expenditure in the purchases journal, as well as the related payable to the supplier in an accounts payable subsidiary ledger. b. Entering the receipt of material at the shipping dock – this would fall under the Inventory module. The inventory module is appropriate because it would record the items on hand and the movement of goods available for production. c. Entering a check received in payment of an account receivable – this would fall under the Sales module. The sales module is appropriate because it would include collections of sales in the cash receipts journal and the related customer accounts in the accounts receivable subsidiary ledger. d. Posting a batch of sales invoices to the general ledger – this would fall under the Financial module. The financial module is appropriate because it includes all accounting cycle functions, including the summarization of special journals and their posting to the general ledger. e. Entering hours worked by employees – this would fall under the Payroll module. The payroll module is appropriate because it records all periodic workforce activities in a payroll journal. f. Printing checks for suppliers – this would fall under the Purchasing module. The purchasing module is appropriate because it would record the payment to the supplier in an accounts payable subsidiary ledger as well as the related release of funds in a cash disbursements journal.

Question 4.

General Ledger Reports

SO 7

For each report below, indicate whether the report is likely to be for internal or external users (some reports may be both), and whether data would come exclusively from the general ledger.

The reports are: Report

Internal or External

Exclusively GL Data

Income statement Statement of Cash flow Machine down time Job Cost Report Cash flow statement Production units produced Aged accounts payable Inventory stock status Open purchase orders

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Income statement Statement of Cash flow Machine down-time Job Cost Report Cash flow statement Production units produced Aged accounts payable Inventory stock status Open purchase orders

External External Internal Internal External Internal Both Internal Internal

Ch 12 Test bank – 4e

Yes No No No No No No No No

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 13: Data and Databases STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. The need for data collection and storage 2. Methods of storing data and the interrelationship between storage and processing 3. The differences between batch processing and real-time processing 4. The importance of databases and the historical progression from flat-file databases to relational databases 5. The need for normalization of data in a relational database 6. Data warehouse and the use of a data warehouse to analyze data 7. The use of OLAP and data mining as analysis tools 8. Distributed databases and advantages of the use of distributed data 9. Cloud-based databases 10. Big Data and data analytics 11. Controls for data and databases 12. Ethical issues related to data collection and storage, and their use in IT systems END OF CHAPTER QUESTIONS TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 1. Which of the following best describes the relationship between data and information? a. Data are interpreted information. *b. Information is interpreted data. c. Data are more useful than information in decision making. d. Data and information are not related.

SO2 2. A character is to a field as *a. Water is to a pool. b. A pool is to a swimmer. c. A pool is to water. d. A glass is to water.

SO2 3. Magnetic tape is a form of a. Direct access media. b. Random access media. *c. Sequential access media. d. Alphabetical access media.

SO3 4. Which of the following is not an advantage of using real-time data processing?

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a. Quick response time to support timely record keeping and customer satisfaction *b. Efficiency for use with large volumes of data c. Provides for random access of data d. Improved accuracy due to the immediate recording of transactions SO4 5. If a company stores data in separate files in its different departmental locations and is able to update all files simultaneously, it would not have problems with a. Attributes. b. Data redundancy. c. Industrial espionage. *d. Concurrency.

SO4 6. When the data contained in a database are stored in large, two-dimensional tables, the database is referred to as a *a. Flat file database. b. Hierarchical database. c. Network database. d. Relational database.

SO4 7. Database management systems are categorized by the data structures they support. In which type of database management system is the data arranged in a series of tables? a. Network b. Hierarchical *c. Relational d. Sequential SO4 8. A company's database contains three types of records: vendors, parts, and purchasing. The vendor records include the vendor number, name, address, and terms. The parts records include part numbers, name, description, and warehouse location. Purchasing records include purchase numbers, vendor numbers (which reference the vendor record), part numbers (which reference the parts record), and quantity .What structure of database is being used? a. Network b. Hierarchical *c. Relational d. Sequential SO4,5 9. Which of the following statements is not true with regard to a relational database? a. It is flexible and useful for unplanned, ad hoc queries. b. It stores data in tables. *c. It stores data in a tree formation.

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d. It is maintained on direct access devices.

SO6 10. A collection of several years' nonvolatile data used to support strategic decision-making is a (n) a. Operational database. *b. Data warehouse. c. Data mine. d. What-if simulation.

SO7 11. Data mining would be useful in all of the following situations except a. Identifying hidden patterns in customers' buying habits. b. Assessing customer reactions to new products. *c. Determining customers' behavior patterns. d. Accessing customers' payment histories.

SO8 12. A set of small databases where data are collected, processed, and stored on multiple computers within a network is a: a. Centralized database. *b. Distributed database. c. Flat file database. d. High-impact process.

SO12 13. Each of the following is an online privacy practice recommended by the AICPA Trust Services Criteria privacy framework except: *a. Redundant data should be eliminated from the database. b. Notification of privacy policies should be given to customers. c. Private information should not be given to third parties without the customer's consent. d. All of the above TESTBANK QUESTIONS SO1 14. Data is a. The interpretation of facts that have been processed. *b. The set of facts collected from transactions. c. The set of facts pertaining to accounts payable. d. The set of facts pertaining to accounts receivable.

SO1 15. Information is the: *a. Interpretation of data that have been processed.

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b. Set of facts collected from transactions. c. Set of facts pertaining to accounts payable. d. Set of facts pertaining to accounts receivable.

SO1 16. Data collected would be all but the: a. Name of the customer. *b. Selling company's name. c. Address of the customer. d. Credit card number of the customer.

SO1 17. Examples of data collection events are a. Transactions that fill customer orders. b. Transactions to replenish inventory. c. Neither are examples of data collection. *d. Both answers are examples of data collection.

SO1 18. Structured data: a. Includes data collected from transactions b. Easily fit into rows and columns c. Include accounting data *d. All of the answers are true of structured data SO2 19. The reasons to store customer names, addresses, and other similar information include all but: a. To follow up with the customer. *b. To create financial reports. c. To expedite future orders. d. To ease the customer's follow-on ordering processes.

SO2 20. Storage media and methods of processing are: a. Sequential and random access storage with random and batch data processing. b. Sequential and real time access storage with batch and real time data processing. c. Batch and random access storage with random and batch data processing. *d. Sequential and random access storage with batch and real time data processing.

SO2,3 21. Batch Processing correlates mostly to which of the following data storage techniques? *a. Sequential Access b. Random Access c. Database processing Ch 13 Test bank – 5e

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d. None of the Above SO2 22. Select the false statement from the following. *a. A character is a single letter, number, or symbol. b. A field is a set of characters. c. A field can be thought of as a column of data. d. A file is the entire set of fields SO2 23. Select the true statement from the following. a. A character is a single letter only. b. A character is a single number only. c. A character is a single symbol only. *d. A character is a single letter, number, or symbol.

SO2 24. A field is a: a. Row within a record. *b. Column within a record. c. Series or collection of records. d. Character is a single letter, number, or symbol.

SO2 25. A record is: *a. An entire set of fields for a specific entity. b. A series of characters. c. A collection of files. d. Another name for a database.

