TESTBANK for Accounting Information Systems Understanding Business Processes 4E by Considine;Parkes

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TEST BANK for Accounting Information Systems Understanding Business Processes, 4th Edition by Brett Considine, Alison Parkes, Karin Olesen, Yvette Blount & Derek Speer

Chapter 1: Systems fundamentals Multiple Choice Questions 1.

The role of the accountant has changed in recent times because: a. *b. c. d.

professional bodies have sought to redefine and reposition the accounting function. computer systems have emerged to handle the classification and recording tasks traditionally associated with the accounting function. the accounting cycle is too complex and involved to be performed solely by the accountant. knowledge workers have increasingly replaced accountants in the performance of recording and classification tasks.

Correct answer: b Learning Objective 1.1 ~ Define and describe accounting and explain how information systems have altered the role of accounting and the job of the accountant

2.

As computer systems have been developed to perform the recording and classification tasks associated with business activities, the nature of accounting and the work of the accountant have also been pushed in a new direction. Increasingly, the role of the accountant is seen to be to: a. b. *c. d.

use computer programs rather than manual journals. ensure that businesses invest in new software. add value and provide and interpret information for an organisation. outsource accounting work to bookkeepers.

Correct answer: c Learning Objective 1.1 ~ Define and describe accounting and explain how information systems have altered the role of accounting and the job of the accountant

3.

The ICAA requires that its members should bring their analytic expertise to several fields. Which one of the following field is NOT specified by the ICAA? a. b. c. *d.

Strategic planning and change management.

Market analysis and compliance.

The use of information technology.

Human resource management.

Correct answer: d Learning Objective 1.1 ~ Define and describe accounting and explain how information systems have altered the role of accounting and the job of the accountant

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Testbank to accompany: Accounting information systems 4e

4.

What does ERP stand for? *a. b. c. d.

Enterprise Resource Planning Enterprise Resource Package Electronic Resource Planning Electronic Resource Package

Correct answer: a Learning Objective 1.1 ~ Define and describe accounting and explain how information systems have altered the role of accounting and the job of the accountant

5.

Which of the following statements is NOT a major reason of why accountants of the twenty-first century must be comfortable with information systems concepts? a. b. c. *d.

Computer systems are playing an increasing part in the management and functioning of the organisation.

Accountants are increasingly exposed to and working with technology and information systems.

Accountants need to know how computers manage knowledge and its data resources.

Accountants need to lead and oversee the design of an accounting information system.

Correct answer: d Learning Objective 1.1 ~ Define and describe accounting and explain how information systems have altered the role of accounting and the job of the accountant

6.

Information is: a. *b. c. d.

the same as data. data that has been processed and converted. less useful than data. raw facts describing an event.

Correct answer: b Learning Objective 1.2 ~ Define and describe information

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Chapter 1: Systems fundamentals

7.

What is information overload? a. *b. c. d.

The situation where a computer has more information than is needed or is able to be processed in a meaningful way when a computer program is executed.

The situation where an individual has more information than is needed or is able to be processed in a meaningful way when working through a decision.

The situation where a computer has more information than is needed or is able to be processed when data storage is taking place.

The situation where the amount of information exceeds the storage capacity of the brain of a human being.

Correct answer: b Learning Objective 1.2 ~ Define and describe information

8.

Which of the following statements best indicates the difference between data and information: a. b. c. *d.

information and data are the same. information is less useful than data. information is always useful whereas data is only sometimes useful. information is data that has been processed and converted

Correct answer: d Learning Objective 1.2 ~ Define and describe information

9.

The following message box appears when entering a customer order into a sales system:

This is an example of: a. b. c. *d.

Input Process Output Feedback

Correct answer: d Learning Objective 1.3 ~ Define and describe a system, using examples

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Testbank to accompany: Accounting information systems 4e

10.

A system can be defined as: a. b. c. *d.

activities that are performed on inputs. any device used to capture data including manual keying and scanning. any process that an accountant is involved in. something that takes inputs, applies a set of rules or processes to the inputs and generates outputs.

Correct answer: d Learning Objective 1.3 ~ Define and describe a system, using examples

11.

Inputs can include: a. *b. c. d.

receipts and invoices that are given to customers. data as well as other resources, that are the starting point for the system. any process that an accountant is involved in. computer reports that are analysed by accountants.

Correct answer: b Learning Objective 1.3 ~ Define and describe a system, using examples

12.

A large company that provides supplies to the defence forces has just established a new accounting system. Which of the following is an example of a factor in the external environment that would impact on the design of this system: a. b. c. *d.

the specification details gained from users. the directive from the finance director about the system’s operation capacity. the defence force requirement regarding e-commerce. the accounting standards governing large companies.

Correct answer: d Learning Objective 1.3 ~ Define and describe a system, using examples

13.

MICR is an input technology used: a. *b. c. d.

on receipts and invoices that are given to customers. on bank cheques. in the processing of ATM receipts. by many organisations to expedite the processing of accounts payable invoices.

Correct answer: b Learning Objective 1.3 ~ Define and describe a system, using examples

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Chapter 1: Systems fundamentals

14.

Over time, the relationship between accounting and information systems has seen: a. *b. c. d.

accounting gain an increased role as the emphasis shifted from information systems to accounting. information systems gain an increased role as the emphasis shifted from accounting to information systems. information systems and accounting share the emphasis. both accounting and information systems become part of a wider organisational IT function.

Correct answer: b Learning Objective 1.4 ~ Define ‘accounting information systems’ and discuss their evolution

15.

“Charlie & Dave’s Computer Store” is considering the best way to enter data about new customers that sign up as part of a new marketing campaign. Customers complete their details on a form and leave them at the store for further processing. The best method for capturing this data would be: a. b. *c. d.

scanning through barcode technology. optical mark readers. manual keying. scanning through image scanners.

Correct answer: c Learning Objective 1.3 ~ Define and describe a system, using examples

16.

An accounting information system can best be defined as: a. b. c. *d.

the application of technology to the capturing, storing, sorting and reporting of data. the application of technology to the capturing, storing, sorting and reporting of information. the application of technology to the capturing, verifying, storing, sorting and reporting of information relating to an organisation’s activities. the application of technology to the capturing, verifying, storing, sorting and reporting of data relating to an organisation’s activities.

Correct answer: d Learning Objective 1.4 ~ Define ‘accounting information systems’ and discuss their evolution

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Testbank to accompany: Accounting information systems 4e

17.

Which of the following is unlikely to be the accounting’s role to an organisation? a. b. c. *d.

Gather data about the organisation’s activities.

Provide a means for business data storage and processing.

Convert business data into useful information.

Exercise strategic decision-making according to accounting information.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

18.

An accounting information system is unlikely to help a firm to: a. b. c. *d.

determine whether to approve a credit sale. decide how much to purchase from suppliers. determine the provision for bad debts. eliminate financial fraud.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

19.

There are a few source documents that contain accounting data. An accounting clerk enters these data into an accounting program hosted in a computer. The computer displays an analysis report on screen when the accounting program has finished processing the data.

In this scenario, the accounting information system consists of: a. b. c. *d.

the accounting program. source document and the accounting program. source document, the accounting program, and the computer. source document, the accounting clerk, the accounting program, and the computer.

Correct answer: d Learning Objective 1.3 ~ Define and describe a system, using examples

20.

An example of an output from an accounting information system could be: a. b. *c. d.

the screen for entering transactions. the screen for selecting what report to produce. the screen that lists updated and categorised account balances. the screen for entering file saving locations.

Correct answer: c Learning Objective 1.3 ~ Define and describe a system, using examples

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Chapter 1: Systems fundamentals

21.

Feedback: a. b. c. *d.

always includes an error message. is the method to indicate that a problem exists. never includes an error message. is the method for ensuring that the system is running as normal and that there are no problems or exceptional circumstances.

Correct answer: d Learning Objective 1.3 ~ Define and describe a system, using examples

22.

The role of the accountant has changed in recent times because: a. *b. c. d.

professional bodies have sought to redefine and reposition the accounting function. computer systems have emerged to handle the classification and recording tasks traditionally associated with the accounting function. the accounting cycle is too complex and involved to be performed solely by the accountant. knowledge workers have increasingly replaced accountants in the performance of recording and classification tasks.

Correct answer: b Learning Objective 1.1 ~ Define and describe accounting and explain how information systems have altered the role of accounting and the job of the accountant

23.

Which of the following statements concerning working professionals is correct? a. b.

c.

*d.

A working professional in the accounting domain will not be involved in system development.

A working professional in a domain extended beyond accounting is more likely to be involved in system development than their counterparts in the accounting domain.

A working professional in a domain extended beyond accounting is less likely to be involved in system development than their counterparts in the accounting domain.

System development will be part of the career of a working professional in the accounting domain.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Testbank to accompany: Accounting information systems 4e

24.

Data Mining is: a. b. c. *d.

a technology that is used by large multinational resource companies such as BHP, Rio Tinto and Xstrata. declining in popularity with companies due to the emergence of newer technologies. a technology that analyses small pools of internally generated data and identifies possible cost savings. a technology that analyses large pools of data and identifies patterns in them that can then be used by organisations for decision making.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

25.

Which of the following factors will impact on the way an auditor goes about the audit of an information system? (i) Legislative requirements; (ii) Professional requirements; (iii) Prescription of the various auditing standards; (iv) Unique characteristics of the individual client. a. b. c. *d.

i, iii i, ii, iii i, ii, iv i, ii, iii, iv

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

26.

Which of the following statements concerning ethics is correct? *a. b. c. d.

Ethics is concerned with how we act and how we make decisions.

Electronic accounting information systems eliminate the need for ethical behaviour.

Professional bodies, such as CPA and ICAA, are placing less reliance on ethics and more on legal compliance.

Ethical issues and legal issues are the same.

Correct answer: a Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Chapter 1: Systems fundamentals

27.

Which of the following statement regarding business processes is correct? a. b. c. *d.

Business processes represent the series of discrete activities that deliver something of value to external customers.

Business processes represent the series of discrete activities that deliver something of value to both internal and external customers.

Business processes represent the series of interlocking activities that deliver something of value to internal customers.

Business processes represent the series of interlocking activities that deliver something of value to both internal and external customers.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

28.

Relational database approach: a. *b. c. d.

looks for relationships between different business processes of logically connecting the different pieces of data. looks for relationships between different pieces of data as a means of logically connecting the different pieces of data. looks for relationships between different transactions as a means of logically connecting the different pieces of data. looks for relationships between different business entities as a means of logically connecting the different pieces of data.

Correct answer: b Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

29.

Normalisation: a. b. c. *d.

is a process that can now be eliminated in designing databases due to technology improvements. ensures all the higher-level operational aspects are also included, as normalisation starts with the tables, forms and data of the organisation. is a top-down process. minimises potential anomalies that can emerge in a data management system.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Testbank to accompany: Accounting information systems 4e

30.

An ER diagram shows: *a. b. c. d.

the logical design of the database from a top-down perspective. the physical design of the database from a top-down perspective. the logical design of the database from a bottom-up perspective. the physical design of the database from a bottom-up perspective.

Correct answer: a Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

31.

When it comes to capturing the underlying design and structure of a database, the term “ER diagram” refers to: a. *b. c. d.

Enterprise Resource diagram Entity Relationship diagram Enterprise Relationship diagram Entity Resource diagram

Correct answer: b Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

32.

A database represents: a. b. c. *d.

the culmination of hardware and software. the culmination of hardware, software and data. the culmination of procedures, hardware, software and data. the culmination of people, procedures, hardware, software and data.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

33.

XBRL stands for: *a. b. c. d.

extensible business reporting language. cross business reporting language. extended business report language. executable business reporting language.

Correct answer: a Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Chapter 1: Systems fundamentals

34.

Which of the following description of XBRL is true? a. *b. c. d.

XBRL is a new technology that yet to be made a practical reality.

XBRL adds meaning to data so that other applications know what the data represents and how it should be treated XBRL is fundamentally different from HTML. A standard set of XBRL tags is not available yet.

Correct answer: b Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

35.

In general, system documentations cannot show: a. b. c. *d.

how business processes are designed. the data that moves through the processes. the activities that occur within the processes. all internal control mechanisms.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

36.

Which of the following statements regarding system documentation is correct? a. b. *c. d.

Systems documentation is only useful for internal staff.

Systems documentation is increasingly being phased out of organisations due to newer technology.

Systems documentation is crucial for systems development and systems review.

Answers a and c are both correct.

Correct answer: c Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

37.

Which one of the following is often overlooked by businesses when it comes to internal control? a. b. *c. d.

Fraud Theft of business data Disaster recovery Errors in data

Correct answer: c Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Testbank to accompany: Accounting information systems 4e

38.

Internal controls cannot: a. b. c. *d.

prevent anomalous and undesirable occurrences. detect anomalous and undesirable occurrences. correct anomalous and undesirable occurrences. reverse the effects brought about by anomalous and undesirable occurrences.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

39.

Which of the following statement regarding internal control is correct? *a. b. c. d.

Internal controls provide a degree of assurance that the organisation and its systems are running normally.

Internal controls can prevent and detect anomalous and undesirable occurrences, but they cannot reverse the effects caused by such occurrences.

Internal controls do not concern about natural disasters and other catastrophic disruptions.

Internal controls are only implemented in the most important functions of an organisation.

Correct answer: a Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

40.

Internal controls do not control: a. b. c. *d.

physical assets in an organisation. information resources in an organisation. human behaviours in an organisation. business process efficiencies in an organisation.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

41.

Which of the following activities is not part of the revenue cycle? a. b. c. *d.

Receiving customer orders.

Checking credit history.

Packing and shipping goods to customers.

Ordering new goods from suppliers.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Chapter 1: Systems fundamentals

42.

Which of the following activities is not part of the expenditure cycle? a. b. c. *d.

Purchasing Updating the accounts payable Authorising payment Producing goods

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

43.

Which of the following activities is not part of the production cycle? a. b. *c. d.

Managing raw materials.

Planning production.

Keeping the finished goods.

Handling variances for standard and actual costs of goods manufactured.

Correct answer: c Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

44.

Which of the following statements about the HR management and payroll cycle is NOT true? a. b. c. *d.

The cycle involves recruiting employees.

The cycle involves managing and paying employees.

The cycle involves dealing with situations where employees leave the organisation.

Decisions about who to hire will not impact upon the way the other processes are executed.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

45.

Which of the following activities is NOT part of the general ledger and financial reporting cycle? a. b. c. *d.

Preparing and updating journals and ledger accounts.

Preparing end-of-period adjusting entries and close the temporary accounts to profit and loss.

Preparing trial balances and producing financial reports.

Preparing cheque requisition.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Testbank to accompany: Accounting information systems 4e

46.

Which of the following statements regarding the auditing of accounting information systems is NOT true? a. b. c. *d.

When conducting an audit, the auditors should consider legislative requirements.

When conducting an audit, the auditors should consider professional requirements.

When conducting an audit, the auditors should consider prescriptions of various accounting standards.

When conducting an audit, the auditors do not need to worry about the unique characteristics of an individual client.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

47.

Which of the follow statements regarding ethics is false? a. b. c. *d.

Ethics is concerned with how we act and how we make decisions.

Accountants are bound by professional ethics.

Most professional bodies have ethical standards that members must follow.

A casual bookkeeping employee, who is not a member of any professional association, need not adhere to professional accounting ethics.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

48.

Systems development is unlikely to be driven by: a. b. c. *d.

a change in the regulatory environment. a change in the business environment. a business need from within the organisation. a change in the technology infrastructure, such as computer hardware.

Correct answer: d Learning Objective 1.5 ~ Discuss and provide examples of the role of accounting information

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Chapter 1: Systems fundamentals

Short Answer Questions 1. Traditionally, the role of an accountant is to capture and record financial information. Has this role changed? Why or why not?

Answer: The accountant’s role has extended beyond the task of capturing and recording financial information about an organisation to being more of a knowledge worker: someone who provides information and solves problems for an organisation. The days of the accountant only being the one who maintains the books are long gone. The career paths of an accountant, however, still rely on the knowledge of accounting. Accounting is still an important skill to possess — it is just that what those with accounting skills do with them has changed.

2. What are the differences between data and information?

Answer: Data are the raw facts relating to or describing an event. Data become useful when they are subject to the application of rules or knowledge, which enables us to convert data into information. Information is used in decision making and can prompt action, as well as be a guiding tool for decision making, while data cannot be used in this way.

3. Information overload can be harmful to both individuals and the relevant organisation, why?

Answer: Organisations need to be conscious of what information they produce (whether reports or some other type of information) and make sure that it is relevant to the people who need it.

Commonly in large organisations, people will request reports for a specific problem. Over time that problem may disappear, yet the reports are still produced. In many cases these reports will then just be filed away because “that’s what has always been done”. So resources are wasted in generating the reports. For the person receiving the irrelevant information, there is a potential risk of information overload, which happens when an individual has more information than he or she needs and can process meaningfully when working through a decision. This can lead to undesirable consequences, such as reduction in efficiency, decrease in productivity, and increased stress.

4. Describe the relationship between input, process, and output.

Answer: Inputs can include data, as well as other resources, that are the starting point for a system.

Processes are the sets of activities that are performed on the inputs into the system. Outputs refer to what is obtained from a system, or the result of what the system does. Typically, a process will take at least one input and then “transform” or “manipulate” the input into outputs. As such, for any process, there must be at least one input and one output associated with it.

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Testbank to accompany: Accounting information systems 4e

5. What is feedback and how does it interact with the system?

Answer: Interacting with the inputs, processes and output will be the provision of feedback, which is the method for ensuring that the system is running as normal and that there are no problems or exceptional circumstances. For example, when a datum about a customer, such as a customer number, is entered into a system, the system will take the datum and check that it is in the required format and is a valid number. If the system finds an error in the customer number (e.g. it has been entered as alpha-numeric when it should be numeric), then it will alert the data entry person responsible and prompt them to re-enter the customer number in the correct format.

6. What is the relationship between system scope and the external environment?

Answer: A system will also have a defined task or domain to which it is applied - one system cannot do everything. This is the idea of system scope: the domain that a system addresses. Systems also operate within a particular external environment or context, which will affect the operation of the system. Therefore, anything that is not included within the system scope belongs to the external environment. Collectively, the things belong to the external environment are factors or pressures outside a system that influence its design and operation.

7. An accounting information system can be defined as the application of technology to the capturing, verifying, storing, sorting and reporting of data relating to an organisation’s activities. Explain how this definition is arrived.

Answer: This definition encompasses the definitions of accounting, information and systems.

“Capturing, verifying, storing, sorting and reporting” describes the functions of accounting within an organisation, whereas “data relating to an organisation’s activities” is relevant to the definition of information. Also, the capturing and reporting of data reflect the input and output of a system, while verifying, storing, and sorting are relevant to the processes.

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Chapter 1: Systems fundamentals

8. Until the 1970s, information systems were seen as a support tool for the accounting function. What happened afterwards as technology continued to develop?

Answer: As technology continued to develop, including management information systems, database technology and electronic data processing technologies, and with the emergence of the microcomputer, organisations began to see that the technology of the computer could be applied beyond the domain of the accounting function. The effect of this realisation was that the information systems function began to develop an identity of its own, becoming more distinct from the accounting function, which had previously subsumed it. As these new techniques emerged, the accounting function’s reliance on the information systems function increased. The reliance on the information services function has extended beyond just the accounting function, with multipurpose applications and technologies and developments emerging. Such developments meant that information systems technologies were being incorporated into other functional areas of the organisation apart from accounting. From the organisation’s perspective this increases the role of information systems within the organisation and makes the other functional areas dependent on the information systems function.

9. What kind of information can an accounting information system provide and what are the uses of such information?

Answer: The information that can be generated by an accounting information system is diverse. For example, typical accounting statements that are produced by an accounting information system include the income statement (or statement of comprehensive income), the statement of financial position (or balance sheet) and the statement of cash flows. These reports represent information generated by the accounting system to support decision making by providers of scarce economic resources. Such information is used by providers of economic resources in making decisions about whether to invest in a company, as well as for evaluating company performance at the end of the financial year.

However, the traditional financial statements are by no means the only source of information available through the accounting information system. The general purpose financial statements are used by shareholders and potential shareholders, creditors and debtors alike to assess the above dimensions. Accounting information that typically extends further is also available for decision makers within an organisation. Within an organisation, employees will have access to the data that are stored and can query and manipulate them in various ways to answer questions that may arise in the day-to-day running of the organisation. A properly designed accounting information system can satisfy internal users' needs by providing relevant information (e.g. in the form of reports).

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Testbank to accompany: Accounting information systems 4e

10. Give five examples of decision-making (within a firm) that require accounting information.

Answer: i. determining whether to approve a credit sale ii. determining a customer's creditworthiness iii. determining the quantity of raw materials to order iv. determining the financial performance of the firm, a department, or even a team v. determining the provision for bad debts

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Chapter 2: Systems characteristics and considerations

Chapter 2: Systems characteristics and considerations Multiple Choice Questions 1.

Which are the three levels that strategy can be seen to operate at? (i) The internal level. (ii) The external level. (iii) The business portfolio level. (iv) The inter-organisation level. (v) The intra-organisation level. (vi) The competitive level. a. *b. c. d.

i, ii, vi i, iii, vi iii, iv, v iv, v, iii

Correct answer: b Learning Objective 2.1 ~ Describe the components of organisational strategy and mission

2.

An example of a strategic level decision would be: a. b. c. *d.

determining the quantity of raw materials to purchase. appointing a new line manager responsible for running the delivery department. reconfiguring the production line design to eliminate wasted time due to bottlenecks. deciding whether or not to acquire the remaining shares of a partially owned subsidiary.

Correct answer: d Learning Objective 2.1 ~ Describe the components of organisational strategy and mission

3.

Michael Porter sees a business as having two options when deciding on a strategy.

These two options are: a. b. c. *d.

economies of scale and entry barrier. economies of scope and differentiation. price competition and product abundance. differentiation and cost leadership.

Correct answer: d Learning Objective 2.1 ~ Describe the components of organisational strategy and mission

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Testbank to accompany: Accounting information systems 4e

4.

Michael Porter sees the implementation and attainment of strategies as consisting of five steps. Which of the following is NOT one of the steps? a. b. *c. d.

Fit Uniqueness Operational efficiency Sustainability

Correct answer: c Learning Objective 2.1 ~ Describe the components of organisational strategy and mission

5.

Michael Porter puts forward five forces that shape the industry in which a firm operates. Which of the following is NOT one of the forces? a. *b. c. d.

Threat of new entrants.

Legislative power of the government.

Rivalry among existing competitors.

Threat of substitute products or services.

Correct answer: b Learning Objective 2.1 ~ Describe the components of organisational strategy and mission

6.

There are two perspectives of organisational design: a. b. *c. d.

logical and physical. internal and external. functional and business process. scientific and practical.

Correct answer: c Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

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Chapter 2: Systems characteristics and considerations

7.

The logical consequence of Taylor’s scientific management approach was that organisations: *a. b. c. d.

developed rigid hierarchies that sought to tightly control lower levels of the organisation. developed highly interactive and flexible structures that could easily adapt to changing environments. had employees who questioned procedures and sought to continually redefine their role. streamlined the information flows across the organisation.

Correct answer: a Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

8.

Scientific management is concerned with: a. b. *c. d.

streamlined work flows across the organisation. hierarchical control of the organisation through three levels of management. clearly defining individual employee’s responsibilities and tasks. dividing the business structure into the optimal number of functional divisions.

Correct answer: c Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

9.

Which of the following is not a benefit of a functionally based organisational design? a. b. *c. d.

Control and coordination Stability Communication efficiency Task specificity

Correct answer: c Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

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Testbank to accompany: Accounting information systems 4e

10.

Which of the following is not a problem or limitation of a functionally based organisational design? a. *b. c. d.

Not reflective of the reality of today.

Lack of administrative power.

Slow to react to the environment.

Focuses on the wrong things.

Correct answer: b Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

11.

An emphasis on business processes is different to a functional perspective of the organisation because a business process emphasis: a. b. *c. d.

offers highly defined tasks and responsibilities. gives employees the freedom to do what they want in order to please the customer. acknowledges cross-functional communication and action is essential to the customer’s needs. views the customer needs as secondary to those of the functional divisions.

Correct answer: c Learning Objective 2.3 ~ Define and give examples of a business process

12.

What is a business process? *a. b. c. d.

A series of interlocking activities that work together across the organisation to achieve some predetermined organisational goal.

Any activity performed by a business.

Any core activity that produces a profit.

Any activity performed by a manufacturing company providing that it produces a profit.

Correct answer: a Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

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Chapter 2: Systems characteristics and considerations

13.

The major difference between a business process and a business function is that: a. b. c. *d.

business processes emphasises what gets done, business functions emphasise how it gets done. business process personnel are highly skilled specialists, business function personnel are generalists operating across numerous areas. business processes emphasise vertical structure and hierarchy, business functions emphasise the horizontal integration of the organisation. business processes are customer driven, business functions are task driven.

Correct answer: d Learning Objective 2.2 ~ Describe alternative organisational structures and their strengths, weaknesses and implications for organisational operations Learning Objective 2.3 ~ Define and give examples of a business process

14.

A sales person is processing a credit sale. As per company policy, the sales person should conduct the credit check and forward the result to a supervisor, who would then make a decision on the creditworthiness of the applicant and send this back to the sales person. This scenario is more likely to happen in: *a. b. c. d.

functionally based organisation. business process based organisation. both functionally based organisation and business process based organisation. neither functionally based organisation nor business process based organisation.

Correct answer: a Learning Objective 2.3 ~ Define and give examples of a business process

15.

Which of the following is NOT a benefit of adopting a business process perspective within the organisation? a. b. *c. d.

Better customer service and customer relations.

Greater efficiency and effectiveness in using resources.

Tighter organisational control.

Less non-value-adding activities.

Correct answer: c Learning Objective 2.4 ~ Discuss the benefits of organisations adopting a business process perspective

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Testbank to accompany: Accounting information systems 4e

16.

In the process perspective of the organisation, a flattened organisational design cannot: *a. b. c. d.

increase task specificity. reduce bureaucracy. create a more flexible organisation. identify tasks and functions that do not add value.

Correct answer: a Learning Objective 2.4 ~ Discuss the benefits of organisations adopting a business process perspective

17.

Business processes can provide an organisation with a competitive advantage. This competitive advantage is more likely to come from: a. *b. c. d.

the design of business processes that are more efficient and effective. the design of business processes that are unique or offer something different. the design of business processes that are more competitive and flexible. the design of business processes that have lower costs of execution.

Correct answer: b Learning Objective 2.4 ~ Discuss the benefits of organisations adopting a business process perspective

18.

The business process can yield benefits for an organisation through: a. b. c. *d.

ignoring customer service and focussing on superior product design. offering customers cheaper prices. outsourcing all customer service activities. improved customer service and customer relations through a value adding emphasis.

Correct answer: d Learning Objective 2.4 ~ Discuss the benefits of organisations adopting a business process perspective

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

19.

Although ERP systems are built around the idea of best practice, some organisations will choose not to adopt the ERP best practice, seeking instead to modify the design of the system. The mostly likely reason for doing so is: a. b. *c. d.

modifying the ERP system will lower the cost of implementation because redundant features are removed. the ‘fit’ between the system and the business processes needs to exist. Ii is easier to change the system than to change the organisational design. the ERP system is unable to drive some of the organisation’s unique business processes that provide distinct competitive advantage to the organisation. adopting an ERP system off the shelf erodes competitive advantage because everyone else has the same software at their disposal.

Correct answer: c Learning Objective 2.5 ~ Explain the role enterprise resource planning (ERP) systems play in business process design

20.

An ERP system is: *a. b. c. d.

a complex set of computer program modules that integrate the different functional areas of the organisation. developed around an information silo principle. a system that integrates functional and proprietary information systems in different departments in an organisation. suitable for both large and small organisations.

Correct answer: a Learning Objective 2.5 ~ Explain the role enterprise resource planning (ERP) systems play in business process design

21.

Because of ERP’s best practice approach, if all organisations adopt the ERP system and have the same underlying processes, they are less likely to distinguish themselves and gain a competitive advantage. This is likely a major reason for: a. b. c. *d.

not adopting ERP. adopting ERP before competitors do. configuring a business process around an ERP system. not configuring a business process around an ERP system.

Correct answer: d Learning Objective 2.5 ~ Explain the role enterprise resource planning (ERP) systems play in business process design

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

22.

Which of the following is NOT a result of moving to a business process-based environment? a. b. *c. d.

The way that the organisation is managed is changed.

Functional barriers are broken down.

The layer of middle management is thickened.

Employee resistance.

Correct answer: c Learning Objective 2.6 ~ Consider some of the issues for organisations changing to a process-based focus

23.

The first stage in adopting a business process perspective is that: a. *b. c. d.

it should focus on removing middle management. it must be represented in the design of the organisation. it should emphasise the flattening of the organisational structure. it must be reflected in the organisation’s latest statements.

Correct answer: b Learning Objective 2.6 ~ Consider some of the issues for organisations changing to a process-based focus

24.

Instead of turning up to work knowing that all they will be doing is one specific, narrowly defined task, employees become involved in a range of tasks and see how the tasks integrate with each other. This is a likely description of: a. b. *c. d.

employee empowerment. a functional environment. a business process oriented environment multi-tasking.

Correct answer: c Learning Objective 2.6 ~ Consider some of the issues for organisations changing to a process-based focus

25.

The first stage in adopting a business process perspective is: a. b. c. *d.

securing customer approval. ensuring that the project is fully costed. ensuring that the company is currently using updated technology. that it must be represented in the design of the organisation.

Correct answer: d Learning Objective 2.6 ~ Consider some of the issues for organisations changing to a process-based focus

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

26.

An organisation is undergoing a major change to the way it does business, redesigning business processes and the use of IT within the processes. One of the suggested change approaches was TQM. In this case: a. b. c. *d.

TQM would be ideal because it allows for all employees to offer suggestions and be involved in the changing of the organisation.

TQM would be ideal because its incremental approach to organisational change means that the change process would be well managed.

TQM would not be ideal because its incremental approach would mean that change would take a large amount of time.

TQM would not be ideal because its incremental approach is suited to gradual change rather than large scale change.

Correct answer: d Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

27.

A process that has been reengineered will have less of a role for specialists because: a. b. c. *d.

specialists are made redundant through the cost-cutting emphasis of BPR. decisions that require specialists are removed from a process. generalists are trained and act as specialists through the assistance of decision aids. jobs are combined and key workers are given decision making responsibility.

Correct answer: d Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

28.

Which of the following statements is NOT true about a reengineered process? a. b. *c. d.

Jobs change and people are empowered.

Work units change from a functional to a process perspective.

Controls are increased to ensure smooth functioning.

Workers jobs are combined and workers are given decision rights.

Correct answer: c Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

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Testbank to accompany: Accounting information systems 4e

29.

Benefits of a reengineered process from a customer’s perspective do not include: a. b. c. *d.

better information availability. more convenient way of participating in a process. a specific reference point. friendlier customer service.

Correct answer: d Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

30.

Organisations will benefit most from the application of IT when: a. b. c. *d.

they use the most advanced and latest IT. all business processes are computerised.

IT costs are brought to the minimum. the use of IT is driven by business needs and opportunities.

Correct answer: d Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

31.

Evaluated receipts settlement involves: *a. b. c. d.

the purchaser paying for goods without receiving an invoice. the supplier issuing an invoice before goods have been delivered. speeding up the accounts receivable process for a vendor. the electronic sending and payment of invoices.

Correct answer: a Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

32.

An organisation is looking for a way to improve their accounts payable process.

Someone suggested that they continue to send out paper invoices but allow customers to pay through their bank website and phone banking. This is an example of: a. b. *c. d.

electronic bill presentment. electronic bill presentment and payment. electronic bill payment. neither electronic bill presentment nor payment.

Correct answer: c Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

33.

In a BPR project: a. b. *c. d.

a leadership team is “good to have” but not necessary. a leadership team consists of company executives should be established to guide the project. the leadership team may include some influential external stakeholders. the leadership team members need not be of authority sufficient.

Correct answer: c Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

34.

In terms of BPR: a. *b. c. d.

job descriptions need not be adjusted. the attainment of short-term wins is a form of positive feedback. once improvements are consolidated, further change should be avoided so that achieved improvements can be sustained. institutionalising the new approaches does not involve changes in organisational culture.

Correct answer: b Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

35.

Which one of the following is NOT a BPR principle in practice? a. *b. c. d.

Combine jobs and let workers make decisions.

Perform process steps in a functionally logical order.

Allow processes to vary.

Reduce the impediment of controls and reconciliations.

Correct answer: b Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

36.

People within the organisation need to be encouraged to provide feedback about the design of a process. This is particularly the case: *a. b. c. d.

at the lower levels of the organisation. at the line manager level of the organisation. at the middle management level of the organisation. at the executive level of the organisation.

Correct answer: a Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

37.

The philosophy of TQM is geared around four main concepts. These concepts are: a. b. *c. d.

quality, process, organisations and management. quality, process, people and management. quality, people, organisations and management. quality, process, people and organisation.

Correct answer: c Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

38.

Vendor-managed inventory involves the buyer transferring the responsibility for: a. b. *c. d.

physically holding inventory items. storing, retrieving, and acquiring inventory items. determining what, when and how much is purchased. keeping the inventory at a fixed and predetermined level.

Correct answer: c Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

39.

Which one of the following technology is more likely to be used in the billing and cash receipts process by the seller of goods? a. b. c. *d.

RFID Electronic bill presentation and payment Electronic bill payment Evaluated receipts settlement

Correct answer: d Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

40.

Which of the following statements regarding BPR is not true? *a. b. c. d.

BPR is an attempt at downsizing.

Ethical issues are involved in BPR. Social issues are involved in BPR. Employees can be extremely wary when BPR is mentioned.

Correct answer: a Learning Objective 2.8 ~ Critically evaluate BPR

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Chapter 2: Systems characteristics and considerations

41.

Which of the following is NOT a central tenet of BPR? a. b. c. *d.

Look for ways technology can potentially be applied to solve a business problem.

Look for ways technology can potentially be applied to create a unique strategic position for an organisation.

Look for ways technology can potentially be applied to help organisation grasp emergent opportunities.

Look for ways technology can potentially be applied to help organisation sustain competitive advantage.

Correct answer: d Learning Objective 2.9 ~ Evaluate the application of information technology (IT) to business processes by Australian firms

42.

Which of the following statements is NOT true regarding Australian businesses? a. b. *c. d.

More than 90% of businesses are using the Internet.

More than 80% of websites have some form of customer contact facility.

More than 70% of businesses have incorporated Internet into business processes.

The percentage of Australian businesses that have web presence has increased by 15% from 2003 to 2010.

Correct answer: c Learning Objective 2.9 ~ Evaluate the application of information technology (IT) to business processes by Australian firms

43.

Which of the following is not a factor that is attributed to the uptake of the IT by many organisations? a. b. c. *d.

Government support.

Customer pressure.

Ability to access technological support.

Better socioeconomic environment.

Correct answer: d Learning Objective 2.9 ~ Evaluate the application of information technology (IT) to business processes by Australian firms

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

44.

A business operates by sourcing data from various sources and compiling or customising it in a way that adds value for the end customer. This business is: a. b. c. *d.

a compiler. a data miner. a customiser. an aggregator.

Correct answer: d Learning Objective 2.9 ~ Evaluate the application of information technology (IT) to business processes by Australian firms

45.

The information business: a. b. c. *d.

cannot operate without modern information and communication technologies. cannot operate on a manual basis. is not popular because it adds middleman costs to final prices. is useful for both everyday consumers and enterprise-level customers.

Correct answer: d Learning Objective 2.9 ~ Evaluate the application of information technology (IT) to business processes by Australian firms

46.

Which of the following indicates that a company is using the internet effectively for its business processes? a. *b. c. d.

A company has a home page, information only website.

Sales orders captured through the website feed automatically into the revenue cycle.

Customers can contact the company for more information through the website.

The company uses internet banking to pay invoices.

Correct answer: b Learning Objective 2.9 ~ Evaluate the application of information technology (IT) to business processes by Australian firms

47.

Any benefits gained through improved resource efficiency in the process perspective could potentially be negated by the increased resources required to support the new IT within the organisation. This phenomenon is referred to as: a. *b. c. d.

spill-over effect. productivity paradox. rent misappropriation. siphon effect.

Correct answer: b Learning Objective 2.8 ~ Critically evaluate BPR

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

48.

There are four main areas in which an organisation can benefit from the application of technology to its business processes. These areas do not include: a. b. c. *d.

transaction-based area. change-based area. strategy-based area. marketing-based area.

Correct answer: d Learning Objective 2.7 ~ Describe and evaluate approaches to changing business processes, in particular business process re-engineering (BPR)

49.

Normally, the first step in a BPR project is to: a. *b. c. d.

form a leadership team. convince others within the organisation that BPR is actually required. create and communicate a vision. encourage employees to try new ways of doing things.

Correct answer: b Learning Objective 2.8 ~ Critically evaluate BPR

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. Michael Porter sees a business as having two options when deciding on a strategy: (1) cost leadership, or (2) differentiation.

Discuss the difference and the relationship between these two options.

Answer: A cost leadership strategy sees organisations able to carry out their activities cheaper than their competitors, through economies of scale, technology, low overhead costs or efficient links with suppliers. The alternative, the differentiation strategy, involves a business adding that little bit extra for customers, offering unique products and services targeted to the customer’s needs. This higher degree of customer attention and personalisation to meet customer demands allows the organisation to charge a higher price. Therefore, cost leadership focuses on cutting costs (as the name suggests) whereas differentiation targets unique, novel, or customisable products/experience that can be sold for a higher price. These two options are not mutually exclusive; when they are realised successfully, the focal organisation can reap a profit that is higher than the average.

2. What are the benefits and problems of the functional perspective of the organisation?

Answer: One strong benefit of the functional perspective is that it provides a great deal of organisational control. Due to the high volume of reporting relationships that exist, there is a strong monitoring network. This can lead to bureaucracy (a disadvantage). Another benefit is task specificity. Tasks within the functionally based organisation will be highly defined and specified. This means employees and managers are clear on what their tasks and responsibilities are. The functional structure provides a delineation of tasks across different departments of the organisation, as well as within departments. This can be a useful tool for an organisation wishing to gain clarity and specificity of employee roles and responsibilities.

However, while the functional perspective of the organisation does not reflective of the reality of today, it creates an overly hierarchical and bureaucratic organisation. A common consequence of this is the perception that ‘staff create overheads and bureaucracies that far exceed their value’. The hierarchical and bureaucratic nature of the functional organisation means it can be slow to react to changes in both the internal organisational environment and the external operating environment. It takes time for information to filter up and down in the organisation. Finally, hierarchical and bureaucratic nature of the functional organisation can lead to an ignorance of customer requirements, so the organisation is focusing on the wrong things.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

3. Compare and contrast business process with business function.

Answer: A business process was defined as a series of interlocking activities that work together across the organisation to achieve some predetermined organisational goal that is typically defined around satisfying customer needs. A business function was defined as a specific subset of the organisation that performs a particular role that contributes to the organisation achieving its objectives. Notice the differences in these definitions. A business function is a specific task or role that is performed, for example, accounting, sales or marketing. Moving from business function to business process shifts the frame of reference from looking at specific individual functions to how these functions interact with one another to deliver a good or service to the customer. So, the business process is a combination of business functions operating together to achieve a goal. (c.f. Table 2.1 in the chapter)

4. What are the reasons for adopting a business process perspective within an organisation?

Answer: The process perspective offers an organisation a more coordinated and integrated approach, reducing wasted time due to rework, bureaucracy and administration. Moreover, the process perspective can also lead to the better use of resources. Business processes can eliminate duplication of data and wastage in storage and can also restructure ineffective interdepartmental communication networks. This can lead to better information flows through the organisation, potentially leading to more effective decision making by management. Furthermore, the business process perspective can yield benefits for an organisation through improved customer service and customer relations, a value-adding emphasis and, potentially, a competitive advantage. Business processes are typically built around the desired product or result that is to be achieved. More often than not this will be based around the customer, whether inside or outside the organisation. As a result, customer satisfaction, attention and service are potentially higher in a process-focused organisation.

Business processes can also provide an organisation with a competitive advantage, with organisations increasingly looking towards the design of their business processes as a means of distinguishing themselves from the host of competitors they may face in their industry.

This competitive advantage comes from the design of business processes that are unique or offer something different.

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Testbank to accompany: Accounting information systems 4e

5. The design philosophy of ERP systems is centred on the idea of best practice. Discuss the disadvantages of this approach.

Answer: The business processes supported by an ERP system have been designed and programmed into the system based on what is deemed to be, following research and investigation, the best way to perform them (i.e. best practice). These standards of best practice are one of the compelling reasons for organisations to adopt ERP systems as they are and not change the software.

However, the aim of any organisation is to gain some form of competitive advantage over its competitors. A competitive advantage is something unique that a business does that is not offered by its competitors and thus represents a way for the organisation to distinguish itself from the rest of the field. One way for an organisation to do this can be through the configuration of its business processes. Organisations designing business processes and considering the adoption of ERP systems need to carefully consider their existing business practices, how they provide a competitive advantage, and how the business processes represented in an ERP system will fit or conflict with them. The aspect of homogeneity in ERP packages is that an ERP package’s best practices and processes are available to every organisation willing to pay for it. If all organisations adopt the software and have the same underlying processes, how can they distinguish themselves and gain a competitive advantage?

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

6. Briefly explain the management issues and the people issues when an organisation is moving to a business process-based environment.

Answer: The first stage in adopting a business process perspective is that it must be represented in the design of the organisation. How the organisation is managed must change if the change in perspective is to be taken seriously. As with most things associated with change, support needs to come from the top down. But the reality for some organisations can be that the change at the top is difficult. Shifting to a process-based organisation can mean significant changes in the way people perform their duties. What was once a traditional, narrowly defined specialist job can become a generalist and diverse role. This pushes the rights to decision making further down in the organisation’s hierarchy. As a result there can be a power shift in the organisation, with the middle layers of management resisting such changes to their responsibilities.

A shift to a process perspective has the effect of breaking down functional barriers and divisions that previously existed. The focus shifts beyond the traditional and narrowly defined duties associated with the functional perspective of the organisation. This can lead to increased authority for those lower in the organisation, as well as a more stimulating work environment.

Pursuing a process focus can often mean shedding a layer of middle management, as the organisation looks for value-adding activities and the removal of non-value-adding activities and functions. This can create a degree of resistance among those threatened by the change for two reasons. First, the manager may face redundancy, which is not an enticing prospect.

Second, the manager may face a change in roles and responsibilities and, possibly, the loss of some authority.

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

7. The philosophy of TQM is geared around four main concepts. Explain.

Answer: The philosophy of TQM is geared around four main concepts: quality, people, organisations and the role of management.

The assumption relating to quality is that the costs of poor quality, as represented through the costs involved with rework and product returns, are greater than the costs associated with developing and refining business processes to generate high-quality output.

