Accounting Information Systems 11th Edition By Bodnar – Test Bank

 

 

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Sample Questions

 

Chapter 4   Transaction Processing and the Internal Control Process

 

1) The term risk is synonymous with exposure.

Answer:  FALSE

Diff: 1

Learning Obj.:  1

 

2) Selecting the best opportunities and managing uncertainties is part of Enterprise Risk Management (ERM).

Answer:  TRUE

Diff: 1

Learning Obj.:  1

 

3) COBIT stands for Control Objectives for Businesses in Technology fields.

Answer:  FALSE

Diff: 1

Learning Obj.:  2

 

4) ISO 27002 is a widely accepted international standard for best practices in information security.

Answer:  TRUE

Diff: 1

Learning Obj.:  2

 

5) Financial accounting is concerned with the prevention and detection of fraud and white-collar crime.

Answer:  FALSE

Diff: 1

Learning Obj.:  1

 

6) Recent survey results indicate that the most frequent reason frauds are discovered is due to internal controls.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

7) COSO reports contain the most authoritative framework for internal control processes.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

8) The production cycle is defined as the events related to the distribution of goods and services to other entities and the collection of related payments.

Answer:  FALSE

Diff: 2

Learning Obj.:  2

9) Typically, an organization’s internal control process consists of five components.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

10) Management’s consideration of the relative costs for benefits of internal controls will often be subjective in nature.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

11) For both public and privately held companies, the Sarbanes-Oxley Act of 2002 (SOA) imposes certain requirements and restrictions on management, auditors, and company audit committees.

Answer:  FALSE

Diff: 2

Learning Obj.:  2

 

12) The CEO and CFO must prepare a statement to accompany the audit report to certify that the company’s reported financial statements are presented fairly in all material respects.

Answer:  TRUE

Diff: 1

Learning Obj.:  2

 

13) The Sarbanes-Oxley Act of 2002 (SOA) allows the purchase or sale of stock by officers and directors and other insiders during blackout periods.

Answer:  FALSE

Diff: 1

Learning Obj.:  2

 

14) Many companies have adopted ethics codes of conduct which provide guidance for conducting business in an ethical manner.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

15) Some believe that every corporation has its own corporate culture, and it is such a culture that ultimately either promotes or hinders ethical behavior within the corporation.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

16) Most control processes can function irrespective of the competence of employees.

Answer:  FALSE

Diff: 2

Learning Obj.:  2

 

17) The board of directors serves as an interface between the stockholders of an organization and its operating management.

Answer:  TRUE

Diff: 1

Learning Obj.:  2

18) Audit committees are usually charged with evaluation and assessment of a corporation’s internal control processes.

Answer:  FALSE

Diff: 2

Learning Obj.:  2

 

19) Control is established in the budgeting process by comparing the results of activity to the budget for each activity.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

20) The third component of internal control is risk assessment.

Answer:  FALSE

Diff: 1

Learning Obj.:  2

 

21) The segregation of authorization from the recording of transactions and custody of assets is an essential internal control process.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

22) Physical theft is only a minor threat to the solvency of most business organizations.

Answer:  FALSE

Diff: 2

Learning Obj.:  2

 

23) Approval (authorization) limits the initiation of a transaction or performance of an activity to selected individuals.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

 

24) The audit trail concept is basic to the design and audit of an accounting information system.

Answer:  TRUE

Diff: 1

Learning Obj.:  3

 

 

25) In an internal audit function, the nature of independence is different than that of an external auditor.

Answer:  TRUE

Diff: 2

Learning Obj.:  2

 

26) General controls can be a substitute for application controls.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

27) The computer operations supervisor has a good attendance record, which demonstrates the general operating procedure of competency of personnel.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

 

28) A list of changes to on-line computer files is stored on magnetic tape to provide a transaction trail.

Answer:  TRUE

Diff: 2

Learning Obj.:  3

 

29) Application controls are designed to provide assurance that processing has occurred.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

 

30) A hash total is a meaningless number that only is important for internal control purposes.

Answer:  TRUE

Diff: 2

Learning Obj.:  3

 

31) The immediate return of input information to the sender for comparison and approval is called feedback.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

 

32) A trailer label is the last record of an inventory file, which contains a record count of the number of records in the file.