SO2 26. Which of the following correctly orders the hierarchy of data from smallest to largest? a. Field, character, record, file, database b. Character, record, field, file, database c. File, character, database, field, record *d. Character, field, record, file, database SO2 27. Sequential access means: a. All data items in the group must be read but the groups do not need to read in order. b. Any data item can be directly accessed without reading in sequence *c. All data items must be read in the order in which they were placed into the system d. All data items must be read in alphabetical/numerical order, but not necessarily the order in which they were placed into the system Ch 13 Test bank – 5e

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SO2 28. A field is a (n): a. Entire set of records within a file. b. Row within a record. *c. Set of characters. d. Set of files within a database.

SO2 29. A file is a: a. Set of characters. b. Column within a record. *c. Row within a record. d. Collection of related records.

SO2,4 30. A database is a (n): a. Set of characters. b. Row within a file. c. Collection of related records. *d. Entire set of files.

SO2 31. Magnetic tape storage medium allows: a. Sequential access storage with random data processing. b. Random access storage with random data processing. c. Batch access storage with random data processing. *d. Sequential access storage with sequential data processing.

SO2 32. Random access means: a. All data items in the group must be read but the groups do not need to read in order. *b. Any data item can be directly accessed without reading in sequence. c. All data items must be read in the order placed into the system, not alphabetically. d. All data items must be read in alphabetical order, not in the order they were placed in the system.

SO2 33. Direct access: a. Means no passwords are required to access data items in a database. b. Is the same as sequential access. *c. Is the same as random access. d. Is the process used by magnetic tape storage medium.

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SO2 34. (Magnetic) Disk storage is: a. The same as magnetic tape storage. b. Sequential access. *c. Random access. d. Not direct access.

SO2 35. (Magnetic) Disk storage is: *a. Preferred over magnetic tape storage. b. Sequential access. c. Not random access. d. Not direct access.

SO3 36. Batch processing: a. Occurs when dissimilar transactions are grouped and processed as a group. *b. Occurs when similar transactions are grouped together and processed as a group. c. Occurs when the transaction is processed as soon as it is entered. d. Would not be used for payment to vendor type transactions since they are time sensitive.

SO3 37. Real-time processing: a. Would not be used for payment to vendor type transactions since they are not time sensitive. b. Occurs when similar transactions are grouped into a batch and processed as a group. c. Would be utilized for processes such as payroll due to their time-sensitive nature. *d. Occurs when the transaction is processed immediately.

SO3 38. Select the true statement from those provided. a. Batch processing fails to attain the efficiency of real-time processing. *b. Real-time processing fails to attain the efficiency of batch processing. c. Real-time processing is efficient for large groups of similar data. d. Real-time processing has less complex audit trails.

SO3 39. Select the false statement from those provided. a. Batch processing attains a greater efficiency than real-time processing for large amounts of data items. *b. Batch processing has a faster response time than real-time processing due to the grouping of like data items.

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c. Batch processing should be utilized for payroll type processes as it groups these similar data items. d. Real-time data processing has more complex audit trails for data items than batch processing.

SO3 40. Select the false statement from those provided. a. Real-time processing is more complex because of the interactive nature of data processing. *b. Real-time processing must use sequential storage concepts. c. The audit trail is as complex within both real-time and batch processing systems. d. Control totals are difficult within real-time processing due to the lack of data item groupings.

SO3 41. Real-time data item processing is more complex because: a. It must utilize sequential storage medium. b. It must group data items together before processing. c. The slower response times indicate more systems activity. *d. There is duplication of effort in processing transactions.

SO3 42. Select the correct statement from those provided below. a. If batch processing is selected due to payroll and production type processing mandates, the entire system must be batch processing. b. If real-time processing is selected due to sales and inventory type processing mandates, the entire system must be real-time processing. *c. If sales and inventory are real-time, payroll and production may be batch processing in a well-designed system. d. Because sales are frequently shipped out of warehouses, sales, inventory, and payroll are all good candidates for batch processing concepts.

SO4 43. Data redundancy occurs: a. When shared databases are utilized. *b. When inventory has the same data in its files as sales has in its files. c. When customer addresses are needed by both shipping and billing. d. In all properly designed database management systems.

SO4 44. Select the correct statement from the following. a. Data redundancy and concurrency are features of well-designed database management systems. b. Data redundancy, not concurrency, is a feature of a well-designed database management system.

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c. Concurrency not, data redundancy, is a feature of a well-designed database management system. *d. Data redundancy and concurrency are not features of well-designed database management systems.

SO4 45. Database management systems, DBMS, is (are): *a. Software that manages a database and controls access and use of data b. Printed policies about the use and access to data. c. Systems which require each user to create his own master data file. d. Systems that allow unlimited access to the data files by all users.

SO4 46. Which of the following terms is most closely related to data redundancy? a. Relational database *b. Concurrency c. Batch processing d. One-to-many relationships SO4 47. Data reveal relationships between records. These can be thought of as: a. One-to-one relationships. b. Many-to-many relationships. c. One-to-many relationships. *d. All are examples of relationships.

SO4 48. An example of a one-to-one relationship would be: a. One employee, three timecards for the pay period. *b. One customer, one billing address. c. One customer, four shipping addresses. d. Two employees, one skill set.

SO4 49. An example of a one-to-many relationship would be: *a. One employee, three timecards for the pay period. b. One customer, one billing address. c. One customer, one shipping invoice. d. Two employees, one skill set.

SO4 50. An example of many-to-many relationship would be: a. One customer for one billing date. b. Multiple customers for one inventory item.

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*c. Multiple vendors for multiple items. d. One employee, three timecards for the pay period.

SO4 51. A flat file database has: a. The ability to call necessary information from linked databases. b. Two dimensions, rows and depth. c. Only columns. *d. Two dimensions, rows and columns.

SO4 52. Processing of a flat file table is: a. Random. *b. Sequential. c. Random or sequential, selectable by the user. d. Direct.

SO4 53. Flat file records are: a. Kept in random order. *b. Kept is sequential order. c. Linked to other records by a common attribute. d. Interactive and real-time processed.

SO4 54. Tables in a flat file database must: a. Must contain at least two data items at the intersection of each row and column. b. Contain similar data throughout the row. c. Label all columns the same to maintain the relationships of the rows. *d. Contain similar data in the column.

SO4 55. Hierarchical databases are NOT: a. Inverted tree structures. b. One-to-one relationships. c. One-to-many relationships. *d. Many-to-one relationships.

SO4 56. A record pointer is a: a. Column value that relates to all other values in the row. *b. Column value that points to the next address with the linked attribute. c. Row value that points to the next address with the linked attribute. d. Link that is only required in one-to-many relationships.

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SO4 57. Each table in a database must meet all of the following conditions EXCEPT: *a. Each row must be uniquely named b. Items in a column must all be of the same type of data c. Each cell at the intersection of a row and column must contain only one data item d. Each row must be unique in at least one attribute SO4 58. In database terminology, columns are also called: a. Primary keys b. Record pointers *c. Attributes d. Flat files SO4 59. Which type of database is the most widely used database structure today? a. Hierarchical databases *b. Relational databases c. Normalized databases d. Network databases SO4 60. Hierarchal databases: a. Are effective in retrieving records without explicit linkages. *b. Are efficient in processing large volumes of transactions with explicit linkages. c. Do not require built-in linkages, they can be created with queries. d. Do not require record pointers.