The people aspect of TQM refers to how people within the organisation are valued for both their contributions towards the process and their ideas about how the process can be improved. People within the organisation need to be encouraged to provide feedback about the design of a process – particularly at the lower levels of the organisation – since it is often these people who have the best understanding of how the process really operates, because they work as a part of it every day.

The organisational aspect of TQM essentially refers back to the earlier discussion of business processes and the process-based organisation. It emphasises that the organisation does not operate as a series of independent departments but that functions interact to provide a good or deliver a service. This presents some issues for the organisation that is looking to improve its processes, because it requires representatives from all the functions involved in a process to be involved.

Finally, TQM asserts that change and improvement can only occur if they have the support and endorsement of top management. After all, it is the top management of an organisation that designs the structure of the business and the processes that occur. So TQM requires management to focus on processes, rather than individual functions, and provide strong guidance and support for change efforts.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 2: Systems characteristics and considerations

8. There are four key components of the definition of BPR. Explain.

Answer: Business process re-engineering (BPR) is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service and speed. The four key components of this definition are fundamental, radical, dramatic and process.

The fundamental aspect of the BPR definition forces an organisation to question what activities it performs as a part of its current process. It is aimed at looking at what takes place in the current system and questioning whether it is really needed.

The radical component of the definition essentially compels organisations to start again, discard what already exists and redesign from scratch. Also known as the clean slate approach, its objective is to encourage thoughts about new ways that a process could be performed, rather than just tinkering at the edges of existing approaches.

If an organisation undergoes a BPR effort, it is looking for a dramatic return or improvement, especially when the risk and cost of a BPR project are considered. Therefore, BPR is aimed at achieving large improvements in the key performance indicators that an organisation uses.

The process aspect, reflected by its appearing in the name of the concept, is central to BPR. The thrust is that organisations must forget about functional perspectives, as well as the associated hierarchies and bureaucracies, and place the emphasis on the processes that are actually performed. Business processes, as previously discussed, comprise the mechanism for provision of value to the customer, and BPR is about improving processes to provide more value to the customer.

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

9. Identify and briefly explain the eight steps that should be followed to manage successfully the transformation of an organisation to a process prospective.

Answer: Establish a sense of urgency. The first step in a BPR project is to convince others within the organisation that it is actually required. While the term ‘establish a sense of urgency’ may seem a little drastic, the challenge is to convince those who decide whether the project goes ahead that the re-engineering effort is actually required.

Form a leadership team. BPR is not something that can be accomplished overnight. It is a time-consuming and challenging process that must involve representatives from across the organisation. It is important, from very early on, that a leadership team is established to guide the project. This team should be representative of the entire organisation, and not be made up of representatives from one division within the organisation. The team may also include some influential external stakeholders, depending on the nature of the changes to be made. Those on the team should also be of authority sufficient that when they say something needs to be done it will not be questioned or challenged.

Create and communicate a vision. Organisations need a map of where they are heading. This business map is described as a vision, outlining where the business will be after the change takes place, how things will be better, the effect it will have on the key stakeholders, both internal and external, as well as some outline of how the vision can be achieved.

Empower others to meet the vision. Those within the organisation need to be encouraged to try the new way of doing things. Quite often this can involve more than just employee retraining. While there may be an element of new skills and training that is required for the employee in the re-engineered environment, organisations should also consider other factors that influence employee behaviour in the workplace.

Plan for and create short-term wins. Any long-term project requires positive feedback for the impetus to remain. Without it, motivation and drive for the re-engineering effort will wane and people who originally supported the concept may drop off the idea. To avoid this possibility, landmark events or deliverables should be built into the re-engineering effort, and acknowledged or celebrated when they are achieved. Even though their attainment does not represent the completion of the re-engineering effort, it does signal to employees that the project is progressing. Psychologically, having to meet short-term deadlines on the way to meeting long-term goals can also help maintain the urgency and commitment to the project.

Consolidate improvements and encourage further change. One big risk faced by an organisation is that once the re-engineering effort is complete, the employees will adopt the new process for a short time but gradually revert back to the ‘old way of doing things’, rendering the re-engineering effort unsuccessful. Re-engineering is not only about changing a process within an organisation; it can also be about changing the culture and attitude that pervade that process. This is no easy task and can take several years.

Institutionalise the new approaches. Linked to the previous point, the challenge for the organisation is to make the re-engineered process the second nature of employees – that is, change their behaviour so that the new way of doing things fast becomes the usual way of doing things. This has a lot to do with the culture of the organisation.

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Chapter 2: Systems characteristics and considerations

10. Identify some of the risks associated with BPR. Answer: BPR is not without its critics, who often claim it ignores that organisations primarily consist of people, who are not something that can be re-engineered, as a machine can. Further, critics often say that to throw out everything and start from scratch is an extreme measure that introduces unnecessary risk. The risks involved in the clean slate approach are obviously great because with the organisation essentially starting from scratch, if the newly designed and re-engineered process fails, then there may be nothing left to fall back on. Therefore, many would advocate a much more conservative, small-step approach to change, rather than the all-encompassing approach that is inherent in BPR.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 3: Database concepts I

Chapter 3: Database concepts I Multiple Choice Questions 1.

In any organisation, what three characteristics of information are crucial for good decision making and reporting? a. *b. c. d.

Abundant, qualitative and quantitative.

Accurate, relevant and timely.

Frequently collected, broadly covered and up-to-date.

Rich, complete and precise.

Correct answer: b Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

2.

Data can be described as: a. *b. c. d.

the same as information. the raw facts relating to or describing an event the primary output of an AIS. more useful than information.

Correct answer: b Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

3.

DBMS stands for: a. b. c. *d.

Database Management Scheme Database Management Structure Database Management Software Database Management System

Correct answer: d Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

© John Wiley & Sons Australia, Ltd 2012

3.1

Testbank to accompany: Accounting information systems 4e

4.

Which one of the following is not a crucial factor for maximising the benefits offered by relational databases? *a. b. c. d.

Careful data collection.

Careful data relationship design.

Careful database modelling.

Careful systems implementation.

Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

5.

Information is: a. *b. c. d.

the same as data. data that is processed in a meaningful form. less useful than data. raw facts describing an event.

Correct answer: b Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

6.

Which of the following is not a problem that a normalisation process is designed to overcome? a. b. *c. d.

Repeating groups.

Data anomalies.

Missing data.

Data redundancies.

Correct answer: c Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

7.

With regards to a database system, which of the following statements is NOT true? *a. b. c. d.

Database systems are being phased out in favour of new legacy systems.

A database system allows managers to access and evaluate the data they require to make decisions.

A database system enables all the data of the organisation to be contained within one system.

A database system helps breaking down functional barriers and facilitates data-sharing.

Correct answer: a Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

© John Wiley & Sons Australia, Ltd 2012

3.2

Chapter 3: Database concepts I

8.

Data or facts that are processed in a meaningful form become: a. *b. c. d.

intelligence. information. knowledge. wisdom.

Correct answer: b Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

9.

How can data about customer contact details and data about their orders be stored in a database? a. b. *c. d.

Using a single table called an entity.

Only the customer data can be stored in the database.

Using at least two tables because there are two entities.

By storing the customer details in a table and the orders as a relationship.

Correct answer: c Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

10.

The particular values for a customer are stored in the ____ of a ____ within the customer ________. *a. b. c. d.

fields, record, table. record, fields, table. fields, record, entity. fields, table, database.

Correct answer: a Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

11.

When all data are stored in a central place, which of the following is not essential to ensure data are protected? a. b. c. *d.

Data privacy Data security Data backup Data normalisation

Correct answer: d Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

© John Wiley & Sons Australia, Ltd 2012

3.3

Testbank to accompany: Accounting information systems 4e

12.

Accurate, relevant and timely information comes from: a. b. *c. d.

a properly designed database management system. sound data transformation and manipulation processes. quality data capture, storage and management. correctly normalised data.

Correct answer: c Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems 13.

If data are captured and stored at their most basic level, then: a. *b. c. d.

these data can be used to answer a very limited number of questions when they are aggregated at a certain level. these data can be used to answer quite a few questions when they are aggregated at a certain level. these data cannot be used to answer any question unless they are combined with some other data at a higher aggregated level. these data are not suitable for answering questions.

Correct answer: b Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

14.

An employee in one department such as sales wanting to check on inventory levels would have to contact the inventory department and enquire about inventory balances.

This indicates an absence of: *a. b. c. d.

a centralised database system. information sharing. a DBMS. a distributed database system.

Correct answer: a Learning Objective 3.1 ~ Explain the role of databases in decision making and reporting systems

© John Wiley & Sons Australia, Ltd 2012

3.4

Chapter 3: Database concepts I

15.

Relational databases typically store data: a. *b. c. d.

in a number of files. in a number of tables. in a number of fields. none of the options are correct.

Correct answer: b Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

16.

In relational database, a connected set of fields that describe a person, place or thing is referred to as: a. *b. c. d.

a table. a record. a file. a matrix.

Correct answer: b Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

17.

In relational database, the columns and rows in a table represent, respectively: *a. b. c. d.

attributes and objects. entities and relationships. objects and attributes. relationships and entities.

Correct answer: a Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

18.

A table is: a. b. c. *d.

a collection of attributes that describe an entity. a collection of objects that describe an entity. smaller than a field. none of the options are correct.

Correct answer: d Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

© John Wiley & Sons Australia, Ltd 2012

3.5

Testbank to accompany: Accounting information systems 4e

19.

An attribute (or column) that uniquely identifies a particular object (or row) in the table is called: a. b. *c. d.

foreign key. unique key. primary key. composite key.

Correct answer: c Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

20.

A record is: *a. b. c. d.

a connected set of fields that describe a person, place or thing. a connected set of tables that describe a person, place or thing. smaller than a field. none of the options are correct.

Correct answer: a Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

21.

A ________ key allows the user to search on an attribute other than the attribute(s) that form the primary key: *a. b. c. d.

secondary composite foreign subordinate

Correct answer: a Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

22.

In terms of data redundancy, an important aspect of a relational database is that the tables must be carefully defined to provide __________ with minimum issues. a. b. *c. d.

expandability functionality flexibility scalability

Correct answer: c Learning Objective 3.2 ~ Define the function of a database and the concept of database systems

© John Wiley & Sons Australia, Ltd 2012

3.6

Chapter 3: Database concepts I

23.

Which of the following is listed in the order from smallest to largest? a. b. c. *d.

Field, data, record, file.

File, field, data, record.

Record, file, data, field.

Data, field, record, file.

Correct answer: d Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

24.

Which of the following is NOT an instance of data anomalies? *a. b. c. d.

Creation anomalies Insertion anomalies Deletion anomalies Modification anomalies

Correct answer: a Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

25.

Data redundancy occurs when: a. *b. c. d.

we keep data that has not been used by an organisation for a number of years. the same data is stored in multiple locations. emails are stored by an organisation for longer than six months. when we have the wrong information stored on a customer file.

Correct answer: b Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

26.

Data redundancy occurs when the same information is stored in multiple locations in an organisation. Which of the following is NOT true? a. b. c. *d.

Data redundancy can lead to data inconsistency.

Data redundancy can lead to data anomalies.

Data redundancy can lead to repeated data.

Data redundancy can provide benefits through having two sources of information.

Correct answer: d Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

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3.7

Testbank to accompany: Accounting information systems 4e

27.

Data redundancy: *a. b. c. d.

can lead to a number of data anomalies. is useful in ensuring the integrity of data. provides a useful backup function in a database. none of the options are correct.

Correct answer: a Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

28.

“Data that provide a consistent and correct representation regardless of where they are sourced from within a file system” is referred to as: a. *b. c. d.

data consistency. data integrity. data reliability. data uniformity.

Correct answer: b Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

29.

“Inconsistencies or errors that exist in a database because of entry or changes” are referred to as: a. *b. c. d.

data inaccuracies. data anomalies. data abnormalities. data irregularities.

Correct answer: b Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

30.

Data anomalies: *a. b. c. d.

are inconsistencies or errors that exist in a database because of entry or changes. are useful in ensuring the integrity of data. provide a useful backup function in a database. none of the options are correct.

Correct answer: a Learning Objective 3.3 ~ Discuss the concept of data redundancy and the advantages of databases

© John Wiley & Sons Australia, Ltd 2012

3.8

Chapter 3: Database concepts I

31.

Which of the following is NOT a database model? a. b. *c. d.

Network Relational SQL Hierarchical

Correct answer: c Learning Objective 3.4 ~ Discuss database models, focusing on the relational database

32.

The database model of choice for the development of most new information systems today is: *a. b. c. d.

relational. hierarchical. network. object oriented.

Correct answer: a Learning Objective 3.4 ~ Discuss database models, focusing on the relational database

33.

A database system consists of: a. b. c. *d.

software, hardware, and data. software, hardware, people and data. software, hardware, procedures and data. software, hardware, people, procedures and data.

Correct answer: d Learning Objective 3.4 ~ Discuss database models, focusing on the relational database

34.

Database systems are designed to: a. *b. c. d.

eliminate the repetition of data and the incidence of inconsistent data by ensuring data is structured so that it is stored in multiple locations. eliminate the repetition of data and the incidence of inconsistent data by ensuring data is structured so that it is stored in only one location. increase the repetition of data and the incidence of inconsistent data by ensuring data is structured so that it is stored in multiple locations. increase the repetition of data and the incidence of inconsistent data by ensuring data is unstructured but that it is stored in only one location.

Correct answer: b Learning Objective 3.4 ~ Discuss database models, focusing on the relational database

© John Wiley & Sons Australia, Ltd 2012

3.9

Testbank to accompany: Accounting information systems 4e

35.

In database terms, the instructions and rules that govern the design and use of the software outside programming are referred to as: *a. b. c. d.

procedures. policies. processes. routines.

Correct answer: a Learning Objective 3.4 ~ Discuss database models, focusing on the relational database

36.

Which of the following is less likely to be the job of a database administrator? *a. b. c. d.

Define what data is required and how it should be defined and captured.

Control access by users to the database.

Maintain the data dictionary.

Oversee backup and recovery in the DBMS.

Correct answer: a Learning Objective 3.4 ~ Discuss database models, focusing on the relational database

37.

An entity relationship diagram is a method for depicting: *a. b. c. d.

the logical view of a database. the physical view of a database. the relationship between the user interface and the DBMS. an implementation of a client-server system.

Correct answer: a Learning Objective 3.5 ~ Discuss database modelling and develop database models using entity-relationship diagrams

38.

The process of developing ER diagrams is: *a. b. c. d.

iterative. non-discretionary. linear. discrete.

Correct answer: a Learning Objective 3.5 ~ Discuss database modelling and develop database models using entity-relationship diagrams

© John Wiley & Sons Australia, Ltd 2012

3.10

Chapter 3: Database concepts I

39.

Refer to the following ER diagram: 1 N Employee

N

1 Projects

Charges time to

The "Charges time to" shape represents a: a. *b. c. d.

relationship. linking entity. data flow. attribute.

Correct answer: b Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

40.

Refer to the following ER diagram: 1 N Employee

N

1

Charges time to

Projects

The “charges time to” entity is a result of: *a. b. c. d.

the resolution of a many-to-many relationship. the resolution of a one-to-many relationship. the resolution of a one-to-one relationship. the resolution of an un-normalised relationship.

Correct answer: a Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

41.

Which of the following statement regarding ER diagrams is correct? a. b. c. *d.

ER diagrams look at entities and their relationships from a very detailed perspective.

ER diagram is a bottom-up way of viewing the organisation.

ER diagram is a bottom-up approach of developing a database model.

Understanding how to read and interpret E-R diagrams is critical for accountants.

Correct answer: d Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works © John Wiley & Sons Australia, Ltd 2012

3.11

Testbank to accompany: Accounting information systems 4e

42.

Which of the following statement regarding normalisation is incorrect? a. b. c. *d.

Normalisation is the process of assigning attributes to entities to eliminate repeating groups and data redundancies.

The goal of normalisation is to form tables representing entities that promote structural and data independence.

Normalisation maximises the efficiency of structure.

Normalisation is the top-down view of designing a database.

Correct answer: d Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

43.

What is the highest normal form? a. b. *c. d.

Third Fourth Fifth Sixth

Correct answer: c Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

44.

The following database tables are used for questions 44 - 48:

Student Table Student_ID

Student_Name

Course_ID

Course Table Course_ID

Course_Name

Course_Semester

The Course_ID in the student table is best described as: a. *b. c. d.

an attribute. a foreign key. a primary key. a composite primary key.

Correct answer: b Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

© John Wiley & Sons Australia, Ltd 2012

3.12

Chapter 3: Database concepts I

45.

Examine the database tables in question 44. What is the use of the Course_ID in the student table? *a. b. c. d.

To link the student table to the course table.

To back up Course_ID information in the student table.

Both to link the student table to the course table and to back up Course_ID information in the student table.

Neither linking the student table to the course table nor backing up Course_ID information in the student table.

Correct answer: a Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

46.

Examine the database tables in question 44. If Course_ID is removed from the student table, then when a query is performed on the student table: (i) (ii) (iii)

It is unable to determine the name of the course related to the student.

It is unable to determine the ID of the course related to the student.

It is unable to determine the course_semester related to the student.

a. b. *c. d.

Only (ii) Only (i) and (iii) (i) (ii) (iii) Only (ii) and (iii)

Correct answer: c Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

47.

Examine the database tables in question 44. Which of the following statement is true? *a. b. c. d.

The relationship between student and course is best interpreted as 1:1.

The relationship between student and course is best interpreted as 1:M. The relationship between student and course is best interpreted as M:N. The relationship between student and course cannot be determined.

Correct answer: a Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

© John Wiley & Sons Australia, Ltd 2012

3.13

Testbank to accompany: Accounting information systems 4e

48.

Examine the database tables in question 44. Given that the relationship between the student and the course is 1:1, which of the following statement is correct? (i) (ii) (iii)

Only the Course_ID should be added to the student table.

Only the Student_ID should be added to the student table.

Course_ID should be added to the student table and Student_ID should be added to the course table.

*a. b. c. d.

Either (i) or (ii) Both (i) and (ii) Both (ii) and (iii) Both (i) and (iii)

Correct answer: a Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

49.

Originally, an organisation has sourced all its products from one supplier. Now, the organisation has changed its mind and started to source all its products from various suppliers. This is reflected on an ER diagram as: a. *b. c. d.

a change in the relationship between the organisation entity and the supplier entity. a change in the cardinality associated with the supplier side relationship. a change in the number of supplier entities. a change in the cardinality associated with the organisation side of the relationship.

Correct answer: b Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

50.

How is the design of a relational database determined in an organisation? a. b. c. *d.

each department is given an allocation of tables. senior management decide how many tables are needed.

IT professionals advise on the best design. by modelling the rules that describe how the business works.

Correct answer: d Learning Objective 3.6 ~ Describe how relationships in a database model reflect how an organisation works

© John Wiley & Sons Australia, Ltd 2012

3.14

Chapter 3: Database concepts I

Short Answer Questions 1. Define relational database and discuss its constituting elements.

Answer: Relational database is a database that stores data in a number of tables. Therefore, a relational database is a collection of carefully defined tables. A table is a collection of columns or attributes that describe an entity (or something you wish to record data about in a database). A record consists of a set of fields, which characterises a person, place or thing within the business or linked to the business. Fields describe a particular characteristic of each record, such as name, address or phone number. Fields are derived from data or facts.

2. Give an example of how data redundancy can occur.

Answer: Data redundancy occurs when the same information is stored in multiple locations in an organisation. For example, an accounts receivable department has a customer table with each customer’s primary key, and their address and phone number. The marketing department has a customer table containing the customers they send brochures to. This table also has the customer’s primary key, and their name, address and phone number. This is an example of data redundancy, as the same information is stored twice for one customer in a database. If a customer’s details change, there is a risk that the changes are only made in one place, which will result in inconsistent as well as repeated data in the organisation.

3. Describe the three types of data anomalies.

Answer: Data anomalies can be classified into different types: modification, insertion and deletion.

Modification anomalies can occur when a field value is changed and not all occurrences are updated. Insertion anomalies can occur when new data are entered into the customer file and not all occurrences are updated. Deletion anomalies can occur when the deletion of data about an entity inadvertently deletes data about another entity.

© John Wiley & Sons Australia, Ltd 2012

3.15

Testbank to accompany: Accounting information systems 4e

4. Describe the key responsibilities of database administrator, database designers, and systems analysts involved in a database system.

Answer: Database administrators manage the use of the database and ensure that all the functions are working properly. Since a database serves cross-functional information systems and also exists independent of the separate information systems, it requires a technical specialist such as database administrators to monitor performance, deal with changes to the structure and carry out backup procedures. Ensuring that data has privacy controls, security and backup are extremely important tasks of a database administrator. They also give access to staff to different areas of the database depending on the level of access approved for each staff member.

Database designers develop structures and designs that capture data for storage and manipulation. Data structures and designs play a critical role in overcoming some of the limitations that can be inherent in some systems.

Systems analysts and programmers create the screens, reports and procedures by which end users can access and manipulate the data in a database system.

5. What are the advantages of database systems?

Answer: Database systems are designed to eliminate the repetition of data and the incidence of inconsistent data by ensuring data is structured so that it is stored in only one location. This structure allows for data sharing across the organisation and provides the foundation on which any database can be developed. The incidence of errors is reduced considerably by independent data structures, with only one location for entering and manipulating data.

Program maintenance is also reduced because there is only one centrally located point, the database management system (DBMS), that requires reprogramming for all data (this will be covered in the next section). This increases the speed and flexibility with which the organisation can prepare information that is crucial to decision making.

The centralisation of data and the DBMS enforces consistent standards for data structures and storage across the organisation. It also aids data and system security by having only one access point into the database to control. Given this, and as indicated above, privacy, security and adequate backups to the system are important.

© John Wiley & Sons Australia, Ltd 2012

3.16

Chapter 3: Database concepts I

6. What are the important reasons for database modelling?

Answer: Firstly, a good database design is the foundation of good applications. It provides a blueprint to build the tables and relationships that are required in a database application. Second, different people – managers, administration staff and programmers – view data differently.

Managers see database applications from a decision-making perspective, while administration staff are more concerned about its ease of use. Programmers often think about design simplicity without considering decision making and ease of use capabilities. If there is a good database model, it does not matter that people have different views, because these views will all be encapsulated in the database model.

7. What are the four steps in developing ER diagrams?

Answer: The development of an E-R diagram is an iterative process involving four steps.

Step 1. Develop a general narrative of the organisation’s operations including the business process, policies and business rules.

Step 2. Construct the E-R diagram by identifying the internal and external entities and the relationships among them from the narrative in step 1. Cardinalities and business rules can also be assigned based on the narrative.

Step 3. Have the E-R diagram reviewed by each area of the organisation with ownership of the operations, policies and processes.

Step 4. Make the necessary modifications to incorporate any newly discovered entity relationship components.

This four-step process should be repeated until the designers and users agree that the E-R diagram is complete and represents the relationships and the rules that govern the organisation’s entities.

8. What are the three possible types of relationship in ER diagrams? Explain.

Answer: One-to-many relationship (1:N) is a relationship between two entities in which the cardinality of one entity in the relationship is one and the other entity’s cardinality is many.

One-to-one relationship (1:1) is a relationship between two entities in which the cardinality for each entity is one. Many-to-many relationships (N:M) is a relationship between two entities in which the cardinality of both entities in the relationship is many.

© John Wiley & Sons Australia, Ltd 2012

3.17

Testbank to accompany: Accounting information systems 4e

9. How are 1:N, 1:1 and N:M relationships implemented in a database system?

Answer: To implement the 1:N (one-to-many) relationship, the general rule is the primary key of the one becomes the foreign key of the many. In implementing a one-to-one relationship (1:1), the general rule is to anticipate which side is most likely to become many in the future and implement as though it was a one-to-many (1:M) relationship now. In implementing a manyto-many relationship (N:M), the relationship diamond between the two entities needs to be converted to a composite entity holding the primary keys of each of the entities. This is referred to as a linking entity and it has the primary keys of both the tables attached to it. This splitting of the many-to-many relationship into two one-to-many relationships needs to occur so that the relationships can be implemented in a computerised database package.

10. What are the two approaches to database design? Discuss their differences and relationship.

Answer: The two approaches to database design are the top-down approach and the bottom-up approach. The entity-relationship diagram looks at entities and their relationships from an overall perspective. So it is a strategic or top-down way of viewing the organisation and developing a database model. Normalisation, on the other hand, is the bottom-up view of designing a database. In reality, when designing databases, both techniques will be used. The entity-relationship diagrams ensure that upper-level strategic objectives of the organisation are included in the database model. Normalisation ensures that the lower-level operational aspects are included in the database model as the normalisation process starts with the tables, forms and data of the organisation. Once each technique is applied, they are reconciled to ensure an organisation-wide database model is created that includes strategic objectives as well as operational data.

© John Wiley & Sons Australia, Ltd 2012

3.18

Chapter 4: Database concepts II

Chapter 4: Database concepts II Multiple Choice Questions 1.

Normalisation is a modelling technique used specifically for which type of database? a. b. *c. d.

Hierarchical Network Relational Object oriented

Correct answer: c Learning Objective: “Introduction”

2.

What normal form is the Lecturer Table at?

Lecturer Table Lecturer_Code Surname Given_Name JON01 Jons Adam JON02 Jons Maria MIL01 Milton Adam SCH01 Schneider Mils THO01 Tomlinson Patty ZAR01 Zara Sally Subject Table Subject# Name 125 Accounting 1 126 Microeconomics 127 Accounting 2 128 Management Finance

Level 1 3 2 3 3 2

Department_Code ACC ECO ACC FIN

Salary 45,000 65,000 55,000 65,000 65,000 55,000

Lecturer_Code JON01 MIL01 ZAR01 SCH01

Department Table Department_Code Depart_Name ACC Accounting ECO Economics FIN Finance a.

First normal form *b.

Second normal form c.

Third normal form d.

The table is not at any normal form.

Correct answer: b Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

© John Wiley & Sons Australia, Ltd 2012

4.1

Testbank to accompany: Accounting information systems 4e

3.

Refer to the tables in Q2. What best describes the relationship between the entities Subject and Lecturer? a. b. c. *d.

A lecturer can teach no subjects but may also teach many subjects A lecturer always teaches at least one subject A lecturer always teaches only one subject A lecturer can, but does not have to, teach only one subject

Correct answer: d Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

4.

Refer to the tables in Q2. The best attribute to be chosen as the primary key for the Lecturer Table is: a. b. *c. d.

Surname Surname and Given_Name Lecturer_Code Given _Name

Correct answer: c Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

5.

Refer to the tables in Q2. How many records are present in the Lecturer Table? a. b. *c. d.

4 5 6 30

Correct answer: c Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

6.

Refer to the tables in Q2. How many attributes are present in the Lecturer Table? a. *b. c. d.

4 5 6 30

Correct answer: b Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

© John Wiley & Sons Australia, Ltd 2012

4.2

Chapter 4: Database concepts II

7.

To maximise the flexibility of the database structure in the business environment, achieving the _______ normal form is sufficient. *a. b. c. d.

Third Boyce-Codd Fourth Fifth

Correct answer: a Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

8.

If we want a table to have no repeating groups, what should we do? *a. b. c. d.

Select a primary key that uniquely identifies each line in the table.

Remove duplicated records in the table.

Create another table and transfer the duplicated instances into the new table.

Create foreign keys in the table.

Correct answer: a Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

9.

Normalisation is the process of ____________ to eliminate repeating groups and data redundancies. a. *b. c. d.

assigning primary keys to database tables. assigning attributes to entities. assigning foreign keys to database tables. assigning relationships to entities.

Correct answer: b Learning Objective ‘Introduction’

10.

The goal of normalisation is to form tables that promote: a. b. *c. d.

structural and query independence relational and data independence structural and data independence relational and query independence

Correct answer: c Learning Objective ‘Introduction’

© John Wiley & Sons Australia, Ltd 2012

4.3

Testbank to accompany: Accounting information systems 4e

11.

The process of normalisation has ______ outcomes and _____ steps to achieve those outcomes: a. *b. c. d.

three; two three; three three; four none of the options are correct

Correct answer: b Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

12.

Which normal form is sufficient for most business applications? a. *b. c. d.

Second normal form Third normal form Fourth normal form Fifth normal form

Correct answer: b Learning Objective ‘Introduction’

13.

Redundancies that are allowed for the convenience of structuring data, data manipulation or reporting are referred to as: a. *b. c. d.

Restricted redundancies Controlled redundancies Normalised redundancies Partial redundancies

Correct answer: b Learning Objective ‘Introduction’

14.

A table in second normal form must not have: *a. b. c. d.

Partial dependencies Transitive dependencies Abstractive dependencies Binding dependencies

Correct answer: a Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

© John Wiley & Sons Australia, Ltd 2012

4.4

Chapter 4: Database concepts II

15.

A table in third normal form must not have: a. b. *c. d.

Abstractive dependencies Binding dependencies Transitive dependencies Substitutive dependencies

Correct answer: c Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

16.__________ can be removed by making the non-key attribute that an attribute is dependent on a primary key in a new table with the attribute and by leaving the nonkey attribute as a foreign key in the existing table so the attribute is dependent on the primary key but via a non-key attribute. a. b. c. *d.

Data redundancies Partial dependencies Repeating groups Transitive dependencies

Correct answer: d Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

17.

Controlled redundancies: *a. b. c. d.

are allowed for the convenience of structuring data, data manipulation or reporting should be prevented at all costs permit the formation of tables that promote structural and data independence none of the options are correct

Correct answer: a Learning Objective ‘Introduction’

18.

For more convenient and quicker structuring, manipulating or reporting, one can: a. b. c. *d.

Pursue the highest normal form possible through normalisation.

Eliminate data redundancies.

Leave the repeating groups as they are.

Create controlled redundancies via lower forms of normalisation.

Correct answer: d Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

© John Wiley & Sons Australia, Ltd 2012

4.5

Testbank to accompany: Accounting information systems 4e

19.

Normal forms higher than 3NF are often not performed because: *a. b. c. d.

the process usually requires artificial assumptions that rarely hold in the business environment the process is too time-consuming the process requires special knowledge in database design that is not generally available in the everyday business environment the process is for academic use only

Correct answer: a Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

20.__________ occurs where one attribute is dependent on another, but neither is part of the primary key. a. *b. c. d.

Partial dependency Transitive dependency Data redundancy Repeating group

Correct answer: b Learning Objective 4.1 ~ Understand and apply the process of normalisation to achieve efficient database designs

21.

When developing an enterprise model, which of the following sequence is correct? a. b. c. *d.

Normalisation -> Construct ER Model -> Review ER Model -> Consolidate ER Model Construct ER Model -> Consolidate ER Model -> Normalisation -> Review ER Model Construct ER Model -> Normalisation -> Consolidate ER Model-> Review ER Model Construct ER Model -> Review ER Model -> Normalisation -> Consolidate ER Model

Correct answer: d Learning Objective 4.3 ~ Explain how to develop an enterprise model of a business using entity-relationship modelling and normalisation

© John Wiley & Sons Australia, Ltd 2012

4.6

Chapter 4: Database concepts II

22.

When developing an enterprise model, the connectivities and cardinalities are primarily based on: *a. b. c. d.

The general narrative of the organisation’s operations.

The revision from areas of the organisation with ownership of the operations, policies, and processes.

The Normalisation process.

The consolidation of ER diagrams.

Correct answer: a Learning Objective 4.3 ~ Explain how to develop an enterprise model of a business using entity-relationship modelling and normalisation

23.

The process of developing an enterprise model is: a. b. *c. d.

incremental interlocking iterative agile

Correct answer: c Learning Objective 4.3 ~ Explain how to develop an enterprise model of a business using entity-relationship modelling and normalisation

24.

With respect to REA models, which of the following statements is NOT true? a. b. c. *d.

REA models the exchanges in the various processes in an organisation and brings these exchanges together to form an enterprise system.

REA models concern the developing of the dualities between resources, events and agents.

REA models assists the development of database structures that can be used to capture the details of a business process.

REA models have been implemented in actual accounting systems in practice.

Correct answer: d Learning Objective 4.3 ~ Explain how to develop an enterprise model of a business using entity-relationship modelling and normalisation

© John Wiley & Sons Australia, Ltd 2012

4.7

Testbank to accompany: Accounting information systems 4e

25.

Which of the following statements about the REA model is incorrect? *a. b. c. d.

The REA model emphasises the recording of debits and credits within a relational database environment The REA provides a structured approach for modelling business processes The REA model consists of resources, events, and agents.

The REA model provides a template for a data model that can be applied in an accounting information system.

Correct answer: a Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

26.

Duality in the REA model refers to: a. *b. c. d.

Debits equalling credits when recording a transaction The relationship between events that bring about an increase and decrease in resources An event can only relate to one resource and each event can only relate to one other event Each event needing two related agents - an internal and external agent

Correct answer: b Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

© John Wiley & Sons Australia, Ltd 2012

4.8

Chapter 4: Database concepts II

27.

In the REA diagram shown below, the event that causes an increase is:

a. b. *c. d.

Customer order Inventory Customer payment Cash

Correct answer: c Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

28.

Refer to the diagram in Q27. The event that causes a decrease is: *a. b. c. d.

Customer order Inventory Customer payment Cash

Correct answer: a Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

© John Wiley & Sons Australia, Ltd 2012

4.9

Testbank to accompany: Accounting information systems 4e

29.

Refer to the diagram in Q27. The resource that decreases is: a. *b. c. d.

Customer order Inventory Customer payment Cash

Correct answer: b Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

30.

Refer to the diagram in Q27. The resource that increases is: a. b. c. *d.

Customer order Inventory Customer payment Cash

Correct answer: d Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

31.

REA database modelling is based on the premise that: a. b. *c. d.

revenues, expenses and accrual items need to be identified for effective modelling in every exchange in a process there is a revenue, event and agent involved in every exchange in a process there is a resource, event and agent involved none of the options are correct

Correct answer: c Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

32.

It is proposed that there are common patterns of inflows and outflows in every exchange. All such exchanges can be best represented by: a. *b. c. d.

ER REA Relational database Client-server model

Correct answer: b Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

© John Wiley & Sons Australia, Ltd 2012

4.10

Chapter 4: Database concepts II

33.

Which of the following is NOT true about the differences between REA and ER diagrams? a. *b. c. d.

ER diagrams do not have events.

REA diagrams do not show cardinalities.

In an REA diagram, entities are sorted into separate columns.

Both REA and ER diagrams show relationships.

Correct answer: b Learning Objective 4.5 ~ Understand the differences between REA and entity-relationship modelling

34.

The attitude of businesses towards using REA to implement accounting systems is best described as: a. b. *c. d.

Keen Positive Reluctant Negative

Correct answer: c Learning Objective 4.5 ~ Understand the differences between REA and entity-relationship modelling

35.

Which of the following is true? *a. b. c. d.

The REA model can store non-financial data and financial data.

The ER model can store only financial data.

The REA model can store only non-financial data.

The ER model can store non-financial data or financial data, but not at the same time.

Correct answer: a Learning Objective 4.5 ~ Understand the differences between REA and entity-relationship modelling

36.

The software that effects transmission of data and control between client and server is called: *a. b. c. d.

communications middleware a front-end application a back-end application none of the options are correct

Correct answer: a Learning Objective 4.4 ~ Discuss the REA (resources–events–agents) Accounting Model as a template for modelling accounting systems

© John Wiley & Sons Australia, Ltd 2012

4.11

Testbank to accompany: Accounting information systems 4e

37.

When building a traditional accounting system using REA, the REA model: a. *b. c. d.

is implemented as it is is implemented as a relational database is implemented as business processes is implemented as an ER model

Correct answer: b Learning Objective 4.5 ~ Understand the differences between REA and entity-relationship modelling

38.

One of the REA model’s greatest advantages is that: a. b. *c. d.

It is extremely easy and cost effective for any business to implement.

It enables all staff to better understand customer needs.

It can store both non-financial and financial data.

It enables businesses to identify which staff are the busiest.

Correct answer: c Learning Objective 4.5 ~ Understand the differences between REA and entity-relationship modelling

39.

A client-server system distributes computing functions between two types of ________ and _______ processes: servers and clients a. b. *c. d.

dependent; autonomous dependent; non - autonomous independent; autonomous independent; non - autonomous

Correct answer: c Learning Objective 4.6 ~ Database implementation

40.

If an organisation decided to open up its database to its suppliers, it must: (i) Discuss with the suppliers how electronic connections are done (ii) Discuss with the suppliers how relevant costs are shared (iii) Discuss with the suppliers what data are actually needed by them a. b. c. *d.

(i) (ii) (ii) (iii) (i) (iii) (i) (ii) (iii)

Correct answer: d Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

© John Wiley & Sons Australia, Ltd 2012

4.12

Chapter 4: Database concepts II

41.

The client-server architecture is based on three major components, namely: a. b. *c. d.

PCs, servers, and network Hardware, software, and people Hardware, software, and communications middleware Computers, network, and people

Correct answer: c Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

42.

Which of the following combination regarding the client-server architecture is correct? *a. b. c. d.

A thin client with a fat server A thin client with a thin server A fat client with a fat server Any combination of thin and fat clients and servers is fine.

Correct answer: a Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

43.

In a client-server architecture, the concept of ‘thin’ means: a. b. *c. d.

Slim tower design of the computer case Laptop computers are less bulky The computer conducts minimal processing The computer runs on less power

Correct answer: c Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

44.

In a client-server architecture, the concept of ‘fat’ means: *a. b. c. d.

The computer conducts most of the processing Generous space exists in the computer case for extra components Bulky laptops More power consumption

Correct answer: a Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

© John Wiley & Sons Australia, Ltd 2012

4.13

Testbank to accompany: Accounting information systems 4e

45.

Client-server systems can normally be classified as: a. *b. c. d.

Single-tier and multiple-tier Two-tier and three-tier Internal-tier and external-tier Single-tier and two-tier

Correct answer: b Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

46.

In a client-server system, the client’s request is handled by intermediate severs that coordinate the execution of the client request with other servers. This is known as a: a. b. *c. d.

Single-tier client-server system Two-tier client-server system Three-tier client-server system Multiple-tier client-server system

Correct answer: c Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

47.

In a client-server system, which of the following software is loaded into the client computers? *a. b. c. d.

Front-end application software Back-end application software Communications middleware Groupware

Correct answer: a Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

48.

In an e-commerce environment: (i) An organisation can open up its database to its suppliers (ii) An organisation can allow its employees to access internal databases from outside of the company (iii) An organisation can open up its database to its customers a. b. c. *d.

(i) & (iii) (i) & (ii) (ii) & (iii) (i), (ii) & (iii)

Correct answer: d Learning Objective 4.6 ~ Discuss the technologies relating to database implementation

© John Wiley & Sons Australia, Ltd 2012

4.14

Chapter 4: Database concepts II

Short Answer Questions 1. Discuss the outcomes of the first, second, and the third normal forms and the actions required to achieve them.

Answer: First normal form Outcome: A table has no repeating groups.

Action: Select a primary key that uniquely identifies each line in the table.

Second normal form Outcome: A table is in first normal form and has no partial dependencies. A partial dependency is where the attribute is not wholly dependent on the primary key but on part of it.

Action: Draw dependency arrows. Remove partial dependencies and make the attributes fully dependent on their primary keys.

Third normal form Outcome: A table is in second normal form and has no transitive dependencies. A transitive dependency is where an attribute is dependent on the primary key but via a non-key attribute.

Action: Remove transitive dependencies by making the non-key attribute that an attribute is dependent on a primary key in a new table with the attribute. Also leave the non-key attribute as a foreign key in the existing table so the attribute is dependent on the primary key but via a non-key attribute.

2. What is primary key? How can we design a good primary key?

Answer: Every table must have a primary key, which is an attribute (or column) that uniquely identifies a particular object (or row) in the table. It is better that primary keys are numeric because they are likely to be unique, short and unchanging, whereas a project name, for example, can be duplicated. Furthermore, alphanumeric combinations – letters in combination with numbers, such as passport numbers – have many more possible combinations and are therefore appropriate primary keys. The relationship between the primary key and the rest of the data will be one-to-one. Therefore, the most important issue with a primary key is that it is unique and can never point to more than one object (or row) in a table.

© John Wiley & Sons Australia, Ltd 2012

4.15

Testbank to accompany: Accounting information systems 4e

3. What basic problems does the second normal form solve?

Answer: The second normal form solves several basic problems. It reduces duplication because there is no need to enter the employee data every time a new project is initiated. This also saves storage space because employee details no longer need to be allocated to every project. In second normal form, partial dependencies are also been removed.

4. What are the normal forms beyond the third normal form? Are these normal forms used in general business scenarios?

Answer: There are normalisation processes beyond 3NF. A special type of third normal form, BoyceCodd normal form (BCNF), fourth normal form (4NF) and fifth normal form (5NF) are often not performed because the process usually requires artificial assumptions that rarely hold in the business environment. These assumptions may not be true all of the time and conducting this further normalisation, ironically, can reduce the flexibility that the first three normal forms are intended to achieve.

5. Illustrate the process of enterprise model development.

Answer: First step: Develop a general narrative of the organisation’s operations including the business processes, policies and business rules.

Second step: Construct E-R diagrams for each area of operations by identifying the internal and external entities and the relationships among them from the narrative in step 1. Assign connectivities and cardinalities based on the narrative.

Third step: Have the E-R diagrams reviewed by the areas of the organisation with ownership of the operations, policies and processes.

Fourth step: Make necessary modifications to incorporate any newly discovered entityrelationship components.

Fifth step: Normalise the entities to ensure well-structured data and no data anomalies or data redundancy.

Sixth step: Consolidate the E-R diagrams.

© John Wiley & Sons Australia, Ltd 2012

4.16

Chapter 4: Database concepts II

6. When is an enterprise model ready for database implementation?

Answer: An organisation needs to go through the six steps of developing an enterprise model. The organisation then repeats this process until the designers and users agree that the enterprise model (which consists of all the E-R diagrams and normalisations combined and reconciled) is complete and represents the relationships and rules that govern the organisation’s entities.

It is at that point that the organisation is ready to implement the enterprise model as a database.

7. Briefly describe the nature of the REA Accounting Model.

Answer: The REA Accounting Model defines common patterns in entities, and activities or events that are found in all organisations. It is based on a thorough understanding of an organisation’s context, entities, business processes, risks and information needs through systems mapping and documentation. It is also based on the premise that in every exchange in a process there is a resource, event and agent involved. The REA Accounting Model models the exchanges in the various processes in an organisation and brings these exchanges together to form an enterprise system.

8. Describe the concept of duality in REA. Answer: William McCarthy proposed that in every exchange, such as the sales process, there are common patterns of inflows and outflows. This means that for every inflow, or a “take” event, there must be an outflow or a “give” event. This is illustrated in Figure 4.38 and 4.39 in this chapter.

9. Describe two differences between ER model and REA model.

Answer: Entities or the “boxes” in an ER model can be randomly placed without following any order.

In a REA model, those “boxes”, which represent resources, events, and agents, must be placed under the R, E, and A columns accordingly.