Answer:  TRUE

Diff: 2

Learning Obj.:  3

 

 

33) Detective controls are not considered transaction processing controls, but rather internal audit controls.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

 

34) Internal control should be looked upon as part of a larger process within the organization.

Answer:  TRUE

Diff: 2

Learning Obj.:  3

 

35) Collusion occurs when a white-collar individual attempts to commit fraud within an organization.

Answer:  FALSE

Diff: 1

Learning Obj.:  4

36) A negative answer given to a question on an internal control questionnaire almost always indicates a weakness in an internal control process area.

Answer:  FALSE

Diff: 2

Learning Obj.:  5

 

37) A structured form of analysis relevant to internal control reviews is an applications control matrix.

Answer:  TRUE

Diff: 2

Learning Obj.:  5

 

38) Someone who has personally observed the activities under review should complete an internal control questionnaire.

Answer:  TRUE

Diff: 2

Learning Obj.:  5

 

39) Ratings of the relative strength or reliability of controls may be entered in a control matrix.

Answer:  TRUE

Diff: 2

Learning Obj.:  3

 

40) Corrective controls act to prevent errors and fraud before they happen.

Answer:  FALSE

Diff: 2

Learning Obj.:  3

 

 

41) An example of a suspense file is a file of back-ordered items awaiting shipment to customers.

Answer:  TRUE

Diff: 2

Learning Obj.:  3

 

42) The chief goal of an information system is productivity.

Answer:  TRUE

Diff: 2

Learning Obj.:  4

 

43) Controls increase productivity and the reliability of resulting output.

Answer:  FALSE

Diff: 2

Learning Obj.:  4

 

44) Informal pressure from employees does not cause collusion.

Answer:  FALSE

Diff: 1

Learning Obj.:  4

45) COSO’s next report to be published will pertain to the monitoring of internal control systems in order to keep them current and effective.

Answer:  FALSE

Diff: 1

Learning Obj.:  2

 

46) ________ tend to reduce ________, but they rarely affect the causes.

Answer:  Controls; exposures

Diff: 2

Learning Obj.:  1

 

47) An exposure is a(n) ________ times its ________ consequences.

Answer:  risk; financial

Diff: 3

Learning Obj.:  1

 

48) Deficient revenues and excessive costs reduce ________.

Answer:  profits

Diff: 1

Learning Obj.:  1

 

49) The diversion or misrepresentation of assets from either employees or third parties is known as ________ ________.

Answer:  management fraud

Diff: 2

Learning Obj.:  1

50) Fraud examination draws on the fields of ________, ________, and ________.

Answer:  accounting; law; criminology

Diff: 3

Learning Obj.:  1

 

51) White-collar crime that benefits an organization rather than individuals is ________ crime.

Answer:  corporate

Diff: 2

Learning Obj.:  1

 

52) The ________ cycle involves events related to the acquisition and management of capital funds, including ________.

Answer:  finance; cash

Diff: 3

Learning Obj.:  1

 

53) The concept of internal control is based on ________ major premises: ________ and reasonable ________.

Answer:  two; responsibility; assurance

Diff: 3

Learning Obj.:  2

54) Commitment and competence are factors included in the ________ environment.

Answer:  control

Diff: 2

Learning Obj.:  2

 

55) All companies whose stock is traded on the New York Stock Exchange are required to have a(n) ________ ________ composed of outside directors.

Answer:  audit committee

Diff: 2

Learning Obj.:  2

 

56) The ________ budget is the budget for the entire organization.

Answer:  master

Diff: 1

Learning Obj.:  3

 

57) ________ bonding is common for employees who are directly responsible for the custody of assets.

Answer:  Fidelity

Diff: 1

Learning Obj.:  3

 

 

58) Employees can check and verify the operations of other employees when the employees are forced to take a(n) ________.

Answer:  vacation

Diff: 2

Learning Obj.:  2

 

59) Closely related to direct supervision is the concept of ________ ________— the assignment of two individuals to perform the same work task in unison.

Answer:  dual control

Diff: 1

Learning Obj.:  2

 

60) ________ controls affect all transaction processing, while ________ controls are specific to individual applications.

Answer:  General; application

Diff: 2

Learning Obj.:  3

 

61) In cases of ________, “the procedures did not fail, the people did.”