SO4 61. Network databases: *a. Allow shared branches within the inverted tree structure. b. Allow creation of records without complete information. c. Are popular today because of LAN and WAN usage. d. Are very flexible because of the network access.

SO4 62. Relational databases are: a. Two-dimensional tables which can be joined in only one way. b. Three-dimensional tables allowing increased data relationships. *c. Two-dimensional tables which can be joined in many ways. d. Either two- or three-dimensional as defined by the user.

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SO5 63. The primary key of a relational database: a. Must be a common identifier for all of the data within the table. b. Must never be the first field of the table. *c. Represents a value that is used to sort, index, and access records with. d. Is the password which allows unlimited access to the database.

SO5 64. Structured query language (SQL): a. Isolates data within tables. *b. Takes advantage of the primary record key to link tables. c. Is a complex language used to extract data from a limited number of tables. d. Does not allow conditions to be put on the query.

SO5 65. With structured query language (SQL): a. One-to-one relationships can be determined. b. One-to-many relationships can be determined. c. Many-to-one relationships can be determined. *d. All of the possibilities are correct.

SO5 66. Which of the following statement is not correct when considering the following statement: A "Where" condition within a structured query of a relational database: *a. Must be limited to a location such as "Warehouse #1." b. May establish a requirement where the results are equal to a specific value. c. May establish a requirement where the results are not equal to a specific value.

SO5 67. The additive characteristic means: a. The linked tables are synergetic within themselves - linked they are more powerful than alone. b. The values in the preceding fields must total into a following field. *c. That if the preceding rules are met, the rule can be met. d. That if the preceding rules are not met, the rule must be met.

SO5 68. Data normalization: a. Requires repeated groups to be deleted from the same row. *b. Requires repeated groups to be deleted from the same column. c. Allows repeated groups if contained within the column. d. Allows repeated rows of information within two or more tables.

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SO5 69. Select the correct statement from those provided. a. The hierarchal and relational database models are both extremely flexible in their queries. b. The hierarchal model is better suited to queries than the relational database model. *c. The relational database model is more flexible in its queries than the hierarchal mode. d. The relational database model has better processing of large volumes of transactions.

SO5 70. In today's IT environment: *a. Processing speed is compromised for query capability with relational databases. b. Query capability is compromised for processing speed with relational databases. c. Neither querying nor processing speed need be compromised with relational databases. d. Both querying and processing speed are compromised with relational databases.

SO5 71. The loss of transaction processing efficiency: a. Is substantial but a necessary trade-off with relational databases. *b. Is minimized because of the increased computing power available. c. Is a primary reason why relational databases are not utilized. d. Both B and C are correct.

SO6 72. Select the true statement from those provided below. a. Managers use much the same data as operational departments to manage the organization. b. All users, managers, sales, production, utilize the features of a data warehouse equally. c. Data warehouses are isolated to protect operational information from unauthorized access. *d. Managers require access to historical data this is generally not available to other individuals.

SO6 73. Select the true statement from those provided below. *a. The data warehouse has five to ten years of data while the operational database has current year data. b. The data warehouse has current year data while the operational database has five to ten years of data. c. The data warehouse archives both current and long-term, five to ten years of data, within its storage. d. The data warehouse contains only general ledger type information while the operational database has detail.

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SO5 74. Which of the following is NOT one of the three rules of data normalization? a. Eliminate repeating groups b. Eliminate redundant data *c. Eliminate blank fields d. Eliminate columns not dependent on the primary keys SO6 75. Data within the data warehouse is: a. Volatile - its release is restricted and potentially hazardous to the organization. b. Volatile - it may be deleted by specific users. *c. Nonvolatile - it does not change rapidly. d. Nonvolatile - is protected against deletion.

SO6 76. The data warehouse: a. Contains five to ten years of historical data in detail for planning and analysis. b. Contains the current fiscal year in detail for planning, analysis, and reporting. *c. Contains the historical information needed for planning and analysis. d. Is not utilized for planning and analysis, this information is extracted from the operational database.

SO6 77. Which of the following statements is true regarding an operational database? a. An operational database is an integrated collection of enterprise-wide data that includes 5 to 10 years of nonvolatile data. *b. An operational database includes data for the current fiscal year and supports day-today operations and record keeping for the transaction processing system. c. An operational database includes data from the past 5 to 10 years and supports day-today operations and record keeping for the transaction processing system. d. None of the statements are true.

SO6 78. High-impact processes (HIPs) are: a. Critical to the short-term objectives of the organization. b. Only associated with events such as sales and collections. c. Identified and established by single-functional teams. *d. Critical to the long-term objectives of the organization.

SO6 79. High-impact processes (HIPs): *a. Determine the structure of the data in the data warehouse. b. Address the short-term goals of the organization. c. Must compromise user requirements for organizational needs.

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d. Determine the structure of the data in the operational database.

SO6 80. Select the true statement from the following. a. High-impact processes (HIPs) are identified by single-functional teams. *b. High-impact processes (HIPs) and user's needs determine the data in the data warehouse. c. High-impact processes (HIPs) address both short-term and long-term objectives. d. High-impact processes (HIPs) determine the long-term strategy of the organization.

SO6 81. Standardizing data: a. Configures all of the data from one department into a single database for analysis. *b. Configures all of the data from numerous departments into a single data configuration. c. Is not required within relational databases. d. Requires sales to keep its own files and references apart from marketing (example).

SO6 82. Cleansed or scrubbed data: a. Has had all viruses removed. b. Has had all fields standardized. *c. Has had errors and problems fixed. d. Is data that has been stored in the data warehouse.

SO6 83. Uploading data is putting: a. Scrubbed files into the operational database. b. Files from each HIP system into the operational database. c. Standardized files onto local desktop systems for access. *d. Files from each HIP system into the data warehouse.

SO6 84. The purpose of the data warehouse does NOT include: *a. Giving managers rich sources of current trends and data. b. Storing current fiscal data and activity records. c. Providing sales with current customer information. d. Giving managers rich sources of historical trends and data.

SO7 85. Which of the following is false with regard to proper data analysis of data warehouse files: *a. Improves short-term planning. b. Improves long-term planning. c. Enhances the ability to meet customer needs.

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d. Increase performance.

SO7 86. The various types of online analytical processing (OLAP) does NOT include: a. MOLAP - Multidimensional online analytical processing. *b. NOLAP - Notational online analytical processing. c. ROLAP - Relational online analytical processing. d. All of the above, A, B, and C are types of OLAP systems.

SO7 87. Data mining: a. Searches for random patterns. b. Searches for patterns in the operational database. c. Results will not generally predict customer preferences. *d. Analyzes past patterns to predict future events.

SO7 88. OLAP tools include all of the following EXCEPT: a. Drill down. *b. Drill up. c. Pivoting. d. Time series analysis.