ER models do not have events. In contrast, REA models do model events.

© John Wiley & Sons Australia, Ltd 2012

4.17

Testbank to accompany: Accounting information systems 4e

10. Discuss the three major components of the client-server architecture.

Answer: Client-server architecture is based on three major components: hardware, software and communications middleware. The hardware is made up of the physical computers and physical servers that represent the client and the server. Front-end application software is software that is usually loaded onto the client computers as the means for the user to interact with the server as part of the client process. Back-end application software is usually loaded onto the server to provide essential background services to the clients. Communications middleware is the software by which clients and servers communicate. The communications middleware or communication layer holds different types of software that aid the transmission of data and control of information between the client and server. The middleware sits partly on the client and partly on the server and allows the two to communicate and interact.

© John Wiley & Sons Australia, Ltd 2012

4.18

Chapter 5: XBRL reporting

Chapter 5: XBRL reporting Multiple Choice Questions 1.

What does XBRL stand for? a. *b. c. d.

Exchangeable Business Reporting Language Extensible Business Reporting Language Executable Business Reporting Language Extensive Business Reporting Language

Correct answer: b Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

2.

By attaching meaning to strings of text, XBRL adopts a __________. *a. b. c. d.

semantic approach non semantic approach referencing to data approach none of the options are correct

Correct answer: a Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

3.

Which of the following is NOT a major benefit offered by XBRL? a. b. c. *d.

Cost saving in supplying financial data.

Greater efficiency in using financial data.

Improved accuracy and reliability in supplying financial data.

Enhanced encryption in supplying financial data.

Correct answer: d Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

4.

The XBRL adopts a __________ approach. a. *b. c. d.

unstructured semantic top-down bottom-up

Correct answer: b Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

© John Wiley & Sons Australia, Ltd 2012

5.1

Testbank to accompany: Accounting information systems 4e

5.

XBRL is based on: a. b. *c. d.

HTML GML XML SGML

Correct answer: c Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

6.

XBRL can be used for: a. b. *c. d.

external financial reporting only. internal financial reporting only. both external and internal financial reporting. exchanging financial information between business partners only.

Correct answer: c Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

7.

Currently, financial information is: a. *b. c. d.

rarely presented on a web page using html standards. often presented on a web page using html standards. often presented on a web page using XBRL standards. none of the options are correct.

Correct answer: b Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

8.

The problem with publishing an annual report as an Adobe PDF is: a. b. *c. d.

that not all computers are able to read Adobe PDF documents. that the information is not secure and the figures can be altered. that it is difficult for users to manipulate the information with any degree of efficiency. none of the options are correct.

Correct answer: c Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

© John Wiley & Sons Australia, Ltd 2012

5.2

Chapter 5: XBRL reporting

9.

XBRL allows meanings to be embedded within strings of financial data. This meaning is conveyed by: *a. b. c. d.

embedding tags that identify where separate pieces of data start and end within strings of data. embedding comments at the end of the strings of data. specifying the meaning of data at the schema document. having a set of internationally agreed meanings assigned to specific types of data.

Correct answer: a Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

10.

The Securities Exchange Commission in the US specified that all public companies that prepare financial statements in accordance with at least US GAAP and all foreign private issuers that prepare their financial statements using IFRS must provide their financial statements to the SEC and their corporate websites in: a. *b. c. d.

PDF format.

XBRL format.

HTML format. hard-copy.

Correct answer: b Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

11.

Which of the following countries do not have XBRL financial requirements yet? a. b. c. *d.

Australia China Japan Malaysia

Correct answer: d Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

12.

The advantages of PDF files are: *a. b. c. d.

that they can be securely locked so that the figures cannot be changed. that they can be easily manipulated and changed by users. the software to produce them is very cheap. none of the options are correct.

Correct answer: a Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

© John Wiley & Sons Australia, Ltd 2012

5.3

Testbank to accompany: Accounting information systems 4e

13.

The statement that “All current software can import, export and process data in XBRL format” is put forward on the basis that: *a. b. c. d.

these pieces of software can manipulate XML. these pieces of software are designed specifically to support XBRL. these pieces of software are semantic-based. these pieces of software are GAAP and IFRS compliant.

Correct answer: a Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

14.

The advantages of XBRL are: a. b. c. *d.

reduced data manipulation. paperless reporting. reduced accounting time. all of the options are correct.

Correct answer: d Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

15.

It is advocated that every accountant and financial professional should be familiar with XBRL. However, which of the following is actually NOT required in this regard? a. b. c. *d.

Knowing how to navigate the XBRL taxonomies.

Knowing how to use the XBRL taxonomies.

Knowing how to create XBRL instance documents.

Knowing how to obtain a high level of XBRL assurance.

Correct answer: d Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

16.

Corporate regulators worldwide are: a. b. *c. d.

currently assessing whether to accept XBRL. waiting to see if the SEC in the United States will allow XBRL. gradually moving towards mandating XBRL for corporate filings and reporting. none of the options are correct.

Correct answer: c Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

© John Wiley & Sons Australia, Ltd 2012

5.4

Chapter 5: XBRL reporting

17.

Large banks around the world: *a. b. c. d.

are beginning to require companies to use XBRL in their loan application processes. are yet to require companies to use XBRL in their loan application processes. are not convinced on the benefits of XBRL. none of the options are correct.

Correct answer: a Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

18.

Which of the following is more likely to be a tag in XML instead of HTML? a. *b. c. d.

<font> </font> <creditor> </creditor> <body> </body> <button> </button>

Correct answer: b Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

19.

Regulatory authorities in ___________________ have various XBRL financial requirements? a. b. *c. d.

Europe, Canada, Singapore, Japan, Korea and Malaysia Europe, Australia, Singapore, Japan, Korea and Canada Europe, Australia, Singapore, Japan, Korea and China none of the options are correct

Correct answer: c Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

20.

Using XBRL for internal purposes means that: a. *b. c. d.

an organisation can set up the coding structure of the items they want to tag to match industry wide standards. an organisation can set up the coding structure of the items they want to tag to match what is particularly suitable for that company. an organisation must set up the coding structure of the items they want to tag to match a global standard. none of the options are correct.

Correct answer: b Learning Objective 5.1 ~ Explain how XBRL is used in reporting systems

© John Wiley & Sons Australia, Ltd 2012

5.5

Testbank to accompany: Accounting information systems 4e

21.

Which of the following is more likely to have similar XML? a. b. *c. d.

The music industry and the fishing industry.

The government and the finance industry.

A university and a college.

A construction company and a real estate agency.

Correct answer: c Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

22.

Metadata is: a. *b. c. d.

complex data that is required for XBRL. data that describes other data. complex data that is required for HTML processes to take place. none of the options are correct.

Correct answer: b Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

23.

Which of the following statements is correct? *a. b. c. d.

XML is a content language.

HTML is a content language and XML is a tagging language.

XML has predefined tags that control how content appears when displayed on a computer screen.

None of the options are correct.

Correct answer: a Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

24.

In terms of XBRL, improved audit quality can occur as long as: *a. b. c. d.

the taxonomy has correctly classified items of data at source. the XBRL document represents a true and fair view of the firm. any changes that are made to the tags are disallowed. the stock exchanges have XBRL filing as part of their filing requirements.

Correct answer: a Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

© John Wiley & Sons Australia, Ltd 2012

5.6

Chapter 5: XBRL reporting

25.

To improve audit quality in terms of XBRL, one can: (i) audit the coding of XBRL (ii) audit the tagging of XBRL (iii) audit the changes in XBRL tags (iv) audit the classifications in the XBRL taxonomy. *a. b. c. d.

(i) (ii) (iii) (iv) (i) (ii) (iii) (iii) (iv) (i) (ii)

Correct answer: a Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

26.

DTD is: a. *b. c. d.

a dependency specification for XBRL. a set of specifications for XML tags. a set of specifications for HTML tags.

None of the options are correct.

Correct answer: b Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

27.

______________ are the dictionaries that define each accounting item that can be tagged in XBRL. *a. b. c. d.

Taxonomies Schemas Elements Data dictionaries

Correct answer: a Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

© John Wiley & Sons Australia, Ltd 2012

5.7

Testbank to accompany: Accounting information systems 4e

28.

IFRS stands for: a. *b. c. d.

International Financial Reporting Structure.

International Financial Reporting Standards.

International Financial Reporting Schemes.

International Financial Reporting System.

Correct answer: b Learning Objective 5.3 ~ Explain the benefits of XBRL

29.

Which of the following is the coding structure that would be used for Australia and New Zealand? a. *b. c. d.

XBRL IFRS GAAP XML

Correct answer: b Learning Objective 5.3 ~ Explain the benefits of XBRL

30.

In which country is the XBRL mandated for filing reports of business financial accounts? a. b. c. *d.

Australia New Zealand Both Australia and New Zealand Neither Australia nor New Zealand

Correct answer: d Learning Objective 5.3 ~ Explain the benefits of XBRL

31.

When XBRL tagging is applied to a file containing data, the XBRL tagged document is called: a. b. *c. d.

a defined linkbase. a reference linkbase. an instance document. all of the options are correct.

Correct answer: c Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

© John Wiley & Sons Australia, Ltd 2012

5.8

Chapter 5: XBRL reporting

32.

Before XBRL, external users of financial information: a. b. *c. d.

manipulated PDF documents to obtain the information they wanted. used XML decoding tools to obtain the information they wanted. had to identify and re-input data before undertaking financial analysis. all of the options are correct.

Correct answer: c Learning Objective 5.2 ~ Describe how XBRL evolved from XML and provide an overview of XBRL taxonomies and the XBRL tagging process

33.

Which types of organisations can use XBRL to save costs and improve efficiency in handling business and financial information? a. b. c. *d.

Government agencies.

Non-profit organisations.

Publicly listed companies.

All types of organisations.

Correct answer: d Learning Objective 5.3 ~ Explain the benefits of XBRL

34.

Which of the following is not identified as a source of XBRL-related cost savings? a. b. *c. d.

Increased data processing capability.

Decreased data redundancy.

Increased technology capabilities.

Decreased costs of bookkeeping.

Correct answer: c Learning Objective 5.3 ~ Explain the benefits of XBRL

35.

If you want to search for data held by a stock exchange that uses XBRL, you can: a. b. *c. d.

download the XBRL reports directly into Microsoft Excel or Microsoft Word. download the XBRL reports directly into Microsoft Access or Microsoft Word. download the XBRL reports directly into Microsoft Excel or Microsoft Access. none of the options are correct.

Correct answer: c Learning Objective 5.3 ~ Explain the benefits of XBRL

© John Wiley & Sons Australia, Ltd 2012

5.9

Testbank to accompany: Accounting information systems 4e

36.

XBRL _________ incorporated into the vast majority of ERP systems, accounting packages and office software. a. *b. c. d.

has yet to be has been is currently being will not be

Correct answer: b Learning Objective 5.3 ~ Explain the benefits of XBRL

37.

The coding structures for XBRL are: *a. b. c. d.

country specific. region specific. the same for every country. developed by the SBR.

Correct answer: a Learning Objective 5.4 ~ Discuss where XBRL is used

38.

Which of the following statements is correct? a. *b. c. d.

Australia has mandated XBRL reporting from 2011.

The use of XBRL is compulsory for all publicly listed US companies.

The use of XBRL is compulsory for all publicly listed US and Canadian companies.

All of the options are correct.

Correct answer: b Learning Objective 5.4 ~ Discuss where XBRL is used

39.

The first country to formally require XBRL for public company financial reporting was: a. b. *c. d.

Canada.

The United States.

China.

Brazil.

Correct answer: c Learning Objective 5.4 ~ Discuss where XBRL is used

© John Wiley & Sons Australia, Ltd 2012

5.10

Chapter 5: XBRL reporting

40.

Which of the following is correct? a. b. c. *d.

There are different ways to apply XBRL tags.

There is a debate in the accounting information systems community as to where to tag data.

There are two main ways to apply XBRL tags.

Whichever way we choose to apply XBRL tags will not affect core processes and data quality.

Correct answer: d Learning Objective 5.4 ~ Discuss where XBRL is used

41.

Tagging is the process of associating an item in accounts to the XBRL __________ in an XBRL __________. a. b. *c. d.

element; taxonomy tag; schema element; schema tag; taxonomy

Correct answer: c Learning Objective 5.4 ~ Discuss where XBRL is used

42.

Pinsker and Shaomin interviewed four businesses adopting XBRL in the United States, Germany, South Africa and Canada to look at what they perceived would be the result from implementing XBRL. They found: *a. b. c.

d.

the expected result was a reduction in costs, but the US company was more interested in strategic advantage. the expected result was a reduction in costs, but the German company was more interested in strategic advantage. the expected result was an increase in costs by the US company, whilst the Canadian company was more interested in creating a perception of being innovative. the expected result was a reduction in costs by the US company, whilst the Canadian company was more interested in creating a perception of being innovative.

Correct answer: a Learning Objective 5.4 ~ Discuss where XBRL is used

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Testbank to accompany: Accounting information systems 4e

43.

The main issue of XBRL tags in an accounting system is to ensure the tags that are set up against the chart of accounts codes in the __________ are correct and have been verified. a. *b. c. d.

accounts payable ledger general ledger accounts receivable ledger inventory ledger

Correct answer: b Learning Objective 5.4 ~ Discuss where XBRL is used

44.

In relation to XBRL, a taxonomy is an XML __________ and the set of __________ that references it. a. *b. c. d.

standard; linkbases schema; linkbases standard; tags schema; tags

Correct answer: b Learning Objective 5.5 ~ Discuss the different ways XBRL can be used

45.

Continuous auditing looks at: a. *b. c. d.

the output rather than the process. the process rather than the output. the process and the output. the outputs from XBRL tagged accounts.

Correct answer: b Learning Objective 5.5 ~ Discuss various issues related to XBRL, including continuous auditing and extensibility.

46.

When the XBRL tagging is applied to a document, the resulted XBRL tagged document is called: a. b. c. *d.

taxonomy document. taxonomy dictionary. instance dictionary. instance document.

Correct answer: d Learning Objective 5.5 ~ Discuss the different ways XBRL can be used

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Chapter 5: XBRL reporting

47.

A taxonomy contains a __________ that contains the __________ in the financial accounts. *a. b. c. d.

schema; elements dictionary; elements schema; tags dictionary; tags

Correct answer: a Learning Objective 5.5 ~ Discuss the different ways XBRL can be used

48.

There are ________ main ways to code financial accounts. *a. b. c. d.

two three four none of the options are correct

Correct answer: a Learning Objective 5.5 ~ Discuss the different ways XBRL can be used

49.

The statement, “a collection of XML linking language that extends links that document the semantics of concepts in taxonomy,” is used to define: a. b. *c. d.

XBRL elements.

XBRL tags.

XBRL linkbases.

XBRL instance documents.

Correct answer: c Learning Objective 5.5 ~ Discuss the different ways XBRL can be used

50.

Which of the following is NOT a type of linkbase? a. *b. c. d.

Calculation linkbase.

Extension linkbase.

Presentation linkbase.

Reference linkbase.

Correct answer: b Learning Objective 5.5 ~ Discuss the different ways XBRL can be used

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Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. Discuss the use of XBRL in Australia.

Answer: Currently XBRL is not a standard for filing financial accounting reports with the stock exchanges in Australia. However, regulatory authorities in Australia have been developing financial requirements and the Standards Based Reporting (SBR) initiative in Australia has provided a usable taxonomy for the reporting requirements of government agencies in Australia.

2. What is the relationship between XBRL and XML? Answer: XML is data about data, or metadata, specifying what different pieces of data are and their usage. XBRL is a variant of XML developed specifically for application in the business environment. It allows the use of XML standards in the production and reporting of financial information, allowing financial data to be searched and manipulated through the internet.

XML allows programmes, when creating files, to label data with tags, which are a type of metadata, or data about data. The tags specify what each word, number, characters or group represents and thus reduce the need to manipulate data after they are initially entered, since the tags specify all that is needed to be known about each piece of data.

XBRL takes every item that appears in a set of financial statements, including the discussion and analysis, and applies a tag to it. This tag can then be used to search, manipulate and sort data, similar to the way tags operate in XML. All current software can import, export and process data in XML format, and since XBRL is an XML vocabulary, the same is true for XBRL.

3. Discuss the benefits that XBRL can provide to external stakeholders.

Answer: - Because XBRL is extensible and flexible, it can be adapted to a wide variety of different requirements.

- All participants in the financial information supply chain can benefit, whether they are preparers, transmitters or users of business data.

- Users of data which is received electronically in XBRL can automate its handling, cutting out time consuming and costly collation and re-entry of information.

- Software can also immediately validate the data, highlighting errors and gaps which can immediately be addressed. It can also help in analysing, selecting, and processing the data for re-use.

- Human effort can switch to higher, more value-added aspects of analysis, review, reporting and decision-making. In this way, investment analysts can save effort, greatly simplify the selection and comparison of data, and deepen their company analysis.

- Lenders can save costs and speed up their dealings with borrowers.

- Regulators and government departments can assemble, validate and review data much more efficiently and usefully.

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Chapter 5: XBRL reporting

4. Discuss the benefits that XBRL can provide to internal users.

Answer: Data from different company divisions with different accounting systems can be assembled quickly, cheaply and efficiently if the sources of information have been upgraded to using XBRL. Once data is gathered in XBRL, different types of reports using varying subsets of the data can be produced with minimum effort. Not only can data handling be automated, removing time-consuming, error-prone processes, but the data can be checked by software for accuracy. Small businesses can benefit alongside large ones by standardising and simplifying their assembly and filing of information to the authorities.

With XBRL, software developers can build tools that can be installed into a wide variety of systems, without the need to customise the interface to the company. Installation may require custom configuration based on how a company will want to deploy its internal control systems, however, that would likely be at a much lower cost. Additionally, because XBRL is an external standard that supports financial reporting based on US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), companies will have the ability to respond to rapid changes in regulatory reporting requirements.

The ability to consolidate acquisitions and integrate business systems has historically been challenging due to differences in data and account structures. XBRL has the potential to significantly reduce the time and effort required to integrate new acquisitions if both companies are using the standard. Integration would simply be a matter of consistently classifying the already tagged information. There would be little need for a large information gathering and consolidation effort that exists with acquisitions today.

5. Describe the relationship between taxonomy, schema, element, tag, and linkbase in terms of XBRL. Answer: In relation to XBRL, a taxonomy is a XML schema and the set of linkbases that references it.

Taxonomies are the dictionaries where we define each accounting item which can be tagged in XBRL. Taxonomies look at how the data is tagged. A taxonomy contains one or more schemas. A schema is formal description of the structure of a database; and for the description of other items. These schemas contain elements in them that defined according to the taxonomy. A taxonomy also contains linkbases which define the relationship between the different elements (such as the current assets and long term assets make up the assets selection).

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Testbank to accompany: Accounting information systems 4e

6. Describe the five linkbases associated with XBRL. Answer: (i) Calculation linkbase – a calculation linkbase is used to relate XBRL concepts through the application of basic calculation rules (e.g. assets = liabilities + shareholder capital). This ensures the accuracy of the many accounting equations that comprise XBRL reports and enables XBRL software to interpret these relationships correctly and automatically derive the correct values from the input data. (ii) Label linkbase – this linkbase provides human readable strings for concepts. Using the label linkbase, you can look up for example what is the definition of ‘cash and cash equivalents’. The definition it will give depends on what accounting standard has been chosen in your taxonomy. For example if you choose US GAAP you will get the US GAAP definition, or if you have IFRS in your taxonomy it will give you the IFRS definition of cash and cash equivalents. In this way you can check if the meaning of the term matches what you are trying to tag. This facility also can support multiple languages. (iii) Reference linkbase – this linkbase associations concepts with the citations of some body of authoritative literature, for example perhaps a securities exchange ruling. (iv) Definition linkbase – this linkbase associates concepts with other concepts using a variety of rules such as is a part of, or whole-part. (v) Presentation linkbase – this linkbase associates concepts with other concepts so that the resulting relations can guide the creation of a visualisation of how the accounts look.

7. Explain the concept of continuous auditing.

Answer: Continuous auditing is when the organisation is auditing the accounts as they being produced.

Typically auditing in the past has looks at samples of transactions after balance date. New concepts in continuous auditing using an ERP system to audit the existing ERP system of an ERP has been used. Therefore, rather than looking at the results of the transactions and then examining a portions of the transactions continuous auditing looks at auditing continuously therefore it checks to ensure that the control is in place and that it has not been over ruled during the period. In this way the system is being continuously audited to check a control is in place rather than the output being audited.

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Chapter 5: XBRL reporting

8. List and describe at least four benefits provided by XBRL. Answer: Reduced data manipulation: the users of the financial information do not need to re-input data to analysis it.

Paperless reporting: XBRL also offers the advantage of paperless reporting therefore the accounts do not need to be printed out. This saves on paper and the reports can be viewed online.

Industry-accepted standards: XBRL has been designed by the software companies, government and professional accounting communities together and the benefit is there is one version of XBRL only.

Reduced accounting time: Through the application of different taxonomies and standards, the time required to prepare its accounting reports – whether they be for shareholders, regulators, creditors or auditors – is significantly reduced.

Other benefits include, but not confining to, recognition by major accounting software vendors, interchangeable data, comparisons across companies, and improved audit quality.

9. What does extensibility mean in XBRL? Discuss.

Answer: Extensibility is the idea that each company can extend the taxonomy by developing their own elements. In this way, companies are able to extend the tags that are provided in taxonomy to add the ones particular to their business. The other issue is because the taxonomy is extensible a user may create extensions to the taxonomy with their own elements when they are not required instead of using a tag already created in the standard for this element.

Once an instance document has been created internal controls need to be put in place to ensure this is audited for correctness before it is used. There are issues with a standard element being appropriate but an organisation creating additional elements when they may not be necessary. Or issues with companies creating new elements for a lot of items meaning that the advantage of XBRL in making accounts comparable is no longer possible due to the numbers of extensions various businesses have created.

There has been some discussion about allowing companies to create their own extensions but reviewing the extensions created within an industry such as the airline industry and taking all the extensions and deciding on industry extensions for that industry only that all companies with that industry can apply to ensure comparable accounts within an industry.

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Testbank to accompany: Accounting information systems 4e

10. Explain how accounts can be tagged using XBRL. Answer: There are several steps to follow to get accounts coded in XBRL. (i) Have your accounts in a word processing packages such as Microsoft Word or spreadsheet package such as Excel. (ii) Load down your taxonomy and related files from the www.xbrl.org site. (iii) Open your word file in Word and attach the schema and other files to the product. (iv) Tag your accounts. By selecting the figures in the left hand column relating to what you want to code and then selecting the tag from the right hand list you effectively code a figure.

Figure 5.14 in chapter 5 of the textbook shows the accounts and account tags ready to apply to example account codes. The account tags are a very long list and in Word they are presented as a list in many of the purchased, shareware and freeware products they are presented as hierarchies and colour coded so it makes finding current assets within the asset hierarchy a lot easier. (v) Continue tag until you save the document as an XML file when you are finished so that it

can be used for transferring between computers. Keeping the codes attached to the data.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 6: System mapping and documentation

Chapter 6: System mapping and documentation Multiple Choice Questions 1.

The ___________ is used to identify the system of interest. *a. b. c. d.

context diagram process map data flow diagram none of the options are correct

Correct answer: a Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

2.

The documentation type that best addresses the question of “where do the activities fit within the rest of the organisation” is a: a. b. *c. d.

system flowchart. process map. data flow diagram. none of the options are correct.

Correct answer: c Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

3.

Which of the following is unlikely to be a question that needs answering during the preparation of systems documentation? a. b. c. *d.

Who is involved?

What activities occur?

Where do the activities occur?

What are the costs of performing the activities?

Correct answer: d Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

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6.1

Testbank to accompany: Accounting information systems 4e

4.

Which type of documentation details the practical details of how the activities are performed such as whether paper based reports are used or screen data? *a. b. c. d.

System flowchart.

Process map.

Data flow diagram.

None of the options are correct.

Correct answer: a Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

5.

________ are graphical representations of where data flows within a system? a. b. *c. d.

system flowcharts process flow diagrams data flow diagrams none of the options are correct

Correct answer: c Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

6.

A representation of the system of interest and the entities that provide inputs to, or receive outputs from, the system of interest is referred to as a: a. b. *c. d.

physical DFD. logical DFD. context diagram. systems flowchart.

Correct answer: c Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

7.

________ illustrate a system and its inputs processes in more detail than a process map or _________. *a. b. c. d.

System flowcharts; data flow diagram Program flowcharts: context diagram Data flow diagrams; program flowcharts None of the options are correct

Correct answer: a Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

© John Wiley & Sons Australia, Ltd 2012

6.2

Chapter 6: System mapping and documentation

8.

Which of the following is NOT an element of a process map? a. b. *c. d.

The activities in a business process.

The areas responsible for completing the activities in a business process.

The internal controls involved in the activities in a business process.

Any decisions that need to be made as part of the process.

Correct answer: c Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

9.

What are the reasons for accounting students to learn systems documentation? (i) accounting students may be required to design or oversee the use and the design of a system in their future career (ii) accounting students will be involved in a system at some stage of their future career (iii) legal reasons for preparing systems documentation. *a. b. c. d.

(i) (ii) (iii) (i) (ii) (i) (ii)

Correct answer: a Learning Objective 6.1 ~ Explain why systems documentation is important to the organisation and the accounting function

10.

When business process re-engineering needs to be done, which of the following should be considered as an essential first step? (i) how the existing process operates (ii) identifying the activities that occur and the people involved (iii) the parts of the organisation that interact with the process (iv) identify the trail of data that moves through the process (v) model key competitors existing business process. a. *b. c. d.

(i) (ii) (iii) (iv) (v) (i) (ii) (iii) (iv) (i) (ii) (iv) (i) (ii) (iii) (v)

Correct answer: b Learning Objective 6.2 ~ Describe how systems documentation can be used as a part of business process redesign and re-engineering

© John Wiley & Sons Australia, Ltd 2012

6.3

Testbank to accompany: Accounting information systems 4e

11.

During business process re-engineering, if one wants to understand the movement of data and documents between functional areas and personnel and to analyse what occurs and who is involved, one should look at: a. b. *c. d.

logical DFDs. physical DFDs. flowcharts. context diagrams.

Correct answer: c Learning Objective 6.2 ~ Describe how systems documentation can be used as a part of business process redesign and re-engineering

12.

During business process re-engineering, if one wants to key process activities that occur and the data that is needed and generated within each process, one should look at: *a. b. c. d.

logical DFDs. physical DFDs. context diagrams. any form of systems documentation.

Correct answer: a Learning Objective 6.2 ~ Describe how systems documentation can be used as a part of business process redesign and re-engineering

13.

An analysis of process documentation as part of process redesign can NOT allow for the identification of: a. b. *c. d.

what activities can be eliminated. where activities can run in parallel. how activities can incur less costs. what and where activities can be added.

Correct answer: c Learning Objective 6.2 ~ Describe how systems documentation can be used as a part of business process redesign and re-engineering

© John Wiley & Sons Australia, Ltd 2012

6.4

Chapter 6: System mapping and documentation

14.

An analysis of process documentation as part of process redesign can allow for the identification of: (i) where paper items can be eliminated (ii) where unnecessary data collection can be removed (iii) where the same activity is performed multiple times. a. b. c. *d.

only (iii) only (i) (ii) only (i) (iii) (i) (ii) (iii)

Correct answer: d Learning Objective 6.2 ~ Describe how systems documentation can be used as a part of business process redesign and re-engineering

15.

The procedure undertaken by an organisation looking to significantly restructure the operation of a business process and improve the process’s performance is referred to as: *a. b. c. d.

BPR TQM BPM JIT

Correct answer: a Learning Objective 6.2 ~ Describe how systems documentation can be used as a part of business process redesign and re-engineering

16.

With regards to ERP, which of the following is correct? a. b. c. *d.

ERP comes before BPR. BPR entails ERP. ERP and BPR are irrelevant.

ERP can have a part to play in BPR.

Correct answer: d Learning Objective 6.3 ~ Describe how the accountant and auditor can be exposed to systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.5

Testbank to accompany: Accounting information systems 4e

17.

For the adoption of an ERP system to be successful, or for BPR to yield benefits, an organisation must first: a. *b. c. d.

establish a sense of urgency. understand its existing business processes. gather enough intelligence about its key competitors’ business processes. become technologically advanced.

Correct answer: b Learning Objective 6.3 ~ Describe how the accountant and auditor can be exposed to systems documentation

18.

According to __________the purpose of an audit is to__________ . *a. b. c. d.

Australian Auditing Standard ASA 200; enhance the degree of confidence of intended users in the financial report Australian Auditing Standard ASA 315; guarantee the integrity of the financial report International Auditing Standard IAS 2; guarantee the integrity of the financial report Australian Auditing Standard ASA 315; enhance the degree of confidence of intended users in the financial report

Correct answer: a Learning Objective 6.3 ~ Describe how the accountant and auditor can be exposed to systems documentation

19.

In gaining the understanding of a business process, the auditor will be concerned with: (i) how data is handled (ii) the steps that are followed (iii) the internal controls that are built into the process (iv) the potential for errors to occur that could result in the financial statements being materially misstated. a. b. c. *d.

only (i) (ii) only (ii) (iii) only (i) (ii) (iv) (i) (ii) (iii) (iv)

Correct answer: d Learning Objective 6.3 ~ Describe how the accountant and auditor can be exposed to systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.6

Chapter 6: System mapping and documentation

20.

One of the ways the auditor can understand a business process is through the observation and inspection of documents within the organisation. These documents include: (i) organisation charts (ii) procedures manuals (iii) systems documentation a. b. c. *d.

(iii) only (i) and (iii) only (ii) and (iii) only (i) (ii) (iii)

Correct answer: d Learning Objective 6.3 ~ Describe how the accountant and auditor can be exposed to systems documentation

21.

Which of the following is facing legislative pressure to use systems documentation? a. b. *c. d.

Accountants.

Business process managers.

Auditors.

Business process designers.

Correct answer: c Learning Objective 6.4 ~ Identify legislative reform that has impacted on systems documentation

22.

______________ requires that the auditor shall obtain an understanding of the information system. a. *b. c. d.

ASA 200 paragraph 8 ASA 315 paragraph 18 ISA 315 paragraph 8 None of the above options are correct

Correct answer: b Learning Objective 6.3 ~ Describe how the accountant and auditor can be exposed to systems documentation

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

23.

The Sarbanes - Oxley Act __________ . a. b. *c. d.

is a piece of US legislation that only applies to US companies is a piece of Australian legislation that applies to Australian and NZ companies is a piece of US legislation that applies to US companies and to foreign companies that are listed on US stock exchanges none of the above options are correct

Correct answer: c Learning Objective 6.4 ~ Identify legislative reform that has impacted on systems documentation

24.

An entity is: *a. b. c. d.

any person or thing involved in the activities of a business process. anything involved in the activities of a business process. any business process that is mapped by a data flow diagram. none of the above options are correct.

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

25.

A structured narration is: a. b. *c. d.

a written description of the processes to be followed when auditing the AIS. a written description that accompanies a data flow diagram. a written description of how the process operates. none of the above options are correct.

Correct answer: c Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

26.

Which of the following should not be included in a context diagram? a. b. c. *d.

External entities System inputs System outputs Data store

Correct answer: d Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.8

Chapter 6: System mapping and documentation

27.

A description for a flowchart is as follows: “The sales order and invoice are manually matched by the sales assistant and entered into the computer. The computer saves the data entered in the accounts receivable file.”

The flowchart to best represent this would be:

*a. b. c. d.

A B C D

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.9

Testbank to accompany: Accounting information systems 4e

28.

The symbol for a computer disk data store in a flowchart is:

A

*a. b. c. d.

B

C

D

A B C D

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

29.

The symbol for a manually performed process in a flowchart is:

A a. *b. c. d.

B

C

D

A B C D

Correct answer: b Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.10

Chapter 6: System mapping and documentation

30.

The symbol for the manual keying of data in a systems flowchart is:

A

a. b. c. *d.

B

C

D

A B C D

Correct answer: d Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

31.

The symbol for an internal entity in a physical data flow diagram is:

A

a. *b. c. d.

B

C

D

A B C D

Correct answer: b Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.11

Testbank to accompany: Accounting information systems 4e

32.

Refer to the diagram below. How many copies of the purchase order are present in the system?

*a. b. c. d.

1 2 3 4

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

33.

Refer to the diagram in question 32. Where does the purchase order originate? a. b. c. *d.

The sales assistant The computer The accounts receivable clerk The customer

Correct answer: d Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.12

Chapter 6: System mapping and documentation

34.

Refer to the diagram in question 32. What order is used to file the invoice? a. b. *c. d.

Alphabetical order.

Chronological order.

Numerical order.

No order.

Correct answer: c Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

35.

Refer to the diagram in question 32. How many manual processes are there in the diagram? *a. b. c. d.

0 1 2 3

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.13

Testbank to accompany: Accounting information systems 4e

36.

Refer to the diagram in question 32. The best description for the flowchart would be: *a.

b.

c.

d.

The customer sends a purchase order to the sales assistant who keys the data into the computer, which captures the data in the sales file. This data is used to prepare two invoices, one of which is sent to the customer. The computer also updates the accounts receivable data. The second copy of the invoice is sent to accounts receivable clerk, who files the document. The sales assistant forwards the purchase order to the accounts receivable clerk, who files the document away.

The sales assistant prepares a purchase order and keys the data into the computer, which captures the data in the sales file. This data is used to prepare two invoices, one of which is sent to the customer. After this the computer updates the sales data. The second copy of the invoice is electronically sent to accounts receivable clerk, who files the document. The sales assistant forwards the purchase order to the accounts receivable clerk, who files the document away.

The sales assistant prepares a purchase order and scans the data into the computer, which captures the data in the sales file. This data is used to prepare two invoices, one of which is sent to the customer. The computer updates the accounts receivable data. The second copy of the invoice is electronically sent to accounts receivable clerk, who files the document. The sales assistant forwards the purchase order to the accounts receivable clerk, who files the document away.

The sales assistant receives a purchase order and keys the data into the computer, which captures the data in the sales file. This data is used to prepare two invoices, one of which is sent to the customer. The second copy of the invoice is sent to accounts receivable clerk, who files the document. The sales assistant forwards the purchase order to the accounts receivable clerk, who files the document away.

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.14

Chapter 6: System mapping and documentation

37.

Refer to the diagram below. Does the logical DFD balance with the physical DFD?

a. b. c. *d.

Yes, because they have the same external entities.

No, because the number of bubbles in each diagram is different.

Yes, because they have the same data stores.

No, because they have different flows to and from the external entities.

Correct answer: d Learning Objective 6.6 ~ Explain the concept of a balanced set of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.15

Testbank to accompany: Accounting information systems 4e

38.

Refer to the physical DFD in the previous question. How many data stores are updated by the computer? a. b. *c. d.

5 4 3 2

Correct answer: c Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

39.

Refer to the physical DFD in the previous question. How many data stores are read by the sales person? *a. b. c. d.

0 1 2 3

Correct answer: a Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

40.

Refer to the diagrams in the previous question. The number of process is can be determined by examining the ______ and the number is ______. a. b. *c. d.

logical DFD; 12 physical DFD; 2 logical DFD; 4 physical DFD; 12

Correct answer: c Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.16

Chapter 6: System mapping and documentation

41.

Which symbol represents a decision point in a process map?

A a. b. c. *d.

B

C

D

A B C D

Correct answer: d Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

42.

The structured narrative table is: a. *b.

c. d.

the structured narrative table is a means of summarising the narrative for the Chief Information Officer. the structured narrative table is a means of summarising the narrative in a systematic way to emphasise what data and documents are moving through the process. the structured narrative table provides the basis for building the company’s database. none of the above options are correct.

Correct answer: b Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

43.

A process map is: a. b. c. *d.

a process map is more complex than a DFD or systems flowchart. a process map is much simpler than a DFD but more complex than a systems flowchart. a process map is more complex than a DFD but more simpler than a systems flowchart. a process map is much simpler than a DFD or systems flowchart.

Correct answer: d Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

44.

The first step of preparing a process map is to: *a. b. c. d.

identify entities and divisions. draw the lanes for each division. indicate any sub-functions. identify processes.

Correct answer: a Learning Objective 6.7 ~ Prepare different forms of systems documentation

45.

A typical structured narrative table contains descriptions for: *a. b. c. d.

entities, inputs, processes and outputs. entities, inputs, outputs and feedbacks. internal entities, external entities, systems and feedbacks. inputs, processes and outputs.

Correct answer: a Learning Objective 6.7 ~ Prepare different forms of systems documentation

46.

A structured narrative table does not help in: a. b. c. *d.

classifying entities into internal or external. making it apparent which entity is only engaged in sending and receiving data. making it apparent which entity is engaged in sending and receiving data as well as performing information-processing activities. identifying missing or inefficient activities.

Correct answer: d Learning Objective 6.7 ~ Prepare different forms of systems documentation

47.

From a structured narrative table, if an entity is identified as a mere receiver and sender of data, then the entity can be classified as: a. *b. c. d.

internal entity. external entity. process. data store.

Correct answer: b Learning Objective 6.7 ~ Prepare different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

6.18

Chapter 6: System mapping and documentation

48.

Conceptually, a systems flowchart represents a combination of ________ and________. a. b. *c. d.

the logical DFD; the program flowchart the physical DFD; the program flowchart the logical DFD; the physical DFD none of the options are correct

Correct answer: c Learning Objective 6.5 ~ Read and interpret different forms of systems documentation

49.

Balanced data flow diagrams: *a. b. c. d.

are diagrams with the same external entities and flows. are only theoretically possible. are achieved when the physical DFD depicts the same information as the logical DFD. none of the options are correct.

Correct answer: a Learning Objective 6.6 ~ Explain the concept of a balanced set of systems documentation

50.

Examples of typical activities performed by entities include: a. b. c. *d.

preparing a document. entering data. sorting documents. all of the options are correct.

Correct answer: d Learning Objective 6.7 ~ Prepare different forms of systems documentation

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. Discuss how systems documentation can help business process redesign and reengineering.

Answer: One way that business process redesign and re-engineering can be achieved is by understanding and reviewing the systems documentation for the existing process. The systems documentation provides an overview of the sequence of activities in the business process; for example, the logical DFD will show the key process activities that occur and the data that is needed and generated within each process; the physical DFD will provide a perspective on who is involved in the process (i.e. the people and their respective functional areas). Similarly, a flowchart will show the movement of data and documents between functional areas and personnel and allow the analysis of what occurs and who is involved.

Such a perspective is a useful starting point for any re-engineering or systems redesign project.

Existing studies have pointed out that an analysis of process documentation as part of process redesign can allow for the identification of such aspects as where activities can run in parallel, where paper items can be eliminated, where unnecessary data collection can be removed and where the same activity is performed multiple times. Each of these represents potential ways of ‘trimming the fat’ from a business process, but are possible only through a thorough understanding of process operation, and thus a thorough understanding of the associated systems documentation.

2. Discuss what an entity is in terms of systems documentation and what the distinction of internal and external entity is dependent on.

Answer: An entity is any person or thing involved in the activities of a business process. Entities can be further classified as being either internal or external. The distinction between internal and external is dependent on (a) the process that is being documented and (b) the functions and tasks that are carried out by the entity. In the systems documentation context an entity is a person or thing that is involved in the execution of a process. As a rule of thumb, any entity that is not performing activities within the system scope can be considered an external entity while the ones that are performing activities and are within the system scope are internal entities. In summary, the key in determining whether an entity is internal or external is the activities that the entity performs. If the entity’s sole activities involve sending or receiving data, they are considered external. In contrast, if the entity performs data processing or transformation, it is considered internal.

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Chapter 6: System mapping and documentation

3. Can an external entity become an internal entity?

Answer: An external entity is any entity that provides inputs into a process or receives outputs from a process. An external entity to the process does not use the data – it merely provides/sends or receives data. This is where clarity about the process being documented is important; that is, an entity may be an external entity for one process but an internal entity of a different process. Especially, when the supposedly external entity falls into the system scope of another system documentation exercise, the external entity can indeed become an internal entity.

4. Give at least three examples of data processing or transformation carried out by internal entities.

Answer: Accounting record reconciliation, data entering, produce and review reports, approval of documents, and update records.

5. Discuss the advantages and limitations of the structure narration technique.

Answer: The advantage of the structured narration is that it is readily accessible to anyone who can read. This can make it a popular form for documenting a process. However, for a deeper analysis and a better understanding of the process, the structured narration can be subject to limitations. One of the limitations inherent in the structured narration is that its preparation and readability are contingent on the writer’s writing style. Some people may write in a wordy, verbose manner, while others may be extremely brief in their preparation of the narrative. Additionally, written work can be subject to different interpretations and may lead to two people interpreting the process in different ways.

© John Wiley & Sons Australia, Ltd 2012

6.21

Testbank to accompany: Accounting information systems 4e

6. Describe the rules of constructing and reading a structure narrative table.

Answer: a. The entities are listed in the order in which they are involved in the process. Their order in the process is indicated in the first column, titled ‘No.’ b. An entity can appear more than once in the table. For example, it may perform more than one activity. c. The inputs column refers to the inputs that are used or received by an entity to carry out an activity. d. The process column refers to the activity that is being performed. This will be the specific action or specific task that is being carried out by the entity. This column represents the ‘what is being done’ aspect of the process. It tells us how the entity is using the inputs it has received. e. The output column refers to the destination for the product of the process. f. The rows of the structured narrative table should be read in conjunction with each other.

Taking a row on its own may not make total sense, but, when a specific activity is considered in relation to the antecedent and subsequent activities, the rows provide a more meaningful and clearer perspective.

7. Describe the rules to construct and read a process map.

Answer: a. The functional areas appear down the left-hand side of the diagram. b. The functional areas are separated with a solid line. c. The sub-functions are separated with a dashed line. d. The standard symbol is a rectangle for a process or activity. e. Lines that connect processes are labelled with documents. f. Process rectangles describe processes not documents. g. The process map reads left to right and top to bottom.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 6: System mapping and documentation

8. What are the differences between physical DFD and logical DFD? Answer: The logical DFD is concerned with the processes that make up a system – essentially the question of WHAT is happening? In contrast, the physical DFD is focused on the entities that perform these processes – essentially the question of WHO is involved? So the bubbles in the logical DFD describe the processes and activities that occur within a system, while the bubbles in the physical DFD detail the entities involved in the system. Another difference to note between the logical and physical DFDs is the nature of the labels on the data flow arrows. In the physical DFD, these labels all referred to documents or physical items that flowed through the system. In the logical DFD, the flows tell us the type of information being sent. Also observe that, as in the physical DFD, the bubbles in the logical DFD are numbered.

These numbers represent the order in which the processes occur, while the ones in the physical DFD indicate the order in which they take part in the process.

