Deck 6: Control and Accounting Information Systems

Question 1

Congress passed this federal law for the purpose of preventing financial statement fraud,to make financial reports more transparent and to strengthen the internal control of public companies.

A)Foreign Corrupt Practices Act of 1977
B)The Securities Exchange Act of 1934
C)The Sarbanes-Oxley Act of 2002
D)The Control Provision of 1998

Answer 1

C

Question 2

Duplicate checking of calculations is an example of a __________ control,and adherence to appropriate procedures to resubmit rejected transactions is an example of a __________ control.

A)corrective; detective
B)detective; corrective
C)preventive; corrective
D)detective; preventive

Answer 2

B

Question 3

Accountants must try to protect the AIS from threats.Which of the following would be a measure that should be taken?

A)take a proactive approach to eliminate threats
B)detect threats that do occur
C)correct and recover from threats that do occur
D)All of the above are proper measures for the accountant to take.

Answer 3

D

Question 4

Which of the following is accomplished by corrective controls?

A)identify the cause of the problem
B)correct the resulting errors
C)modify the system to prevent future occurrences of the problem
D)All of the above are accomplished by corrective controls.

Question 5

Safeguarding assets is one of the primary purposes of internal control.Which of the following is not one of the other primary purposes?

A)providing accurate and reliable accounting records
B)promoting operational efficiency
C)ensuring that no fraud has occurred
D)encouraging adherence to management policies

Question 6

__________ controls prevent,detect and correct transaction errors and fraud.

A)Application
B)Detective
C)General
D)Preventive

Question 7

The primary purpose of the Foreign Corrupt Practices Act of 1977 was

A)to require corporations to maintain a good system of internal control.
B)to prevent the bribery of foreign officials by American companies.
C)to require the reporting of any material fraud by a business.
D)All of the above are required by the act.

Question 8

Any potential adverse occurrence or unwanted event that could be injurious to either the AIS or the organization is referred to as a(n)

A)threat.
B)exposure.
C)risk.
D)phenomenon.

Question 9

Which of the following control classifications does not fit with the others listed below?

A)preventative
B)detective
C)administrative
D)corrective

Question 10

Which of the following federal laws incorporated the language of the AICPA about controls into a law applying to all registered companies?

A)Foreign Corrupt Practices Act of 1977
B)The Securities Exchange Act of 1934
C)Federal Corruption Prevention Act of 1987
D)The Securities Act of 1933

Question 11

The potential dollar loss that could result if an unwanted event occurs is called a(n)

A)threat.
B)exposure.
C)risk.
D)extraordinary loss.

Question 12

The plan of organization that a business uses to safeguard assets,provide accurate and reliable information,and promote and improve operational efficiency is known as

A)a phenomenon.
B)internal control.
C)an AIS threat.
D)a preventive control.

Question 13

One reason why many organizations do not adequately protect their systems is because

A)control problems may be overestimated by many companies.
B)productivity and cost cutting cause management to forgo implementing and maintaining internal controls.
C)control technology has not yet been developed.
D)all of the above

Question 14

__________ controls are designed to make sure an organization's control environment is stable and well managed.

A)Application
B)Detective
C)General
D)Preventive

Question 15

There are different types of internal controls available to an organization.The type of controls that deters problems before they arise are called

A)detective controls.
B)corrective controls.
C)exposure controls.
D)preventive controls.

Question 16

Which of the following is not a reason for the increase in security problems for AIS?

A)Confidentiality issues caused by interlinked inter-company networks
B)Difficult to control distributed computing networks
C)Increasing efficiency resulting from more automation
D)Increasing numbers of information systems and users

Question 17

Corrective controls remedy problems discovered with detective controls.What is not a corrective control procedure?

A)identify the cause of a problem
B)deter problems before they arise
C)correct resulting errors or difficulties
D)modify the system so that future problems are minimized or eliminated

Question 18

The likelihood that an adverse or unwanted event could occur is referred to as a(n)

A)threat.
B)exposure.
C)risk.
D)loss.

Question 19

What is one reason why AIS threats are increasing?