SO7 89. OLAP tools include all of the following EXCEPT: a. Consolidation. *b. Inclusion reports. c. Exception reports. d. What if simulations.

SO7 90. Drill down within OLAP is: a. Identifying trends in the comparison of data in several databases. b. The aggregation or collection of similar data from several databases. c. The presentation of variances from the expected in dollar value. *d. Is the successive expansion of data as lower levels of data are exposed.

SO7 91. Potential variations in conditions that are used to understand interactions between different parts of the business is referred to as: a. Exception reports. b. Pivoting. *c. What-if simulations. d. Time series analysis.

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SO8 92. Data processing and storage: a. Must be kept centralized for control and security. b. Must be distributed for control and security. *c. Can be distributed to meet organizational requirements. d. Must be kept centralized for efficient operations.

SO8 93. Select the correct statement from the following. a. DDP and DDB require dependable and extensive processing power for large organizations. b. Distributed databases can only be accessed by local queries. *c. Centralized data processing and databases require dependable and extensive processing power for large organizations. d. The trend in data processing and databases is towards centralization due to reliable internet access and increased computer power.

SO7 94. ________ is the aggregation or collection of similar data. It is the opposite of drill down in that it takes detailed data and summarizes it into larger groups. a. Pivoting *b. Consolidation c. What-if simulations d. Drill up SO8 95. Advantages of distributed databases include all EXCEPT: a. Reduced hardware costs. b. Improved responsiveness. *c. Eased managerial obligations. d. Easier incremental growth.

SO8 96. Advantages of distributed databases include all EXCEPT: a. Easier incremental growth. b. Multiple site access for processing. *c. Decreased user involvement. d. Increased user control.

SO8 97. Automatic integrated backup means: a. That each site must accomplish its own backup. b. One site may backup sites it does not normally support.

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c. If data is lost at one site it may be available from another site. *d. All of the answers are correct.

SO8 98. Automatic integrated backup a. May create problems because a single site's data may be at multiple locations. b. May create problems because backups at multiple sites may have hardware differences. c. At remote sites may not all be the same configuration as the central configuration. *d. All of the answers are correct.

SO8 99. Distributed data processing and databases: *a. May require management to enforce hardware and software configuration policies. b. Make hardware and software configuration easier as local assets can be utilized. c. Ease security concerns as remote systems are not required to maintain connectivity. d. All of the above are correct.

SO9 100. The fastest growing area of IT is: *a. Cloud-based database services b. Online analytical processing c. Distributed data storage d. Distributed database processing SO9 101. When a company buys data storage from a cloud provider, the arrangement is referred to as: a. Online analytical processing b. Cloud services assessment c. Distributed data storage *d. Database as a service SO9 102. The advantages of cloud-based computing includes all of the following, EXCEPT: a. Scalability - as the company grows, it can easily purchase additional capacity. b. Expanded access - once the data are store in the cloud, it can be accessed by multiple devices form different locations. *c. Increased infrastructure - the company has more need for servers and data storage. d. Cost savings - because of the advantages related to cloud-based computing, there are usually significant cost savings recognized.

SO10 103. Volume refers to: a. How quickly data is generated or changed.

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b. How many data types and sources are available. *c. The size and capacity of the data. d. The sound sensitivity of the data network.

SO10 104. Data is becoming more varied and now includes each of the following EXCEPT: a. Text messages. b. Photos and videos. *c. Meetings. d. Tweets.

SO10 105. Many companies use a Big Data storage and analysis system called_______. a. Hulu *b. Hadoop c. WAN d. HIPs SO10 106. Which of the following is not true of data visualization? a. It is a tool for analyzing data b. It is a way to provide data in charts, graphs, maps, and other graphics *c. It is a replacement for Big Data d. It allows companies to more easily outline data trends SO11 107. The three major concerns related to database control and security do NOT include: a. Unauthorized access. *b. Inadequate backup. c. Data integrity. d. Adequate backup.

SO11 108. Database security includes all EXCEPT: a. Password protection. b. Encryption *c. LAN structure. d. Firewalls.

SO12 109. Ethical issues associated with data collection and storage include all of the following EXCEPT: a. Collecting only the necessary information for the transaction. *b. Selling non-sensitive information only to trusted agents. c. Correcting errors in data as quickly as possible.

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d. Precluding unnecessary access of customer data by employees.

SO12 110. It is the ethical responsibility of employees: a. To review customer records not associated with their division for errors. b. Disclose customer data to related parties *c. To collect only necessary data from customers d. To sell customer data to competitors.

SO12 111. A bank would consider which of the following as nonprivate information? a. Customer name. b. Customer address if the customer is a business. c. Customer phone number if it is listed number. *d. All of the answers are correct.

SO12 112. Appropriate information for a medical facility would NOT include: a. Social Security number. b. Health insurance company. c. Next of kin notification information. *d. Personal spending habits.

SO12 113. The prevention of industrial espionage is aided by all EXCEPT: a. Password protection b. Smart cards. *c. Federal and state laws. d. Encryption of data.

SO12 114. While an employee may have access to privileged information, an example of unethical activities would be a a. Nurse viewing the medications of the next patient. *b. Car salesman viewing the credit rating of a customer with a car in for warranty repairs. c. Manager reviewing the hours worked of an assigned employee. d. Warehouseman viewing the availability of materials needed for production.

SO12 115. Proper IT controls will NOT: a. Prevent a hacker from penetrating the firewall. b. Prevent an unauthorized user from using the computer systems. c. Restrict employee access to any information.

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*d. Prevent an employee from sharing his password.

SO12 116. Ethical responsibilities are shared by: a. Company employees only. b. Company employees and management only. c. Company employees, IT, and management only. *d. All concerned including employees, customers, and management.

FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO 4

Relational Data Bases

Briefly describe the problems regarding data redundancy and concurrency in older methods of data storage (such as in flat-file data bases). Also describe how a relational database eliminates redundancy and concurrency problems.

ANSWER  Data redundancy means that the same data is stored in more than one table of the database. This is wasteful storage and causes other problems such as the difficulty in maintaining concurrency.  Concurrency is the concept that the same data stored in separate tables is all current and up-to-date. That is difficult to achieve when the data is stored in more than one table.  Relational databases eliminate the problems in both of these areas because the data is stored once in a single table and then shared through a database management system.

Once it is updated in that one table, all instances of using the data have current data.

Question 2.

SO 6

Use of a Data Warehouse

Describe a data warehouse and the purpose.

ANSWER Management often needs data from several fiscal periods from across the whole organization.

A data warehouse can serve as this source of broader information for management. A data warehouse is an integrated collection of enterprise‐wide data that includes multiple years of nonvolatile data used to support management in decision making and planning.

The purpose of a data warehouse is to give managers a rich source of data that they can query and examine for trends and patterns. The data warehouse allows managers to examine important patterns or trends so that they can better plan and control the business. The data warehouse can help managers examine trends such as sales by product, region, or model over a long time-frame.

Data in the data warehouse is analyzed by data mining and analytical processing.

Question 3.