9. Is there a specific order for drawing context diagram, logical DFD, and physical DFD? Why or why not?

Answer: No. One does not need to follow any specific order while drawing these diagrams. One way to draw the diagrams is to draw the context diagram first, and “explode” the context diagram to logical DFDs and physical DFDs. Doing so may have the risk of misidentifying the external entities and the data flows that flow between external entities and the system, leading to the revision of the context diagram when logical DFDs and physical DFDs are done. This is likely the case when the understanding of the system changes as one proceeds with more detailed modelling. The other way, which is equally valid, is to draw the logical DFDs and physical DFD first and the context diagram last. Instead of “exploding” the context diagram, this method “contracts” the logical and the physical DFDs to arrive at a balanced context diagram.

10. Why do DFDs have less detail than process map and systems flowchart?

Answer: Recall that the context diagram tells us nothing about what happens within the system of interest. Rather, it merely shows the external entities that interact with the system. The context diagram can be expanded into the physical and logical DFDs. The physical DFD shows the entities involved in a process and the flows among the entities, but no details about what the entities are actually doing. Compare this with the process map and systems flowchart, which not only identify the entities but also give an insight into what activities they are performing. Conversely, the logical DFD shows what processes are performed within a system but not who performs the processes. That is similar to having a process map without labelling the swim lanes.

© John Wiley & Sons Australia, Ltd 2012

6.23

Chapter 7: Internal controls I

Chapter 7 Internal controls I Multiple Choice Questions

1.

What part of an organisation determines the corporate governance? a. *b. c. d.

shareholders board of directors employees Government

Correct answer: b Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

2.

Which of the following is related to corporate governance? (i) Goal setting (ii) Risk management (iii) Performance measurement and management *a. b. c. d.

(i) (ii) (iii) (i) (ii) only (ii) (iii) only (i) (iii) only

Correct answer: a Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

3.

Which of the following is the objective(s) of a corporate governance system? (i) To ensure that minority shareholders receive reliable information about the value of firms and that a company’s managers and large shareholders do not cheat them out of the value of their investments. (ii) To motivate managers to maximise firm value instead of pursuing personal objectives. (iii) To encourage companies to create value, through entrepreneurialism, innovation, development and exploration, and provide accountability and control systems commensurate with the risks involved. a. b. c. *d.

(ii) only (iii) only (i) (iii) only (i) (ii) (iii)

Correct answer: d Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

© John Wiley & Sons Australia, Ltd 2012

7.1

Testbank to accompany: Accounting information systems 4e

4.

What could be the result of poor corporate governance in an organisation? a. b. *c. d.

poor returns on investment for minority shareholders bad publicity from environmental groups company failure and potential damage to economy managers who are influenced by self-interest rather than the longevity of the company

Correct answer: c Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

5.

In the Australian Securities Exchange’s definition of corporate governance, risks should be: *a. b. c. d.

monitored and assessed assessed and minimised identified and monitored assessed and controlled

Correct answer: a Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

6.

The OECD’s definition of corporate governance has specifically outlined the relationships between: a. b. *c. d.

a company, its customers, and its suppliers a company’s management, its board, its employees, and its suppliers a company’s management, its board, its shareholders, and other stakeholders a company and various government agencies

Correct answer: c Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

© John Wiley & Sons Australia, Ltd 2012

7.2

Chapter 7: Internal controls I

7.

Corporate governance is about: (i) the many relationships in which an organisation is involved and how these relationships are managed (ii) putting in place policies that allow for the various relationships of the organisation to be successfully managed (iii) putting in place structures that allow for the various relationships of the organisation to be successfully managed. a. b. c. *d.

(i) only (i) (ii) only (i) (iii) only (i) (ii) (iii)

Correct answer: d Learning Objective 7.1 ~ Describe the concept and discuss the evolution of corporate governance

8.

Which of the following principle is not part of the principles for corporate governance identified by the ASX Corporate Governance Council? a. *b. c. d.

Respect the rights of shareholders Keep disclosure of business information to a minimum Safeguard integrity in financial reporting Structure the board to add value

Correct answer: b Learning Objective 7.2 ~ Describe what constitutes corporate governance

9.

In corporate governance principles, remunerate fairly and responsibly means: a. b. *c. d.

All board members should be paid the same amount of remuneration.

All employees of an organisation should be paid fairly.

The organisation should be able to demonstrate a clear link between company performance and executive remuneration.

The organisation should be able to demonstrate a clear link between employee performance and employee remuneration.

Correct answer: c Learning Objective 7.2 ~ Describe what constitutes corporate governance

© John Wiley & Sons Australia, Ltd 2012

7.3

Testbank to accompany: Accounting information systems 4e

10.

The current eight principles for corporate governance outlined by the ASX Corporate Governance Council do not include: a. b. c. *d.

Lay solid foundations for management and oversight.

Structure the board to add value.

Promote ethical and responsible decision making.

Respect the rights of customers.

Correct answer: d Learning Objective 7.2 ~ Describe what constitutes corporate governance

11.

The current eight principles for corporate governance outlined by the ASX Corporate Governance Council do not include: *a. b. c. d.

Recognise and minimise risk.

Safeguard integrity in financial reporting.

Make timely and balanced disclosure.

Remunerate fairly and responsibly.

Correct answer: a Learning Objective 7.2 ~ Describe what constitutes corporate governance

12.

In Australia, it is recommended that the board is made up of: a. *b. c. d.

full time employees of the company a mixture of executive and independent directors CEO plus external directors who are not involved in the business accountants, auditors and executive director

Correct answer: b Learning Objective 7.2 ~ Describe what constitutes corporate governance

13.

To promote ethical and responsible decision making, an organisation should: (i) have clearly specified codes of conduct for employees and management (ii) have standards for dealing with various organisational stakeholders (iii) have procedures to be followed when investigating potential unethical activities within the organisation (iv) take legal actions immediately against unethical conducts. a. b. *c. d.

(i) only (i) (iii) (iv) only (i) (ii) (iii) only (i) (ii) (iii) (iv)

Correct answer: c Learning Objective 7.2 ~ Describe what constitutes corporate governance

© John Wiley & Sons Australia, Ltd 2012

7.4

Chapter 7: Internal controls I

14.

Which of the following is not part of the four main objectives of IT governance? a. b. c. *d.

Ensuring the organisation has appropriate management strategies and techniques in place for dealing with IT related risks.

Ensuring that the IT being used or adopted within an organisation is consistent with the organisation's goals and meets expectations.

Ensuring the organisation's IT resource are used responsibly.

Using IT to make the most of future business opportunities and benefits.

Correct answer: d Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

15.

What is the connection between the concept of accountability and corporate governance? a. *b. c. d.

the board reviews poor decisions and punishes the person responsible the board delegates decision making to employees but retains ultimate responsibility decisions are made by the person who needs to act on the decision irrespective of their position in the organisation board members are only accountable for decisions made by the board.

Correct answer: b Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

16.

Protecting the IT resources, ensuring the reliable and continuous operations and developing a disaster recovery plan are all aspects of: *a. b. c. d.

IT governance corporate governance managing risk IT management

Correct answer: a Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

© John Wiley & Sons Australia, Ltd 2012

7.5

Testbank to accompany: Accounting information systems 4e

17.

In terms of IT governance, which of the following is NOT one of the five specific areas that need to be considered by those with the responsibility of managing IT? a. b. c. *d.

Matching IT to strategy Adding value Managing resources Reducing costs

Correct answer: d Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

18.

The aspect referring to how IT is going to be used in the organisation and will be a general statement or specification about how IT will be positioned and the role it will play in the organisation as it embarks on meeting customer needs is: a. *b. c. d.

IT governance IT principles IT objectives IT control

Correct answer: b Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

19.

Organisational decisions about IT infrastructure does NOT necessarily include: a. b. *c. d.

what type of processing is required the location of the processing the upgradability of the processing the integration of processing

Correct answer: c Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

20.

The basis that the firm’s information system rests upon is called: a. b. *c. d.

IT structure IT architecture IT infrastructure IT foundation

Correct answer: c Learning Objective 7.3 ~ Explain the role and objectives of information technology (IT) governance

© John Wiley & Sons Australia, Ltd 2012

7.6

Chapter 7: Internal controls I

21.

The COBIT framework: a. b. c. *d.

is locally recognised framework for Australia and New Zealand targets large organisations is a framework for corporate governance is a framework for IT governance

Correct answer: d Learning Objective 7.4 ~ Describe an IT governance framework

22.

Major IT stages outline by the COBIT framework do not include: a. b. c. *d.

Plan and organise Deliver and support Monitor and evaluate Recycle and disposal

Correct answer: d Learning Objective 7.4 ~ Describe an IT governance framework

23.

The focus of the plan and organise stage in the COBIT framework include: (i) being aware of the current organisational use of IT (ii) being aware of opportunities that may exist for future IT developments (iii) planning for the future IT needs of the organisation (iv) how the new system is to be used by the users within the organisation. *a. b. c. d.

(i) (ii) (iii) only (i) (ii) (iv) only (i) (iii) only (i) (ii) (iii) (iv)

Correct answer: a Learning Objective 7.4 ~ Describe an IT governance framework

© John Wiley & Sons Australia, Ltd 2012

7.7

Testbank to accompany: Accounting information systems 4e

24.

Which of the following is a concern of the acquire and implement stage in the COBIT framework? (i) How various IT solutions are to be acquired by the organisation and how well they map to existing organisational processes. (ii) The selection and implementation processes that will provide complete assurance that any adopted system will work as intended once implemented and will communicate with existing systems. (iii) The selection and implementation processes that will provide complete assurance that any adopted system can be put in place on time. (iv) The selection and implementation processes that will provide complete assurance that any adopted system will meet the business needs. *a. b. c. d.

(i) only (ii) (iv) only (ii) (iii) (iv) (i) (ii) (iii) (iv)

Correct answer: a Learning Objective 7.4 ~ Describe an IT governance framework

25.

The “plan and organise” stage of the COBIT framework includes: a. b. *c. d.

strategies for acquiring and implementing IT solutions evaluating how the system operates within the organisation reviewing how well IT systems match the needs of the organisation deciding which communication standards will be used.

Correct answer: c Learning Objective 7.4 ~ Describe an IT governance framework

26.

Which of the following is NOT one of the principles identified in the IT governance standard released by Standards Australia that encapsulate the domain of IT governance? a.

b. *c. d.

Ensure ICT performs well, with performance including the satisfaction of business needs, responding to changing business needs and being a reliable support for organisational activities whenever required.

Ensure ICT conforms with any external obligations as well as any internal policies that may exist in the organisation.

Put in place well understood responsibilities for ICT throughout the organisation and the greater society.

Ensure ICT use respects human factors, particularly the meeting of the needs of the different system stakeholders.

Correct answer: c Learning Objective 7.4 ~ Describe an IT governance framework

© John Wiley & Sons Australia, Ltd 2012

7.8

Chapter 7: Internal controls I

27.

Based on the COSO definition of internal controls, which of the following is NOT an aim of internal controls? a. b. c. *d.

Effective and efficient operations Reliable financial reporting Compliance with laws and regulations Safe workplace

Correct answer: d Learning Objective 7.5 ~ Define internal control

28.

Which of the following is the most important requirement of internal control? a. b. c. *d.

effectiveness and efficiency of operations reliability of financial reporting compliance with applicable laws and regulations systems and procedures that help to manage risk and achieve objectives

Correct answer: d Learning Objective 7.5 ~ Define internal control

29.

Control environment is *a. b. c. d.

The attitude, emphasis and awareness of an organisation’s management towards internal control and its operation within the organisation.

The attitude, emphasis and awareness of the government towards internal control and operations within organisations.

The attitude, emphasis and awareness of the legislative entities towards internal control and operations within organisations.

The attitude, emphasis and awareness of the society towards internal control and operations within organisations.

Correct answer: a Learning Objective 7.6 ~ Describe the components of an internal control framework

© John Wiley & Sons Australia, Ltd 2012

7.9

Testbank to accompany: Accounting information systems 4e

30.

Risk assessment is: a. *b. c. d.

the process of scanning the organisation for risks that could inhibit the attainment of the organisation's goals. the process of scanning the organisation and its environment for risks that could inhibit the attainment of the organisation's goals. the process of scanning the organisation for risks that could inhibit the attainment of the organisation's goals and devising appropriate corrections. the process of scanning the organisation and its environment for risks that could inhibit the attainment of the organisation's goals and devising appropriate corrections.

Correct answer: b Learning Objective 7.6 ~ Describe the components of an internal control framework

31.

Control activities: (i) are the responses by management to the risks identified in the risk assessment stage (ii) are policies and procedures that help ensure that management directives are carried out (iii) are also called control procedures. a. b. c. *d.

(i) only (ii) only (i) (ii) only (i) (ii) (iii)

Correct answer: d Learning Objective 7.6 ~ Describe the components of an internal control framework

32.

The effectiveness of internal control systems is determined by: a. b. c. *d.

reports by the external auditor reports by the internal auditor the need to comply with applicable laws and regulations the actions of the board

Correct answer: d Learning Objective 7.6 ~ Describe the components of an internal control framework

33.

Which of the following best sums up objective for internal controls of information and communication? a. *b. c. d.

accurate capture of data the right information to the right person at the right time ensuring information flows up and down the organisation control of accountability

Correct answer: b Learning Objective 7.6 ~ Describe the components of an internal control framework

© John Wiley & Sons Australia, Ltd 2012

7.10

Chapter 7: Internal controls I

34.

Who is responsible for setting the tone in which control policies within an organisation will function? a. b. *c. d.

Internal auditors External auditors Top management Shareholder committees

Correct answer: c Learning Objective 7.6 ~ Describe the components of an internal control framework

35.

If sales have not been entered into the Accounting Information System, this is an example of which type of transaction risk? a. *b. c. d.

occurrence completeness accuracy cut-off

Correct answer: b Learning Objective 7.7 ~ Link financial reporting risks to financial statement assertions

36.

All account balances should demonstrate the following assertions: a. *b. c. d.

completeness, accuracy, classification, and valuation and allocation valuation and allocation, rights and obligations, completeness, and existence rights and obligations, completeness, accuracy, classification classification, value and allocation, existence, and rights and obligations

Correct answer: b Learning Objective 7.7 ~ Link financial reporting risks to financial statement assertions

37.

Different transactions and events are NOT impacted by the which of the following assertion? a. b. c. *d.

Completeness and accuracy Occurrence and cut-off Classification Timeliness

Correct answer: d Learning Objective 7.7 ~ Link financial reporting risks to financial statement assertions

© John Wiley & Sons Australia, Ltd 2012

7.11

Testbank to accompany: Accounting information systems 4e

38.

Into which stage would providing backup and disaster recovery procedures fit? a. *b. c. d.

COBIT stage Acquiring COBIT stage Delivering COSO stage Control Environment COSO stage Monitoring

Correct answer: b Learning Objective 7.8 ~ Relate internal control to the COBIT and COSO frameworks

39.

COBIT offers control objectives and guidance that relate to the stages of: (i) planning for IT acquisition (ii) acquiring IT resources (iii) operating IT resources (iv) monitoring and assessing IT resources a. b. c. *d.

(i) (ii) (iii) (ii) (iii) (iv) (iii) (iv) (i) (ii) (iii) (iv)

Correct answer: d Learning Objective 7.8 ~ Relate internal control to the COBIT and COSO frameworks

40.

ERM stands for: a. b. c. *d.

Enterprise Resource Management Enterprise Risk Management Enterprise Resource Model Enterprise Risk Model

Correct answer: d Learning Objective 7.9 ~ Explain the enterprise risk model (ERM) and its components, and compare it with COSO

41.

Which of the following is NOT one of the objectives of the organisation as stated in the ERM framework? a. b. *c. d.

strategic reporting planning compliance

Correct answer: c Learning Objective 7.9 ~ Explain the enterprise risk model (ERM) and its components, and compare it with COSO

© John Wiley & Sons Australia, Ltd 2012

7.12

Chapter 7: Internal controls I

42.

Under the ERM, the objectives of the organisation are: a. *b. c. d.

operations, performance, reporting, and compliance strategic, reporting, compliance, and operations environmentally friendly, reporting, profitable and compliance socially responsible, profitable, compliance, and environmentally friendly

Correct answer: b Learning Objective 7.9 ~ Explain the enterprise risk model (ERM) and its components, and compare it with COSO

43.

The internal control structure of the ERM does NOT include: a. *b. c. d.

Internal environment External environment Event identification Information and communication

Correct answer: b Learning Objective 7.9 ~ Explain the enterprise risk model (ERM) and its components, and compare it with COSO

44.

The internal control structure of the ERM does NOT include: a. b. c. *d.

Risk assessment Risk response Control activities Resource management

Correct answer: d Learning Objective 7.9 ~ Explain the enterprise risk model (ERM) and its components, and compare it with COSO

45.

Specific components of the control environment to be aware of, as mentioned in ASA 315, do not include: a. b. *c. d.

The communication and policing of ethical behaviour in the organisation.

Commitment to competence.

Risk assessment.

Management philosophy and operating style.

Correct answer: c Learning Objective 7.6 ~ Describe the components of an internal control framework

© John Wiley & Sons Australia, Ltd 2012

7.13

Testbank to accompany: Accounting information systems 4e

46.

Specific components of the control environment to be aware of, as mentioned in ASA 315, do not include: a. b. c. *d.

Organisational structure.

Distribution of responsibility.

Recruitment policies IT policies

Correct answer: d Learning Objective 7.6 ~ Describe the components of an internal control framework

47.

Which of the following descriptions of cloud computing is NOT true? a. *b. c. d.

Cloud computing offers advantages for new and emerging businesses, since it is easily scalable and can grow with the organisation.

The task of keeping the applications and technology up to date is left to the cloud service subscriber.

Cloud computing offers a risk-management technique, since in the event of disaster the IT services are based in a different location and still accessible.

Security and maintenance can be managed by the cloud provider.

Correct answer: b Learning Objective 7.6 ~ Describe the components of an internal control framework

48.

Which of the following is NOT a duty normally performed by internal auditors? a. b. c. *d.

Examining financial and operating information.

Reviewing the economy, effectiveness and efficiency of the organisation’s operations.

Reviewing the adequacy of compliance with external laws and regulations.

Reviewing the fit between IT and business strategy.

Correct answer: d Learning Objective 7.6 ~ Describe the components of an internal control framework

49.

The external audit will provide reasonable assurance that: a. *b. c. d.

transactions that occurred have been carried out efficiently and effectively assets and liabilities in the financial statements exist and transactions reported actually occurred assets listed are owned by the organisation and liabilities owed are repaid amounts on the financial statements have been calculated in accordance with company policies

Correct answer: b Learning Objective 7.7 ~ Link financial reporting risks to financial statement assertions

© John Wiley & Sons Australia, Ltd 2012

7.14

Chapter 7: Internal controls I

50.

To which of the following risks are organisations that depend on the Internet for trading through e-commerce particularly vulnerable. *a. b. c. d.

risk of network disruption risk of key suppliers moving to other organisations risk of new competitors taking market position risk of unauthorised access to online systems

Correct answer: a Learning Objective 7.7 ~ Link financial reporting risks to financial statement assertions

© John Wiley & Sons Australia, Ltd 2012

7.15

Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. What are the eight principles for corporate governance outlined by the ASX Corporate Governance Council?

Answer: Lay solid foundations for management and oversight.

Structure the board to add value.

Promote ethical and responsible decision making.

Safeguard integrity in financial reporting.

Make timely and balanced disclosure.

Respect the rights of shareholders.

Recognise and manage risk.

Remunerate fairly and responsibly.

2. What are the four main objectives of IT governance?

Answer: a. Ensuring that the IT being used or adopted within an organisation is consistent with the organisation’s goals and meets expectations b. Using IT to make the most of existing business opportunities and benefits c. Ensuring the organisation’s IT resources are used responsibly d. Ensuring the organisation has appropriate management strategies and techniques in place for dealing with IT-related risks.

© John Wiley & Sons Australia, Ltd 2012

7.16

Chapter 7: Internal controls I

3. In terms of IT governance, what are the five specific areas within the objectives of IT governance that need to be considered by those with the responsibility of managing IT? Explain in details.

Answer: Adding value — ensuring that the IT within the organisation is performing as expected and contributing to the organisation in areas such as productivity, profitability (e.g. cost per transaction performed), customer satisfaction and ease of use. This can be a subjective area to gauge.

Managing risk — making sure that the organisation’s IT resources are protected and able to provide reliable and continuous operations, and that adequate disaster recovery plans are in place in the event of an IT problem. This will also include the establishment and operation of suitable internal controls within and related to the information system.

Matching IT to strategy — consideration needs to be given to what the business currently does, where it intends to go in the future, and the role that IT can play in supporting these goals. Consistency between the direction that the business is heading and the direction that the business’s IT is heading is critical to the alignment of IT and strategy. Failure to adopt this top-down perspective will lead to potential inconsistencies between strategy, process design and systems design. The consequence may be that the organisation says one thing (strategy), does another (process design) and captures a different set of data (IT).

Measuring performance — systems are required to measure the performance of IT within the organisation. Recent support has been for the application of methods that include the balanced scorecard, since this addresses a broad range of performance aspects and is not driven solely by financial metrics.

Managing resources — ensuring that the resources associated with IT are used appropriately.

Resources can include both people and technical infrastructure. Therefore, managing resources can include aspects related to technology (e.g. acquisition, maintenance, retirement) as well as to people (e.g. training and development, and recruitment). Managing resources effectively is seen as a key to realising the full benefits from these resources.

4. Briefly explain the four areas of IT governance.

Answer: IT principles - This aspect refers to how IT is going to be used in the organisation and will be a general statement or specification about how IT will be positioned and the role it will play in the organisation as it embarks on meeting customer needs.

IT infrastructure - As the name implies, is the basis that the firm’s information system rests upon. Organisational decisions about IT infrastructure will include what type of processing is required, the location of the processing and the integration of processing. Decisions will also include how IT is to be used across the organisation.

IT architecture - Having specified the infrastructure, specific decisions need to be made about what will happen in the system, how data will be used, the processing conventions to be applied, the communication standards that need to be followed, and any impact on organisational management structure, roles and responsibilities that will come about from the new IT. IT investment and prioritisation - This dimension refers to the means used by the organisation to evaluate alternative IT investment proposals and decide upon which project to pursue. This can include evaluations of anticipated performance, costs, benefits and financial performance.

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5. Identify and briefly explain the major IT stages in the COBIT framework.

Answer: Plan and organise. This first stage addresses the overall awareness and management of IT within the organisation.

Acquire and implement. At this second stage, the concern is with how various IT solutions are to be acquired by the organisation and how well they map to existing organisational processes.

Deliver and support. At this stage, systems delivery will be the primary focus, with concerns for the implementation of the system, its integration with business processes and activities, and how the new system is to be used by the users within the organisation.

Monitor and evaluate. This final stage places emphasis on how the system is operating within the organisation, requiring those in management and governance positions to have available information about the system and its operation.

6. What are the six principles that encapsulate the domain of IT governance, as outlined by Standards Australia?

Answer: a. Put in place well understood responsibilities for ICT [information and communication technology] throughout the organisation. b. Plan for ICT to support the current and future needs of the organisation to be consistent with overall organisational objectives. c. Ensure ICT acquisitions are based on analysis and match up with organisational needs and that such investments offer both long and short term benefits. d. Ensure ICT performs well, with performance including the satisfaction of business needs, responding to changing business needs and being a reliable support for organisational activities whenever required. e. Ensure ICT conforms with any external obligations (for example, in Australia, data protection and the Privacy Act and financial reporting obligations under the Corporations Act) as well as any internal policies that may exist in the organisation. f. Ensure ICT use respects human factors, particularly the meeting of the needs of the different system stakeholders.

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Chapter 7: Internal controls I

7. What is groupthink and how is it relevant to great governance?

Answer: Great governance involves the organisation in an integrated way, with decisions made as part of a governance program tied back to the key aims and objectives of the organisations.

Challenges in attaining great governance can include groupthink – the tendency for people working in a group to agree and follow rather than put forward alternatives or raise questions.

It has been suggested that overcoming groupthink is critical for the successful management of IT within the organisation, with one way of achieving this being the appointment of outsiders to the IT Steering Committee as non-executive members. This can provide a new perspective for business issues and the use of technology, as well as offering a challenge to the status quo. This potentially offers a stronger link between the management of IT and the attainment of organisational objectives, since it means that previously taboo topics or questions can be canvassed by the non-executive member without fear of reprisal from within.

8. List and briefly discuss at least four specific components of the control environment to be aware of, as mentioned in ASA 315.

Answer: The communication and policing of ethical behaviour in the organisation. An organisation that does not strive to enforce ethical conduct among its staff will face problems regardless of how well the control system is designed.

Commitment to competence. This refers to the awareness by management that different tasks and responsibilities in the organisation will have different pre-requisite skills and knowledge.

As such, the organisation should have policies and procedures in place for gaining reasonable assurance that those within the organisation have the necessary skills and knowledge to perform their jobs at a competent level.

Management philosophy and operating style. This component looks at how management addresses the issues and risks that the organisation faces in its day-to-day activities. A sound control environment is one where managers are aware of the risks and are constantly evaluating the extent of their potential impact on financial reporting, compliance with legislation and operating performance.

Organisational structure. This refers to the way the organisation is designed in order to facilitate the planning, execution, control and review of business activities.

Distribution of responsibility. This section looks at how responsibility is distributed in the organisation, including who has the power to authorise events and the reporting and accountability relationships in place to monitor and review the execution of events in the organisation.

Recruitment policies. This important section is concerned with the policies and procedures followed by the organisation in managing its people. This will include the processes for hiring staff, the mechanisms in place to monitor staff performance and the means in place for employee removal and dispute resolution.

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Testbank to accompany: Accounting information systems 4e

9. List and discuss four typical advantages of cloud computing.

Answer: a. Access to the services is based on a monthly fee without requiring capital investment. This can be of benefit for smaller organisations and new entrants and can also help with financial planning. It represents a reduced investment in technological infrastructure – essentially all that is required is a computer and internet access. For smaller new entrants in a market this can reduce the barrier of entry due to underlying technology requirements b. Cloud computing offers a risk-management technique, since in the event of disaster the IT services are based in a different location and still accessible. c. The task of keeping the applications and technology up to date is left to the cloud service provider. d. Security and maintenance can be managed by the cloud provider.

10. Describe the merits and nature of audit committees.

Answer: Audit committees are established by firms to monitor the organisation’s financial performance and as a point of liaison between the company and the internal and external auditors. The audit committee will be made up of a selection of the company’s directors and acts as a representative group for the company’s shareholders, since a financial statement audit is performed for these shareholders. Important aspects to consider when designing an effective audit committee are that it is independent and able to discuss openly any sensitive issues that may arise, is able to nominate an auditor and arrive at a suitable fee, monitors the perception of auditor independence and provides a forum for sensitive control-related issues to be discussed. As part of reinforcing the independence of the audit committee, it is thought that most of its members should be non-executive directors.

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Chapter 8: Internal controls II

Chapter 8 Internal controls II Multiple Choice Questions

1.

After identifying risks, management will decide on appropriate policies and procedures to address the risks. These policies and procedures are called: a. *b. c. d.

control policies control activities control procedures control processes

Correct answer: b Learning Objective 8.1 ~ Relate control activities to the accounting process

2.

The comparison of actual and budgeted figures and the conduct of variance analysis to determine the source of the variance is a type of: a. b. *c. d.

General control Information processing control Performance review Application control

Correct answer: c Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

3.

Information processing controls are those that are put in place within the organisation to work towards the _______ of transactions. a. b. *c. d.

efficiency, effectiveness, and accuracy timeliness, efficiency, and completeness accuracy, completeness, and authorisation authorisation, processing, accuracy

Correct answer: c Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

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Testbank to accompany: Accounting information systems 4e

4.

Internal controls are necessary in all businesses because … *a. b. c. d.

business processes do not always go to plan employees are basically corrupt financial statements only contain assertions external auditors insist on them

Correct answer: a Learning Objective 8.1 ~ Relate control activities to the accounting process

5.

Which of the following is a risk to the financial statement of a company when it places a purchase order with a supplier? a. b. *c. d.

the supplier delivers the goods with an invoice instead of a delivery note the goods are not available the supplier delivers the wrong goods or wrong quantity the purchasing officer orders the wrong goods.

Correct answer: c Learning Objective 8.1 ~ Relate control activities to the accounting process

6.

An antivirus program scans and monitors files in a computer continuously for viruses.

This is an example of: a. *b. c. d.

Preventive control Detective control Corrective control Application control

Correct answer: b Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

7.

Checking customer details before finalising a sales order is an example of a ________ control. *a. b. c. d.

input general processing performance

Correct answer: a Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

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Chapter 8: Internal controls II

8.

A computer virus is found in a file in the computer system. Because a solution for recovering the file is not yet available, the infected file is quarantine by the antivirus software. Quarantining the infected file is an example of: *a. b. c. d.

Preventive control Detective control Corrective control None of the options are correct.

Correct answer: a Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

9.

Which of the following is not a type of controls classified in the Australian Auditing Standard ASA 315? a. b. *c. d.

Authorisation Performance review Risk control Segregation of duties

Correct answer: c Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

10.

Control of access to the server for the company database is an example of which type of control? a. *b. c. d.

input general processing performance

Correct answer: b Learning Objective 8.3 ~ Link controls to the stages of data processing and COSO and COBIT

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Testbank to accompany: Accounting information systems 4e

11.

Which aspect of document collection are pre-numbered documents used to establish? a. b. *c. d.

input data is accurate data from source documents is recorded in a timely manner all source documents are accounted for all source documents have been authorised

Correct answer: c Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

12.

Which of the following is an example of a turnaround document? a. b. *c. d.

balance sheet sales order remittance advice payslip

Correct answer: c Learning Objective 8.3 ~ Link controls to the stages of data processing and COSO and COBIT

13.

Checking for accuracy is performed by ____________ checks. a. b. c. *d.

edit range reasonableness all of the above

Correct answer: d Learning Objective 8.3 ~ Link controls to the stages of data processing and COSO and COBIT

14.

Which of the following is NOT a major aim of a computerised accounting information system? a. b. c. *d.

Proper authorisation.

Timeliness.

Proper recording.

User friendly.

Correct answer: d Learning Objective 8.4 ~ Describe the aims of a computerised accounting information system

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Chapter 8: Internal controls II

15.

With respect to the recording of transactions, which of the following statements is true? a. *b. c. d.

Proper recording of transactions is essentially about completeness.

Proper recording of transactions is essentially about accuracy.

Proper recording of transactions is essentially about storing data in only one place.

None of the options are correct.

Correct answer: b Learning Objective 8.4 ~ Describe the aims of a computerised accounting information system

16.

How does a computer system know that a sales manager has authorised a credit transaction over $1000? a. *b. c. d.

The input terminal has bio-security check eg retina scanning.

A combination of checks on the size of the credit required and the access rights of the manager when she logged in with her username and password The system must insist on the sales manager entering the transaction The control comes from the work practices outside the computer

Correct answer: b Learning Objective 8.4 ~ Describe the aims of a computerised accounting information system

17.

Purchasing goods over the Internet would fit into which of the following categories of processing? a. b. *c. d.

Batch online real-time online data collection batched for later processing Shopping basket

Correct answer: c Learning Objective 8.4 ~ Describe the aims of a computerised accounting information system

18.

Authorisation in a computerised information system can be established through: (i) user privileges (ii) user access rights (iii) restrictions on what different users are able to do within the system. a. b. c. *d.

(i) (iii) (ii) (iii) (i) (ii) (i) (ii) (iii)

Correct answer: d Learning Objective 8.4 ~ Describe the aims of a computerised accounting information system

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Testbank to accompany: Accounting information systems 4e

19.

In terms of proper recording of transactions, accuracy is concerned with making sure that: (i) all data that enter the system are in the correct format (ii) all data that enter the system are of the right type (iii) all data are stored in a secured place to prevent unauthorised manipulation (iv) the data gathered accurately reflect the reality of the underlying transaction or event. a. b. *c. d.

(i) (ii) (i) (ii) (iii) (i) (ii) (iv) (i) (ii) (iii) (iv)

Correct answer: c Learning Objective 8.4 ~ Describe the aims of a computerised accounting information system

20.

Segregation of duties is a principle that applies to which sections of an organisation? *a. b. c. d.

throughout the organisation including office staff, accountants and IT workers accountants office staff who have to deal with money matters programmers and computer support staff who could interfere with the accounting information system

Correct answer: a Learning Objective 8.5 ~ Define and provide examples of general controls

21.

Which of the following is NOT a form of physical control? a. *b. c. d.

Servers are placed in a locked room.

A username and a password are needed to log into a computer.

Security cameras are put in place.

A swipe card system for controlling access to computer labs.

Correct answer: b Learning Objective 8.5 ~ Define and provide examples of general controls

22.

Which of the following is an example of poor segregation of duties? a. b. c. *d.

Inventory control department is allowed to receive incoming goods.

Warehouse personnel are allowed to ship goods to customers.

The purchasing department is allowed to generate purchase requisitions.

All of the options are correct.

Correct answer: d Learning Objective 8.5 ~ Define and provide examples of general controls

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Chapter 8: Internal controls II

23.

Which of the following is an example of good segregation of duties? a. b. c. *d.

The sales department is allowed to bill customers.

The accounts receivable department is allowed to prepare bills.

The warehouse personnel are allowed to maintain the inventory record.

None of the options are correct.

Correct answer: d Learning Objective 8.5 ~ Define and provide examples of general controls

24.

Which of the following would enable an organisation to detect that an unauthorised person has entered a secure area? a. b. *c. d.

Swipe card access Physical lock of the door Security camera Biometric access control

Correct answer: c Learning Objective 8.5 ~ Define and provide examples of general controls

25.

A cash disbursement clerk issues a cheque that has been approved by the treasurer.

This is an example of: a. *b. c. d.

Separating record-keeping from asset custody Separating transaction processing to transaction authorisation Separating asset custody from transaction processing.

Separating transaction authorisation from record-keeping.

Correct answer: b Learning Objective 8.5 ~ Define and provide examples of general controls

26.

Which of the following is the strongest password? a. b. *c. d.

ah@123re$d Nik890102336757099924PoT A_d33erZb#4G Qwertyuiopasdfghjklzxcvbnm1234567890

Correct answer: c Learning Objective 8.5 ~ Define and provide examples of general controls

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Testbank to accompany: Accounting information systems 4e

27.

Which of the following statements concerning passwords is true? a. b. *c. d.

Strong passwords are not required to be changed periodically.

As long as a strong password is devised, it can be as the password to multiple accounts of a single user.

A good control system should force the users to change their password periodically.

For the sake of convenience and efficiency, users should select simple easy to remember passwords.

Correct answer: c Learning Objective 8.5 ~ Define and provide examples of general controls

28.

The pre-numbering of cheques helps to achieve completeness because it: a. b. *c. d.

provides control over cheques prevents the issue of false cheques allows us to account for all cheques through a sequence check allows us to ensure all cheque payments are properly authorised

Correct answer: c Learning Objective 8.6 ~ Define and provide examples of application controls

29.

A purchase order is entered into a computer purchasing system. The purchase is for $25 000 and has been entered by the purchase clerk. Company policy dictates that purchases over $2000 must be entered by the purchasing manager. This is an example of a breach of controls relating to: a. b. c. *d.

Timeliness Input accuracy Input validity Authorisation

Correct answer: d Learning Objective 8.6 ~ Define and provide examples of application controls

30.

What should happen if a valid username is supplied but the password is incorrect? *a. b. c. d.

the user is allowed to retry the user’s account is frozen nothing happens, not even a message to say the login failed security guards appear and interrogate the user

Correct answer: a Learning Objective 8.5 ~ Define and provide examples of general controls

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Chapter 8: Internal controls II

32.

A reasonableness check that is used when processing fortnightly employee wage payments would best be used to: a. b. c. *d.

avoid the entry of false employee names detect any employees who have their payments entered twice detect any potentially incorrect employee numbers detect potentially high values for hours worked

Correct answer: d Learning Objective 8.6 ~ Define and provide examples of application controls

33.

Which of the following controls will best help detect inventory input accuracy concerns when entering credit sales into a system? a. *b. c. d.

A batch total of the number of sales invoices in the batch.

A hash total of the number of inventory items ordered across all invoices.

A hash total of customer numbers from all sales invoices.

A sequence check on sales invoice numbers.

Correct answer: b Learning Objective 8.6 ~ Define and provide examples of application controls

34.

Which control would best help achieve the aim of correct valuation for purchase transactions entered into a system? *a. b. c. d.

Range checks – checking the quantity ordered against acceptable ranges.

Validity checks – checking the supplier is listed in our supplier master file.

Sequence check – ensuring the purchase order number is the next number in the sequence.

Authorisation – getting a manager to approve all purchases.

Correct answer: a Learning Objective 8.6 ~ Define and provide examples of application controls

35.

An example of an output control in a payroll system may be that: a. *b. c. d.

Only the HR manager can change an employee’s rate of pay.

Only an employee with a valid employee number and password can request a summary of wages received over the past month.

Only the payroll clerk can enter payroll details each month.

Only the payroll clerk can process payments made to employees.

Correct answer: b Learning Objective 8.6 ~ Define and provide examples of application controls

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Testbank to accompany: Accounting information systems 4e

36.

In general, disaster recovery plans include all of the following except: a. b. *c. d.

Temporary sites Staffing Employee evacuation procedures Business relationships restoration

Correct answer: c Learning Objective 8.7 ~ Describe the operation and components of a disaster recovery plan

37.

In terms of disaster recovery, organisations’ reaction to the threat of disaster can be: a. *b. c. d.

detective or preventive preventive or corrective detective or corrective preventive, detective and corrective.

Correct answer: b Learning Objective 8.7 ~ Describe the operation and components of a disaster recovery plan

38.

Which of the following is NOT one of the main aims for an organisation in the event of a natural disaster that disrupts business operations? a. b. *c. d.

Limit the time the business is out of operation.

Minimise the extent of loss to existing business resources.

Limit the extended harm done to business partners.

Minimise the loss of data and information.

Correct answer: c Learning Objective 8.7 ~ Describe the operation and components of a disaster recovery plan

39.

A “hot site” is: a. b. c.

*d.

A separate facility located close to the organisation’s usual premises but does not contain offices and the necessary equipment.

A separate facility located away from the organisation’s usual premises but does not contain offices and the necessary equipment.

A separate facility located close to the organisation’s usual premises and contains offices and the necessary equipment to get the business back up and running in the minimal amount of time after a disaster occurs.

A separate facility located away from the organisation’s usual premises and contains offices and the necessary equipment to get the business back up and running in the minimal amount of time after a disaster occurs.

Correct answer: d Learning Objective 8.7 ~ Describe the operation and components of a disaster recovery plan

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Chapter 8: Internal controls II

40.

The first that financial giant Morgan Stanley knew about the 9/11 bombings were that their business started running from their ________________ several kilometres away from Wall St. a. *b. c. d.

cold site hot site off-site backup hosted site

Correct answer: b Learning Objective 8.7 ~ Describe the operation and components of a disaster recovery plan

41.

Disadvantages of manual controls include all of the following except: a. b. *c. d.

Manual controls are prone to human errors.

Manual controls are prone to inconsistent application.

Manual controls used up too many human resources.

Manual controls are easier to avoid and work around.

Correct answer: c Learning Objective 8.8 ~ Analyse the execution of control activities

42.

Advantages of computer-based controls include all of the following except: a. b. c. *d.

Consistent application Timely execution Greater degree of difficulty in working around or avoiding the control Handling one-off events

Correct answer: d Learning Objective 8.8 ~ Analyse the execution of control activities

43.

Computer-based controls are extremely dependent on: (i) a sound control environment (ii) sound general controls (iii) the COBIT framework *a. b. c. d.

(i) (ii) (i) (iii) (ii) (iii) (i) (ii) (iii)

Correct answer: a Learning Objective 8.8 ~ Analyse the execution of control activities

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

44.

A company wants all sales orders over $1000 to be authorised by the sales manager.

Are the procedures covering this an example of computer or human controls? a. b. c. *d.

human computer human followed by computer computer followed by human

Correct answer: d Learning Objective 8.8 ~ Analyse the execution of control activities

45.

The control matrix does NOT tell us: a. b. c. *d.

the control objectives of a control system how control objectives would ideally be attained whether control objectives actually exist within a system the effectiveness of the control objectives

Correct answer: d Learning Objective 8.9 ~ Understand different techniques for documenting a control system

46.

The system documentation tool that is most useful for documenting controls is … a. b. c. *d.

process map structured narrative logical data flow diagram system flowchart

Correct answer: d Learning Objective 8.9 ~ Understand different techniques for documenting a control system

47.

CPA Australia identifies five reasons an internal control system does not provide 100 per cent assurance that an organisation’s objectives will be achieved. These reasons do NOT include: a. b. c. *d.

Judgement error Unexpected transactions Weak internal controls Natural disasters

Correct answer: d Learning Objective 8.1 ~ Relate control activities to the accounting process

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Chapter 8: Internal controls II

48.

To minimise the possible negative impact brought about by unexpected transactions, an organisation should: a. *b. c. d.

Ask designers of a control system to predict every possible outcome and every future event.

Place a strong emphasis on ethical and responsible behaviour.

Ask external auditors to audit their internal control system.

Refuse carrying out unexpected transactions.

Correct answer: b Learning Objective 8.1 ~ Relate control activities to the accounting process

49.

Which of the follow is also considered threats to internal controls? a. b. c. *d.

Management incompetence.

Employee turnover.

Complexity of organisational structure.

All of the options are correct.

Correct answer: d Learning Objective 8.1 ~ Relate control activities to the accounting process

50.

Information processing controls are those that are put in place within the organisation to work towards the ____________ of transactions. a. b. *c. d.

efficiency, effectiveness, and accuracy timeliness, efficiency, and completeness accuracy, completeness, and authorisation authorisation, processing, accuracy

Correct answer: c Learning Objective 8.2 ~ Classify internal controls as general or application, and based on function and business process stage

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Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. Briefly describe and compare general controls and application controls.

Answer: General controls are those policies and procedures that ‘relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems’. General controls operate across the organisation and relate to the overall environment in which different information systems are located. Note from the definition that general controls do not relate to a specific application or process and, as a result, will not directly affect the operation of the different information systems that may exist within the organisation. General controls may provide a suitable environment in which separation of duties and restricted access to resources can be applied, but they do not help to control the actual operation of the different computer systems that the organisation uses. As such, general controls provide the environment within which application controls operate.

General controls, Controls that relate to the overall computerised information system environment.

Application controls ‘apply to the processing of individual applications’ or processes. As stated in the previous version of ASA 315, ‘these controls help to provide reasonable assurance that all transactions have occurred, are authorised, and are completely and accurately recorded and processed’. As this definition indicates, application controls are designed around the control objectives of a specific business process or system and relate to processing within individual applications. That is, application controls are specific to a particular business process in that they will be implemented to address the risks and threats unique to that process. Application controls operate within the scope of general controls.