Answer:  defalcations

Diff: 2

Learning Obj.:  2

 

62) ERM is defined by ________ as a process applied in strategy setting and across the enterprise, to manage risk.

Answer:  COSO

Diff: 2

Learning Obj.:  1

63) ISO 27002 aids companies with Section ________ compliance.

Answer:  404

Diff: 2

Learning Obj.:  1

 

64) Businesses without an IT department or IT expertise can rely on outside ________ ________ ________ for their accounting, software and IT needs.

Answer:  application service providers

Diff: 3

Learning Obj.:  1

 

 

65) Which of the items below would not be considered a possible common exposure for a corporation?

1.    A) Excessive prices are paid for goods for use in the organization.

2.    B) The corporation never was billed for a sale of merchandise shipped to a customer.

3.    C) A flash flood destroys the merchandise contained in a warehouse.

4.    D) Certain equipment was accidentally misplaced and not depreciated.

Answer:  C

Diff: 1

Learning Obj.:  1

 

66) Intentional or reckless conduct, whether intentional or not, and which results in materially misleading financial statements, is called

1.    A) fraudulent financial reporting.

2.    B) corporate crime.

3.    C) management fraud.

4.    D) None of these answers are correct.

Answer:  A

Diff: 2

Learning Obj.:  1

 

67) DWB Corporation suffered a loss due to the spoilage of certain raw materials used in the manufacturing of its products. The business transaction cycle in which this loss occurred is the

1.    A) revenue cycle.

2.    B) expenditure cycle.

3.    C) finance cycle.

4.    D) production cycle.

Answer:  D

Diff: 1

Learning Obj.:  1

 

68) Which of the objectives listed below is not considered part of the internal control process?

1.    A) Compliance with applicable laws and regulations

2.    B) The prevention of fraud and embezzlement

3.    C) Effectiveness and efficiency of operations

4.    D) Reliability of financial reporting

Answer:  B

Diff: 2

Learning Obj.:  2

 

69) “Amounts due to vendors should be accurately and promptly classified, summarized, and reported” is a representative control objective of the

1.    A) revenue cycle.

2.    B) finance cycle.

3.    C) production cycle.

4.    D) expenditure cycle.

Answer:  A

Diff: 2

Learning Obj.:  1

 

70) The internal control premise that concerns the relative costs and benefits of controls is known as

1.    A) responsibility.

2.    B) risk.

3.    C) reasonable assurance.

4.    D) exposure.

Answer:  C

Diff: 2

Learning Obj.:  2

 

71) Section 102 of the Federal Foreign Corrupt Practices Act of 1977 (FCPA) applies to

1.    A) all public and privately held U.S.-based companies.

2.    B) all companies subject to the Securities Exchange Act of 1934.

3.    C) any publicly held company, whether it is a for-profit or non-profit entity.

4.    D) all foreign-owned companies currently operating in the United States.

Answer:  B

Diff: 2

Learning Obj.:  2

 

72) The Omnibus Trade and Competitiveness Act of 1988 (OTCA) amends the

1934.       A) Securities Exchange Act of 1934.

1935.       B) accounting provisions of the FCPA.

1936.       C) antibribery provisions of the FCPA.

1937.       D) accounting and antibribery provisions of the FCPA.

Answer:  D

Diff: 2

Learning Obj.:  2

 

73) The Sarbanes-Oxley Act of 2002 imposes certain requirements and restrictions on

1.    A) management.

2.    B) auditors.

3.    C) audit committees.

4.    D) All of these answers are correct.

Answer:  A

Diff: 2

Learning Obj.:  2

74) The Sarbanes-Oxley Act of 2002 explicitly deals with the non-audit services which auditors can provide to their audit clients. Certain non-audit services may be permissible, without prior approval of a company’s audit committee, if the non-audit services

1.    A) constitute less than 5% of the audit fees for the corporation.

2.    B) constitute less than 5% of the audit fees for the corporation and are not specifically identified as being barred by SOA 2002.