SO 6

Use of a Data Warehouse

Describe the difference between a data warehouse and an operational data base. Also explain how data is added or changed within these two types of databases.

ANSWER A data warehouse is an integrated collection of enterprise-wide data that may include multiple years of data used to support management analysis, decision making and planning.

The operational database is the data that is continually updated as transactions are processed.

Usually, the operational database includes data for the current fiscal year and supports day-today operations and record keeping for the transaction processing systems.

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Data is added or changed in the operational database as transactions are processed. Periodically, new data is uploaded to the data warehouse from the operational data, but other than through this updating process, the data in the data warehouse does not change. The data in a data warehouse is called nonvolatile because it does not change rapidly in the same way that operational data changes.

Question 4.

SO 7

Data Analysis Tools

Match the term on the left side of the of the table below to its definition on the right side of the table.

1. ___ 2. ___

Data mining Consolidation

3. ___

Time series analysis Drill down What if simulations

4. ___ 5. ___ 6. ___

Exception reports

7. ___

Pivoting

a. present variances from expectations b. present potential variations in conditions that are used to understand interactions c. examining data from different perspectives d. the aggregation or collection of similar data e. successive expansion of data into more detail, going from high-level data to lower levels of data. f. identify trends by comparing figures over several successive periods g. the process of searching for identifiable patterns or systematic relationships in data that can be used to predict future behavior.

Solution: 8. _g__ 9. _d__

Data mining Consolidation

a. present variances from expectations b. present potential variations in conditions that are used to understand interactions c. examining data from different perspectives

10.

_f__

Time series analysis Drill down What if simulations

11._e__ 12. _

_b_

13.

_a__

Exception reports

14.

_c__

Pivoting

d. the aggregation or collection of similar data e. successive expansion of data into more detail, going from high-level data to lower levels of data. f. identify trends by comparing figures over several successive periods g. the process of searching for identifiable patterns or systematic relationships in data that can be used to predict future behavior.

ANSWER appears in the first column.

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Question 5.

SO 9

Cloud-Based Databases

Briefly define the advantages of a cloud-based database (Data-as-a-Service). The advantages are scalability, expanded access, reduced infrastructure, and cost savings.

ANSWER 1. Scalability. As a company grows, it can easily purchase new capacity from the cloud provider; it need not buy servers or new data storage, as the cloud provider already has the capacity. This scalability is also a tremendous advantage for spikes in business activity.

2. Expanded access. Once stored in the cloud, the data can be accessed by multiple devices from many different locations.

3. Reduced infrastructure. The company has less need for servers and data storage, since most of these resources are provided by the cloud provider. It also means that data security and backups are provided by the cloud provider.

4. Cost savings. Cloud computing is usually a pay-for-service model, where the company pays the cloud provider only for the level of services it actually uses. The scalability of the cloud means that the company no longer needs to maintain an IT system large enough for the peak demand periods. Cloud computing also allows a company to reduce its investment in IT hardware and IT support personnel.

Question 6.

SO 10

Big Data

Briefly define the three “V” terms that are the characteristics of the type of data in Big Data.

ANSWER 1. Volume. The quantity of data is so large that it goes beyond the bounds of the capacity of traditional databases.

2. Variety. There is a large variety in type of data and source of data that includes both structured and unstructured. Unstructured data can include audio, video, twitter feeds, product reviews, and other text data.

3. Velocity. This term refers to how quickly the data is generated or changed. For example, the velocity of Twitter data would change by the second or even faster.

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ACCOUNTING INFORMATION SYSTEMS/5e TURNER / WEICKGENANNT/COPELAND Test Bank: CHAPTER 14: eCommerce, eBusiness, and digital transformation STUDY OBJECTIVES This chapter will help you gain an understanding of the following concepts: 1. An introduction to e-commerce and e-business 2. E-commerce and its benefits 3. Privacy expectations in e-commerce 4. E-business and IT enablement 5. E-business enablement examples 6. Digital transformation 7. Intranets and extranets to enable e-business 8. Internal controls for the Internet, intranets, and extranets 9. XML and XBRL as e-business tools 10. Ethical issues related to e-business and e-commerce END OF CHAPTER QUESTIONS SO1 1. Which of the following statements is true? a. E-business is a subset of e-commerce. *b. E-commerce is a subset of e-business. c. E-business and e-commerce are exactly the same thing. d. E-business and e-commerce are not related.

SO1 2. Which of the fdollowing is not a newer technology typically used in digital transformation? a. Artificial intelligence b. Robotic Process Automation *c. Enterprise Risk Management d. Data analytics SO1 3. Which of the following best describes e-commerce? *a. An Amazon sale to an end user customer b. Ford motor coompany providing electronic access by employees to their fringe benefits *c. Walmart placing an order for tires from Goodyear d. Using robotic process automation to automate manual tasks SO2 4. Which of the following is NOT a direct advantage for the consumer from e-commerce? a. Access to a broader market b. More shopping convenience *c. Reduced order-processing cost d. Information sharing with the company

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SO2 5. Each of the following represents a characteristic of B2B commerce EXCEPT: a. Electronic data interchange *b. Electronic retailing c. Data exchanges d. Preexisting business relationships SO2 6. Each of the following represents an application of B2C commerce EXCEPT: a. Software sales b. Electronic retailing *c. Data exchanges d. Stock trading SO3 7. Before forwarding customer data, an organization should receive explicit or implicit consent of the customer. This describes which of the AICPA Trust Services Principles online privacy practices? a. Consent b. Use, retention, and disposal c. Access *d. Onward transfer and disclosure SO4 8. Which of the following processes within a supply chain can benefit from IT enablement? *a. All processes throughout the supply chain b. Only internal processes within the supply chain c. Only external processes within the supply chain d. Exchange processes between a company and its suppliers SO7 9. When a company has an e-business transaction with a supplier, it could be using which of the following? a. The Internet b. An intranet c. An extranet *d. Either the Internet or an extranet SO7 10. Intranets are used for each of the following EXCEPT: *a. Communication and collaboration b. Business operations and managerial monitoring c. Web publishing d. Customer self-service

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SO2 11. When there is no necessity for a preexisting relationship between buyer and seller, that transaction is more likely to be classified as: a. B2B *b. B2C c. B2E d. Either B2B or B2C SO7 12. Which of the following IT controls would NOT be important in an extranet? a. Encryption b. Password c. Antivirus software d. Penetration testing *e. All of the above are important IT controls.

SO7 13. A company's computer network uses web servers, HTML, and XML to serve various user groups. Which type of network best serves employees and which best serves suppliers? *a. Employees are served best by intranet, suppliers by the extranet. b. Employees are served best by intranet, suppliers by the internet. c. Employees are served best by internet, suppliers by the extranet. d. Employees are served best by internet, suppliers by the internet.

SO9 14. An extensible markup language designed specifically for financial reporting is: a. Internet DI b. XML *c. XBRL d. XFRL TESTBANK QUESTIONS NOT IN THE TEXTBOOK SO1 15. E-commerce is: a. Business-to-business electronic trading and process integration b. Electronically enabled transactions between a business and its vendors c. Electronic recording and control of internal processes *d. Electronically enabled transactions between a business and its customers SO1 16. Which of the following statements best describes e-business? a. E-business is a narrower concept than e-commerce. b. E-business services the customers and the vendors and is electronic recording and control of internal processes.