2. Briefly describe and compare preventive control, detective control, and corrective control.

Answer: Preventive controls are designed to stop errors or irregularities occurring. Unlike preventive controls, detective controls will not prevent errors from occurring. Rather, the function of a detective control is to alert those involved in the system when an error or anomaly occurs. So, as the name would suggest, it detects errors or anomalies. Corrective controls are designed to correct an error or irregularity after it has occurred.

3. Briefly describe and compare input control, processing control, and output control.

Answer: Input controls are designed to operate as data enters the system. These controls will typically aim to provide reasonable assurance about the accuracy, validity and completeness of data being entered. Processing controls are put in place to work towards the correct handling of data within the information processing stages. Output controls are concerned with the various outputs generated by the process, and are focused on issues such as who can request outputs, how outputs are prepared and making sure all outputs are accounted for.

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Chapter 8: Internal controls II

4. Describe the advantages and disadvantages of batch processing.

Answer: Batch processing operates by accumulating transactions in a group or batch and then processing the group of transactions together. Batch processing can have several advantages for an organisation, including efficiency in processing transactions and fewer system demands during regular operations. However, it also means that data are not immediately updated after each transaction.

5. What are the two types of temporary sites? What are the differences between the two?

Answer: In general there are two types of temporary sites, hot site and cold site. A hot site is a separate facility located away from the organisation’s usual premises that contains offices and the necessary equipment (such as IT, telecommunications and data) to get the business back up and running in a minimal amount of time after a disaster occurs. Unlike a hot site, a cold site does not have the necessary equipment and data in place for the organisation to immediately continue operations. Rather, it is an available office with basic telephone and electricity supplies ready for use should they be required. However, the organisation using the cold site still has to arrange for the necessary data, technology and other resources that are required to resume business operations.

6. What are the advantages and disadvantages of manual controls?

Answer: Manual controls, by definition, are performed by people. The main disadvantage is that they are prone to human error and inconsistent application. However, a benefit of manual controls is that they offer the ability to handle one-off, irregular or infrequent events that cannot necessarily be prescribed by an algorithm that forms the basis of computer programs. For less frequent or irregular transactions manual controls may be the more suitable option.

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Testbank to accompany: Accounting information systems 4e

7. What are the advantages and disadvantages of computer-based controls?

Answer: Computer-based controls offer the benefits of consistent application, timely execution and a greater degree of difficulty in working around or avoiding the control. Controls that are programmed into the computer and are exercised by the computer will provide an assurance of consistent application – the computer follows the same steps and rules each time the control needs to be applied. In addition, controls that require any degree of computation are best performed by computers because of their relative efficiency and accuracy in executing calculations. In addition, the data that can be gathered by the computer in executing control activities can provide for further analysis and follow up by the organisation if required.

Computer-based controls are also more difficult to work around. The most obvious way of avoiding computer-based controls is to manipulate the programmed instructions that the computer follows; however, few people in an organisation would possess the necessary knowledge to do this. Computer-based controls, however, are extremely dependent on a sound control environment and general controls. For example, if general controls are soundly structured (e.g. the separation of duties within the IT environment, particularly systems development and programming from users), the probability of program manipulation and alteration is reduced. However, if separation is not present there is the risk of program and data manipulation by staff in the operation of the computer systems. As a consequence, when designing computer-based controls it is necessary to consider how well the general controls are applied throughout the organisation.

8. Why unexpected transactions can contribute the ineffectiveness of an internal control system? How can an organisation minimise the impact brought about by unexpected transactions?

Answer: Control systems are usually designed around the typical transactions a business undertakes and the typical errors or threats that apply to those transactions and the environments in which they occur. However, the designers of a control system are not clairvoyants – they cannot predict every possible outcome and every future event. Therefore, there will be events or transactions that were unanticipated when the control system was put in place. A sound control environment accompanied by a strong emphasis on ethical and responsible behaviour can assist employees in carrying out these unexpected transactions, as can regularly reviewing the controls and their appropriateness to the business environment.

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Chapter 8: Internal controls II

9. Provide at least five examples of processing controls.

Answer: Run-to-run totals will help identify whether any transaction data have gone missing between when they were first gathered and after their processing, while accuracy is attained by checking totals to ensure that they are the same before and after the processing of data.

Batch totals can also be used as a control for data processing, since if data is being shifted from one file to another the data should not change. As such, the total of the data (be it number of records or dollar values) should be the same before and after the processing occurs.

Sequence checks can also be used during the processing of data. At the processing stage, these checks can operate to ensure that no data have gone missing during processing activities.

Hash totals are batch totals based around meaningless figures, and reconciliations can also help.

10. Describe the checks that can be performed during data entry.

Answer: Validity checks take a given input for a field and ensure that it is an acceptable value.

Completeness checks ensure that all required data are entered.

Limit checks will check values input into a field to make sure they fit within a pre-determined upper limit.

Range checks function in a manner similar to limit checks, with the exception that the checks apply to both upper and lower limits.

Reasonableness checks operate to check that numeric input for a field is within a reasonable numeric range.

Redundant data check operates by having the data entered twice and then checking the two sets of inputs and making sure that they are identical.

© John Wiley & Sons Australia, Ltd 2012

8.17

Chapter 9: Transaction cycle – the revenue cycle

Chapter 9 Transaction cycle -- the revenue cycle Multiple Choice Questions

1.

The revenue cycle commences when: a. b. *c. d.

a payment is received a sale is recorded a customer indicates they wish to purchase a good or service a customer is billed

Correct answer: c Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

2.

The objective of the sales phase in the revenue cycle is to: a. b. *c. d.

Effectively conduct sales and arrange the prompt supply of goods and services.

Effectively conduct sales.

Effectively conduct, record, and monitor sales and arrange the prompt supply of goods and services.

Effectively conduct, record, and monitor sales.

Correct answer: c Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

3.

The objective of the accounts receivable phase in the revenue cycle is to: a. *b. c. d.

Ensure payments for goods and services are received on time and in correct amount.

Ensure payments for goods and services are correctly received, recorded and banked.

Ensure the accounts payable record is updated accordingly when payments for goods and services are received.

Ensure that payments for goods and services are made to the correct suppliers.

Correct answer: b Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.1

Testbank to accompany: Accounting information systems 4e

4.

Which of the following documents is not generated in the revenue cycle? a. b. c. *d.

Sales order Shipping notice Bill of lading Purchase requisition

Correct answer: d Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

5.

Which of the following departments is not part of the revenue cycle? a. b. c. *d.

Billing department Sales department Shipping department Accounts payable department

Correct answer: d Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

6.

Which document is prepared, usually in multiple copies, as part of the sales process and potentially used for various purposes, including initiating shipping? a. *b. c. d.

Customer order Sales order Shipping notice Packing slip

Correct answer: b Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

7.

Which of the following statements regarding source documents in a revenue cycle is incorrect? a. b. *c. d.

The packing slip is generated by the shipping clerk.

The sales invoice is prepared by the billing clerk.

The remittance advice is generated by the customer.

The sales order is prepared by the salesperson.

Correct answer: c Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.2

Chapter 9: Transaction cycle – the revenue cycle

8.

A sound well controlled revenue cycle can provide? a. b. c. *d.

Opportunities to reduce sales staff.

Opportunities to reduce the number of vendors an organisation purchases from.

Answers a. and b. are both correct A competitive advantage by providing superior customer service levels.

Correct answer: d Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

9.

A document that is prepared by the shipping officer in the logistics unit for the common carriers that transport the goods to the customer is: *a. b. c. d.

Bill of lading Shipping notice Goods packing slip Sales invoice

Correct answer: a Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

10.

The sales order is a formal document that is prepared mainly using: a. *b. c. d.

sales invoice customer order customer credit application customer service log

Correct answer: b Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

11.

Which of the following documents is/are given to customers? (i) shipping notice (ii) sales invoice (iii) remittance advice (iv) goods packing slip. a. b. c. *d.

(i) (ii) (iii) only (ii) (iii) (iv) only (ii) (iii) only (i) (ii) (iii) (iv)

Correct answer: d Learning Objective 9.1 ~ Describe the key objectives and strategic implications of the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.3

Testbank to accompany: Accounting information systems 4e

12.

Online banking: *a. b. c. d.

Improves security and cash flows Improves security but has no impact on cash flows Improves transparency as well as eliminating the need for reconciliation of transactions Increases data entry costs but reduces error rates.

Correct answer: a Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

13.

Which of the following technologies is not directly relevant to the revenue cycle? a. b. *c. d.

CRM ERP SCM EDI

Correct answer: c Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

14.

EDI stands for: *a. b. c. d.

Electronic data interchange Electronic departmental integration Extensible digital information Ecommerce data interchange

Correct answer: a Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

15.

EDI is mainly used to: a. b. *c. d.

produce versatile and adaptive systems for large repeat customers produce versatile and adaptive systems for customers of all sizes produce specifically tailored systems for large repeat customers produce specifically tailored systems for customers of all sizes

Correct answer: c Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.4

Chapter 9: Transaction cycle – the revenue cycle

16.

A bespoke link that enables exchange of data between two separate computer systems and that is used when transaction flow and volume is large and transaction syntax is predictable is referred to as: a. *b. c. d.

ERP EDI XML CRM

Correct answer: b Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

17.

CRM stands for: a. *b. c. d.

Computerised resource management Customer relationship management Corporate resource management Continuous reduction method.

Correct answer: b Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

18.

CRM is designed with the specific purpose of viewing the organisation’s data from: a. b. *c. d.

a resource centric perspective a management centric perspective a customer centric perspective a data system perspective .

Correct answer: c Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

19.

ERP: a. b. c. *d.

improves the integration of enterprise-wide data provides tighter linkages between relevant modules such as marketing, sales, production, shipping, billing, accounts receivable and general ledger records and manages many different types of business transactions within a single integrated database All of the options are correct.

Correct answer: d Learning Objective 9.2 ~ Identify common technologies underpinning the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.5

Testbank to accompany: Accounting information systems 4e

20.

Ideally, customer data should be produced by a dedicated customer management section of an organisation. This customer management section is NOT responsible for: a. b. c. *d.

Identifying and authorising new customers Identifying and authorising existing customers Assigning and reviewing customer credit limits Securing preferential pricing for customers.

Correct answer: d Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

21.

Inventory data is primarily created by activities within the: a. *b. c. d.

Revenue cycle Expenditure cycle Conversion cycle Financing cycle.

Correct answer: b Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

22.

The most detailed data produced by the revenue cycle is: a. b. *c. d.

customer data accounts receivable sales data inventory data

Correct answer: c Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

23.

Which of the following is NOT a strategy-level decision? a. b. c. *d.

Price setting Sales return and warranty policies Provision of customer credit facilities Selecting goods delivery method

Correct answer: d Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

© John Wiley & Sons Australia, Ltd 2012

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Chapter 9: Transaction cycle – the revenue cycle

24.

Which of the following is NOT an operational level decision? a. *b. c. d.

Determining correct cash receipt allocations for a customer payment.

Cash collection policies and procedures.

Responding to a request to extend credit to a particular customer.

Calculation of inventory availability.

Correct answer: b Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

25.

The calculation of inventory availability requires knowledge of: (i) current levels of stock on hand (ii) stock on order (iii) stock promised to customers (iv) supplier lead time. a. b. c. *d.

(i) (ii) only (i) (ii) (iv) only (i) (ii) (iii) only (i) (ii) (iii) (iv)

Correct answer: d Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

26.

Determining cash collection policies and procedures needs knowledge of: (i) average payment times (ii) industry standards (iii) customer credit policies (iv) legal requirements (v) the degree of customer tolerance. a. b. *c. d.

(i) (ii) (iv) only (ii) (iii) (iv) only (i) (ii) (iii) (iv) only (i) (ii) (iii) (iv) (v)

Correct answer: c Learning Objective 9.3 ~ Describe revenue cycle data and key revenue business decisions

27.

Which of the following activities is not involved in processing the sales order? a. b. c. *d.

Check customer credit Create sales order Check inventory levels Bill the customer

Correct answer: d Learning Objective 9.4 ~ Identify and document the primary activities in the revenue cycle and the data produced by these activities

© John Wiley & Sons Australia, Ltd 2012

9.7

Testbank to accompany: Accounting information systems 4e

28.

Which of the following activities is not involved in preparing and the sending the goods to customers? a. b. c. *d.

Pick goods Prepare goods for shipping Deliver goods Update inventory record

Correct answer: d Learning Objective 9.4 ~ Identify and document the primary activities in the revenue cycle and the data produced by these activities

29.

To bill a customer, the billing department must: a. b. *c. d.

Check inventory levels Perform a credit check Check that the sale has been completed Check that the customer has received the goods.

Correct answer: c Learning Objective 9.4 ~ Identify and document the primary activities in the revenue cycle and the data produced by these activities

30.

To reduce the risk of allowing an order to proceed when goods are not available or rejecting an order when goods are available, it is important to: *a. b. c. d.

maintain accurate and timely perpetual inventory records and periodically conduct physical inventory checks. maintain accurate and timely perpetual inventory records and constantly conduct physical inventory checks. maintain accurate and timely periodic inventory records and periodically conduct physical inventory checks. maintain accurate and timely periodic inventory records and constantly conduct physical inventory checks.

Correct answer: a Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.8

Chapter 9: Transaction cycle – the revenue cycle

31.

A credit check requires the information of : a. b. c. *d.

Whether a credit limit has been established for the customer.

Whether there is sufficient credit available.

The detail of any recent sales that may not yet have been updated into the customer’s accounts receivable account All of the options are correct.

Correct answer: d Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

32.

Which of the following is true with regards to establishing credit limits for customers? a. *b.

c. d.

The ability to add a new customer and change or assign a credit limit should be devolved to staff in the sales area To reduce the risk of accepting an uncreditworthy customer or incorrectly rejecting a creditworthy customer, it is important to independently maintain customer accounts and credit limits.

Credit limits should be established based on desired sales targets.

The Chief Financial Officer should overview all customer credit limits.

Correct answer: b Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

33.

Which of the following is NOT true regarding sales orders? a. b. *c.

d.

The sales order forms the basis for subsequent billing of the customer.

The actual billing of the customer can occur prior to goods dispatch.

The sales order is a document that is internal to the organisation, it is necessary for it to be produced in paper form so that hardcopy evidence can be kept.

The creation of the sales order is accomplished by inputting all the details relating to the customer and the products, then generating a sequentially numbered sales order.

Correct answer: c Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.9

Testbank to accompany: Accounting information systems 4e

34.

The sales order’s primary purpose is to notify two different areas of the new sale.

These two areas are: a. b. c. *d.

Inventory area and manufacturing area Billing area and credit check area Production area and delivery area Warehouse area and accounts area

Correct answer: d Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

35.

KPI stands for a. *b. c. d.

Key process indicator Key performance indicator Key progress index Key performance index

Correct answer: b Learning Objective 9.6 ~ Develop metrics to monitor revenue cycle performance

36.

In terms of ensuring payments for goods and services are correctly received, recorded and banked, which of the following is unlikely to be a KPI? *a. b. c. d.

Credit requests Aged accounts receivable reporting Number of bad debts written off Average payment times

Correct answer: a Learning Objective 9.6 ~ Develop metrics to monitor revenue cycle performance

37.

Which of the following is unlikely to be a KPI for the objective of arranging the prompt supply of goods and services? a. b. *c. d.

Cycle time to fill and deliver orders Percentage of sales on back order Percentage of sales invoiced on day of shipping Sales returns

Correct answer: c Learning Objective 9.6 ~ Develop metrics to monitor revenue cycle performance

© John Wiley & Sons Australia, Ltd 2012

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Chapter 9: Transaction cycle – the revenue cycle

38.

Cycle performance should be measured, primarily, relative to: a. b. c. *d.

industry-average cycle time whether the process is efficiently carried out how cost-effective the process is how well the process outcomes achieve the overall objectives of that cycle

Correct answer: d Learning Objective 9.6 ~ Develop metrics to monitor revenue cycle performance

39.

Which of the following information is needed to determine the creditworthiness of a customer? a. b. c. *d.

Credit limit.

Credit availability.

Details of recent sales that are not yet recorded in the customer's accounts receivable account.

All of the options are correct.

Correct answer: d Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

40.

Requesting a signed purchase order form from the customer prior to accepting a sale can reduce the risk of: a. b. *c. d.

Non-payment Insufficient finished goods inventory available Fictitious sales Poor decision

Correct answer: c Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

41.

Which of the following statements regarding credit limits is true? a. *b. c. d.

The ability to add a new customer and change or assign a credit limit should be devolved to sales staff.

Credit limit should be established on the fiscal soundness of the customer.

The age of all receivables needs to be checked only occasionally.

Answers a. and b. are both correct.

Correct answer: b Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.11

Testbank to accompany: Accounting information systems 4e

42.

A customer buys a computer over the Internet; she is required to pay for the computer before the computer is dispatched. This is an example of: a. b. c. *d.

Electronic payment Post-billing Credit check Pre-billing

Correct answer: d Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

43.

A sales order is created by using ________ as the main source of information. a. b. *c. d.

Inventory level Credit information Sales request Forecasted sales.

Correct answer: c Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

44.

Which document triggers the picking of goods? a. b. *c. d.

Sales order only Picking ticket only Either sales order or picking ticket Neither sales order nor picking ticket

Correct answer: c Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

45.

A status code is: a. *b. c. d.

A code used to show the credit level of a customer.

A code on transactions that are moving through an iteration of a process indicating which stage of the process the transaction is at.

A code used to flag whether the goods are shipped.

Not accessible by the customer.

Correct answer: b Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.12

Chapter 9: Transaction cycle – the revenue cycle

46.

An invoice is created for each valid sale by basing on: a. *b. c. d.

Price information and inventory information Customer data and sales order Sales request and price information Customer data and inventory information

Correct answer: b Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

47.

Which of the following statements relating to the creation of an invoice is correct? *a. b. c. d.

If invoices are not posted regularly, the amounts shown as owing in accounts receivable will be understated.

If invoices are not posted regularly, the amounts shown as owing in accounts receivable will be overstated.

Updating accounts receivable must happen in real-time; otherwise the accounts receivable accounts will be understated.

Invoices must be dispatched with the goods to ensure timely payment.

Correct answer: a Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

48.

KW Ltd separates the billing and shipping functions and imposes independent checks to ensure that goods have been shipped prior to billing the customer. This is an example of: a. b. *c. d.

Reducing the risk of over-billing Reducing the risk of under-billing Reducing the risk of failing to bill a customer for a valid sale Eliminating the risk of failing to ship goods that have been invoiced.

Correct answer: c Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.13

Testbank to accompany: Accounting information systems 4e

49.

Which of the following statement regarding the receipt of cheques is true? *a. b. c. d.

Cheques received should be stamped or endorsed immediately.

Cheques received should be receipted and deposited by the accounts receivable clerk.

Cheques need not be separated from the remittance advice.

Cheques should be receipted and deposited by the accounts payable clerk.

Correct answer: a Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

50.

Which of the following can be identified as a risk in receiving payment? a. b. c. *d.

Late or slow payment Non-payment Theft of cash and/or cheques All of the options are correct.

Correct answer: d Learning Objective 9.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle

© John Wiley & Sons Australia, Ltd 2012

9.14

Chapter 9: Transaction cycle – the revenue cycle

Short Answer Questions 1. Describe and discuss the front end of the revenue cycle, especially its objectives.

Answer: The front end of the revenue cycle is client facing and is where the sales transaction takes place. The objective of the sales phase is to effectively conduct, record and monitor sales of goods and services, and arrange the prompt supply of goods and services. Essentially, staff involved in the sales phase need to make sure that the organisation provides the right product at the right time and place. To achieve this objective, customer orders must be properly recorded and controlled, sales should only be made to creditworthy customers and delivered goods must meet the customer’s needs.

2. Describe and discuss the back end of the revenue cycle, especially its objectives.

Answer: The back end of the revenue cycle is the accounts receivable phase, where the objective is to ensure payments for goods and services are correctly received, recorded and banked. This part of the cycle is sometimes referred to as ‘back-office’ or ‘back-end’ processing. The activities in this latter part of the cycle are often carried out by staff who do not have the same direct contact with customers as the front-end, or client-facing, staff who process sales.

In order to maintain good client relationships the linkages between the front-end (clientfacing) and back-end revenue systems must be well defined. The accounts receivable phase needs to make sure that customers are billed the right amounts for the right products, and that those amounts are collected at the right time. This involves ensuring that customer invoices and receipts are prepared and recorded in an accurate and timely manner, that cash receipts are protected from fraud and misuse, that receivables balances are kept to a minimum level and that the organisation collects amounts owing to it on a timely basis.

3. Why is the revenue cycle strategically important?

Answer: The revenue cycle is strategically important; the level of sales achieved drives all other activity levels within the organisation. In order to survive and prosper an organisation must not only remain profitable (i.e. revenues must exceed expenses), it also must be able to achieve positive cash flows. A sound, well-controlled revenue cycle can provide a competitive advantage by providing superior customer service levels, which in turn translate to opportunities to sustain higher product pricing. An alternative form of competitive advantage is the potential to control costs that is afforded by ensuring that the revenue cycle is efficient and effective. This translates into an opportunity to price goods and services at a level that undercuts less efficient competitors and increases market share. Ideally, both these competitive advantages would be realised simultaneously, with an efficient and effective revenue cycle ensuring superior levels of customer services at a low cost; however, in reality these goals often prove to be incompatible. The revenue cycle generally offers consumers greater value either by offering lower prices, or by providing benefits and service that justify a higher price.

© John Wiley & Sons Australia, Ltd 2012

9.15

Testbank to accompany: Accounting information systems 4e

4. Describe how the revenue cycle can benefit from technologies such as ERP, EDI and XML. Answer: The revenue cycle can benefit greatly from technologies that provide an efficient means of data exchange. It is more efficient, timely and cost effective to transact electronically. Much of the ‘paperwork’ generated by the revenue cycle originates in-house and is sent outwards to customers. The ability to transact online not only speeds up the revenue transaction cycle, it can also act to outsource some of the transactional work, and therefore costs, to the customer.

Technologies such as EDI (to produce specifically tailored systems for large repeat customers) and XML (for online sales sites) help provide efficient data exchange. Moreover, ERP systems assist with enabling and integrating the revenue cycle. The revenue cycle links into many areas within the organisation; an ERP system not only improves the integration of enterprise-wide data but also provides tighter linkages between relevant modules such as marketing, sales, production, shipping, billing, accounts receivable and general ledger.

5. Describe how the revenue cycle can benefit from online payment facilities?

Answer: Online payment facilities such as BPAY provide a simple and cost effective way for organisations to receive payments. In addition to providing more timely payments, using customer self-service systems, such as BPAY, helps cut data entry costs and reduces error rates. The use of online banking facilities improves transparency and reconciliation of transactions; also there is less cash handling which improves security and cash flows.

6. Give at least three examples of strategy level decisions in the revenue cycle.

Answer: Strategy level decisions are typically made by senior management within the organisation, and create the policy framework within which the cycle operates. To be effective, strategy level business process decisions should be congruent with the overarching business strategy.

Strategy level decisions would include creation of policies for areas such as: Price setting - requires construction of pricing algorithms, consideration of competitor price points, and an understanding of the degree of market tolerance.

Sales return and warranty policies - involves predicting potential volume of returns, incorporating any relevant legislation, identifying any product characteristics that make returns more or less acceptable. provision of customer credit facilities - requires consideration of the options available, and the costs, benefits and risks of each of these for the organisation. cash collection policies and procedures - needs knowledge of average payment times, industry standards, customer credit policies, legal requirements.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 9: Transaction cycle – the revenue cycle

7. Give at least four examples of operation level decisions in the revenue cycle.

Answer: There are a range of operational level decisions that will be made every time the revenue cycle is enacted. These operational decisions are typically made by less senior staff and relate only to a specific instance of the cycle. Typical operational decisions include: Responding to customer inquiries such as a request to purchase goods, or to return goods for credit - requires consideration of the customer’s purchase history and their accounts receivable history, in addition to knowing the options available under the applicable policy Responding to a request to extend credit to a particular customer - requires consideration of the customer’s prior history and likely sales volume Calculation of inventory availability - requires knowledge of current levels of stock on hand, stock on order, stock promised to customers and supplier lead times Selecting goods delivery method - requires understanding of policy alternatives available combined with the costs and risks of the specific transaction being considered Determining correct cash receipt allocations for a customer payment - requires access to details of invoices outstanding, and any remittance advice data supplied by the customer.

8. What are the three pieces of information required during credit check and how do they contribute to credit check decisions?

Answer: A credit check requires three separate pieces of information. The first piece of information identifies if a credit limit has been established for the customer. Figure 9.7 shows an example of a credit application form. If no credit limit exists the sale should not proceed. The second piece of information is whether there is sufficient credit available; this information is obtained by comparing the amount of credit currently used (i.e. the amount the customer currently owes the organisation) to the credit limit for the customer. If the remaining credit is not enough to cover the requested purchase, the sale should not proceed. The final piece of information is the detail of any recent sales that may not yet have been updated into the customer’s accounts receivable account. The value of any recent sales should be deducted from the remaining credit available for the customer; if the requested purchase exceeds this amount the sale should not proceed.

© John Wiley & Sons Australia, Ltd 2012

9.17

Testbank to accompany: Accounting information systems 4e

9. There is a risk that payments received will be incorrectly recorded against the customer accounts. What techniques can be used to control this potential problem?

Answer: To control this potential problem it is important to create batch totals or hash totals of cash receipts and reconcile all inputs to accounts receivable. Batch total is a total that is added to a batch of documents and is used to make sure that all documents in the batch have been correctly processed. A batch total is usually a summation of a data item with some meaning (e.g. a total of the individual invoice amounts for a batch of invoices). Hash total is a total that is similar to a batch total but the number that is added has no meaning by itself (e.g. a hash total of customer numbers).

10. What are the risks associated with the dispatch of goods and how can these risks be controlled?

Answer: There is a risk of goods being labeled incorrectly and delivered to the wrong recipient. To reduce this risk it is important to firmly attach shipping labels to the goods immediately after packing them and possibly include an independent three-way check of the goods to the picking ticket and the shipping label prior to dispatch. Other risks related to the dispatch of goods include slow delivery or non-shipment of the goods. To reduce these risks an exception report that identifies goods picked for a sales order but not shipped within a reasonable timeframe is helpful. Common controls to reduce risks related to the theft of goods include requiring an independent shipping authorisation check and restricting access to packed goods waiting to be collected for delivery. The actual delivery of the goods involves several risks: the goods may be delivered incorrectly, or may be stolen along the way. The level of risk encountered differs depending on whether the delivery is undertaken by a company employee or a contract delivery service. The controls in place should reflect the degree and type of risk involved, and should include separately and clearly packaging and labeling each order, and requiring the delivery driver to provide a valid customer signature for any delivery made.

© John Wiley & Sons Australia, Ltd 2012

9.18

Chapter 10: Transaction cycle -- the expenditure cycle

Chapter 10: Transaction cycle -- the expenditure cycle Multiple Choice Questions

1.

The expenditure cycle commences when: *a. b. c. d.

~ A section of the organisation signals a need for goods or services to be provided The goods or services that are acquired by a section of the organisation have been paid for Purchase orders are appropriately authorised Delivered goods are received

Correct answer: a Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

2.

The overall objective of the purchasing phase in the expenditure cycle is to: a. b. *c. d.

Procure the right goods at the right amount and with the right price Procure the right goods at the right amount and with the right supplier Procure the right goods at the right amount, and to receive those goods at the right time Procure the right goods at the right amount, and to update the accounts payable record

Correct answer: c Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

3.

To achieve the overall objective of the purchasing phase in the expenditure cycle, an organisation needs to: a. b. c. *d.

Approve and authorise initiated purchases properly.

Ensure that accepted goods and services must meet quality and delivery specifications.

Record all purchase commitments and obligations accurately.

All of the options are correct.

Correct answer: d Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.1

Testbank to accompany: Accounting information systems 4e

4.

The overall objective of the accounts payable phase in the expenditure cycle is to: a. *b. c. d.

Maintain the accounts payable record.

Pay the right people the right amount at the right time Determine whether an invoice should be paid.

Ensure suppliers are neither overpaid nor underpaid.

Correct answer: b Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

5.

To decide whether a payment should be made to a supplier, an accounts payable clerk should: *a. b. c. d.

Examine the receiving report.

Be involved in the interaction with suppliers of the goods during the purchasing phase Ensure there are on-going good relationships with suppliers.

Search for any unpaid invoices from that supplier.

Correct answer: a Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

6.

Which of the following is NOT a concern of the expenditure cycle? a. b. c. *d.

Favourable settlement terms are negotiated with the supplier.

Payments match supplier invoice, purchase order and delivery docket.

Payments are made by authorised employees There are sufficient goods in the finished goods inventory to fulfil the customer’s order.

Correct answer: d Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

7.

The business process of paying the right people the right amount at the right time is called … a. b. *c. d.

Cash sales Accounts receivable Accounts payable General ledger updating

Correct answer: c Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.2

Chapter 10: Transaction cycle -- the expenditure cycle

8.

Goods and services should be obtained from: *a. b. c. d.

Authorised and pre-vetted suppliers.

Suppliers that ask for the lowest price.

Suppliers that provide the highest quality.

Suppliers within the closest geographic proximity to the company as this will provide lower transport costs.

Correct answer: a Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

9.

Which of the following does not need to be undertaken during the accounts payable phase? a. b. c. *d.

The making of payments by authorised employees only.

The making of both accurate and timely payments.

Maximisation of any settlement terms.

Procuring the right goods for the right amount and at the right time.

Correct answer: d Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

10.

Which of the following is a vital indicator when deciding whether a payment should be made to a supplier? a. b. *c. d.

The manager’s authorisation and agreement.

The receipt of a receiving report from the warehouse department.

Goods are received in sufficient quantity and good quality.

The supplier has provided the company with an invoice.

Correct answer: c Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.3

Testbank to accompany: Accounting information systems 4e

11.

A cost leadership strategy would indicate that: *a. b. c. d.

Suppliers who can provide goods of suitable quality at a lower price should be selected.

Suppliers who can provide goods at the lowest price should be selected.

Suppliers who can provide goods at a lower price and the longest settlement period should be selected.

Suppliers aligned with the organisation’s overall business strategy should be selected.

Correct answer: a Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

12.

A differentiated strategy would be better served by selecting suppliers with: a. *b. c. d.

High quality products, good service standards, and low prices High quality products and good service standards.

Suitable quality products, suitable service standards and low prices.

Suitable quality products, good service standards and low prices.

Correct answer: b Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

13.

The accounts payable phase has a high potential exposure for fraud mainly because: a. b. *c. d.

Collusions are more likely to occur in the accounts payable phase.

Computer duplication technology can be used.

Cash is leaving the business.

Both a. & b. are correct.

Correct answer: c Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

14.

Poor payment practices can: (i) damage cash flow (ii) damage supplier relationships (iii) lead to fraud (iv) increase the chance of collusion. a. b. *c. d.

(i) (ii) only (i) (ii) (iv) only (i) (ii) (iii) only (i) (ii) (iii) (iv)

Correct answer: c Learning Objective 10.1 ~ Describe the key objectives and strategic implications of the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.4

Chapter 10: Transaction cycle -- the expenditure cycle

15.

Which of the following technologies is not directly involved in the expenditure cycle? a. b. c. *d.

ERP RFID SCM CRM

Correct answer: d Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

16.

Which of the following technologies can provide accurate, timely and cost-effective data sharing to the expenditure cycle? a. b. *c. d.

RFID SCM EDI CRM

Correct answer: c Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

17.

What are the implications if an organisation is switching to an electronic payment system from a manual payment system? a. b. c. *d.

Access security Timing Cash flow All of the options are correct

Correct answer: d Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

18.

Which of the following cannot be improved by the use of appropriate technologies in the expenditure cycle? a. b. c. *d.

Transparency of cash payments.

Management of cash payments.

Timeliness of cash payments.

Recovery of incorrect cash payments.

Correct answer: d Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.5

Testbank to accompany: Accounting information systems 4e

19.

Cash budget is a budget showing: a. *b. c. d.

Forecast levels of future cash to be paid to suppliers.

Forecast levels of future cash flows into and out of the organisation.

Forecast levels of future cash to be received from customers.

Forecast levels of future cash needs by a retail business.

Correct answer: b Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

20.

RFID is more suitable for: *a. b. c. d.

A car manufacturer.

A producer of hand-made luxury handbags.

A large restaurant.

A small bottle shop.

Correct answer: a Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

21.

Regarding technologies involved in the expenditure cycle, SCM stands for: a. *b. c. d.

Supplier and Customer Management software Supply Chain Management software Service and Cash Management software Secure Cash Management software

Correct answer: b Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

22.

The specialised software to handle the integration of suppliers and customers with the aim of producing and distributing goods and services by quantity, location and time to minimise costs and satisfy required service levels is referred to as: a. *b. c. d.

ERP SCM RFID EDI

Correct answer: b Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

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Chapter 10: Transaction cycle -- the expenditure cycle

23.

A company buys in finished product to sell on to customers. Which of the following descriptions is the best reason to use an ERP system to support the expenditure cycle? a. b. *c. d.

Improved connections between purchasing and inventory departments.

Centralised database.

Tighter linkages between demand and supply function.

Electronic transmission of purchase orders to suppliers.

Correct answer: c Learning Objective 10.2 ~ Identify common technologies underpinning the expenditure cycle

24.

When deciding which suppliers provide the best quality and service at the best price: *a. b. c. d.

There is often a trade-off between price, quality and service.

The overall business strategy of the organisation is not a concern.

The type of product being procured is not a concern.

The greatest focus should be placed on price.

Correct answer: a Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

25.

In order to correctly identify how much inventory to purchase it is important to be familiar with the current demand for the goods. This demand for the goods mainly comes from: a. b. *c. d.

The conversion process.

The expenditure cycle.

The sales process.

Demand forecast.

Correct answer: c Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

26.

In terms of the data produced by expenditure activities, an organisation may store detailed data related to: a. *b. c. d.

Formal product requisitions only.

Both informal and formal product requisitions.

Formal product requisitions that have been initiated and fulfilled only.

Both informal and formal product requisitions that have been initiated and fulfilled.

Correct answer: b Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

© John Wiley & Sons Australia, Ltd 2012

10.7

Testbank to accompany: Accounting information systems 4e

27.

Goods received data cannot be used to: a. b. c. *d.

Investigate the list of items received from suppliers.

Update the inventory status of relevant goods Verify invoice validity during the accounts payable phase.

Investigate the details of open purchase orders.

Correct answer: d Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

28.

Which of the following is NOT a strategy level decision to be made in the expenditure cycle? a. b. c. *d.

Whether the organisation should consolidate purchases across units to obtain optimal prices.

How IT can be used to improve both the efficiency and the accuracy of the inbound logistics function.

Identifying where inventories and supplies should be held.

Determining the optimal level of inventory and supplies to carry.

Correct answer: d Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

29.

Which of the following is NOT an operational decision to be made in the expenditure cycle? a. b. c. *d.

Deciding which suppliers provide the best quality and service at the best prices.

Identifying if sufficient cash is available to take advantage of any discounts suppliers have offered.

Determining how payment can be made to suppliers in order to maximise cash flow.

Determining whether expenditure business processes align with overall business strategy.

Correct answer: d Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

© John Wiley & Sons Australia, Ltd 2012

10.8

Chapter 10: Transaction cycle -- the expenditure cycle

30.

An inventory management strategy where the goal is to time the ordering of goods so they arrive just before when they are to be used, so as to reduce inventory holding costs is referred to as: a. *b. c. d.

BTI JIT ITB JITI

Correct answer: b Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

31.

With regards to operational decisions, which of the following is NOT true? a. b. *c. d.

Operational decisions in the expenditure cycle can be made by middle management.

Operational decisions in the expenditure cycle can be made by operational staff.

Operational decisions in the expenditure cycle create the policy framework within which the cycle operates.

Operational decisions in the expenditure cycle relate only to a specific instance of the process.

Correct answer: c Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

32.

Which of the following operational decisions is part of the expenditure cycle? a. b. c. *d.

Scheduling production to satisfy forecast demand.

Responding to customer queries.

Reviewing employee performance.

Deciding which supplier to use for a specific order.

Correct answer: d Learning Objective 10.3 ~ Describe expenditure cycle data and key expenditure business decisions

© John Wiley & Sons Australia, Ltd 2012

10.9

Testbank to accompany: Accounting information systems 4e

33.

Which of the following sequence in the expenditure cycle is correct? *a. b. c. d.

collect requests for goods -> create purchase requisition -> choose the supplier -> create the purchase order collect requests for goods -> choose the supplier -> create purchase requisition -> create the purchase order create purchase requisition -> collect requests for goods -> choose the supplier -> create the purchase order create the purchase order -> collect requests for goods -> choose the supplier > create purchase requisition

Correct answer: a Learning Objective 10.4 ~ Identify and document the primary activities in the expenditure cycle and the data produced by these activities

34.

Typically, when receiving goods in the expenditure cycle: *a. b. c. d.

One should accept the delivery before recording goods received.

One should record goods received before accepting the delivery.

It doesn’t matter whether accepting the delivery or the recording goods received comes first.

One should ensure that there is always an invoice attached with all goods received.

Correct answer: a Learning Objective 10.4 ~ Identify and document the primary activities in the expenditure cycle and the data produced by these activities

35.

Typically, which of the following document set will be handled by the purchase requisition officer during the determination of demand for goods? a. b. *c. d.

Inventory data and purchase order.

Purchase request and supplier data.

Sales data and inventory data.

Supplier data and sales data.

Correct answer: c Learning Objective 10.4 ~ Identify and document the primary activities in the expenditure cycle and the data produced by these activities

© John Wiley & Sons Australia, Ltd 2012

10.10

Chapter 10: Transaction cycle -- the expenditure cycle

36.

In the order goods stage of the expenditure cycle, which of the following is designed to reduce the risk of collusion and fraud? a. b. *c. d.

Purchase orders are raised only once each week.

The decision to purchase more goods or materials is made by the purchasing officer.

The person who places orders is different from the one who is responsible for maintenance of the list of approved suppliers.

Purchase order forms are pre-numbered.

Correct answer: c Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

37.

Normally, when the stock on hand drops down to the automatic reorder point: a. *b. c. d.

A purchase request is generated automatically.

A purchase requisition is generated automatically.

A purchase order is generated automatically All of the options are correct.

Correct answer: b Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

38.

Accumulation of purchase requests should be done when: a. b. c. *d.

There is a potential to achieve a better price outcome by buying in bulk.

Transaction costs can be lower by a smaller number of larger orders.

Time is not critical for the items being purchased.

All of the options are correct.

Correct answer: d Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

39.

Which of the following is NOT a check during the requisition stage of the expenditure cycle? a. b. c. *d.

The quantities requested are reasonable.

The request is for valid goods.

The request has been authorised correctly.

The supplier is on the approved list.

Correct answer: d Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.11

Testbank to accompany: Accounting information systems 4e

40.

A blind copy of the purchase order, which is sent to the receiving department, cannot: a. b. *c. d.

Help deterring employee theft of high-value income goods.

Help forcing the receiving clerk to actually count and examine the incoming goods.

Expedite the preparation of receiving reports. be used for copying quantity and price information to the receiving report.

Correct answer: c Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

41.

An example of a suitable key performance indicator (KPI) for the objective of producing purchase orders that are accurate and correctly authorised is: *a. b. c. d.

# of purchases from approved suppliers. # of requester complaints. # of returns to suppliers. $ of unauthorised payments.

Correct answer: a Learning Objective 10.6 ~ Develop metrics to monitor expenditure cycle performance

42.

To prevent employees from receiving kickbacks in the ordering process, an organisation can do the following except: a. b. c. *d.

Enforce job rotation.

Enforce annual leave.

Enforce corporate gift policies.

Enforce the use of pre-approved suppliers.

Correct answer: d Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

© John Wiley & Sons Australia, Ltd 2012

10.12

Chapter 10: Transaction cycle -- the expenditure cycle

43.

To check that there was a purchase order placed for the goods, goods receiving staff should check the following except: a. b. c. *d.

The purchase number is valid.

The goods and supplier listed on the purchase order approximate those on the delivery document.

The goods listed on that purchase order have not been received already.

The price on the purchase order agrees with the price on the delivery document.

Correct answer: d Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

44.

The types of counts and checks conducted during receiving goods will vary depending on the ________. a. b. *c. d.

Availability of the receiving clerk.

The corporate policy on how often incoming goods should be checked.

Volume and value of goods received.

All of the options are correct.

Correct answer: c Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

45.

A discount should only be taken where: a. b. c. *d.

Cash flow is sufficient to support the early payment.

The discount offered is a reasonable inducement.

Corporate policy allows discounts to be taken.

All of the options are correct.

Correct answer: d Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

46.

An example of a suitable key performance indicator (KPI) for the objective of ensuring payments are made to suppliers are timely and accurate is: *a. b. c. d.

$ overpayments # of quality complaints # of requester complaints # of accounts payable adjustments

Correct answer: a Learning Objective 10.6 ~ Develop metrics to monitor expenditure cycle performance

© John Wiley & Sons Australia, Ltd 2012

10.13

Testbank to accompany: Accounting information systems 4e

47.

When approving payments, an accounts payable clerk needs to examine: a. b. c. *d.

Purchase order information Receiving reports Supplier information All of the options are correct.

Correct answer: d Learning Objective 10.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the expenditure cycle

48.

Which of the following is NOT a KPI that can be used to evaluate the objective “To ensure payments made to suppliers are both timely and accurate”? *a. b. c. d.

Number of purchases from approved suppliers.

Financial delegations compliance.

Average payment time.

Number of supplier complaints.

Correct answer: a Learning Objective 10.6 ~ Develop metrics to monitor expenditure cycle performance

49.

Which of the following is NOT a KPI that can be used to evaluate the objective “To ensure goods are received in a timely fashion and both the quality and quantity of goods delivered are checked before acceptance”? a. b. c. *d.

Number of quality complaints.

Number of requester complaints.

Number of returns to suppliers.

Number of erroneous receiving reports.

Correct answer: d Learning Objective 10.6 ~ Develop metrics to monitor expenditure cycle performance

50.

Which of the following is NOT a KPI that can be used to evaluate the objective “To produce purchase orders that are accurate and appropriately authorised”? a. b. c. *d.

Number of purchases from unapproved suppliers Number of supplier complaints Number of accounts payable adjustments Discounts claimed/overlooked

Correct answer: d Learning Objective 10.6 ~ Develop metrics to monitor expenditure cycle performance

© John Wiley & Sons Australia, Ltd 2012

10.14

Chapter 10: Transaction cycle -- the expenditure cycle

Short Answer Questions 1. Describe the objectives of the purchasing phase of the expenditure cycle and how these objectives can be achieved.

Answer: This phase interacts extensively with external suppliers of goods and services; the overall objective is to procure the right goods at the right amount, and to receive those goods at the right time. In order to achieve this outcome, initiated purchases need to be properly approved and authorised; goods and services need to be obtained from authorised or pre-vetted suppliers; all purchase commitments and obligations need to be recorded accurately; and accepted goods and services must meet quality and delivery specifications. Errors in the purchasing phase can lead to a situation where goods are not available to meet customer needs if demand is underestimated, or the organisation incurs unnecessary inventory holding costs if demand is overestimated.