3.    C) constitute less than 20% of the audit fees for the corporation.

4.    D) Auditors are barred from any and all non-audit services for their audit clients according to SOA 2002.

Answer:  B

Diff: 3

Learning Obj.:  2

 

75) The component of internal control that is the foundation for all other components is

1.    A) risk assessment.

2.    B) information and communication.

3.    C) control activities.

4.    D) control environment.

Answer:  D

Diff: 2

Learning Obj.:  2

 

76) One way in which a company can produce a corporate culture that supports ethical behavior is through

1.    A) emphasis on sales quotas and deadlines.

2.    B) emphasis on short-run goals and objectives.

3.    C) a cultural audit to bring to light the corporation’s true culture and ethical behavior.

4.    D) All of these answers are correct.

Answer:  C

Diff: 2

Learning Obj.:  2

 

77) The formal communications patterns within an organization can be communicated using

1.    A) a specific, precise management philosophy.

2.    B) an organizational chart.

3.    C) a cultural audit.

4.    D) an ethical code of conduct.

Answer:  B

Diff: 2

Learning Obj.:  2

 

 

78) Assets fraudulently appropriated for one’s own use from an organization is considered

1.    A) fraud.

2.    B) theft.

3.    C) embezzlement.

4.    D) a corporate loan.

Answer:  C

Diff: 1

Learning Obj.:  1

79) An interesting aspect of white-collar crime is that

1.    A) it often seems to be victimless.

2.    B) it usually amounts to less than $1,000 per organization per year on average.

3.    C) internal controls almost never reveal the perpetrators of such crimes.

4.    D) None of these answers are correct.

Answer:  A

Diff: 2

Learning Obj.:  1

 

80) Many aspects of computer processing tend to significantly

1.    A) decrease an organization’s exposure to undesirable events.

2.    B) strengthen the corporate culture’s ethical behavior in the long-term analysis.

3.    C) increase employee productivity through the use of monitoring software.

4.    D) increase an organization’s exposure to undesirable events.

Answer:  D

Diff: 2

Learning Obj.:  3

 

81) The department or division of larger organizations which is responsible for monitoring and evaluating controls on an ongoing basis is

1.    A) internal auditing.

2.    B) external auditing.

3.    C) internal affairs.

4.    D) division monitoring.

Answer:  A

Diff: 1

Learning Obj.:  3

 

82) The two broad categories of transaction control are

1.    A) general controls and specific controls.

2.    B) general controls and application controls.

3.    C) general controls and basic controls.

4.    D) basic controls and application controls.

Answer:  B

Diff: 1

Learning Obj.:  3

 

 

83) Application controls are often classified as

1.    A) general, processing, and specific.

2.    B) basic, specific, and accounting.

3.    C) general, application, and output.

4.    D) input, processing, and output.

Answer:  D

Diff: 1

Learning Obj.:  3

84) An agreement or conspiracy among two or more people to commit fraud is known as

1.    A) embezzlement.

2.    B) misappropriation.

3.    C) collusion.

4.    D) misrepresentation.

Answer:  C

Diff: 1

Learning Obj.:  4

 

85) An analytical technique commonly used to analyze and examine an internal control process is known as a(n)

1.    A) control flowchart.

2.    B) internal control questionnaire.

3.    C) exposure checklist.

4.    D) segregation of duties.

Answer:  B

Diff: 1

Learning Obj.:  5

 

86) An exposure is

1.    A) synonymous with risk.

2.    B) equal to risk multiplied by the likelihood of detection.

3.    C) equal to risk multiplied by the financial consequences.

4.    D) not possible with a good system of internal controls in place.

Answer:  C

Diff: 2

Learning Obj.:  1

 

87) Fraudulent financial reporting

1.    A) involves intentional or reckless conduct.

2.    B) may be due to an act of omission or commission.

3.    C) results in misleading financial statements.

4.    D) All of these answers are correct.

Answer:  D

Diff: 2

Learning Obj.:  1

 

 

88) Internal control is affected by an organization’s

1.    A) board of directors, management, and other personnel.

2.    B) management and internal auditors.

3.    C) management and external auditors.

4.    D) board of directors, management, and shareholders.

Answer:  A

Diff: 2

Learning Obj.:  2

89) Management’s philosophy and operating style are part of which component of internal control?

1.    A) Control activities

2.    B) Control environment

3.    C) Information and communication

4.    D) Monitoring

Answer:  B

Diff: 2

Learning Obj.:  2