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*c. E-business services the customers and the vendors, is electronic recording and control of internal processes, and uses electronic means to enhance business processes. d. E-business is a narrower concept than e-commerce, services the customers and the vendors, is electronic recording and control of internal processes, and uses electronic means to enhance business processes.

SO1 17. The internal processes of e-business do NOT include: a. Access to personnel records b. Access to fringe benefit information *c. On-line sales to customers d. Travel and expense reporting SO1 18. E-commerce: a. Sales will usually be large dollar amounts with only a few items are sold b. Is the sale of goods or services from a business to retailers *c. Is the sale of goods or services to an end-user consumer d. Both A and B are correct answers SO1 19. Which of the following statements best describes e-business? a. E-business includes the sale of raw materials between companies and using the Internet as an electronic network. Sales will usually be smaller dollar amounts with many sales. It is a broader concept than e-commerce. b. E-business includes using the Internet as an electronic network. Sales will usually be smaller dollar amounts with many sales. It is a broader concept than e-commerce. c. E-business includes the sale of raw materials between companies. Sales will usually be smaller dollar amounts with many sales. It is a broader concept than e-commerce. *d. E-business includes the sale of raw materials between companies and using the Internet as an electronic network. It is a broader concept than e-commerce.

SO1 20. Which of the following is not an example of a software system that supports e-business and ecommerce? a. ERP b. CRM c. SCM *d. AFB SO2 57. Select the correct statement from the following. a. B2C and B2B are both considered e-commerce *b. B2C is considered e-commerce while B2B is considered e-business c. B2B is considered e-commerce while B2C is considered e-business Ch 14 Test bank – 5e

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d. B2C and B2B are both considered e-business SO2 58. The common element in B2B and B2C is: a. Both require a physical selling point. b. A downloadable product *c. Both require access to the business's website. d. Both require SSL (secure sockets layering) to complete the transaction.

SO2 59. Which of the following is an example of a B2B transaction? a. A student buying a book on Amazon.com b. A person downloading a song purchased from the Apple Store *c. McDonalds placing an order for more hamburger rolls through their company computer d. Buying a laptop at Dell.com and picking it up at the local retail store SO2 60. Advantages of e-commerce include all EXCEPT: *a. A narrower market for goods and services b. Increased access to information c. The lack of geographic constraints d. All of the answers are advantages of e-commerce.

SO2 61. All of the following are true statements about e-commerce EXCEPT: a. E-commerce sites normally conduct sales 24 hours a day, 7 days a week, 12 months a year. *b. E-commerce sales reduce the opportunity for fraud, theft of assets, and theft of data. c. E-commerce consumers can search for better prices and more information easily. d. E-commerce consumers may incur shipping and handling charges not incurred by retail customers.

SO2 62. E-commerce sites may: a. Provide access to manufacturer information on the product, and may provide tax free sales of retail goods, but require shipping and handling fees to be paid. While they may provide links to live or video presentations of product information, they don't provide as quick order processing as the company's retail locations. b. Provide access to manufacturer information on the product, but require shipping and handling fees to be paid. While they may provide links to live or video presentations of product information, they don't provide as quick order processing as the company's retail locations. c. Provide access to manufacturer information on the product and may provide tax free sales of retail goods. While they may provide links to live or video presentations of

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product information, they don't provide as quick order processing as the company's retail locations. *d. Provide access to manufacturer information on the product, and may provide tax free sales of retail goods, but require shipping and handling fees to be paid. They provide links to live or video presentations of product information.

SO2 63. Which of the following descriptions is most true of e-commerce and its customers? a. Fraud, theft, or theft of data on the Internet and WWW are reduced by its regulated and controlled state. However, e-commerce customers may feel isolated from the product because of the inability to touch or handle the product, may be targeted for solicitations based on their purchasing history, and will often incur a shipping and handling charge with purchases. But they will always find the best product at the best price. *b. E-commerce customers may feel isolated from the product because of the inability to touch or handle the product, may be targeted for solicitations based on their purchasing history, and will often incur a shipping and handling charge with purchases. c. Fraud, theft, or theft of data on the Internet and WWW are reduced by its regulated and controlled state. However, e-commerce customers may be targeted for solicitations based on their purchasing history, and will often incur a shipping and handling charge with purchases. But they will always find the best product at the best price. d. Fraud, theft, or theft of data on the Internet and WWW are reduced by its regulated and controlled state. E-commerce customers will often incur a shipping and handling charge with purchases. But they will always find the best product at the best price.

SO2 64. E-commerce business benefits include all EXCEPT: a. A lower cost of advertising per customer reached b. More interaction with video and audio product comparisons *c. More rigid advertising and product presentation requirements d. All of the above are benefits of e-commerce SO2 65. E-commerce businesses: a. Are normally confined to more restrictive marketing due to the larger market *b. Experience dramatically reduced marketing costs as the result of the expanded market c. Requires longer period for delivery of a product due to the processing time of ecommerce d. Less flexible in pricing structures due to www and Internet distribution of information SO2 66. All of the following are disadvantages of e-commerce EXCEPT: *a. Faster order processing prevents good assurance of order correctness. b. Greater probability of fraud or compromised customer privacy c. The inability to handle or try out the product d. All of the above are disadvantages of e-commerce.

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67. With the advent of technology, the Internet, and the WWW: a. Commerce is moving only from physical to electronic positioning. b. Commerce has maintained its stance of physical and electronic. *c. Commerce is moving both from electronic to physical and from physical to electronic. d. No notable trends have been identified.

SO2 68. Select the correct statement from those below: a. Bricks and mortar refer to traditional stores while e-tailers are both brick and mortar and e-commerce businesses. b. Bricks and mortar refer to stores with both physical and electronic presences while etailers are e-commerce businesses only. *c. Bricks and mortar refer to traditional stores while brick and click businesses are both brick and mortar and e-commerce businesses. d. Bricks and mortar refer to traditional stores while brick and click refers to e-commerce businesses.