2. Describe the objectives of the accounts payable phase of the expenditure cycle and how these objectives can be achieved.

Answer: The objective is to pay the right people the right amount at the right time. The activities in this phase are typically conducted by back-office staff that will not necessarily have had previous contact with the suppliers of the goods. In order to ensure ongoing good relationships with suppliers and minimise the risk of improper payments, it is essential that all relevant information relating to the purchasing phase is shared with the accounts payable phase. Additionally, the quality of the goods received, although not a data point conventionally thought of as related to accounting, is a vital indicator when deciding whether a payment should be made to a supplier. The accounts payable phase needs to ensure that payments are made by authorised employees only, and that those payments are both accurate and timely, while ensuring that they maximise favourable settlement terms. In order to ensure the integrity of financial reporting and financial statements all accounts payable liabilities must be recorded accurately and promptly.

3. What are the strategic implications of the expenditure cycle?

Answer: The expenditure cycle is strategically important to an organisation, particularly in terms of the degree of alignment with the overall business strategy. A sound, well-controlled expenditure cycle can provide a competitive advantage by providing high-quality products and services, which in turn translates to an opportunity for higher product pricing. An alternative form of competitive advantage is the potential to control costs that is afforded by ensuring that the expenditure cycle is efficient and effective. This translates into an opportunity to provide goods and services at a level that undercuts less efficient competitors and increases market share.

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

4. Discuss how organisations behave differently when pursuing a cost leadership strategy and a product differentiation strategy.

Answer: An organisation seeking to maintain or improve market share by using a cost leadership strategy (i.e. pricing its product low enough to attract additional sales) will behave in a fundamentally different way to that of an organisation seeking to differentiate its product in that same market. A key strategic alignment area within the purchasing process relates to the selection and approval of suppliers of goods and services. A cost leadership strategy would indicate that suppliers who can provide goods of suitable quality at a lower price should be selected, whereas a differentiated strategy would be better served by selecting suppliers with high quality products and good service standards.

5. What are the risks associated with the purchasing phase when it is not correctly managed?

Answer: In terms of the purchasing phase, failure to correctly manage purchasing can lead to systemic problems: an unreliable supply of goods and services has the potential to negatively impact the revenue, production and inventory management processes. Buying too much, too little or the wrong items creates inventory problems and can lead to increased costs or a decline in revenues.

6. What are the risks associated with the purchasing phase when it is not correctly managed?

Answer: The accounts payable phase involves cash leaving the business and, as a result, has a high potential exposure for fraud. Accounts payable fraud often involves fictitious suppliers and false invoices, which requires collusion, inside knowledge and access; whereas, cash payments frauds are often less sophisticated and becoming easier and more common with computer duplication technology. Arranging and making payments creates an exposure to potentially costly errors and mistakes; whereas, poor payment practices can damage cash flow and/or supplier relationships.

7. Discuss how ERP systems can provide benefits to the expenditure cycle.

Answer: ERP systems assist with enabling and integrating the activities within the expenditure cycle.

The expenditure cycle links into many areas within the organisation, and an ERP system can not only improve the integration of enterprise-wide data but also provide tighter linkages between relevant modules such as sales, production, accounts payable, cash budgeting and general ledger. In essence, an ERP system acts to provide tighter connections between demand and supply functions within the organisation.

© John Wiley & Sons Australia, Ltd 2012

10.16

Chapter 10: Transaction cycle -- the expenditure cycle

8. Give at least three examples of strategy level decisions in the expenditure cycle.

Answer: Whether the organisation should consolidate purchases across units to obtain optimal prices: involves a trade-off between the flexibility afforded by decentralisation and the potential for economic gains provided by centralised purchasing.

How IT can be used to improve both the efficiency and the accuracy of the inbound logistics function: the introduction of new technologies such as SCM may require considerable expense and incur high risks. Dependent on product volumes and values of inventory items it may be difficult to cost justify a large technology implementation of this nature.

Identifying where inventories and supplies should be held: options include onsite warehousing in either a centralised or decentralised format. An alternative solution is to set up a JIT supply chain under which goods are delivered only when they are required.

9. Give at least three examples of operation level decisions in the expenditure cycle.

Answer: Determining the optimal level of inventory and supplies to carry: requires knowledge of previous sales and/or some form of analysis of likely future sales, along with supplier data such as the lead time to supply ordered goods. Also need to know current stock levels including numbers of the stock on hand, stock already promised to customers and stock ordered but not yet delivered.

Deciding which suppliers provide the best quality and service at the best prices: often requires a trade-off between price, quality and service. The weighting attached to each of these dimensions should be determined by reference to the overall business strategy and to the type of product being procured.

Identifying if sufficient cash is available to take advantage of any discounts suppliers have offered: requires knowledge of cash flow budgets and cash level predictions.

Determining how payment can be made to suppliers in order to maximise cash flow: payment should be made when due and not before. Paying too early unnecessarily inhibits cash flows; paying too late may alienate a supplier.

10. Give at least five KPI to measure the performance of the objective “To ensure payments made to suppliers are both timely and accurate”.

Answer: $ cash losses $ or # unauthorised payments Financial delegations compliance Discounts claimed/overlooked Average payment time Number of supplier complaints $ overpayments

© John Wiley & Sons Australia, Ltd 2012

10.17

Chapter 11: Transaction cycle -- the production cycle

Chapter 11: Transaction cycle -- the production cycle Multiple Choice Questions

1.

The typical production cycle commences when: a. *b. c. d.

the organisation is low in finished goods inventory a new product has been designed all production costs have been recorded needed raw materials have arrived

Correct answer: b Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

2.

The typical production cycle ends when: a. b. *c. d.

the organisation has a large volume of finished goods inventory all products in the finished goods inventory are sold all production costs have been recorded all raw materials are consumed in the production process

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

3.

Which of the following best describes the execution phase of the production cycle? a. b. *c. d.

Raw material usage is recorded Customer orders are produced Planned production activities are carried out and all records maintained accurately.

A production schedule is planned and executed

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.1

Testbank to accompany: Accounting information systems 4e

4.

The primary responsibility of the production cycle is to ensure that: a. b. *c. d.

goods produced are of good quality production costs are brought to the minimum sufficient goods are manufactured in time to meet the demand All of the options are correct.

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

5.

The objective of the planning phase in the production cycle is to: a. b. *c. d.

effectively plan production at both the management and floor level effectively plan production at both the internal and external level effectively plan production at both the product and schedule level Consult with the senior management group regarding company production performances.

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

6.

The purchase order: a. b. c. *d.

is an evidence of purchases is a binding contract between the firm and the vendor is prepared by the purchasing department All of the options are correct.

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

7.

In the production cycle, there is a document that details the manufacturing costs related to the manufacture of a finished good. This document is: a. *b. c. d.

the production schedule file the work-in-progress file the bill of material file the work order file

Correct answer: b Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.2

Chapter 11: Transaction cycle -- the production cycle

8.

A sound, well-controlled production cycle can provide a competitive advantage by: a. b. c. *d.

providing high-quality, lower cost products manufacturing a unique product range in-house providing price leadership All of the options are correct.

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

9.

A company does a forecast of which products will be sold over the next 12 months.

The forecast is used to produce a plan that will ensure that there are sufficient finished goods to meet demand. What is this plan called? a. b. c. *d.

Production plan Work order Strategic plan Production schedule

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

10.

Staff involved in the production planning phase need to understand: (i) the individual product-level requirements necessary to produce each product (ii) the overall goals relating to future production scheduling (iii) the overall constraints relating to future production scheduling a. b. c. *d.

(i) only (i) (ii) only (i) (iii) only (i) (ii) (iii)

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.3

Testbank to accompany: Accounting information systems 4e

11.

Which of the following is an unlikely task overseen by the director of logistics? a. b. *c. d.

Inventory control Purchasing Billing Shipping

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

12.

Which of the following is an unlikely task overseen by the director of finance and accounting? a. b. c. *d.

Funds disbursement Tax planning Budgeting Remuneration processing

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

13.

The objective of the execution phase in the production cycle does NOT contain: a. b. *c. d.

Ensure that the planned production activities are carried out accurately.

Ensure that the planned production activities are carried out effectively.

Ensure that all production records are reconciled regularly.

Ensure that all production records are correctly updated

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.4

Chapter 11: Transaction cycle -- the production cycle

14.

Staff involved in execution phase in the production cycle need to: (i) understand the requirements and the nature of the execution plans devised (ii) have the ability to manage the execution plans (iii) the overall goals relating to future production scheduling (iv) the overall constraints relating to future production scheduling *a. b. c. d.

(i) (ii) only (i) (ii) (iii) only (i) (ii) (iv) only (i) (ii) (iii) (iv)

Correct answer: a Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

15.

Failing to accurately execute production plans can lead to: (i) undersupply issue for finished goods (ii) undersupply issues for raw materials inventories (iii) oversupply issue for finished goods (iv) oversupply issues for raw materials inventories. a. b. c. *d.

(i) (ii) only (iii) (iv) only (i) (iv) only (i) (ii) (iii) (iv)

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

16.

The document that details the raw material and work-in-process that is required to produce the finished good is: *a. b. c. d.

Bill of material Work order Material requisition Production schedule

Correct answer: a Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.5

Testbank to accompany: Accounting information systems 4e

17.

The document that serves to authorise the store to release the raw materials and workin-process inventory to the production department is: a. b. *c. d.

Bill of material Work order Material requisition Production schedule

Correct answer: c Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

18.

The document that details the machines and employees who will be involved in each stage of production is: a. b. c. *d.

Bill of material Work order Material requisition Production schedule

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

19.

The document that details when the raw materials will be used, when the work-inprocess goods will be stored and finally when the finished goods will be available at the end of the production process is: a. b. c. *d.

Bill of material Work order Material requisition Production schedule

Correct answer: d Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.6

Chapter 11: Transaction cycle -- the production cycle

20.

The document that allows the store to release the raw materials and work-in-process so that the production process can start is: a. *b. c. d.

Bill of material Work order Material requisition Production schedule

Correct answer: b Learning Objective 11.1 ~ Describe the key objectives and strategic implications of the production cycle

21.

Which of the following does not concern inventory management? a. b. c. *d.

FMS Agile manufacturing JIT CAD

Correct answer: d Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle 22.

Which of the following factors is not relevant to the decision about which inventory management technique to employ? a. b. *c. d.

The nature of the inventory item.

The demand for the inventory item.

The extent of computerisation in the warehouse.

The availability of raw materials.

Correct answer: c Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

23.

A specialised software that is used to calculate demand for products, and identify the raw materials required to produce those products is: *a. b. c. d.

MRP CAM RFID JIT

Correct answer: a Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.7

Testbank to accompany: Accounting information systems 4e

24.

Flexible manufacturing systems are used: a. *b. c. d.

during raw material acquisition and they are designed to respond to any changes detected in raw material costs during production execution and they are designed to respond to any changes detected during production during production and they are designed to respond to any changes detected in market demand None of the options are correct.

Correct answer: b Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

25.

The production cycle describes the stage when physical products are manufactured.

Which of the following technologies automates control of the manufacturing process? a. *b. c. d.

CRM ERP SCM CAM

Correct answer: b Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

26.

What are the two systems that are closely associated with product design? a. *b. c. d.

ABC and FMS CAM and CAD CAM and ABC FMS and CAD

Correct answer: b Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

27.

What are the two systems that are closely associated with inventory maintenance? *a. b. c. d.

FMS and JIT CAD and CAM ABC and JIT ABC and CAM

Correct answer: a Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.8

Chapter 11: Transaction cycle -- the production cycle

28.

What is the role of a bar code scanner or RFID tags in the production cycle? a. b. *c. d.

Production workers use this to tag-on/ tag-off the job for their timesheets Boxes of finished goods have RFID tags added before despatch as part of the stock control systems for large customers like Target or Woolworths.

These tracking devices are used to record the movement of raw material, WIP and finished goods so that inventories of these remain accurate.

These tags are used with the picking slips to locate the goods in the warehouse.

Correct answer: c Learning Objective 11.2 ~ Identify common technologies underpinning the production cycle

29.

The most important data created during the production planning process is: a. *b. c. d.

The data in the bill of materials The production schedule data Work-in-progress data None of the options are correct.

Correct answer: b Learning Objective 11.3 ~ Describe production cycle data and key production business decisions

30.

When checking and assembling required resources prior to starting production, ________ are needed. a. *b. c. d.

production schedule, bill of materials, and work-in-progress data production schedule, bill of materials, and inventory and labour data bill of materials, work-in-progress data, and inventory and labour data None of the options are correct.

Correct answer: b Learning Objective 11.3 ~ Describe production cycle data and key production business decisions

© John Wiley & Sons Australia, Ltd 2012

11.9

Testbank to accompany: Accounting information systems 4e

31.

Which of the following is less likely to be a product level decision during the production cycle? a. b. c. *d.

Material requirements.

Labour requirements.

Equipment requirements.

Customer specification requirements.

Correct answer: d Learning Objective 11.3 ~ Describe production cycle data and key production business decisions

32.

Production scheduling decisions do not include: a. b. *c. d.

Determining what types of products to produce.

Determining how many of each product to produce.

Determining the costing methods for products produced.

Scheduling production to align with demand.

Correct answer: c Learning Objective 11.3 ~ Describe production cycle data and key production business decisions

33.

During the production cycle, a bill of materials must be created for each product based on data obtained from: a. b. *c. d.

the raw material inventory and the production schedule production sequence and the product specification the raw material inventory and the product specification production sequence and the production schedule

Correct answer: c Learning Objective 11.3 ~ Describe production cycle data and key production business decisions 34.

The following process business decisions must be made during the production cycle EXCEPT: *a. b. c. d.

Which market strategy to adopt?

What materials are required?

How much labour is required?

Is there sufficient equipment time?

Correct answer: a Learning Objective 11.3 ~ Describe production cycle data and key production business decisions

© John Wiley & Sons Australia, Ltd 2012

11.10

Chapter 11: Transaction cycle -- the production cycle

35.

The production cycle starts with: a. b. *c. d.

production schedule planning product costing product production requirement determination product production

Correct answer: c Learning Objective 11.4 ~ Identify and document the primary activities in the production cycle and the data produced by these activities

36.

Planning production schedule does not involve: a. *b. c. d.

creating production schedule calculating production requirements identify material requirements None of the options are correct.

Correct answer: b Learning Objective 11.4 ~ Identify and document the primary activities in the production cycle and the data produced by these activities

37.

What are the two main factors that need to be considered when automatic reorder points are being set? *a. b. c. d.

Production capabilities and lead times.

Inventory storage capacity and cash flow.

Product availability and price.

None of the options are correct.

Correct answer: a Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

38.

The report that identifies all new designs created but not actioned within a reasonable period of time in the production cycle is: a. *b. c. d.

a production planning and control report an exception report a product costing report a production requirement report

Correct answer: b Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.11

Testbank to accompany: Accounting information systems 4e

39.

Product planning staff use data from ________ to create a bill of materials. a. *b. c. d.

customer order and sales order product specification and raw materials inventory data production schedule and product costing data None of the options are correct.

Correct answer: b Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

40.

Forecasted demand for products can be received from the revenue cycle, where it is calculated based on previous sales history. This document is called: a. b. *c. d.

production forecast report demand forecast report work order None of the options are correct.

Correct answer: c Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

41.

A company estimates that its overhead costs are $2 000 000. It decides that the best way of apportioning this is according to the amount of time spent on a specialist machine in production. Total machine time is 2000 hours. How much overhead should a product carry if it spends 3 hours on the machine? a. b. *c. d.

$1000 $2000 $3000 $300

Correct answer: c Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.12

Chapter 11: Transaction cycle -- the production cycle

42.

A bike company has a pile of bicycle frames that it purchased from a supplier. These frames would best be classified as: *a. b. c. d.

raw materials work in process finished goods inventory

Correct answer: a Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

43.

The risk of having to shut down production because of manufacturing machine failure can be minimised using which of the following: a. *b. c. d.

Installing an uninterrupted power supply (UPS) Performing regular planned maintenance and replacement Reducing the number of items produced in a production cycle Restricting access to the production area

Correct answer: b Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

44.

To create a production schedule, information needs to be extracted from: *a. b. c. d.

the production schedule database and the finished goods inventory database the production schedule database and the bill of materials database the raw materials inventory database and the production schedule database the bill of materials database and the raw materials inventory database

Correct answer: a Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

45.

To identify material requirements, information needs to be read from: a. b. c. *d.

the production schedule database and the finished goods inventory database the production schedule database and the bill of materials database the raw materials inventory database and the production schedule database the bill of materials database and the raw materials inventory database

Correct answer: d Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.13

Testbank to accompany: Accounting information systems 4e

46.

Typical risks encountered in planning the production schedule include a. b. c. *d.

under/overestimating product demand underutilisation of available resource under/overestimating materials requirements All of the options are correct.

Correct answer: d Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

47.

Which of the following is not counted as manufacturing overheads? a. b. c. *d.

costs for electricity used to operate the production equipment depreciation on the production equipment and buildings miscellaneous factory supplies such as oil or cleaning products payment made to production staff for overtime work

Correct answer: d Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

48.

An example of a suitable key performance indicator (KPI) for the objective of ensuring that production runs are efficiently conducted is: a. *b. c. d.

Inventory costs per product Production cycle times Level of inspection and testing costs incurred Number of quality complaints

Correct answer: b Learning Objective 11.6 ~ Develop metrics to monitor production cycle performance

49.

Which of the following is not helpful to reduce risks around incorrect cost allocations? a. b. c. *d.

Use appropriate overhead allocation algorithms.

Independent review and approval of overhead cost allocations.

Use technologies such as bar code or RFID to support accurate and timely tracking and recording of inventor movements.

Insist on using activity-based costing.

Correct answer: d Learning Objective 11.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the production cycle

© John Wiley & Sons Australia, Ltd 2012

11.14

Chapter 11: Transaction cycle -- the production cycle

50.

Which of the following is unlikely to be a KPI used to measure the objective “To ensure all production runs are accurately scheduled, conducted, recorded and costed”? a. *b. c. d.

Production cycle times Inventory costs per product Production cost budget overruns Variations in manufacturing variances

Correct answer: b Learning Objective 11.6 ~ Develop metrics to monitor production cycle performance

© John Wiley & Sons Australia, Ltd 2012

11.15

Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. What is the objective of the planning phase in the production cycle?

Answer: The front-end of the production cycle is where production requirements are determined for new products and the overall production schedule is planned. The objective of this planning phase is to effectively plan production at both a product and schedule level. Staff involved in this phase need to understand both the individual product-level requirements necessary to produce each product, and the overall goals and constraints relating to future production scheduling.

2. What is the objective of the execution phase in the production cycle? What happens if errors occur in the execution phase?

Answer: The execution phase’s objective is to ensure that the planned production activities are carried out accurately and effectively, and that all production records are correctly updated. Staff involved in this phase need to understand the requirements and the nature of the plans devised, and have the ability to manage the execution plans. Failing to accurately execute production plans can lead to under/oversupply issues for both finished goods and raw materials inventories. Failure to correctly analyse and record production costs can lead to incorrect product pricing and potential decreases in profitability.

3. Explain why the production cycle is strategically important to a manufacturing organisation.

Answer: The production cycle is strategically important. An organisation that chooses to manufacture products itself rather than purchase them as finished goods must have the capability to manufacture the goods at a lower cost than those same goods could be purchased externally.

If an organisation cannot manufacture goods at a lower cost than the potential purchase price of those same goods there is no competitive advantage to be gained by manufacturing the goods in-house. Maintaining control over product and production costing is particularly vital, as incorrect cost allocations could lead to a situation where uneconomically viable production occurs to the overall detriment of the business.

4. Explain how a sound, well control production cycle can provide an organisation with competitive advantages.

Answer: A sound, well controlled production cycle can provide a competitive advantage by providing high-quality, lower cost products, which in turn can translate into an opportunity for higher product pricing or greater market share through price leadership. An alternative form of competitive advantage is the ability to manufacture a unique product range in-house. This translates into an opportunity to provide goods and services not available elsewhere and capture market share.

© John Wiley & Sons Australia, Ltd 2012

11.16

Chapter 11: Transaction cycle -- the production cycle

5. What could happen if the planning phase and the costing phase in the production cycle are poorly managed and executed?

Answer: In terms of the planning phase, failure to correctly manage product and production planning can lead to systemic problems: an unreliable supply of goods and services has the potential to negatively impact the revenue and inventory management processes. Buying too much, too little or the wrong raw materials, and producing too many or too few individual products can create inventory problems resulting in increased costs or a decline in revenues. The product costing phase involves accurately determining product cost in order to support product sales pricing decisions made during the revenue cycle. Failure to correctly record or apply production costs can lead to errors in product pricing, which can flow on to create cash flow and liquidity problems.

6. Give at least three examples of product level decisions in the production cycle.

Answer: Material requirements – requires knowledge of specified raw materials requested and which raw materials are currently available.

Labour requirements – involves understanding skills required to manufacture the product as well as amount of labour required.

Equipment requirements – requires knowledge of the manufacturing steps required for the product and the equipment currently available to make the product, along with an understanding of the timing and sequencing of each of the required manufacturing steps.

7. How often should production-related decisions be made? Give at least two examples.

Answer: There are a range of production-related decisions that will be made every time production is scheduled. Typical production scheduling decisions include: Determining what types of products to produce and how many of each product to produce – requires knowledge of demand for the product, along with an understanding of any manufacturing constraints relating to potentially incompatible requirements for different types of products.

Scheduling production to align with demand – requires the ability to deal with forecast demand data and integrate it with the lead times for production processes in order to be able to deliver finished goods at the required time.

© John Wiley & Sons Australia, Ltd 2012

11.17

Testbank to accompany: Accounting information systems 4e

8. Describe in details how product specification is used by product planning staff to determine raw material needs.

Answer: Product planning staff use the data from the detailed product specification to determine whether the raw materials required are currently stocked and available. Ideally the product specification will contain sufficiently detailed information about the raw materials. Product planning staff read the specification and compare the materials described to available inventory materials in order to determine if anything new is required. Raw material details would be obtained from the raw materials inventory data store. It is vital that the staff member performing this job has a good knowledge of the inventory items and can competently read and comprehend the product specifications. Raw material specifications need to be precise in order to avoid a situation where an unsuitable inventory items is chosen or a new inventory item is requested unnecessarily. If a raw material is required that is not currently held in inventory a request needs to be sent to inventory staff to arrange supply of the new material.

9. How does the flexible manufacturing system (FMS) help in reducing the risk of under or overestimated product demand?

Answer: The risk can be controlled by requiring separate checking and authorisation of demand forecasts, or by automating product demand calculations. Precision in demand forecasting is vital; however, the risk of incorrect forecasts can be reduced by the use of a flexible manufacturing system (FMS). Use of an FMS will allow production systems to react more rapidly if production requirements vary, acting as a natural buffer to protect against demand forecast inaccuracies. An organisation that has an inflexible manufacturing system would need to ensure higher levels of precision in the planning process as the time required to detect and correct inaccurate production plans may be quite lengthy.

10. List at least six KPI that can be used to measure the objective “To ensure all production runs are accurately scheduled, conducted, recorded and costed”.

Answer: Number of quality complaints Number of requester complaints Amount of rework required Number of product defects Production cycle times Production cost budget overruns Changes in standard costs Variations in manufacturing variances

© John Wiley & Sons Australia, Ltd 2012

11.18

Chapter 12: Transaction cycle -- the HR management and payroll cycle

Chapter 12: Transaction cycle -- the HR management and payroll cycle Multiple Choice Questions

1.

The HR management and payroll cycle commences when: *a. b. c. d.

~ the organisation identifies a requirement to recruit a new employee a new employee joins the organisation a new employee is paid for the first time in the organisation None of the options are correct.

Correct answer: a Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

2.

The HR management and payroll cycle ends when: a. b. *c. d.

an employee expresses his/her intent to leave the organisation the organisation is out of business the employment contract of an employee comes to an end All of the options are correct.

Correct answer: c Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

3.

When an employment contract comes to an end: *a. b. c. d.

~ the employee’s exit from the company must be carefully managed the employee’s exit from the company need not be managed the deduction of taxes is no longer the organisation’s concern the forwarding of superannuation is no longer the organisation’s concern

Correct answer: a Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.1

Testbank to accompany: Accounting information systems 4e

4.

Which of the following is an activity in the HR management and payroll cycle? a. *b. c. d.

Recording hours spent on a project Authorisation of changes in personnel details Controlling access to the list of authorised suppliers Calculating variances between labour used and budget

Correct answer: b Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

5.

The inability to retain existing staff members leads to: (i) limitation of the skill sets available to the organisation (ii) expensive staff replacements (iii) disruptive staff replacements (iv) severe legal consequences. a. b. *c. d.

(i) (iv) only (i) (ii) only (ii) (iii) only (i) (ii) (iii) (iv)

Correct answer: c Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

6.

The payroll function adds to organisational success by: (i) ensuring that employees are paid in a timely and accurate manner (ii) ensuring high morale and confidence in staff (iii) complying with all legislative requirements (iv) controlling salary and wage costs. a. b. c. *d.

(i) only (i) (iv) only (i) (iii) only (i) (ii) (iii) (iv)

Correct answer: d Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.2

Chapter 12: Transaction cycle -- the HR management and payroll cycle

7.

The objective of the human resources function is to: a. b. c. *d.

effectively efficiently and objectively recruit suitable staff manage regular and effective performance reviews during their period of employment beneficially arrange their exit from the company at the end of their employment contract All of the options are correct.

Correct answer: d Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

8.

The primary responsibility of the payroll function is to ensure that: a. *b. c. d.

Human capital is paid for and is in high morale.

Human capital is paid for accurately and on time.

Human capital is neither overpaid nor underpaid.

All of the options are correct.

Correct answer: b Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

9.

Which of the following is NOT a source document in the HR management and payroll cycle? a. b. *c. d.

A job application A weekly timesheet A labour budget for the next 12 months An employee performance review

Correct answer: c Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.3

Testbank to accompany: Accounting information systems 4e

10.

In the HR management phase of the HR management and payroll cycle: *a. b. c. d.

The HR manager ensures that pay rates and changes to pay rates are recorded for each employee.

The HR manager ensures that every employee should undergo continuous professional development.

The HR manager ensures that every employee is happy.

The HR manager ensures that no employee should work overtime when unnecessary.

Correct answer: a Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

11.

An inability to retain existing staff members: a. b. *c. d.

Allows for generational change to take place Provides opportunities for existing staff members Leads to expensive and disruptive staff replacements All of the options are correct

Correct answer: c Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle 12.

A software development company has several employees working from home. Which of the following would be the best way of recording the hours they have worked each week? *a. b. c. d.

Electronic submission by completing an on-screen form and attaching an electronic signature.

A bar code reader that is swiped when the employee arrives at/departs from the office Physical clocking on card that must be inserted in a time clock machine at the office, at the start and end of each shift Telephone call from the manager each week

Correct answer: a Learning Objective 12.2 ~ Identify common technologies underpinning the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.4

Chapter 12: Transaction cycle -- the HR management and payroll cycle

13.

Which of the following statements regarding human resources staff is true? a. b. *c. d.

Human resources staff are not responsible for the quality of the staff employed by the organisation Human resources staff are partially responsible for the quality of the staff employed by the organisation.

Human resources staff are fully responsible for the quality of the staff employed by the organisation.

Human resources staff and the quality of the staff employed by the organisation are irrelevant.

Correct answer: c Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

14.

Which of the following linkages between the various cycles are made easier by an ERP system? a. b. c. *d.

The funds needed to cover the payroll after a proposed pay increase is calculated A recruitment schedule is drawn up to match the requirements of the production plan A salesman is paid commission for sales made each week All of the above

Correct answer: d Learning Objective 12.2 ~ Identify common technologies underpinning the HR management and payroll cycle

15.

Which of the following regarding leave entitlements is true? a. b. *c. d.

Activities involving recording employee leave entitlements affect the individual employee only.

Employee leave entitlements are not represented on a company balance sheet.

Incorrect calculation and disclosure of employee leave related liabilities can have serious consequences.

All of the options are correct.

Correct answer: c Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.5

Testbank to accompany: Accounting information systems 4e

16.

A sound, well controlled HR management and payroll cycle can provide a competitive advantage by: a. b. c. *d.

Controlling costs Providing superior employees at lower levels within the organisation Providing superior employees at higher levels within the organisation All of the options are correct.

Correct answer: d Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

17.

The HR management and payroll cycle must be aligned primarily with: a. b. c. *d.

organisation vision organisation strategy organisation culture All of the options are correct.

Correct answer: d Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

18.

All recruiting and retention activities should be guided by: a. b. c. *d.

organisation vision organisation strategy organisation culture All of the options are correct.

Correct answer: d Learning Objective 12.1 ~ Describe the key objectives and strategic implications of the HR management and payroll cycle

19.

Which of the following systems cannot be applied to the HR management and payroll cycle? a. b. *c. d.

CRM ERP CAD ESS-CRM

Correct answer: c Learning Objective 12.2 ~ Identify common technologies underpinning the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.6

Chapter 12: Transaction cycle -- the HR management and payroll cycle

20.

When making electronic payments to employees, an organisation must consider: a. b. c. *d.

Timing implications.

Cash flow implications.

Security implications.

All of the options are correct.

Correct answer: d Learning Objective 12.2 ~ Identify common technologies underpinning the HR management and payroll cycle

21.

Which of the following is not associated with the recording of employee work time? a. b. c. *d.

RFID Time clock scanner Biometric scanner None of the options are correct.

Correct answer: d Learning Objective 12.2 ~ Identify common technologies underpinning the HR management and payroll cycle

22.

An employee record is ideally initially generated by a human resources employee who: a. b. *c. d.

Has responsibility for identifying and authorising new employees and is involved in payroll cycle activities.

Does not have the responsibility for identifying and authorising new employees and is not involved in any payroll cycle activities.

Has the responsibility for identifying and authorising new employees but is not involved in any payroll cycle activities.

None of the options are correct.

Correct answer: c Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

© John Wiley & Sons Australia, Ltd 2012

12.7

Testbank to accompany: Accounting information systems 4e

23.

Which of the following is normally not included in a payslip? a. b. c. *d.

Gross wages based on either their salary contract or hours worked multiplied by their wage rate.

Deductions taken from gross wages on behalf of external bodies such as the taxation department and superannuation funds.

Balances due for various forms of leave.

Financial entitlements when employees exit the organisation.

Correct answer: d Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

24.

Position description data is generally created by: *a. b. c. d.

High level employees within the HR function, working in tandem with operational managers and supervisors.

Operational managers and supervisors only.

High level employees within the HR function only.

Any employee from the HR function, working in tandem with operational managers and supervisors.

Correct answer: a Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

25.

Which of the following regarding the salary or wage of an employee is true? a. b. *c. d.

The salary or wage of an employee is internally determined.

The Salary or wage of an employee is externally determined.

The Salary or wage of an employee is jointly determined by external and internal factors.

None of the options are correct.

Correct answer: c Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

© John Wiley & Sons Australia, Ltd 2012

12.8

Chapter 12: Transaction cycle -- the HR management and payroll cycle

26.

Which of the following is NOT a strategic level policy decision in the HR management and payroll cycle? a. b. c. *d.

creation of a new position whether to fill an existing vacancy employee payment policies and procedures calculation of payroll amounts

Correct answer: d Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

27.

Which of the following descriptions of the HR management and payroll cycle is NOT true? a. *b. c. d.

All decision making in the cycle should involve both deep and broad analysis prior to a decision being taken.

Operational decisions are typically made by senior staff and relate only to a specific instance of the cycle.

To be effective strategic level process business decisions made in the cycle should be congruent with the overarching business strategy.

To develop employee payment policies and procedures, one needs knowledge of applicable employee legislation, industry standards and legal requirements.

Correct answer: b Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

28.

Identifying and dealing with underperforming staff do NOT necessarily require: a. b. c. *d.

consideration of the employees’ history with the organisation a clear understanding of targets and goals appropriate for the employee documented evidence of any past performance concerns knowledge of applicable employee legislation

Correct answer: d Learning Objective 12.3 ~ describe HR management and payroll cycle data and key business decisions

© John Wiley & Sons Australia, Ltd 2012

12.9

Testbank to accompany: Accounting information systems 4e

29.

Which of the following activities is not part of the process of updating payroll data? a. b. c. *d.

prepare cash disbursement distribute pay slips distribute leave forms prepare accounts payable

Correct answer: d Learning Objective 12.4 ~ Identify and document the primary activities in the HR management and payroll cycle and the data produced by these activities

30.

To alter employment status of an employee, a HR clerk does not need to source information from: a. b. *c. d.

The employee’s supervisor The employee himself/herself The employee’s performance review The employee employment master record

Correct answer: c Learning Objective 12.4 ~ Identify and document the primary activities in the HR management and payroll cycle and the data produced by these activities

31.

Which of the following external entities do not interact with the HR management and payroll cycle? a.

Tax agencies *b.

Customers c.

Employees d.

Banks

Correct answer: b Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

32.

Which of the following is not involved in the payroll preparation process? a. b. *c. d.

Tax agencies Revenue cycle Ordinary employees Production cycle

Correct answer: c Learning Objective 12.4 ~ Identify and document the primary activities in the HR management and payroll cycle and the data produced by these activities

© John Wiley & Sons Australia, Ltd 2012

12.10

Chapter 12: Transaction cycle -- the HR management and payroll cycle

33.

Which of the following cannot minimise the risk of paying a fictitious employee? a. b. c. *d.

Asking someone in HR management who is not involved with the pay calculations or authorising any pay change details to distribute the pay slips.

Setting up the role of a paymaster and let the paymaster distribute the pay slips.

Ensuring that pay slips are physically handed to employees.

Asking supervisors of the employees to distribute pay slips.

Correct answer: d Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

34.

The two key processes in performance management are: *a. b. c. d.

Performance assessment and performance adjustments.

Performance improvement and performance adjustments.

Performance assessment and performance improvement.

Performance monitoring and performance improvement.

Correct answer: a Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

35.

Key selection criteria: a. *b. c. d.

Are the same as a position description.

Form part of a position description.

Have no connection with a position description.

None of the options are correct.

Correct answer: b Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

36.

Which of the following is not involved in employee recruitment? a. b. c. *d.

Position description database.

Employees master database.

Open positions database.

Payroll database.

Correct answer: d Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.11

Testbank to accompany: Accounting information systems 4e

37.

Which of the following is not involved in the payroll process? a. *b. c. d.

Payslips database.

Position description database.

Leave entitlements database.

Tax scales database.

Correct answer: b Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

38.

The employee termination process is not directly linked with: a. b. *c. d.

The operational department.

The leave entitlements database.

The revenue cycle.

The performance management process.

Correct answer: c Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

39.

Which of the following is not a typical risk encountered during employee induction? a. b. *c. d.

Successful applicant not contacted in a timely manner.

New employee record not generated, or generated inaccurately.

Inability to attract suitable applicants.

Fictitious employee record created

Correct answer: c Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

40.

Common controls of the risk of advertising inappropriate/incorrect positions do not include: a. b. c. *d.

Matching vacancies to existing position descriptions.

Including relevant key selection criteria on all position descriptions.

Authorisation of position advertisement by senior operational manager.

One for one matching of open positions closed and employee records generated.

Correct answer: d Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

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Chapter 12: Transaction cycle -- the HR management and payroll cycle

41.

Which of the following is not directly involved in the calculation of payroll? a. b. *c. d.

Tax scales database.

Leave entitlements database.

Payslips database.

Employee master database.

Correct answer: c Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

42.

Which of the following is not directly involved in the calculation of payroll? a. b. c. *d.

Production cycle.

Revenue cycle.

Operational department.

Tax agencies.

Correct answer: d Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

43.

Common controls of the risk of incorrect salary and wage calculations do not include: a. *b. c. d.

Use of batch and hash totals.

Cash disbursements signed for by recipient.

Reporting salary and wage variances to budgets and forecasts.

Distribution of detailed payslips to employees.

Correct answer: b Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

44.

Common controls of the risk paying fictitious employees do not include: *a. b. c. d.

Regularly reconcile payments made to payroll records.

Independent authorisation required to create new employee record.

One for one checking of employee termination notices against current employee pay records Segregation of duties

Correct answer: a Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

© John Wiley & Sons Australia, Ltd 2012

12.13

Testbank to accompany: Accounting information systems 4e

45.

Which of the following is not a risk that occurs during payroll disbursement? *a. b. c. d.

Leave balances incorrectly recorded Non/slow payment to employees and third parties.

Inaccurate payments to employees and third parties.

Theft of valid employee payments.

Correct answer: a Learning Objective 12.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the HR management and payroll cycle

46.

Which of the following is not a good KPI for measuring the HR management and payroll cycle performance? a. b. c. *d.

Dollar cash losses due to fraud in the payroll cycle.

Dollar underpayments of wages to employees.

Number of employee complaints.

Account management fee of the imprest account.

Correct answer: d Learning Objective 12.6 ~ Develop metrics to monitor HR management and payroll cycle performance

47.

Which of the following is less likely to be a KPI that can be used to measure the objective of “Manage regular and effective employee performance reviews”? *a. b. c. d.

The amount of time used in each performance review meeting.

Frequency of reviews conducted.

Under performance detection success rate.

Over performance detection success rate.

Correct answer: a Learning Objective 12.6 ~ Develop metrics to monitor HR management and payroll cycle performance

© John Wiley & Sons Australia, Ltd 2012

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Chapter 12: Transaction cycle -- the HR management and payroll cycle

48.

Which of the following are the KPIs that can be used to measure the objective of “Effectively, efficiently and objectively recruit suitable staff”? (i) Recruitment cycle time – advertisement to appointment (ii) Average employment duration – appointment to termination (iii) Number of applicants for positions advertised a. b. c. *d.

(i) (ii) only (i) (iii) only (ii) (iii) only (i) (ii) (iii)

Correct answer: d Learning Objective 12.6 ~ Develop metrics to monitor HR management and payroll cycle performance

49.

Which of the following can be used as a KPI to measure the objective of “Accurately calculate and disburse salary and wage payments”? a. b. c. *d.

Volume and value of employee overpayments detected.

Volume and value of employee underpayments detected.

Salary and wage expenditure variances.

All of the options are correct.

Correct answer: d Learning Objective 12.6 ~ Develop metrics to monitor HR management and payroll cycle performance

50.

Which of the following is less likely to be a KPI that can be used to measure the objective of “Beneficially control and manage employee exits”. a. b. c. *d.

Number of exit interviews conducted.

Level of compliance with exit procedure policies and procedures.

Level of compliance with legal requirements.

Volume and value of exit fees recovered from employees.

Correct answer: d Learning Objective 12.6 ~ Develop metrics to monitor HR management and payroll cycle performance

© John Wiley & Sons Australia, Ltd 2012

12.15

Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. What are the basic functions of the human resource phase in the HR management and payroll cycle and what is its objective? Explain.

Answer: The human resource phases encompass employee recruitment, performance management and management of employee termination. The objective of the human resources function is to effectively efficiently and objectively recruit suitable staff, manage regular and effective performance reviews during their period of employment, and beneficially arrange their exit from the company at the end of their employment contract. Human resources staff are responsible for the quality of the staff employed by the organisation. They need to recruit the right people, ensure they are performing at the right standard, and manage staff exits in the right manner. To achieve these objectives recruiting must be thoughtful and well controlled, performance management should be regular and effective, and employee exits should be controlled and managed so as to obtain some ongoing benefit to the company where possible.

2. What are the basic functions of the payroll phase in the HR management and payroll cycle and what is its objective? Explain.

Answer: The payroll phase’s objective is to accurately calculate and disburse all salary and wage payments due to employees. This involves ensuring that all working hours are recorded in an accurate and timely manner, that correct salary and wage rates are applied to pay calculations, and that payroll payments are made on time and in the manner preferred by the employee.

Payroll related activities provoke a high incidence of fraudulent payments, strong effective control of all salary and wage disbursements is crucial. In addition, it is vital to ensure any monies deducted from employees’ wages, such as taxation instalments and superannuation contributions, are correctly accounted for and forwarded to relevant third parties in a timely fashion. The payroll function also controls the recording of accumulated leave balances, including adding leave as it accrues, and deducting leave as it is taken. Activities involving recording employee leave entitlements affect not only the individual employee, they are an important liability that is represented on a company balance sheet. Incorrect calculation and disclosure of employee leave related liabilities can have serious consequences.

3. When are data about a new employee created and who creates them?

Answer: Employee data is initially created when a new employee is recruited, and is updated constantly during their period of employment to reflect the level of payments made to them, and their overall job performance. An employee record is ideally initially generated by a human resources employee who has responsibility for identifying and authorising new employees but is not involved in any payroll cycle activities.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 12: Transaction cycle -- the HR management and payroll cycle

4. Strategic level decisions in the HR management and payroll cycle includes the creation of policies for various areas. Give two examples of such areas with brief explanation.

Answer: Creation of a new position: Requires understanding of skills and experience required, and the needs of the business unit to whom the employee with be assigned. Also a general understanding of the organisational environment and culture is important Whether to fill an existing vacancy: Involves predicting future requirements for the resource involved, also should include consideration of whether to concentrate the search area internally, or to also call for external applicants.

Employee payment policies and procedures: Needs knowledge of applicable employee legislation, industry standards and legal requirements.

5. Give two examples of operation level decisions in the HR management and payroll cycle.

Explain.

Answer: Identifying and dealing with underperforming staff. This requires consideration of the employees’ history with the organisation, and a clear understanding of targets and goals appropriate for the employee. In addition, it is important to be able to identify suitable metrics against which to measure performance, to know whether those targets have been adequately conveyed to the employee, and to have documented evidence of any past performance concerns.

Calculation of payroll amounts. This requires knowledge of contracted employment conditions, hours worked, salary and wage rates payable and any leave balances involved.

6. What are the risks associated with employee induction and what are the possible control measures?

Answer: The main risk here is that the successful applicant may not be contacted at all, or may not be contacted in a timely manner. The longer the time period between submitting an application and receiving notification of the outcome, the higher the probability that the successful applicant will have possibly won another position elsewhere. Controls to reduce this risk include regularly generating an exception report listing any open positions not closed with a reasonable time period, and instituting independent follow up with all successful applicants.

There is also a risk that a new employee record may not be generated, or may be created incorrectly. Common controls to offset this risk include matching each open position that has been closed with the details of the selection panel’s recommendation, and the employee record generated; and requiring an independent check and authorisation of all new employee records created prior to any payment being made to the new employee.

Another important risk to consider is that a fictitious employee record may be created; to control for this possibility an independent authorisation should be required for all new

© John Wiley & Sons Australia, Ltd 2012

12.17

Testbank to accompany: Accounting information systems 4e

employee records, and segregation of duties should apply. In particular, any employee who can create a new employee record must not be able to generate any form of salary or wage payments to employees.

7. Why employee exit should be managed carefully?

Answer: Many employees have access to company assets and it is important make sure that these assets are not compromised in any way during the period of notice for the employee. All termination procedures need to ensure safe return of any company assets, including removing access to company computer systems. There is a risk that company assets may remain with the departing employee, to control for this risk the organisation should ensure that they maintain accurate asset registers, develop asset recovery policies and procedures related to departing employees and regularly check compliance levels for these policies and procedures.

8. Briefly explain how a performance review is done and the persons involved.

Answer: A performance review is conducted involving the employee and their manager. Expected performance standards for the individual during the period under review are established and discussed. The implications of current employee performance levels are discussed and any resulting actions to be undertaken are agreed.

9. What are the typical risks encountered during performance review and what are the possible control measures?

Answer: A typical risk during performance review is the incorrect assessment of the employee’s performance. Possible control measures include, but are not confining to: a. Compare performance expectations to position description b. Performance reviews conducted by appropriate manager c. Accurate documentation of reviews and outcomes d. Obtaining employee sign off post review e. Examination of competed reviews by senior management 10. Give three KPI that can be used to measure the objective of “Effectively, efficiently and objectively recruit suitable staff”.

Answer: Recruitment cycle time – advertisement to appointment.

Average employment duration – appointment to termination.

Number of applicants for positions advertised.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle Multiple Choice Questions

1.

The general ledger and financial reporting cycle commences when: a. *b. c. d.

data are received from other cycles budgets are created it is time to generate and distribute financial reports budget variances are examined

Correct answer: b Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

2.

The general ledger and financial reporting cycle ends when: a. b. *c. d.

no more data are received from other cycles budgets are created financial reports have been generated and distributed budget variances are examined

Correct answer: c Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

3.

In the general ledger and financial reporting cycle: a. *b. c. d.

Adjusting journal entries does not have to be authorised independently.

Reports must not contain irrelevant data.

Data should not be transferred amongst accounts.

Data need not be validated.

Correct answer: b Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.1

Testbank to accompany: Accounting information systems 4e 4.

The general ledger and financial reporting cycle ________. *a. b. c. d.

Summarises, adjusts, and reports on data from all previous operational cycles.

Summarises, adjusts, and reports on data from all current operational cycles.

Creates, adjusts, and summarises on data from all previous operational cycles.

Creates, adjusts, and summarises on data from all current operational cycles.

Correct answer: a Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

5.

During the general ledger and financial reporting cycle: a. b. c. *d.

Budgets are created and agreed upon.

Transactional level data is accumulated, summarised, adjusted and reported to internal users.

Transactional level data is accumulated, summarised, adjusted and reported to external users.

All of the options are correct.

Correct answer: d Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

6.

Financial reports generated in the general ledger and financial reporting cycle is used by: a. b. c. *d.

Managers within the organisation Investors External regulators All of the options are correct.

Correct answer: d Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

7.

Which is the most likely cause of a large variance between budget estimates and actual results if the company is well managed with efficient internal controls? *a. b. c. d.

Production is working inefficiently and using too much raw material The budget is unrealistic and cannot be met Inaccurate data has been recorded Raw materials are being stolen

Correct answer: a Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.2

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

8.

The purpose of budgeting is to: a. *b. c. d.

Get a forecast of resource usage of the next financial year only.

Facilitate organisational planning and control.

Request more funding.

All of the options are correct.

Correct answer: b Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

9.

An unfavourable variance between budgeted and actual data may indicate: a. b. c. *d.

Poor performance.

Budget estimates were set at an unrealistic or unachievable level.

The estimation of future activity levels and the associated potential costs and revenues is incorrect and inaccurate.

All of the options are correct.

Correct answer: d Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

10.

In terms of the general ledger and financial reporting cycle, which of the following sequences is in the correct order? *a. b. c. d.

create trial balance, perform bank reconciliation, prepare adjusting journal entries, conduct financial reporting prepare adjusting journal entries, create trial balance, perform bank reconciliation, conduct financial reporting perform bank reconciliation, create trial balance, prepare adjusting journal entries, conduct financial reporting create trial balance, prepare adjusting journal entries, perform bank reconciliation, conduct financial reporting

Correct answer: a Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.3

Testbank to accompany: Accounting information systems 4e 11.

Which of the following statements regarding reports is true? a. b. c. *d.

Financial reports are more detailed than management reports.

Financial reports have an internal focus.

Management reports can be distributed externally.

Basic reports contain even more detailed information than financial reports and management reports.

Correct answer: d Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

12.

It is often necessary to create one-off reports from data held in the general ledger.

Which of the following technologies would be useful for an end user to analyse extracted data and format a report? *a. b. c. d.

Crystal Reports Microsoft Excel Microsoft PowerPoint SAP Business Intelligence Solutions

Correct answer: a Learning Objective 13.2 ~ Identify common technologies underpinning the general ledger and financial reporting cycle

13.

Which of the following is not a problem that can be caused directly by errors in financial statements? *a. b. c. d.

Inability to improve business process efficiencies Inability to access capital markets Inequitable increases in the cost of capital Incorrect market pricing of company shares

Correct answer: a Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.4

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

14.

The main objective of the general ledger and financial reporting cycle is to: a. b. *c. d.

Create a trial balance of various accounts as well as adjusted trial balances.

Perform bank reconciliation to verify independently the balances of the cashbased general ledger accounts.

Synthesise and report data that accurately represents business transactions and activities All of the options are correct.

Correct answer: c Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

15.

Which of the following statements regarding operational reports is true? a. *b. c. d.

Any operational report that is based on accrual accounting assumptions can only be relied upon if it is generated using correctly adjusted data.

Operational reports can be generated at any time after a transaction is recorded Operational reports usually extract and report data directly from summarised general ledgers.

Operational reports are constructed in accordance with the requirements of the relevant accounting standards and they are freely available to both external and internal users.

Correct answer: b Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

16.

Which of the following documents (or information on these documents) does not flow into the general ledger and financial reporting cycle through the cash disbursements journal? a. b. c. *d.

Production costs Payroll Cheques Purchase invoice

Correct answer: d Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.5

Testbank to accompany: Accounting information systems 4e 17.

Vendor invoices from the expenditure cycle flow into the general ledger and financial reporting cycle through: a. *b. c. d.

the purchases journal directly the purchases journal and then through the accounts payable subsidiary ledger the cash disbursements journal directly the accounts payable subsidiary ledger and then through the cash disbursements journal

Correct answer: b Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

18.

Which of the following statements regarding reports is true? a. *b. c. d.

Reports should contain as many data as possible so that readers are able to understand the reports thoroughly.

Poorly arranged data in reports can be misleading.

Simple issues such as selecting the appropriate font size or column heading are unlikely to impact on the understandability of a report.

All of the options are correct.

Correct answer: b Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

19.

High-quality decision-making requires: *a. b. c. d.

valid, timely, accurate, and complete data and comprehensible reports valid, timely, accurate, and complete data and comprehensive reports good data and comprehensive reports comprehensive data and comprehensible reports

Correct answer: a Learning Objective 13.1 ~ Describe the key objectives and strategic implications of the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.6

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

20.

Which of the following technologies can be used in the general ledger and financial reporting cycle? *a. b. c. d.

ERP and XBRL ERP and CAD RFID and XBRL CAD and RFID

Correct answer: a Learning Objective 13.2 ~ Identify common technologies underpinning the general ledger and financial reporting cycle

21.

An internet-based banking facility that allows organisations to manage and view their bank accounts online and conduct transactions such as transfers from those accounts is called: a. b. *c. d.

Online reconciliation Online payment Online banking Online financial management

Correct answer: c Learning Objective 13.2 ~ Identify common technologies underpinning the general ledger and financial reporting cycle

22.

XBRL allows semantics to be embedded within strings of financial data. This does not mean: *a. b. c. d.

It is easier to build a database for accounting information systems More in-depth analysis can be conducted by users or recipients of the data Embedded tags that identify where separate pieces of data start and end within strings of data is inserted It is easier to exchange financial data.

Correct answer: a Learning Objective 13.2 ~ Identify common technologies underpinning the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.7

Testbank to accompany: Accounting information systems 4e 23.

Online banking is unlikely to be helpful: a. b. c. *d.

in terms of being able to monitor cash transactions more easily. in terms of being able to reconcile cash transactions more easily. for organisations that wish to automate bank reconciliations. in terms of allowing more in-depth analysis to be conducted by users or recipients of the data

Correct answer: d Learning Objective 13.2 ~ Identify common technologies underpinning the general ledger and financial reporting cycle

24.

The general ledger and financial reporting cycle initially extracts existing transactional data from: a. b. c. *d.

Previous financial reports.

Operational reports.

Online banking facilities.

Subsidiary ledgers.

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

25.

Which of the following must be taken into consideration before a general journal adjustment is authorised? a.

The need to incorporate data from external sources such as bank statements b.

Accounting policies and procedures c.

Accounting standards *d.

All of the options are correct

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

26.

Which of the following reports is not produced by the general ledger and financial reporting cycle to support decision makers within the organisation? a. b. c. *d.

Profitability analysis for the organisation Cost management analysis Variance analysis for a division Aged accounts analysis

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

© John Wiley & Sons Australia, Ltd 2012

13.8

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

27.

Setting budget targets requires a balance between: a. *b. c. d.

the current financial situation of the organisation and the forecasted cash flow what is desired in terms of performance and what is thought to be possible the expenditure and the revenue of the organisation All of the options are correct.

Correct answer: b Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

28.

Which of the following is not required during the process of updating the general ledger? *a. b. c. d.

journal voucher accounts receivable data manufacturing overheads direct labour costs

Correct answer: a Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

29.

The degree of granularity of a budget refers to which of the following: a. *b. c. d.

Budgeting by line item rather than in aggregate Producing an annual budget or month by month The amount of stretch built into the budget Which level of management were involved in the estimates

Correct answer: b Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

30.

Transactional data is summarised by account code in the general ledger. The codes are then used in the reporting structure. What is the name given to the list of available codes? a.

List of account codes *b.

Chart of accounts c.

Table of accounts d.

Reporting account codes

Correct answer: b Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

© John Wiley & Sons Australia, Ltd 2012

13.9

Testbank to accompany: Accounting information systems 4e 31.

A well-designed chart of accounts will: a. *b. c. d.

support key reporting requirements while minimising or even eliminating data entry error support diverse reporting requirements while maintaining an acceptably low data entry error rate contain more digits in general ledger account number not include an indicator for every possible dimension that the transaction may conceivably need to be reported on

Correct answer: b Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

32.

Adoption of any alternative costing or reporting requirements, such as activity based costing, will: a. b. *c. d.

not affect the number of tags needed to code transactions accurately into the general ledger accounts decrease the number of tags needed to code transactions accurately into the general ledger accounts increase the number of tags needed to code transactions accurately into the general ledger accounts increase or decrease the number of tags needed to code transactions accurately into the general ledger accounts, depending on the actual costing method or reporting requirement adopted

Correct answer: c Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

33.

Typical budget decisions do not include: *a. b. c. d.

budget variance budget level budget breakdown budget targets

Correct answer: a Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

© John Wiley & Sons Australia, Ltd 2012

13.10

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

34.

Which of the following statements regarding budgets is true? a. b. c. *d.

More aggregate budgets are more difficult to plan.

More aggregate budgets have sound usefulness during monitoring of performance due to the abundance of information they provide.

Budgets can be set at two levels.

Budgets can be set for each different type of revenue and expense for each division as contained in the chart of accounts.

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

35.

Who uses the data produced by the general ledger and financial reporting cycle? a.

All levels of management b.

Investors and analysts c.

Regulatory bodies *d.

All of the options are correct

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

36.

Which of the following regarding the setting of budget targets is true? a. b. *c. d.

When setting budget targets, more emphasis should be put on what is desired in terms of performance.

When setting budget targets, more emphasis should be put on what is thought to be possible.

When setting budget targets, there should be a balance between what is desired in terms of performance and what is thought to be possible When setting budget targets, neither what is desired in terms of performance nor what is thought to be possible should be considered.

Correct answer: c Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

© John Wiley & Sons Australia, Ltd 2012

13.11

Testbank to accompany: Accounting information systems 4e 37.

Decisions relating to general journal entries would include consideration of: a. b. c. *d.

accounting standards, policies, and procedures timing differences for a given accounting period the need to incorporate data from external sources All of the options are correct.

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

38.

Common reports produced in the general ledger and financial reporting cycle include: a. b. c. *d.

Profitability analysis for the organisation or a division Cost management analysis for decision-making.

Analysis of profitability potential to guide future investment decisions All of the options are correct.

Correct answer: d Learning Objective 13.3 ~ Describe general ledger and financial reporting cycle data and key general ledger and financial reporting business decisions

39.

Which of the following controls can be applied to minimise the risk of under or over estimating revenue and expenditure amounts? a. b. c. *d.

Independent approval of budget estimates Ask operational managers to prepare budget estimates Link budget values to performance monitoring All of the options are correct.

Correct answer: d Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.12

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

40.

Which of the following statements regarding the finalisation of budgets is true? a. *b. c. d.

The finalisation of budges is a nondiscretionary process involving senior management only.

The finalisation of budgets is an interactive process involving both senior management and operational staff.

The finalisation of budgets is a nondiscretionary process involving both senior management and operational staff.

The finalisation of budgets is an interactive process involving both senior management and middle management.

Correct answer: b Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

41.

A warning message is produced if budget estimate varies by more than a fixed percentage from last year’s budget is an example of controlling for: a. *b. c. d.

Fraud Data entry errors when recording budgets Underestimation of revenue and expenditure amounts All of the options are correct

Correct answer: b Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

42.

To reduce the risks of incomplete and inaccurate data during data extraction and validation in the process of updating general ledger, which of the following controls can be used? a. b. c. *d.

Batch totals Hash totals Use ledger control accounts All of the options are correct.

Correct answer: d Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

© John Wiley & Sons Australia, Ltd 2012

13.13

Testbank to accompany: Accounting information systems 4e 43.

Which of the following is not helpful in reducing the risk of journal entries errors during the preparation of adjusting journals? a. b. c. *d.

Independent approval of journal entries by senior accounting staff Attach full working papers to support journal entry calculations Document assumptions and algorithms relied on when calculating journal amounts Performing a reasonableness check.

Correct answer: d Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

44.

Unauthorised distribution of financial data cannot be controlled by: *a. b. c. d.

using the XBRL technology applying secure privacy settings on electronic reports using a document management system for reports containing sensitive data maintaining security profiles allowing read-only access to financial data at the individual level

Correct answer: a Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

45.

The main risk attached to producing financial reports is: a. b. *c. d.

unauthorised distribution of financial reports unauthorised access of financial reports reporting incorrect data reporting too many data

Correct answer: c Learning Objective 13.5 ~ Analyse risks and develop control plans pertinent to the primary activities in the general ledger and financial reporting cycle

46.

Process performance should be measured relative to: a. b. c. *d.

how cost-effective the process is how efficient the process is how well the process fits the overall business strategy how well the process outcomes achieve the overall objectives of a relevant cycle

Correct answer: d Learning Objective 13.6 ~ Develop metrics to monitor general ledger and financial reporting cycle performance

© John Wiley & Sons Australia, Ltd 2012

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Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

47.

Which of the following is NOT a KPI that can be used to measure the objective “To ensure all reports generated are well designed and contain relevant and accurate data”? a. b. c. *d.

Number of complaints received from report users Number of data errors identified in reports Number of positive remarks received from report users Number of sophisticated data tables in reports

Correct answer: d Learning Objective 13.6 ~ Develop metrics to monitor general ledger and financial reporting cycle performance

48.

Which of the following is NOT a KPI that can be used to measure the objective “To ensure all adjusting journal entries are accurately prepared and independently authorised”? a. b. *c. d.

Number of erroneous adjustments detected Level of unadjusted balances in asset and liability accounts The number of authorisation performed Degree of compliance with accounting policy

Correct answer: c Learning Objective 13.6 ~ Develop metrics to monitor general ledger and financial reporting cycle performance

49.

Which of the following is NOT a KPI that can be used to measure the objective “To validate and correctly transfer all relevant transactional data”? a. *b. c. d.

Number of data errors detected The volume of transactional data transferred Reconciled balances in subsidiary ledger control accounts Number of un-cleared transactions in suspense accounts

Correct answer: b Learning Objective 13.6 ~ Develop metrics to monitor general ledger and financial reporting cycle performance

© John Wiley & Sons Australia, Ltd 2012

13.15

Testbank to accompany: Accounting information systems 4e 50.

Which of the following is NOT a KPI that can be used to measure the objective “To accurately and completely determine and record budget estimates”? *a. b. c. d.

The time between budget creation and budget approval Number of budget variances reported Cycle time to create budgets Operational manager complaints received regarding budget errors

Correct answer: a Learning Objective 13.6 ~ Develop metrics to monitor general ledger and financial reporting cycle performance

© John Wiley & Sons Australia, Ltd 2012

13.16

Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

Short Answer Questions 1. Why budgets are created and how budgets are used to assess performance?

Answer: Budgets are usually created on an annual basis and updated monthly or more frequently if required. The purpose of budgeting is to facilitate organisational planning and control.

Creating budgets requires careful estimation of future activity levels and the associated potential costs and revenues; finalised budgets are then used as a control measure to help ascertain and monitor required organisational and individual performance levels. In order to motivate desirable behaviour by managers within the organisation, budgets should be framed so that activity targets are achievable but challenging.

2. Describe the difference between financial statements and management reports.

Answer: Typically, we divide reports into two major categories: management reports, which are used within the organisation and general-purpose financial statements, which are distributed externally. Management reports tend to be far more detailed in terms of content, and are not intended for sharing outside the organisation. General-purpose financial statements are constructed in accordance with the requirements of the relevant accounting standards and contain far less detailed information, but are freely available to a wider range of users.

3. What are the strategic implications of the general ledger and financial reporting cycle?

Answer: The strategic implications of the general ledger and financial reporting cycle revolve around two main areas. The first is to do with the need for good decision making within the organisation. If management rely upon reported data that is invalid, or not timely, accurate or complete, inevitably decision-making performance will be compromised. An additional issue is the design of reports. Too much data can lead to an inability for the reader to comprehend the contents. Poorly arranged data can be misleading, and a seemingly simple issue like selecting the appropriate font size or column heading has implications in terms of the understandability of the report. While there is no perfect solution to report design issues, it is important for designers of financial reports to consider report aesthetics, in addition to data content, when designing reports. Poor reports lead to poor decision making, which can lead to eventual business failure; high-quality decision making requires good data and comprehensible reports. The second area is equally serious. External reports are distributed to corporate regulators, analysts and investors, among others. Errors in financial reporting can lead to problems such as incorrect market pricing of company shares, inequitable increases in the cost of capital, inability to access capital markets and the potential for prosecution if corporate laws are breached.

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e 4. Describe how chart of accounts are used during the general ledger and financial reporting cycle.

Answer: The chart of accounts establishes the basis upon which reports can be generated; a fully flexible chart of accounts would include an indicator for every possible dimension that the transaction may conceivably need to be reported on. In practice, however, there is a trade off – the more digits a general ledger account number contains, the more likely data processing errors become. General ledger account codes are added to every transaction prior to it being processed into the subsidiary ledger during the operational cycles. The purpose of the general ledger is to extract these transactions and their associated account numbers, then summarise and transfer the data into the general ledger. A well-designed chart of accounts will support diverse reporting requirements while maintaining an acceptably low data entry error rate.

Adoption of any alternative costing or reporting requirements, such as activity based costing, will increase the number of tags, or indicators, needed to code transactions accurately into the general ledger accounts.

5. Give examples of different budget levels and explain any deficiencies that may associate with these levels.

Answer: Budgets can be set at a range of levels. Many organisations budget down to a level known as ‘line item’ where budgets are set for each different type of revenue and expense for each division as contained in the chart of accounts. Line item level budgets are more difficult to plan because they require very detailed data. An alternative is to set higher-level budgets where items such as office expenses or production costs may be aggregated. Although more aggregate budgets are easier to plan, their usefulness during monitoring of performance is limited due to the lack of information they provide.

6. What are the considerations when planning budget breakdown?

Answer: Budgets can be established with an annual total, or they can be broken down into months.

The degree of granularity at which the budget is set determines how useful the budget targets will be during performance monitoring. If an annual budget is set, month-by-month monitoring could be misleading when variances are considered. An additional consideration is the behaviour of the item being budgeted: not all revenue and expenses divide evenly into 12 over a fiscal year.

7. What are the key considerations when setting budget targets?

Answer: Setting budget targets requires balance between what is desired in terms of performance and what is thought to be possible. A good budget target will require some ‘stretch’ to achieve but not be so high as to be seen as unobtainable. Most budget targets are set during discussion between managers, and often budget decisions end up being the result of a compromise.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 13: Transaction cycle -- the general ledger and financial reporting cycle

8. What are the typical risks encountered during the production of management reports and what are the relevant common controls?

Answer: During the production of management reports, the following risks can occur: Incorrect report parameters/ incorrect data reported. Controls include: - Limiting report generation functionality to appropriately trained staff.

- Requiring independent authorisation for any new report.

Unauthorised distribution of financial data (unlike the general-purpose financial statements these reports are not intended for use or distribution outside the organisation): Controls include: - Secure privacy settings on electronic reports limiting ability to print/redistribute reported data.

- Secure document management for reports containing sensitive data.

- Security profiles allowing read-only access to financial data maintained at an individual staff member level.

9. What are the common controls for controlling errors in journal entries during the preparation of adjustment journals?

Answer: - Independent approval of journal entries by senior accounting staff.

- Attaching full working papers to support journal entry calculations.

- Documenting any assumptions and algorithms relied on when calculating journal amounts.

- Mandating the provision of source documents where available.

10. Give at least three example KPIs to measure the objective “To ensure all adjusting journal entries are accurately prepared and independently authorised” Answer: - Number of erroneous adjustments detected - Level of unadjusted balances in asset and liability accounts - Degree of compliance with accounting policy

© John Wiley & Sons Australia, Ltd 2012

13.19

Chapter 14: Systems development

Chapter 14: Systems development Multiple Choice Questions

1.

Organisations face the need for systems development for various reasons. Which of the following is one of these reasons? a. b. c. *d.

New accounting requirements.

A new strategic opportunity has been identified that will allow the business to improve its strategic position.

New regulatory requirements.

All of the options are correct.

Correct answer: d Learning Objective 14.1 ~ Explain how business size and complexity may influence the choice of systems development strategy for an organisation

2.

Which of the following statements regarding accounting systems is not true is not true? a. *b. c. d.

Large organisations will find simple accounting system hard to satisfy their needs.

ERP systems are also suitable for small organisations.

Medium-sized organisations are better off using mid-range accounting systems.

None of the options is correct.

Correct answer: b Learning Objective 14.1 ~ Explain how business size and complexity may influence the choice of systems development strategy for an organisation

3.

A successful implementation of an ERP system is: a. b. c. *d.

complex. time-consuming. expensive. all of the options are correct.

Correct answer: d Learning Objective 14.1 ~ Explain how business size and complexity may influence the choice of systems development strategy for an organisation

© John Wiley & Sons Australia, Ltd 2012

14.1

Testbank to accompany: Accounting information systems 4e

4.

Which of the following must be involved in each stage of systems development to ensure that adequate internal controls are built into the new system as it is designed? a. *b. c. d.

Executives.

Internal auditors.

External auditors.

All of the options are correct.

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

5.

What is the advantage of adopting the system development lifecycle (SDLC) approach? a. b. *c. d.

Development is very rapid.

It is the cheapest approach.

The final system is well documented.

It is flexible if the user changes the requirements.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

6.

When considering new opportunities for technology within the organisation, it is critical to consider: a. *b. c. d.

whether the technology is the latest available. whether the technology aligns with the overall organisational strategy. whether the technology is user friendly. all of the options are correct.

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

7.

Systems problems and opportunities cannot be identified through: a. b. c. *d.

user and stakeholder feedback. a periodic review of system operations. observing the system in action by watching users. examining system documentations.

Correct answer: d Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

© John Wiley & Sons Australia, Ltd 2012

14.2

Chapter 14: Systems development

8.

Customers complain to an organisation about a system that bills them incorrectly. As a result, the organisation decided to implement a new billing system. This is an example of identifying system development opportunities through: *a. b. c. d.

user and stakeholder feedback. a periodic review of system operations. observing the system in action by watching users. all of the options are correct.

Correct answer: a Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

9.

Which of the following statement is not true? a. b.

*c. d.

A new system should reserve a reasonable amount of computing power and data storage capacity for future needs.

Identifying the key events that occur within a business process and how well the current system handles these events can be a powerful way to identify problems in the current system.

Adding new and more powerful hardware to a system can always improve the system's performance.

Sometimes a new software system, even if it still operates on existing hardware, can bring about significant increase in transaction processing speed.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

10.

Feasibility analysis does not involve determining whether: a. *b. c. d.

the new system costs too much. the users within the organisation will accept the new system. the new system can be built within a specific period. the legal environment is suitable for the new system.

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

© John Wiley & Sons Australia, Ltd 2012

14.3

Testbank to accompany: Accounting information systems 4e

11.

Strategic feasibility refers to: a. b. c. *d.

whether the proposed system can generate strategic benefits. how well the proposed system alternative meets its strategic position. how well the proposed systems development alternative fits with the organisation's existing operating environment and strategy. all of the options are correct.

Correct answer: d Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

12.

Technical feasibility does not involve: a. b. *c. d.

assessing how well the organisation’s existing technology infrastructure meets the requirements of the proposed system. assessing what new technology is required to meet the demand of the proposed system. assessing whether the organisation has enough technology capability to maintain the system. assessing different design options for the proposed system and weighing them up against the organisation's existing technical resources and the resource that are available for purchase.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

13.

PERT charts and Gantt charts can be used to analyse: a. b. *c. d.

financial feasibility. technical feasibility. schedule feasibility. strategic feasibility.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

© John Wiley & Sons Australia, Ltd 2012

14.4

Chapter 14: Systems development

14.

The task of selecting the most feasible alternative normally rests with: a. b. *c. d.

board of directors. the IT department. the systems development steering committee. the operation managers.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

15.

In many cases, the accountant or internal auditor will have to use logical and physical dataflow diagrams and systems flowcharts to document their systems because: a. b. c. *d.

systems documentations simply do not exist. existing systems documentations are no longer up to date. they want to understand what the current system does and how the system needs to be changed. all of the options are correct.

Correct answer: d Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

16.

Making requirement analysis of a new system: a. b. *c. d.

is purely a technical task. cannot be a social task. is both a technical task and a social task. is neither a technical task or a social task.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

17.

Persons making requirement analysis of a new system should: a. *b. c. d.

try to accommodate the needs of all users. adhere to the systems development scope. concentrate on what the system needs to do rather than the impact of organisational structure and individual roles brought about the new system. all of the options are correct.

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

© John Wiley & Sons Australia, Ltd 2012

14.5

Testbank to accompany: Accounting information systems 4e

18.

Normally, systems design can take two perspectives: a. *b. c. d.

the software perspective and the hardware perspective. the logical perspective and the physical perspective. the internal perspective and the external perspective. the technical perspective and the social perspective.

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

19.

Building in internal controls after the systems design phase is a _______ process compared to building them in at the time the systems development occurs: a. b. *c. d.

costly but efficient inexpensive but inefficient costly and inefficient inexpensive and efficient

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

20.

Which of the following regarding the system design phase is correct? *a. b. c. d.

The determination of outputs precedes that of inputs.

The determination of inputs precedes that of outputs.

The determination of inputs and outputs should be conducted simultaneously.

Order is not relevant when determining inputs and outputs.

Correct answer: a Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

21.

Why is the system development lifecycle (SDLC) called a ‘lifecycle’? *a. b. c. d.

Once maintenance can no longer keep the system effective the process restarts from the beginning of investigation.

The resulting system will last for the whole life of the company.

The new system evolves and grows like a living organism.

If changes are required, it is easy to cycle round the stages again.

Correct answer: a Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

© John Wiley & Sons Australia, Ltd 2012

14.6

Chapter 14: Systems development

22.

A document that outlines the specifications for the new system and is sent to potential vendors can be a: a. b. c. *d.

request for tender. request for proposal. request for quotations. all of the options are correct.

Correct answer: d Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

23.

Which of the following statements regarding in-house-developed programs is true? a. b. *c. d.

In-house-developed programs are often better than commercial off-the-shelf programs.

In-house-developed programs are often cheaper than commercial off-the-shelf programs.

In-house-developed programs often have less strategic alignment issues than commercial off-the-shelf programs.

In-house-developed programs are often chosen over commercial off-the-shelf programs.

Correct answer: c Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

24.

Which is the highest level of system testing? a. *b. c. d.

Stub level System level Unit level Firm level

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

© John Wiley & Sons Australia, Ltd 2012

14.7

Testbank to accompany: Accounting information systems 4e

25.

From least risky to most risky, which of the following order is correct? a. b. c. *d.

Direct conversion, phased-in conversion, parallel conversion.

Parallel conversion, direct conversion, phased-in conversion.

Phased-in conversion, parallel conversion, direct conversion.

Direct conversion, parallel conversion, phased-in conversion.

Correct answer: d Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

26.

An organisation decides to change its business focus and shift to another industry. As a result, a new information system is needed. Which of the following system implementation approach is most appropriate? *a. b. c. d.

Direct conversion.

Parallel conversion.

Phased-in conversion.

None of the options are correct.

Correct answer: a Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

27.

A new system: a. b. c. *d.

challenges worker competency. may be resisted by its users. can make users feel that their jobs are threatened. all of the options are correct.

Correct answer: d Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

28.

The two levels of accounting software are: a. *b. c. d.

mid-range and advanced. mid-range and simple. simple and advanced. professional and unprofessional.

Correct answer: b Learning Objective 14.3 ~ Describe the software development options available to smaller businesses and outline the systems selection processes for decision making

© John Wiley & Sons Australia, Ltd 2012

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Chapter 14: Systems development

29.

How are the end users involved during the prototyping approach to systems development? a. b. c. *d.

Users work with the modules as they are produced.

Users provide feedback which is used to improve the functionality.

Users can refine their requirements as they experience the modules that have been built.

All of the options are correct.

Correct answer: d Learning Objective 14.4 ~ Describe alternative approaches to systems development

30.

When considering new opportunities for technology within the organisation, it is critical to consider: a. *b. c. d.

whether the technology is the latest available. whether the technology aligns with the overall organisational strategy. whether the technology is user friendly. all of the above.

Correct answer: b Learning Objective 14.2 ~ Describe the stages of the systems development lifecycle and discuss the importance of organisational strategy as the basis for systems development

31.

During implementation, testing of the software and training of the users can be carried out in parallel until the final acceptance testing which the users have to do after they are trained. It is predicted to take 10 days to do program testing, 5 to test the system modules and 5 for acceptance testing. It is expected to take 22 days to train users.

How long is the critical path? a. b. c. *d.

22 days 20 days 25 days 27 days

Correct answer: d Learning Objective 14.6 ~ Identify and describe some common systems development tools

32.

Which of the following is not an alternative systems development approach? a. b. c. *d.

Prototyping.

Object oriented analysis methods.

Agile methods.

Extreme programming.

Correct answer: d Learning Objective 14.4 ~ Describe alternative approaches to systems development

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

33.

The ability to manage different groups of people, assimilate differences of opinion and manage conflict towards a workable solution that benefits the project as a whole is: a. b. *c. d.

management skills. team skills. people skills. problem-solving skills.

Correct answer: c Learning Objective 14.5 ~ Describe typical systems development problems and propose solutions for their resolution

34.

The knowledge about how the business operates, what is done and who does it is: a. b. c. *d.

technical skill. people skill. operation skill. process skill.

Correct answer: d Learning Objective 14.5 ~ Describe typical systems development problems and propose solutions for their resolution

35.

The systems development project requires a mix of: *a. b. c. d.

technical, people and process skills. strategic and functional skills. communication and operational skills. technical, operational and communication skills.

Correct answer: a Learning Objective 14.5 ~ Describe typical systems development problems and propose solutions for their resolution

36.

Which of the following cannot be used to explain escalation of commitment? a. b. c. *d.

Agency theory Self-justification theory Prospect theory Information theory

Correct answer: d Learning Objective 14.5 ~ Describe typical systems development problems and propose solutions for their resolution

© John Wiley & Sons Australia, Ltd 2012

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Chapter 14: Systems development

37.

Which of the following is a typical problem of systems development? a. b. c. *d.

Technical skills.

Escalation of commitment.

Interpersonal skills.

All of the options are correct.

Correct answer: d Learning Objective 14.5 ~ Describe typical systems development problems and propose solutions for their resolution

38.

Which of the following tools is used for monitoring the development of a new information system against the planned timeframe? a. b. c. *d.

PERT chart.

Microsoft Project.

Gantt chart.

All of the options are correct.

Correct answer: d Learning Objective 14.6 ~ Identify and describe some common systems development tools

39.

Which of the following statements regarding a Gantt chart is not true? a. *b. c. d.

A Gantt chart is a graphical way of planning and controlling the progress of a systems development project.

The Gantt chart depicts the timeframe for the project along the y-axis and the activities that are part of the project along the x-axis.

Gantt chart identifies the major activities that occur within the project.

Gantt chart identifies the timeframe for each activity that occurs within the project.

Correct answer: b Learning Objective 14.6 ~ Identify and describe some common systems development tools

40.

In terms of systems development management tools, CASE stands for: a. *b. c. d.

Computerised Analytical Software for Engineering.

Computer-Aided Software Engineering.

Computerised Analysis and Schedule Evaluation.

Computer-Aided Scheduling and Engineering.

Correct answer: b Learning Objective 14.6 ~ Identify and describe some common systems development tools

© John Wiley & Sons Australia, Ltd 2012

14.11

Testbank to accompany: Accounting information systems 4e

41.

Consider the following diagram.

Which activity/activities can have slack? a. b. c. *d.

A, J and K C, D and E F, G and H B and I

Correct answer: d Learning Objective 14.6 ~ Identify and describe some common systems development tools

42.

Consider the following diagram.

The critical path is: a. *b. c. d.

ACDEIJK ACDEFGHJK ABFGHJK ABIJK

Correct answer: b Learning Objective 14.6 ~ Identify and describe some common systems development tools

43.

There are two types of slack: a. b. *c. d.

favourable and unfavourable. inherent and allocated. dependent and independent. preceding and following.

Correct answer: c Learning Objective 14.6 ~ Identify and describe some common systems development tools

© John Wiley & Sons Australia, Ltd 2012

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Chapter 14: Systems development

44.

Which of the following regarding project times is not true? a. b. *c. d.

The latest start time is the latest possible time at which a task can commence without delaying the project.

The latest start time is used in calculating the amount of slack or spare time available for disruptions.

Activities on the critical path can have slack time built into them.

The difference between the earliest finish time and the latest finish time is the amount of slack that is available.

Correct answer: c Learning Objective 14.6 ~ Identify and describe some common systems development tools

45.

The earliest start time is calculated by: *a. b. c. d.

working forwards in the diagram. working backwards in the diagram. calculating the critical path first. calculating the slack for the entire project first.

Correct answer: a Learning Objective 14.6 ~ Identify and describe some common systems development tools

46.

If any activity that is on the critical path is delayed: a. b. *c. d.

the finishing day of the project will not be affected. the finishing day of the project will be brought forward. the finishing day of the project will be delayed. one should no longer follow the critical path for calculating project completion time.

Correct answer: c Learning Objective 14.6 ~ Identify and describe some common systems development tools

© John Wiley & Sons Australia, Ltd 2012

14.13

Testbank to accompany: Accounting information systems 4e

47.

Consider the following diagram.

The critical path takes __________ days to walk. a. *b. c. d.

20 41 35 26

Correct answer: b Learning Objective 14.6 ~ Identify and describe some common systems development tools

48.

Which of the following descriptions regarding critical path analysis/PERT charts is true? a. *b. c. d.

The first step in preparing a PERT chart is assigning time estimates to each activity.

The illustration of the relationship comes before the calculation of earliest start time and latest finish time.

The identification of any slack comes before the calculation of earliest start time and latest finish time.

Assigning time estimates to each activity comes after the identification of any slack.

Correct answer: b Learning Objective 14.6 ~ Identify and describe some common systems development tools

49.

CASE systems are mainly used for: *a. b. c. d.

source code design and user documentation. project scheduling and milestone specification. activity costing and resource planning. ensuring the fit between the system being develop and the business requirements.

Correct answer: a Learning Objective 14.6 ~ Identify and describe some common systems development tools

© John Wiley & Sons Australia, Ltd 2012

14.14

Chapter 14: Systems development

50.

Which of the following is unlikely a tool for project management? a. b. *c. d.

PERT charts Gantt charts CASE tools Critical path analysis

Correct answer: c Learning Objective 14.6 ~ Identify and describe some common systems development tools

© John Wiley & Sons Australia, Ltd 2012

14.15

Testbank to accompany: Accounting information systems 4e

Short Answer Questions 1. Briefly explain the five stages of systems development lifecycle.

Answer: The systems development lifecycle consists of five stages: (1) investigation (2) analysis (3) design (4) implementation (5) maintenance and review.

In the investigation and analysis stages, the problems facing the organisation are investigated in light of the current system and its operations. Alternative responses for the problem will be evaluated based on their feasibility. After selecting the most feasible option, the design for that option will commence, with this consisting of both logical and physical design perspectives. After the design is complete, the system will be physically implemented and, once implemented, will require regular maintenance and review.

2. What is technology-organisational fit? Why is it important during systems development?

Answer: Organisational fit refers to how well the technology is aligned with the overall organisational strategy and strategic priorities. This is an important point to bear in mind because it emphasises the idea that technology should be used to tackle problems and opportunities that originate within the business. The relationship does not work in reverse, that is, not all new technologies are blindly adopted even if there is no real application for them or they conflict with overall organisational strategy and mission. Therefore, consider new technologies in light of the underlying business environment – new technologies are not necessary for all businesses. It is the matching of the technology to the opportunity that is important, not just blind adoption of technology because it is seen as the ‘cool thing to do’.

© John Wiley & Sons Australia, Ltd 2012

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Chapter 14: Systems development

3. Briefly describe different types of feasibility analysis that need to be carried out before systems development.

Answer: Financial feasibility is based around the economic costs and benefits of a system. In assessing the financial feasibility of a system, the costs involved in adopting the new system will be systematically compared with the financial benefits of the new system.

Legal feasibility is concerned with how the proposed system would operate given the legal environment faced by the organisation. The legal environment refers to the laws and regulations an organisation is required to comply with.

Schedule feasibility refers to the ability of the proposed solution to be implemented within the period of time that is specified by the organisation. The assessment of schedule feasibility requires the assessment of the expected project time and a comparison of the expected time with the time available. Estimating schedule feasibility requires a thorough understanding of the tasks that need to be performed and an estimate of their time for completion.

Technical feasibility involves the assessment of how well the organisation’s existing technology infrastructure meets the requirements of the proposed alternative. If the current resources are unable to meet the requirements of the new system, an assessment of what new technology is required may also be performed. This stage involves the consideration of different design options for the proposed alternative and weighing them up against the organisation’s existing technical resources and the resources that are available for purchase.

Strategic feasibility refers to how well the proposed systems development alternative fits with the organisation’s existing operating environment and strategy.

4. Explain the systems development steering committee’s role in selecting the most feasible alternative of systems development.

Answer: The task of selecting the most feasible alternative rests with the systems development steering committee, which represents a key part of the systems development process. The members of the systems development steering committee typically occupy positions of power throughout the organisation. The systems development steering committee is responsible for determining whether the systems development project should proceed. Since the steering committee decides on the project’s approval, the members should have the power to allocate resources throughout the organisation; because once a project is approved it requires financial and other resources for its successful completion. The job of the steering committee is to select the alternative that it views as the most viable. Once selected, the committee will sign off on the selected option, with this forming the basis of the design stage. The steering committee also performs a critical role throughout the lifecycle of the project, receiving reports at the end of each major phase and signing the phase off so that the next phase can commence.

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

5. What are the two key parts of the analysis stage in the systems development lifecycle?

Answer: The analysis stage of the systems development lifecycle has two key parts. The first is to understand what the current system does and how it operates. The second part is to specify what the new system will need to do. The understanding of the current system is called the systems analysis, while the specification of what the new system needs to do is called the requirements analysis.

6. What are the two perspectives of system design? Explain.

Answer: System design can take two perspectives: the logical perspective and the physical perspective. The logical perspective of systems design is concerned with a design that is independent of the actual technology required for its implementation. The physical design requires the specification of the technical aspects. The logical design, also referred to as the conceptual design, describes what the system will do; the physical design describes how it will actually be done.

7. Explain in details the three approaches to systems implementation. Compare and contrast each of these approaches advantages and disadvantages.

Answer: The direct conversion method involves switching off the old system today and switching on the new system tomorrow. It is an immediate switch from the old to the new. This can have an advantage of lower costs in the implementation, when compared with the parallel approach, if the new system functions as expected. However, the direct approach can also expose the business to several risks. Therefore, a backup plan of being able to switch back to the old system if, after a certain period of time (e.g. 24 hours), the new system fails to operate.

Parallel conversion involves running the new system and the old system together for a period of time. That is, operating them in parallel. This overcomes the risk of the direct switchover previously discussed: the impact of a problem with the new system on the organisation is kept to a minimum because the old system is still operating. Of course, the downside of the parallel approach is that for some time the two systems need to be kept running, which can add to costs. Also, in many cases this may not be practicable.

The phased-in conversion involves a gradual implementation of the system throughout the organisation. Under this approach, the new system will be introduced in a small part of the organisation and gradually phased in throughout the entire organisation. This is, in a sense, a compromise between the direct and parallel methods because it allows the system to be implemented and operational while at the same time reducing exposure should it fail. This approach is practical if there are separate business units. There is an additional safeguard here as the organisation can have a ‘plan B’ whereby, if the new system fails, the pilot branch’s data may be processed in another state branch until the problems are rectified.

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Chapter 14: Systems development

8. What are the differences between system improvement and system modification, and bug correction?

Answer: System improvement activity involves adding new features or functions to the system, thus increasing its potential usefulness. Ideas for system improvements may emerge as users operate the new system in day-to-day operations and identify small points that could be added or modified to improve the usability of the system.

System modification is, as the name suggests, a change to the system. Rather than adding to the existing features, as is the case with system improvement, it takes an existing feature and alters it.

Bug correction involves fixing any errors in the system. These errors are the result of programming mistakes and are more of a threat when organisations develop their own system in-house or attempt to customise an existing package.

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9. Briefly explain the typical problems of systems development.

Answer: Conflict is disagreement between individuals, groups or organisations. The systems development process, by virtue of it uniting a wide range of stakeholders, is an environment that is ripe for conflict. Users often feel that designers are not listening to their requests, while designers think users do not know what they want and can never be satisfied. These two stakeholders, users and designers, approach the systems development project from very different perspectives, with one often not totally understanding the other. Jealousy and hostility can result Escalation of commitment refers to an increased level of commitment towards a project that has previously been chosen and that is not progressing as expected and that should be abandoned or redirected. In systems development projects, the reality is that very few will be completed on time, even less on time and under cost, and some just will not be completed at all because they were doomed to fail from the start. Despite such poor outcomes, organisations may spend significant money on a systems development project that is not progressing as planned, in the desperate hope of righting the wrongs of the past and getting the project back on track.