SO2 69. Businesses that are purely web-based are called: a. Clicks and mortar *b. E-tailers c. E-commerce stores d. Bricks and mortars SO3 70. The AICPA's Trust Services Criteria state that online privacy focuses on: Name Address Social Security number Government ID numbers Employment history Personal health conditions Personal financial information History of purchases Credit records *a. All of the items listed b. All except for employment history c. All except history of purchases d. All except credit records SO3 71. The AICPA's Trust Services Criteria practice that requires a customer to have given implicit or explicit consent to use customer data is: a. Monitoring and enforcement b. Security for privacy Ch 14 Test bank – 5e

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*c. Use, retention, and disposal d. Choice and consent SO3 72. The AICPA's Trust Services Criteria practice that states a company should have policies and practices to maintain the privacy of customer data is under the title of: a. Choice and consent b. Collection c. Use, retention, and disposal *d. Notice and communication of objectives SO3 73. The AICPA's Trust Services Criteria practice that states the organization should provide the choice to its customers regarding the collection of data is under the title of: *a. Choice and consent b. Collection c. Use, retention, and disposal d. Notice and communication of objectives SO3 74. The AICPA's Trust Services Criteria practice that states the organization should ask about the collection, retention, and of the use is under the title of: a. Use, retention, and disposal b. Access *c. Choice and consent d. Disclosure and notification SO3 75. The AICPA's Trust Services Criteria practice that states that only the data that is necessary for the purpose of conducting the transaction should be collected is under the title of: a. Use, retention, and disposal *b. Collection c. Choice and consent d. Security for privacy SO3 76. The AICPA's Trust Services Criteria practice that states the organization should use customers' personal data only in the manner described in "notice" is under the title of: a. Security for privacy b. Monitoring and enforcement *c. Use, retention, and disposal d. Choice and consent SO3

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77. The AICPA's Trust Services Criteria practice that states that customers should have access to the data provided so that the customer can view, change, delete, or block further use of the data provided is under the title of: *a. Access b. Choice and consent c. Security for privacy d. Use, retention, and disposal SO3 78. The AICPA's Trust Services Criteria practice that states that organizations should receive explicit or implicit consent of the customer before providing information to third parties is under the title of: a. Choice and consent b. Security for privacy c. Monitoring and enforcement *d. Disclosure and notification SO3 79. The AICPA's Trust Services Criteria practice that states that the organization has the necessary protections to try to insure that customer data is not lost, destroyed, altered, or subject to unauthorized access is under the title of: a. Choice and consent *b. Security for privacy c. Monitoring and enforcement d. Disclosure and notification SO3 80. The AICPA's Trust Services Criteria practice that states that all customer data collected remains "accurate, complete, current, relevant, and reliable" is under the title of: a. Choice and consent *b. Quality c. Monitoring and enforcement d. Use, retention, and disposal SO3 81. The AICPA's Trust Services Criteria practice that states that the organization should have procedures to address privacy related inquiries or disputes is under the title of: a. Choice and consent b. Quality *c. Monitoring and enforcement d. Use, retention, and disposal SO4 82. Internal processes of the organization include all of the following EXCEPT: *a. Transactions involving suppliers Ch 14 Test bank – 5e

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b. Movement of raw materials c. Timekeeping and labor management d. Sharing of data files among workers SO4 83. The supply chain: a. Is usually smaller at the customer end b. Is usually more complex for service firms *c. Includes manufacturing facilities d. Does not include any internal resources SO4 84. The supply chain: a. Ends once the raw materials arrive at the manufacturing facility b. Is an external process only *c. Is both an internal and external process d. Ends once the product is manufactured and ready for sale SO4 85. The correct sequence of the supply chain is: *a. Secondary suppliers, suppliers, manufacturer, warehouses, distributors, retailers, and customers b. Suppliers, secondary suppliers, manufacturer, warehouses, distributors, retailers, and customers c. Suppliers, secondary suppliers, manufacturer, distributors, warehouses, customers, and retailers d. Suppliers, secondary suppliers, manufacturer, distributors, warehouses, retailers, and customers SO4 86. The correct statement regarding the supply chain and B2C is the supply chain extends from the secondary supplier and ends with the: a. Retailer while B2C is from the manufacturer to the final consumer b. Retailer while B2C is from the customer to the manufacturer c. Manufacturer while B2C is from the retailer to the final consumer *d. Final customer while B2C is from the retailer to the final consumer SO4 87. Vertical integration of the supply chain occurs when: a. One organization owns all of the companies capable of accomplishing a specific task. b. All of the organizations that can accomplish a specific task are located in one geographic region. c. Several organizations agree to produce a single product under a common label. *d. One organization owns the supply chain from raw materials through distribution and sales.

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SO4 88. Select the correct statement from the following: a. B2C is typically many line items per order while B2B is typically few line items per order. *b. B2C is typically few line items per order while B2B is typically many line items per order. c. B2C uses purchase order forms while B2B utilizes credit card purchasing. d. B2C buyers usually have a relationship with the seller while B2B do not have a prior relationship.

SO6 89. Which of the following is least likely to be true about digital transformation? a. Business process reengineering introduced changes in business processes and especially during the two decades of the 1990’s through 2010. Digital transformation was even more radical change in the use of technology. *b. Digital transformation focuses on utilizing one important aspect of new technology to achieve radical redesign of business processes. c. A major purpose of digital transformation is to deliver value to customers. d. Digital transformation will likely have important impacts on auditing.

SO6 90. Which of the following would not normally be considered part of newer technology utilized in digital transformation? a. Robotic Process Automation (RPA) *b. Electronic Data Interchange (EDI) c. Artificial Intelligence (AI) d. Internet of Things (IoT) SO6 91. The textbook describes several advanced technologies that are often used in digital transformation. Which of the following Technologies is described by the following statement?

The delivery of computing services over the Internet, including servers, storage, databases, networking, software, analytics, and intelligence. a. Robotic Process Automation (RPA) *b. Cloud Computing c. Artificial Intelligence (AI) d. Internet of Things (IoT) SO6 92. The textbook describes several advanced technologies that are often used in digital transformation. Which of the following Technologies is described by the following statement?

Technology to build, deploy, and manage technology that emulates human action. *a. Robotic Process Automation (RPA) b. Machine Learning (ML) c. Artificial Intelligence (AI) d. Internet of Things (IoT)

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SO6 93. The textbook describes several advanced technologies that are often used in digital transformation. Which of the following Technologies is described by the following statement?

Devices the purpose of connecting and exchanging data with other devices and systems over the Internet. a. Robotic Process Automation (RPA) b. Machine Learning (ML) c. Artificial Intelligence (AI) *d. Internet of Things (IoT) SO7 94. An intranet is a: *a. Private network accessible only to the employees of a company b. Public network accessible by the customers and vendors of a company c. Public network accessible by the entire supply chain of a company d. Private network accessible by the entire supply chain of a company SO7 95. B2C e-commerce requires: a. Access to the intranet b. Access to the extranet *c. Access to the Internet d. All of the above SO7 96. An extranet is a: a. Private network accessible only to the employees of a company b. Public network accessible by the customers and vendors of a company c. Public network accessible by the entire supply chain of a company *d. Private network accessible by select members of the supply chain SO7 97. Which of the following correctly orders the networks from the network that allows access to the least amount of people to the greatest amount of people? a. Intranet, internet, extranet b. Internet, intranet, extranet c. Extranet, intranet, internet *d. Intranet, extranet, internet SO7 98. Select the correct statement from those provided below. a. Intranet access is generally open to select members of the supply chain. b. Internet access is generally open to select members of the supply chain. c. Extranet access is generally restricted to company employees. *d. Extranet access is generally open to select members of the supply chain.