Typical problems with project goals can include goals that do not have the universal support of those involved and goals that are too broad in scope. The systems development effort needs to occur within the boundaries of what the system is required to do, its goals and objectives and the importance of the system within the organisation. Having a clear concept of the boundaries of the scope of the project is important when it is first conceived, as well as during its progression through its various stages.

Technical skills refer to the ability to perform the tasks required in developing and implementing the system within the organisation. Organisations undergoing systems development need to assess the capabilities that they have within the organisation. There may be instances where the proposed systems development is beyond the skills and expertise of the staff within the organisation.

Interpersonal skills are essential in any systems development effort. These skills come to the forefront as systems development efforts can involve people from a wide range of backgrounds and levels throughout an organisation working together on the one project. The perspective of the IT personnel or the programmer may be very different from that of the enduser of the system. This makes an ability to work with others, acknowledge different viewpoints and collaborate towards the attainment of a mutually acceptable solution important.

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Chapter 14: Systems development

10. What are the steps in preparing a PERT chart?

Answer: (1) Identify activities that need to occur.

(2) Assign time estimates to each activity.

(3) Identify relationships among activities (particularly precedent activities).

(4) Illustrate the relationship.

(5) Calculate earliest start time and latest finish time.

(6) Identify any slack.

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Chapter 15: Auditing of accounting information systems

Chapter 15 Auditing of accounting information systems Multiple Choice Questions

1.

Which of the following statements regarding the concept of audit is not true? a. b. *c. d.

The most common type of audit is the financial statement audit.

The financial statement audit provides an objective opinion on an organisation’s financial statements.

Financial statement audit provides absolutely guarantee that the financial reports are free of misstatement.

Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating those results to interested users.

Correct answer: c Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

2.

The purpose of the financial statement audit is for users to be able to ascertain the __________ and __________ of the financial statements of an organisation. *a. b. c. d.

credibility; reliability trustworthiness; accuracy correctness; objectivity None of the options is correct.

Correct answer: a Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

3.

The objective of financial audit is to: a. *b. c. d.

enable the auditor to express an opinion as to whether the financial report is prepared in accordance with all applicable financial reporting frameworks. enable the auditor to express an opinion as to whether the financial report is prepared in accordance with an applicable financial reporting framework. enable the auditor to express an opinion as to whether the financial report is prepared in accordance with an applicable accounting standard. enable the auditor to express an opinion as to whether the financial report is prepared in accordance with all applicable accounting standards.

Correct answer: b Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

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Testbank to accompany: Accounting information systems 4e

4.

Standards Australia has a risk management standard: a. b. *c. d.

ASA 610 ISO 9000 AS/NZS ISO 31000:2009 None of the options are correct

Correct answer: c Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

5.

Which of the following is not a responsibility of the Board, Audit Committee and Management? a. b. c. *d.

Formulate overall risk classifications.

Understand business life cycles, business processes, and critical success factors.

Identify and classify risks.

Assess probability of risk and potential consequences.

Correct answer: d Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

6.

Which of the following is not a responsibility associated with audit assurance? a. b. *c. d.

Compare and analyse risk tolerance and mitigation strategies.

Evaluate existing and new controls, costs and effectiveness of monitoring procedures.

Define objectives, scope and priorities Assess exposure, report position and recommend insurance (if necessary).

Correct answer: c Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

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Chapter 15: Auditing of accounting information systems

7.

Which of the following statements regarding internal auditing is not true? a. b. *c. d.

Internal auditing can improve an organisation’s operations by providing guidance for management decisions.

Internal auditing can improve an organisation’s operations by providing guidance for more efficient business operations.

Internal auditing is a subjective assurance and consulting activity designed to add value and improve an organisation’s operations.

Internal auditing is undertaken by professionals who evaluate and improve an organisation’s risk management, control and governance processes to add value to the organisation.

Correct answer: c Learning Objective 15.2 ~ Specify the function of internal audit

8.

Which of the following statements regarding the internal audit function is not true? *a. b. c. d.

The internal audit function is not all encompassing.

The internal audit function includes the evaluation of controls in business processes.

The internal audit function includes the evaluation of controls in information systems and systems development projects.

The internal audit function includes the evaluation of controls in systems development projects.

Correct answer: a Learning Objective 15.2 ~ Specify the function of internal audit

9.

The relationship between internal auditing function and the organisation’s external auditors can be described as: a. b. c. *d.

Competing Substitutive Enhancing Close

Correct answer: d Learning Objective 15.2 ~ Specify the function of internal audit

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Testbank to accompany: Accounting information systems 4e

10.

The objectives of the internal audit function do not vary according to: a. b. *c. d.

organisation size organisation complexity organisation market share industry sector

Correct answer: c Learning Objective 15.2 ~ Specify the function of internal audit

11.

Which of the following is not performed by the internal audit function? a. b. c. *d.

Monitoring internal control.

Examining financial and operational information.

Test transactions.

Implement business processes that are more efficient and effective.

Correct answer: d Learning Objective 15.2 ~ Specify the function of internal audit

12.

Which of the following is performed by the internal audit function? *a. b. c. d.

Evaluate risks.

Implement improved management control systems.

Implement improved risk control systems.

Reviewing the organisation’s strategic plans.

Correct answer: a Learning Objective 15.2 ~ Specify the function of internal audit

13.

The external auditors: a. b. *c. d.

must not use the work of an internal auditor. can use the work of an internal auditor at whatever way he/she wants. can use the work of an internal auditor subject to guidelines outlined in ASA 610. can use the work of an internal auditor subject to guidelines outlined in IFRS.

Correct answer: c Learning Objective 15.3 ~ Explain the function of external audit

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Chapter 15: Auditing of accounting information systems

14.

Guidelines in ASA 610 relate to: a. b. c. *d.

the level of objectivity associated with the internal audit function. the level of technical competence associated with the internal audit function. whether the activities of the internal audit function has been properly planned, reviewed, supervised and documented.

All of the options are correct.

Correct answer: d Learning Objective 15.3 ~ Explain the function of external audit

15.

ASA 700 Forming an Opinion and Reporting on a Financial Report does not outline the auditor’s responsibilities of: *a. b. c. d.

The auditor’s report should state that the audit was conducted in accordance with international accounting standards.

The audit should be described including procedures on how evidence was obtained.

The auditor’s report should state that the audit was conducted in accordance with Australian accounting standards.

The auditor’s report states that the auditor believes that sufficient and appropriate audit evidence was obtained to form an opinion.

Correct answer: a Learning Objective 15.3 ~ Explain the function of external audit

16.

The purpose of an audit is to: a. b. *c. d.

Give shareholders a guarantee that the financial statements are correct Give stakeholders a guarantee that the financial statements are correct Enhance the degree of confidence of intended users in the financial report None of the options are correct

Correct answer: c Learning Objective 15.1 ~ Describe the importance of the audit function to good corporate governance

17.

__________ to determine the appropriate level of audit evidence required to form an opinion when Australian auditing standards direct the auditors work. a. *b. c. d.

A high level of professional judgement is not required A high level of professional judgement is required A moderate level of professional judgement is preferred A low level of professional judgement is required

Correct answer: b Learning Objective 15.3 ~ Explain the function of external audit

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Testbank to accompany: Accounting information systems 4e

18.

A firm can only provide reasonable assurance that: a. b. c. *d.

The firm and its personnel comply with AUASB Standards The firm and its personnel comply with relevant ethical requirements.

The firm and its personnel comply with applicable legal and regulatory requirements.

All of the options are correct.

Correct answer: d Learning Objective 15.3 ~ Explain the function of external audit

19.

Audit quality may be compromised due to: (i) time constraints (ii) management pressure (iii) limited resources. *a. b. c. d.

(i) (ii) (iii) (i) (ii) (ii) (iii) (i) (iii)

Correct answer: a Learning Objective 15.3 ~ Explain the function of external audit

20.

Non-compliance with Accounting Concepts and Standards is: a. b. *c. d.

sometimes required deemed appropriate only in extreme circumstances unprofessional conduct All of the options are correct.

Correct answer: c Learning Objective 15.3 ~ Explain the function of external audit

21.

The auditor performing an attest service is: *a. b. c. d.

An external auditor An internal auditor Either an external auditor or an internal auditor An AIS auditor

Correct answer: a Learning Objective 15.6 ~ Evaluate the importance of the financial audit

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Chapter 15: Auditing of accounting information systems

22.

In Australia, ASIC found that for the largest companies, audit fees from 2010 to 2011 were reduced by more than $12 million. ASIC later finds that audit quality has: a. b. c. *d.

improved unchanged compromised The ASIC has not yet arrived at a conclusion.

Correct answer: d Learning Objective 15.3 ~ Explain the function of external audit

23.

If a firm failed to disclose billions of dollars in short term debt in its annual financial report that has been distributed to shareholders, who should be found guilty? (i) Directors of the board. (ii) Internal auditor. (iii) External auditor. *a. b. c. d.

(i) (ii) (iii) (i) (ii) (ii) (iii) (i) (iii)

Correct answer: a Learning Objective 15.3 ~ Explain the function of external audit

24.

In Australia and New Zealand, ASX guidelines encourage the appointment and evaluation of performance of external auditors to be carried out by: a. b. *c. d.

Chief Executive Officer (CEO) Board of directors Audit committee Chief Financial Officer (CFO)

Correct answer: c Learning Objective 15.4 ~ describe the role of the audit committee in evaluating corporate governance

25.

Good corporate governance requires effective management oversight. This oversight does not include: a. b. c. *d.

Internal and external non-financial reporting.

Internal and external audit Oversight of activities to control and report on fraud.

None of the options is correct.

Correct answer: d Learning Objective 15.4 ~ describe the role of the audit committee in evaluating corporate governance

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Testbank to accompany: Accounting information systems 4e

26.

Which of the following statements regarding an audit committee is not true? a. b. c.

*d.

An audit committee is set up to oversee accounting and financial reporting.

An audit committee has a mandate to cover a wide range of assurance activities including those not related to financial reporting.

An audit committee is responsible for considering the effectiveness of the company’s internal control system, including information technology security and control.

All ASX listed companies must have an audit committee.

Correct answer: d Learning Objective 15.4 ~ describe the role of the audit committee in evaluating corporate governance

27.

The ASXs corporate governance principles suggest that the audit committee should: a. b. c. *d.

consist of at least three non-executive directors with an independent chair review the integrity of the company's financial reporting oversee the independence of the external auditors All of the options are correct.

Correct answer: d Learning Objective 15.4 ~ describe the role of the audit committee in evaluating corporate governance

28.

Which of the following statements regarding an audit committee is true? a. b. *c. d.

The Australian and New Zealand approach of the establishment of an audit committee is legislated for mandatory compliance.

The US approach of the establishment of an audit committee encourages companies to follow best practice.

The existence of an independent audit committee is recognised internationally as an important feature of good corporate governance.

All of the options are correct.

Correct answer: c Learning Objective 15.4 ~ describe the role of the audit committee in evaluating corporate governance

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Chapter 15: Auditing of accounting information systems

29.

The type of audit that examines the system of internal controls and whether they work is known as: a.

Financial audit *b.

Information systems audit c.

IT governance audit d.

Management audit

Correct answer: b Learning Objective 15.5 ~ Outline the influences on the auditor 30.

AUASB stands for: a. *b. c. d.

AUstralian Auditing Standards Board AUditing and Assurance Standards Board AUstralian Accounting Standards Board AUditing and Accounting Standards Board

Correct answer: b Learning Objective 15.7 ~ Evaluate the functions of an IS audit

31.

Which of the following is not true? a. b. *c. d.

Australian Auditing Standards (ASAs) are legally binding auditing standards.

Australian Auditing Standards (ASAs) are issued by the Australian Auditing and Assurance Standards Board.

Australian Auditing Standards (ASAs) set out audit requirements for listed companies under the Corporations Act Australian Auditing Standards (ASAs) are legally enforceable legislative instruments.

Correct answer: c Learning Objective 15.5 ~ Outline the influences on the auditor

32.

Sarbanes-Oxley Act (SOX) has legal force on which of the following? a.

US companies b.

Companies that are dual listed on a US stock exchange c.

Subsidiaries of US companies *d.

All the above

Correct answer: d Learning Objective 15.6 ~ Evaluate the importance of the financial audit

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Testbank to accompany: Accounting information systems 4e

33.

The examination of financial reports to form a view independently from the organisation as to the reliability of the information provided in the reports is referred to as: *a. b. c. d.

A financial audit.

An internal audit.

An external audit.

An information audit.

Correct answer: a Learning Objective 15.6 ~ Evaluate the importance of the financial audit

34.

The process of the auditor forming an opinion and reporting on whether or not the accounts have been prepared in accordance with generally accepted accounting principles is technically termed as: a. b. c. *d.

External audit Internal audit Financial audit Attest service

Correct answer: d Learning Objective 15.6 ~ Evaluate the importance of the financial audit

35.

The auditor performing an attest service is: *a. b. c. d.

An external auditor An internal auditor Either an external auditor or an internal auditor An AIS auditor

Correct answer: a Learning Objective 15.6 ~ Evaluate the importance of the financial audit

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Chapter 15: Auditing of accounting information systems

36.

Which of the following statements regarding auditors is true? a.

*b.

c.

d.

When the auditors are to form an opinion that the final accounts truly and fairly summarise the underlying transactions, they do not necessarily have to have confidence in the integrity of the AIS. If the auditors are to form an opinion that the final accounts truly and fairly summarise the underlying transactions then they must have confidence in the integrity of the AIS. If the auditors are to express confidence in the integrity of the AIS, then they must form an opinion that the final accounts truly and fairly summarise the underlying transactions.

The integrity of the AIS and the auditors’ opinion towards the final accounts are irrelevant.

Correct answer: b Learning Objective 15.6 ~ Evaluate the importance of the financial audit

37.

Most AIS today are computer based. Auditing the information system requires the auditors to: a. *b. c. d.

Treat the computer as a black box and work around it Recognise the special threats inherent in IT and include these in the audit plan Just look at the manual systems and procedures Employ ethical hackers to audit the computer system

Correct answer: b Learning Objective 15.7 ~ Evaluate the functions of an IS audit

38.

An accounting information systems may face: a. b. c. *d.

Inherent risk Control risk Detection risk All of the options are correct.

Correct answer: d Learning Objective 15.7 ~ Evaluate the functions of an IS audit

39.

The risk of material misstatement, without regard to the effects of controls, is: *a. b. c. d.

An inherent risk A control risk A detection risk An incontrollable risk

Correct answer: a Learning Objective 15.7 ~ Evaluate the functions of an IS audit

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Testbank to accompany: Accounting information systems 4e

40.

The risk of material misstatement resulting from the internal controls in place failing to detect a fraudulent or erroneous transaction is: a. *b. c. d.

An inherent risk A control risk A detection risk An incontrollable risk

Correct answer: b Learning Objective 15.7 ~ Evaluate the functions of an IS audit

41.

The inherent risk associated with an operating system that is used by a major stock exchange is: *a. b. c. d.

Ordinarily high Ordinarily medium Ordinarily low Negligible

Correct answer: a Learning Objective 15.7 ~ Evaluate the functions of an IS audit

42.

The risk that an error that could occur in an audit area and could be material, individually or in combination with other errors, will not be prevented or detected and corrected on a timely basis by the internal control system is: a. *b. c. d.

Inherent risk Control risk Detection risk Incontrollable risk

Correct answer: b Learning Objective 15.7 ~ Evaluate the functions of an IS audit

43.

The control risk associated with manual reviews of computer logs is: *a. b. c. d.

High Medium Low Negligible

Correct answer: a Learning Objective 15.7 ~ Evaluate the functions of an IS audit

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Chapter 15: Auditing of accounting information systems

44.

The detection risk associated with identifying breaches of security in an application system is *a. b. c. d.

Ordinarily high Ordinarily medium Ordinarily low Negligible

Correct answer: a Learning Objective 15.7 ~ Evaluate the functions of an IS audit

45.

Failing to detect a fraudulent or erroneous transaction is an example of which type of risk? *a. b. c. d.

Control Inherent Detection Completeness

Correct answer: a Learning Objective 15.7 ~ Evaluate the functions of an IS audit

46.

When testing using test data, the auditor should: a. b. c. *d.

calculate test transactions manually create a sample of test transactions start from the simplest calculations and proceed from there All of the options are correct.

Correct answer: d Learning Objective 15.7 ~ Evaluate the functions of an IS audit

47.

To test that the system will provide an appropriate response to every invalid input: a. b. *c. d.

every possible permutation of valid transactions that could be entered into the system needs to be tested every possible permutation of invalid transactions that could be entered into the system needs to be tested every possible permutation of valid and invalid transactions that could be entered into the system needs to be tested None of the options is correct.

Correct answer: c Learning Objective 15.7 ~ Evaluate the functions of an IS audit

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Testbank to accompany: Accounting information systems 4e

48.

Auditors need to be imaginative to identify all possible paths through the AIS. Which of the following sets of test data do they use? a. b. c. *d.

Historical test data from systems development.

Realistic transactions to test all computational paths generated by the auditors.

Realistic transactions based on good accounting practice that test the interface between the work procedures and the AIS. All of the options are correct.

Correct answer: d Learning Objective 15.7 ~ Evaluate the functions of an IS audit

49.

The audit program: a. b. *c. d.

Is essentially a computerised auditing program that is used to audit a system.

Is essentially an auditing product provided by an auditing firm.

Is essentially a checklist of all the tests and other procedures that the auditor intends to carry out.

None of the options are correct.

Correct answer: c Learning Objective 15.7 ~ Evaluate the functions of an IS audit

50.

Which of the following statements regarding computer auditing tools and techniques is true? a. *b. c. d.

An embedded audit software is a simper version of an integrated test facility.

A more sophisticated example of embedded audit software is continuous auditing using a systems control and review file.

Generalised audit software examines transactions dynamically.

Generalised audit software is not very flexible.

Correct answer: b Learning Objective 15.7 ~ Evaluate the functions of an IS audit

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Chapter 15: Auditing of accounting information systems

Short Answer Questions 1. What are the two broad areas of responsibility associated with the risk management system?

Answer: The risk management system involves two broad areas of responsibility: Responsibility of the Board, Audit Committee and Management - Define objectives, scope and priorities - Formulate overall risk classifications - Understand business life cycles, business processes, critical success factors - Identify and classify risks Audit assurance related responsibility: - Assess probability of risk and potential consequences - Compare and analyse risk tolerance and mitigation strategies - Evaluate existing and new controls, costs and effectiveness of monitoring procedures - Assess exposure, report position and recommend insurance (if necessary)

2. What are the main responsibilities of an audit committee?

Answer: An independent audit committee is a fundamental component of a good corporate governance structure. The audit committee is a subcommittee of a board of directors (board) that typically: - Focuses on issues relevant to the integrity of a company's financial reporting - Oversees risk management, internal control, compliance and internal - Audit activities; and - Liaises between the board, external auditors, internal auditors and management.

3. Good corporate governance requires effective management oversight. What does this oversight include?

Answer: Internal and external reporting (financial and, in limited areas, non-financial).

Oversight of risk management activities.

Internal and external audit.

Internal control framework including policies and procedures as they apply to financial reporting compliance with applicable laws and regulations.

Oversight of activities to control and report on fraud.

4. Can best practices be used during auditing? If so, how?

Answer: Auditors often need other sources of guidance and, and may turn to best practice as a source.

Best practice may be defined as being what a skilled experienced auditor familiar with the issue at hand would do. It is the distilled wisdom of the auditor community and emerges from

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discovery of what works best through trialling a variety of techniques and choosing the best.

It responds to environmental change more quickly than regulatory processes can. Sources of best practice include ISO standards and materials and procedures developed by the vendors and or firms that offer audit and assurance services.

5. Briefly explain the three types of risk associated with a risk-based approach to AIS audit.

Answer: Inherent Risk - the susceptibility of an audit area to error in a way that could be material, individually or in combination with other errors, assuming that there were no related internal controls.

Control risk - is the risk that an error that could occur in an audit area and could be material, individually or in combination with other errors, will not be prevented or detected and corrected on a timely basis by the internal control system.

Detection Risk - is the risk that the IS auditor’s substantive procedures will not detect an error that could be material, individually or in combination with other errors.

6. What are the five phases of an AIS audit?

Answer: Planning the audit.

Fieldwork.

Analysis.

Completion, review and reporting.

Monitoring and review.

7. How does running test data through the system impose limitations on the auditors?

Answer: Running test data through the system imposes several limitations on the auditors. For a start, if the testing is performed using client staff, it will lessen the degree of independence. The testing may be done on the ‘live’ system (i.e. when the system is in normal operating mode) or on a ‘dead’ system (e.g. after normal working hours). Testing may also be carried out on a copy of the production system, supplied by the client to the auditors for that purpose. There is a small risk that if there have been any fraudulent modifications made to the production system it may be restored to the original state before performing a ‘dead’ system test or making a copy of the system for the auditors. If the testing has been performed on the ‘live’ system, which is the more desirable situation, then after the testing is complete all the test transactions should be reversed to remove them from the system. If it was done on a ‘dead’ system, then the files would be simply rolled back to their previous status and the changes discarded.

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Chapter 15: Auditing of accounting information systems

8. What are the five general infrastructure controls of a system that need to be evaluated during an audit?

Answer: Logical access controls Database controls Physical environmental controls Storage controls Change controls

9. Why the auditing of systems under development is favourable?

Answer: A strong case can be made for auditors to be involved in the design and development of new systems. The auditor will need to be assured that all possible risks arising from the use of the new system have been identified, and that appropriate controls will be included to mitigate these risks. It is critical that controls are incorporated in the design phase, at which stage the cost of their inclusion is minimal compared with the costs involved in subsequently modifying the system when it is operating. In addition, there may be large but unquantifiable costs resulting from exposure to the risks posed by missing controls. The auditor will also either be involved in testing the new system, or at the very least be required to review the test plans to ensure that all possible risk factors are included and tested for, and also to review test results to confirm that all controls are in place and working as intended.

In addition, auditors may be appointed by senior management to audit the entire project development, to provide management with an independent opinion of the project progress in contrast to the possibly ‘rose-tinted’ views of project team leadership.

10. Explain what special purpose audits can do and how can these audits be carried out.

Answer: Special purpose audits may be commissioned by management to: - Investigate proven or suspected fraud by employees or others with access to the client’s system.

- Investigate intrusion (hacking) into a system.

- Obtain an independent opinion of the system’s possible vulnerability to such events.

In such cases there is no uniform approach; the auditor’s approach will be dictated firstly by the terms of the engagement and secondly by the particular circumstances of the client.

Required skill sets will include a strong knowledge of IT generally and IT security specifically, particularly relating to the type of system(s) used by the client. Additional skills needed may vary from those of a fraud squad detective to a criminal hacker.

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Chapter 16: Ethics, fraud and computer crime

Chapter 16 Ethics, fraud and computer crime Multiple Choice Questions

1.

Ethical theories help us to: Introduction a. b. c. *d.

Explore the implications of a decision.

Better understand the implications of a decision.

Be able to justify our choices.

All of the options are correct.

Correct answer: d Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

2.

An ethical decision-making model provides guidance on: Introduction a. b. *c. d.

How to navigate difficult and complex issues in reaching an effective solution for a business problem.

How to navigate difficult and complex issues in reaching a best practice for an issue.

How to navigate difficult and complex issues in reaching a decision.

All of the options are correct.

Correct answer: c Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

3.

Ethics can be defined as: a. *b. c. d.

A synonymous term for a country’s legal system Rules that guide us in our everyday behaviour, thoughts and actions Both a. & b. are correct None of the options are correct

Correct answer: d Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

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Testbank to accompany: Accounting information systems 4e

4.

How a person approaches and responds to an ethical issue is termed: a. *b. c. d.

Ethics Morals Critical thinking Decision making

Correct answer: c Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

5.

The implicit rules that guide us in our everyday behaviour, thoughts and actions are collectively termed: *a. b. c. d.

Ethics Morals Code of conduct Legislation

Correct answer: a Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

6.

The first step of ethical decision-making is to: a. b. *c. d.

Define the issue Identify the principles that can be applied Identify the facts None of the options are correct.

Correct answer: c Learning Objective 16.2 ~ Solve an ethical dilemma by applying an ethical decision-making model

7.

Which of the following statements regarding ethical decision-making is true? a. b. *c. d.

The number of alternative courses of action should be restricted to a small amount to avoid information overload.

When choosing from a set of alternative courses of action, the primary principle is to look for the one that will minimise the chance of legal sanction.

Each alternative courses of action needs to be evaluated from the perspective of the different stakeholders.

All of the options are correct.

Correct answer: c Learning Objective 16.2 ~ Solve an ethical dilemma by applying an ethical decision-making model

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Chapter 16: Ethics, fraud and computer crime

8.

Consequentialist theories are also known as: a. *b. c. d.

Kantianism.

Teleological theories Both a. & b. are correct None of the options are correct.

Correct answer: b Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

9.

The examination of principles, values, duties and norms, the consideration of available choices in order to make the decision and the strength of character to act in accordance with that decision is referred to as: *a. b. c. d.

Ethics Morals Beliefs Meditations

Correct answer: a Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

10.

Which of the following is not a stage in ethical decision making? a. *b. c. d.

Identify the facts Identify the laws that can be applied Consider alternative courses of action Make a decision

Correct answer: b Learning Objective 16.2 ~ Solve an ethical dilemma by applying an ethical decision-making model

11.

Kantianism suggests that: *a. b. c. d.

An action is morally right if it is motivated by a good will that stems from a sense of duty Maximisation of an individual’s utility should not be at the expense of the group or community There are always multiple ethical approaches None of the options are correct

Correct answer: a Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

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Testbank to accompany: Accounting information systems 4e

12.

Which of the following is not a type of Consequentialist theory? a. *b. c. d.

Ethical utilitarianism Ethical Kantianism Ethical egoism Ethical altruism

Correct answer: b Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

13.

Cost–benefit analysis is an example of: a. b. c. *d.

Opportunism Hedonism Realism Utilitarianism

Correct answer: d Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

14.

Which of the following is not a criticism of utilitarianism? a. b. c. *d.

The rights of individuals are not taken into account.

It does not consider the minority question.

Some individuals may suffer great harm while others may receive only modest benefits.

Happiness is the ultimate goal of human behaviour.

Correct answer: d Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

15.

A whistleblower is: a. b. *c. d.

Another term for a disgruntled employee Someone who highlights favourable company information Someone who exposes corruption or malpractice None of the options are correct

Correct answer: c Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

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Chapter 16: Ethics, fraud and computer crime

16.

The saying that an action is morally right if it is motivated by a good will that stems from a sense of duty is known as: *a. b. c. d.

Kantianism Hedonism Realism Utilitarianism

Correct answer: a Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

17.

Which of the following statements regarding Kantianism is not true? a. *b. c. d.

Kantianism is embedded in duty or obligation and encompasses a dignity or respect for the individual.

According to Kantianism, a business that is doing respectful things, despite that it is motivated by profits, is acting in a prudent and moral way.

Critics point out that Kantianism’s universal obligations do not take into account particular situations.

Kantianism is grounded in the notion of respect for the individual.

Correct answer: b Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

18.

Which of the following statements regarding ethics and decision making is true? a. b. c. *d.

An ethical framework is preferable but not essential in making good decisions.

Ethical theories are preferable but not essential in making good decisions.

In most cases decisions based on intuition and personal feelings will achieve better outcomes than those based on an ethical framework.

Ethics is very complex.

Correct answer: d Learning Objective 16.1 ~ Show how ethical theories provide a basis for decision making in organisations

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

19.

Do electronic Accounting Information Systems pose more of a threat to customer privacy than paper based systems? a. b. c. *d.

No because the data cannot be read by a human.

Yes because organisations always sell the data onto marketing companies.

No because there are laws that protect the privacy of customers.

Yes because organisations can collect more data about more people than ever before.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

20.

________ refers to the individual consenting to the information gathering through their subsequent actions. a. *b. c. d.

Informed consent Implied consent Forced consent None of the options are correct.

Correct answer: b Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

21.

Ideally, a website should not store any data of the potential customer during the customer registration process until: a. b. c. *d.

The customer has agreed to relevant Terms and Conditions.

The customer has elected to press the ‘Submit’ button on the electronic registration form.

The customer has reviewed all information entered in previous steps of registration.

All of the options are correct.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

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Chapter 16: Ethics, fraud and computer crime

22.

When submitting their online registration form, a pop-up dialogue box appears in the customers’ Internet browser asking them to confirm the submission of information.

This is an example of: *a. b. c. d.

Informed consent Implied consent Forced consent Conscious consent

Correct answer: a Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

23.

Information privacy principles from the Privacy Act 1988 do not dictate that: a.

b. c. *d.

Information shall not be disclosed to a third party unless such disclosure was made known to the subject at the time the information was solicited and the subject consented to such disclosure.

Individuals have the right to view the information that is kept about them.

Individuals have the right to require that any inaccuracy regarding information that is kept about them be corrected.

The person gathering information should use whatever means to ensure that the information is complete and up to date.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

24.

The principles of the Privacy Act 1988 do not explicitly cover: a. b. c. *d.

Collection of information.

Storage of information Usage of information Disposal of information

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

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Testbank to accompany: Accounting information systems 4e

25.

Which of the following factors does not affect the usage of internet technology? a. b. c. *d.

Age Education Geography Gender

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

26.

Which of the following statements regarding internet access is true? a. b. c. *d.

Young people are more likely to have internet access.

Wealthier people are more likely to have internet access Well educated people are more likely to have internet access All of the options are correct.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

27.

Which of the following factors is the most important one in addressing internet access issues in Australia? a. b. c. *d.

Social barriers Economic barriers Technical barriers All of the options are correct.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

28.

Which of the privacy principles covers the requirement that information should be protected from loss and unauthorised access? a. b. *c. d.

Collection of information Record keeping Storage Access

Correct answer: c Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

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Chapter 16: Ethics, fraud and computer crime

29.

Which of the following controls can ensure that all software is properly licensed in an organisation? a. b. c. *d.

Users are restricted from installing programs or running unauthorised programs on their work computer.

Administrator rights and power user rights are not assigned to any common user.

Centralised deployment of software.

All of the options are correct.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

30.

Some organisations restrict employee’s access to external websites such as Facebook and eBay that are not relevant to work. Such conduct is ________ from an employee’s perspective: a. b. c. *d.

Definitely unethical and illegal Definitely unethical but legal Potentially unethical and illegal Potentially unethical but legal

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

31.

Which of the following is not considered invasion of privacy? *a. b. c. d.

Blocking employee access to external websites.

Screening employee emails.

Maintaining a log that tracks employee usage of the internet.

None of the options are correct.

Correct answer: a Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

32.

The reporting, by an employee or member of an organisation, of the unethical behaviour of a colleague is called: a. b. *c. d.

Informing Insider report Whistle-blowing Ethical action

Correct answer: c Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

33.

Whether it is ethical for the purchasing manager to accept a gift from a supplier may depend on: a. b. c. *d.

The social culture.

The value of the gift.

The company’s gift policy.

All of the options are correct.

Correct answer: d Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

34.

Privacy is: a. b. *c. d.

A legal issue only.

An ethical issue only.

Both a legal and an ethical issue.

Neither a legal nor an ethical issue.

Correct answer: c Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

35.

In terms of IT, cookies cannot: a. *b. c. d.

ensure the browser does not display ads the user has already seen. ensure the user has adequate protection against online unethical behaviours. track the previous and next sites the user visits. track whether a user has visited the site before.

Correct answer: b Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

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Chapter 16: Ethics, fraud and computer crime

36.

Consumer profiling is less likely to be able to gather information regarding: a. b. *c. d.

Consumer interests Consumer purchasing patterns Consumer spending capability Consumer viewing patterns

Correct answer: c Learning Objective 16.3 ~ Explain and give examples of ethical issues relating to accounting information systems

37.

In terms of IT, spam is a problem because: a. b. c. *d.

It can slow down email servers It may spread computer viruses It may affect the job efficiency of employees All of the options are correct.

Correct answer: d Learning Objective 16.4 ~ Discuss and provide examples of cybercrime

38.

Gaining unauthorised access to a system is called: *a. b. c. d.

Hacking Identity theft Phishing None of the options are correct.

Correct answer: a Learning Objective 16.4 ~ Discuss and provide examples of cybercrime

39.

Which of the following fraud can occur if an employee is responsible for both approving and paying invoices? *a. b. c. d.

Paying non-existent suppliers Inventory theft Credit fraud All of the options are correct.

Correct answer: a Learning Objective 16.4 ~ Discuss and provide examples of cybercrime

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

40.

Which of the following is not true? a. *b. c. d.

Technology is advancing faster than the legislation can keep pace with.

The three main types of cybercrime are fraud, hacking, and identity theft.

The cost of cybercrime is not easy to calculate.

Much of the cybercrime goes unreported.

Correct answer: b Learning Objective 16.4 ~ Discuss and provide examples of cybercrime

41.

There are three risk factors known as the ‘fraud triangle’ that are generally present when a fraud is committed. Which of the following is not one of them? a. b. c. *d.

An incentive or pressure to commit fraud.

A perceived opportunity to commit fraud.

An ability to rationalise the fraudulent action.

An ability to avoid being discovered.

Correct answer: d Learning Objective 16.5 ~ Evaluate the impact of fraud on organisations

42.

A bank teller is experiencing pressure at home, with mortgage payments rapidly approaching and credit cards nearing their limit. The teller has the opportunity to ‘borrow’ some of the bank’s cash to place a bet on a ‘sure thing’ at the Saturday races with the intention of returning the cash to the bank on Monday morning. This is an example of: (i) Pressure for fraud (ii) Opportunity for fraud. a. b. *c. d.

Only (i) Only (ii) Both (i) and (ii) Neither (i) nor (ii)

Correct answer: c Learning Objective 16.5 ~ Evaluate the impact of fraud on organisations

43.

An individual’s perceived ability to carry out the fraud and conceal the fraudulent activity is referred to as: a. *b. c. d.

Pressure for fraud.

Opportunity for fraud.

Rationalisation for fraud.

Concealing for fraud.

Correct answer: b Learning Objective 16.5 ~ Evaluate the impact of fraud on organisations

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Chapter 16: Ethics, fraud and computer crime

44.

Which of the following is not true? a. b. c.

*d.

Research studies have found that the incidence of fraud tends to be related to the ethical environment of the organisation.

Ethical conducts can be promoted through professional registration.

Ethical guidelines exist to guide auditors when making client acceptance decisions, when determining the level of non-audit service fees, and on what gifts from the client can be accepted.

Codes of ethics should be formal.

Correct answer: d Learning Objective 16.5 ~ Evaluate the impact of fraud on organisations

45.

People are more likely to provide personal information to someone on the phone who purports to be a police officer or other authority figure. This is referred to as the: a. b. *c. d.

Kindness principle Authority principle Social compliance principle Distraction principle

Correct answer: c Learning Objective 16.6 ~ Describe and evaluate controls that reduce the risk of crimes facilitated by technology

46.

Which of the following is not one of the seven recurring behavioural patterns and related principles identified by Stajano and Wilson? a. b. *c. d.

Need and greed principle Time principle Authority principle Herd principle

Correct answer: c Learning Objective 16.6 ~ Describe and evaluate controls that reduce the risk of crimes facilitated by technology

© John Wiley & Sons Australia, Ltd 2012

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Testbank to accompany: Accounting information systems 4e

47.

Once a person realises that they have been involved in a scam, the victim may be reluctant to tell the authorities. This is referred to as: a. b. c. *d.

Distraction principle Social compliance principle Kindness principle Dishonesty principle

Correct answer: d Learning Objective 16.6 ~ Describe and evaluate controls that reduce the risk of crimes facilitated by technology

48.

Which principle is the foundation for phishing and social engineering? a. b. c. *d.

Dishonesty principle Herd principle Distraction principle Social compliance principle

Correct answer: d Learning Objective 16.6 ~ Describe and evaluate controls that reduce the risk of crimes facilitated by technology

49.

Which of the following is true? a. b. *c. d.

The COSO framework, rather than the COBIT framework, can be utilised to reduce the risk of cyber fraud.

The COBIT framework, rather than the COSO framework, can be utilised to reduce the risk of cyber fraud.

The COSO and COBIT frameworks can both be utilised to reduce the risk of cyber fraud.

The COSO and COBIT frameworks are irrelevant to cyber fraud.

Correct answer: c Learning Objective 16.6 ~ Describe and evaluate controls that reduce the risk of crimes facilitated by technology

50.

In terms of cybercrime, which of the following is true? a. b. *c. d.

Employees are only the main risk inside the organisation.

Employees are only the main risk outside the organisation.

There must be clear and swift sanctions against security misconduct.

External audit is more effective in detecting fraud than internal audit.

Correct answer: c Learning Objective 16.6 ~ Describe and evaluate controls that reduce the risk of crimes facilitated by technology

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Chapter 16: Ethics, fraud and computer crime

Short Answer Questions 1. What are the seven stages to go through when making an ethical decision?

Answer: (1) Identify the facts.

(2) Define the issue(s).

(3) Identify the principles that can be applied.

(4) Identify possible actions and the stakeholders affected by these actions.

(5) Compare steps 3 and 4.

(6) Select a course of action.

(7) Implement the selected course of action.

2. Compare and contrast data mining and customer profiling. What are the ethical issues associated with these two techniques?

Answer: Data mining is a data analysis technique where large amounts of data are taken and analysed for potential patterns and relationships that may exist.

Customer profiling is a process where data on a customer’s website viewing habits are used to build a profile of their interests, needs and preferences, which can then be used for targeted advertising.

Organisations can undertake data mining and customer profiling, often without the user being aware of it: there is often no explicit seeking of consent to the gathering and use of the data collected. Consumer advocates see this as an invasion of privacy that can lead to a lack of trust on the part of the consumer. This lack of trust has big implications for the future development of e-commerce. Additionally, the customer profiling may not necessarily generate an accurate picture of the customer.

3. Describe what a cookie (in terms of IT) is and what it can do.

Answer: Cookies are small files stored on a computer’s hard drive that keep a record of websites viewed, viewing preferences, user profiles and so on. Developed ostensibly to allow websites to display in the most user-friendly format, based on the operating system used, browser type and so on, cookies can also help organisations to gather data about the people that access their websites. For example, a cookie can: (1) Ensure the browser does not display ads the user has already seen.

(2) Ensure ads are shown in a particular sequence.

(3) Track whether a user has visited the site before.

(4) Track the previous and next sites the user visits.

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Testbank to accompany: Accounting information systems 4e

4. What are the three ways of gathering information of users of an accounting information system? What are the associated ethical concerns?

Answer: Information about users of an AIS can be gathered: (1) without the consent of the individual (though this may be illegal and/or unethical) (2) with the informed consent of the individual (3) with the implied consent of the individual.

Gathering information without the person’s consent would appear to be prohibited under the Australian Privacy Act 1988. Moreover, there is a big difference between express and implied consent. Some may argue that by agreeing to use a website and entering information you are giving consent for that information to be gathered. Others would argue that the only form of true consent is that which is expressly obtained from the subject of the information.

As a result, ethical positions defer between people subscribe to different views.

5. Name and briefly compare and contrast at least three types of malware.

Answer: Malicious code designed to damage, disrupt or steal data or disrupt computer systems and networks is known as malware. The most common types of malware are viruses, worms, trojans, and bots. While viruses are attached to an executable file (a file that the computer can run), worms are standalone software that do not need another program or human to replicate.

Trojans are particularly dangerous because the software looks genuine. Once the trojan is activated it can cause a great deal of damage. Unlike viruses and worms, trojans can only spread through human interaction such as downloading files or opening email attachments.

Bots are used to automate tasks usually undertaken by a human being. A malicious bot is designed to infect the host and connect back to a server where someone can launch remote control attacks on their target. Bots can self-propagate like a virus or a worm.

6. Compare and contrast the following terms: phishing, pharming, hacking, and social engineering.

Answer: Phishing: the word ‘phishing’ comes from the analogy that internet scammers are using email lures to ‘fish’ for passwords and financial data from the sea of internet users.

Pharming: a pharming attack redirects users to a fake (phishing) web page even though the user entered the correct address.

Hacking: gaining unauthorised access to a system.

Social engineering: manipulating an individual, either online or in person, into providing personal information that can be used to break into a computer network or assume someone’s identity.

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Chapter 16: Ethics, fraud and computer crime

7. Give at least three examples of organisational fraud related to accounting information systems.

Answer: (1) The payroll manager who places a non-existent staff member on the payroll in the accounting information systems and collects his or her salary in addition to his or her own.

(2) The programmer who adjusts a payroll program so that one cent from every pay every week goes to an account he or she has created.

(3) The person who creates a website purporting to be that of a large organisation and gains private customer details (including bank account details) through the site.

8. How do professional bodies and codes of ethics help in deterring frauds?

Answer: Membership of a profession carries benefits; for example, professions typically possess a base of knowledge that is valued in society (as with doctors or accountants), professional authority is recognised in the wider community that they serve, and a professional culture and ethical codes that govern their actions. Codes of ethics can be both formal and informal, and enforced by the self and by the professional body. For professionals who consider themselves a part of the professional group, such as a CA or CPA or a doctor, the prospect of being disciplined and potentially excluded from the group and prevented from earning their livelihood is generally a strong enough means of ensuring behaviour in accordance with the professional code of ethics.

Organisations can therefore help induce ethical behaviour by having employees who are members of professional bodies that enforce a professional and ethical code of conduct, or by creating and enforcing their own ethical code of conduct, to which the employee signs up when joining the organisation.

9. Explain the meaning of ‘fraud triangle’.

Answer: There are three risk factors known as the ‘fraud triangle’ that are generally present when a fraud is committed. These are: An incentive or pressure to commit fraud: The pressure for fraud can come from various sources, including the individual’s personal life and work environment.

A perceived opportunity to commit fraud: The opportunity refers to the individual’s perceived ability to carry out the fraud and conceal the fraudulent activity.

An ability to rationalise the fraudulent action: The reason is the way that individuals justify their fraudulent activity.

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Testbank to accompany: Accounting information systems 4e

10. Stajano and Wilson distilled seven recurring behavioural patterns and related principles that are useful in the examination of fraud. Name and briefly describe these principles.

Answer: Distraction principle Social compliance principle: People do not generally question authority.

Herd principle: This is where something is made to look legitimate because everyone else is doing it.

Dishonesty principle: Once a person realises that they have been involved in a scam, the victim may be reluctant to tell the authorities.

Kindness principle: People are nice and want to help.

Need and greed principle: Once people know our needs and wants, they can manipulate us.

Time principle: When under time pressure, we make decisions using less reasoning.

© John Wiley & Sons Australia, Ltd 2012

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