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SO7 99. When a company uses the: a. Intranet for exchanges such as B2C transactions, it must give access to potential customers *b. Internet for exchanges such as B2C transactions, it must give access to potential customers c. Internet for exchanges such as B2C transactions, it must preclude potential customers default access d. Extranet for exchanges such as B2C transactions, it must preclude potential customers default access SO8 100. Firewalls: a. Prevent internal users from accessing unacceptable web sites through the intranet b. Permit internal users direct access to the Internet to accomplish B2B transactions c. Prevent vendors from viewing inventory levels via the intranet *d. Prevent external users from accessing the extranet or intranet SO9 101. Select the correct statement from the following. *a. XML is extensible markup language while XBRL is extensible business reporting language. b. XML is extensive markup language while XBRL is extensive business reporting language. c. XML is example markup language while XBRL is example business reporting language. d. XML is extensible manipulation language while XBRL is extensible business reporting language.

SO9 102. XML: a. Allows dynamic financial statements to be published on websites b. Provides standards for the automatic exchange of financial data *c. Facilitates the exchange of data between organizations via web pages d. Is based on XBRL language for the construction of business web pages SO9 103. EDI via ANSI X.12 implementation is hampered by: a. High costs b. Usable only on small projects c. Limited transfer of files and data formats *d. Both high costs and limited transfer of files and data formats

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SO9 104. Internet EDI, or EDIINT, features all of the following EXCEPT: a. Low cost *b. Heavy infrastructure c. Industry standard d. Entire supply chain integration SO9 105. Value added networks or VANs, features all of the following EXCEPT: a. Transaction fees b. Complicated *c. Industry standard d. Limited access SO9 106. As a metalanguage, XML: a. Places a data tag that the beginning and end of each page identifying the contained data *b. Places a data tag that the beginning and end of each data item identifying the contained data c. Places a data tag only at the beginning of the data identifying the following data item d. Is usable on both EDI and EDIINT networks SO9 107. XBRL: *a. Is a language that allows data extraction from financial statements b. Is the base or core language for XML, also a metalanguage c. Requires that financial statements be submitted in printed format d. Is the base or core language for XML, also a metalanguage, and requires that financial statements be submitted in printed format SO9 108. Which of the following is least likely to be true regarding SEC requirements for XBRL? a. It is now more important for tier 1 ERP systems to integrate XBRL. b. Inline XBRL makes the data both human readable and machine readable. c. Over the long-term, Inline XBRL will decrease the cost of providing data to the SEC. *d. The SEC does not yet have a specified time for the adoption of Inline XBRL. SO10 109. Companies that engage in e-commerce, B2C sales with consumers: a. Have the legal obligation of complying with the AICPA Trust Services Principles *b. Have the same kind of obligations to conduct their business ethically as companies transacting business any other way c. Have legal obligations that suggest that customers should be so informed regarding customer privacy d. Are required by law to have a local presence for the resolution of customer complaints

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FOR SHORT ANSWER AND ESSAY QUESTIONS REFER TO THE NEXT PAGE.

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Question 1.

SO1 E-Commerce

The text and readings in the course discuss the benefits of eCommerce . Outline five benefits of eCommerce for the customer.

ANSWER Benefits of eCommerce For The Customer 1. Access to broad market for goods and services. By using e-commerce, the customer is not constrained by geography or geographic boundaries.

2. E-commerce provides more convenient shopping for customers.

3. The wider access to the marketplace provides more choices to the customer.

4. E-commerce is likely to provide lower prices.

5. The information sharing aspect of the Internet and World Wide Web allows the customer to exchange information with businesses before, during, or after the purchase.

6. E-commerce can allow quicker delivery of the product.

7. Customers can receive targeted marketing from businesses that they frequently purchase from.

Question 2.

SO1 E-Commerce

The text and readings in the course discuss the benefits of eCommerce . Outline five benefits of eCommerce for a business.

ANSWER Benefits Of E-Commerce For The Business.

1. A broader market, including the potential of a global market for even small businesses 2. Dramatically reduced marketing costs.

3. The potential for much richer marketing concepts that include video, audio, product comparisons, and product testimonials or product tests.

4. The company can quickly react to changes in market conditions.

5. The business using e-commerce is likely to experience reduced order processing and distribution costs.

6. The convenience aspect of e-commerce for the customer means that the business is likely to experience higher sales.

7. Higher sales coupled with reduced marketing, order processing, and distribution costs can lead to much higher profits Question 3.

SO2 eBusiness B2B and B2C

Explain the term B2B and compare B2B to B2C commerce.

ANSWER B2B – A Part of eBusiness. B2B is the sale of products or services between a business buyer and a business seller that is electronically enabled by the Internet. In B2B sales, Ch 14 Test bank – 5e

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neither buyer nor seller is an end-user customer. B2B transactions between supplier and buyer conducted via the Internet offer many advantages to both parties. Internet based transactions offer a wider potential market, reduced transaction cost, and higher profits.

B2B will also result in faster cycle times for the purchases from suppliers. This results from the increased efficiency of processing transactions via the Internet. B2B transactions involve two IT systems exchanging data through the Internet network. The Internet allows companies to reduce or eliminate manual activities such as keying the order into the computer system, mailing documents to initiate the order, entering receipt of goods, and the keying of documents to initiate payment. This eliminates data errors since data may longer be manually keyed into the system. When comparing B2C and B2B, the following is true of B2B:  The order would have many line items and the dollar amount of each sale is usually large.  A B2C sale might be a single item, while a B2B sale might be tons of raw materials.  The B2B sale will have specific shipping details such as type of carrier used, delivery dates, and locations of delivery such as different plants within the company.  The B2B transaction can involve electronic forms of standard business documents such as purchase order and invoice.  The B2B transaction is between buyer and supplier and both parties usually have a pre-existing relationship. These parties would have already negotiated many of the details of the transaction such as the determination of prices, discounts, payment terms, credit limits, delivery dates, and delivery locations.

Question 4.

SO9 XML And XBRL

Explain and define the terms XML and XBRL. Outline how these two tools are used as eBusiness tools.

ANSWER XML And XBRL As E-Business Tools. XML is eXtensible Markup Language. XML is a rich language designed specifically to facilitate the exchange of Web documents. Using XML, designers create customized data tags that enable the definition, transmission, validation, and interpretation of data between applications and between organizations via Web pages. Internet EDI (referred to as EDIINT) uses the Internet to transmit business information between companies. There are several advantages to using the Internet or extranets to transmit EDI when compared to private leased lines or VANs. Internet EDI uses the cost free exchange of the Internet and allows a richer exchange of data by using XML. As XML becomes the accepted standard in Internet EDI, it will allow companies to exchange more than standard business documents; Spreadsheets, graphs, and databases could all be exchanged by using XML documents to tag the data and the manner in which the data should be presented.

XBRL is eXtensible Business Reporting Language, which is a XML-based markup language developed for financial reporting. XBRL provides a standards-based method to prepare, publish, reliably extract, and automatically exchange financial statements. Using XBRL, dynamic financial statements can be published and manipulated on Web sites. Financial

Ch 14 Test bank – 5e

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statements that are coded in XBRL can easily be used in several formats. They can be printed in paper format, displayed as an HTML Web page, or transmitted to a bank or regulatory agencies as an XML file. When a financial statement is prepared in XBRL, computer programs such as a Web browser can extract pieces of information from the XBRL file.

Ch 14 Test bank – 5e

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