A)LANs and client/server systems are easier to control than centralized,mainframe systems.
B)Many companies do not realize that data security is crucial to their survival.
C)Computer control problems are often overestimated and overly emphasized by management.
D)Many companies believe that protecting information is a strategic requirement.

Question 20

Internal control is often referred to as a(n)__________,because it permeates an organization's operating activities and is an integral part of basic management activities.

A)event
B)activity
C)process
D)system

Question 21

According to the ERM,these objectives help ensure the accuracy,completeness and reliability of internal and external company reports.

A)Compliance objectives
B)Operations objectives
C)Reporting objectives
D)Strategic objectives

Question 22

A ________________ helps employees act ethically by setting limits beyond which an employee must not pass.

A)Boundary system
B)Diagnostic control system
C)Interactive control system
D)Internal control system

Question 23

Which of the following is not one of the eight interrelated risk and control components of COSO?

A)Internal environment
B)Monitoring
C)Risk response
D)Event assessment

Question 24

According to the ERM,high level goals that are aligned with and support the company's mission are

A)Compliance objectives
B)Operations objectives
C)Reporting objectives
D)Strategic objectives

Question 25

A ________________ measures company progress by comparing actual performance to planned performance.

A)Boundary system
B)Diagnostic control system
C)Interactive control system
D)Internal control system

Question 26

The audit committee is responsible for

A)overseeing the internal control structure.
B)overseeing the financial reporting process.
C)working with the internal and external auditors.
D)All of the above are responsibilities.

Question 27

According to the ERM,these deal with the effectiveness and efficiency of company operations,such as performance and profitability goals.

A)Compliance objectives
B)Operations objectives
C)Reporting objectives
D)Strategic objectives

Question 28

This control framework defines internal controls and provides guidance for evaluating and enhancing internal control systems.

A)ISACF's control objectives for information and related technology
B)COSO's internal control framework
C)COSO's enterprise risk management framework
D)None of the above

Question 29

Regarding the issue of internal control,the internal environment itself consists of many factors.An issue regarding a conflict of interest should be addressed as a component of which factor?

A)organization structure
B)commitment to integrity and ethical values
C)the audit committee of the board of directors
D)management's philosophy and operating style

Question 30

Which of the following is not one of the important aspects of the Sarbanes-Oxley Act?

A)The creation of the Public Company Accounting Oversight Board
B)New rules for auditors and management
C)New roles for audit committees
D)New rules for information systems development

Question 31

This control framework's intent includes helping the organization to provide reasonable assurance that objectives are achieved and problems are minimized,and to avoid adverse publicity and damage to the organization's reputation.

A)ISACF's control objectives for information and related technology
B)COSO's internal control framework
C)COSO's enterprise risk management framework
D)None of the above

Question 32

The definition of the lines of authority and responsibility and the overall framework for planning,directing,and controlling is laid out by the

A)control activities
B)organizational structure
C)budget framework
D)internal environment

Question 33

A ________________ helps top-level managers with high-level activities that demand frequent and regular attention.

A)Boundary system
B)Diagnostic control system
C)Interactive control system
D)Internal control system

Question 34

The audit committee of the board of directors is composed of

A)officers of the company.
B)inside directors of the company.
C)outside directors of the company.
D)all of the above

Question 35

This control framework addresses the issue of control from three vantage points: business objectives,information technology resources,and information technology processes.

A)ISACF's control objectives for information and related technology
B)COSO's internal control framework
C)COSO's enterprise risk management framework
D)None of the above

Question 36

Personnel policies such as background checks,mandatory vacations,and rotation of duties tend to deter

A)unintentional errors
B)employee fraud or embezzlement
C)fraud by outsiders
D)payroll irregularities

Question 37

The COSO control model has five crucial components.Which of the following is not one of them?

A)control environment
B)risk assessment
C)compliance with federal,state,or local laws
D)monitoring

Question 38

Which of the following is not one of the reasons COSO developed the more comprehensive ERM framework?

A)The internal control framework has too narrow a focus.
B)Long-standing internal control systems often have controls that protect against items that are no longer risks.
C)Risk should be evaluated first,before controls.
D)The Sarbanes-Oxley Act of 2002 required it.

Question 39

Which of the following would be considered a "red flag" for problems with management operating style if the question were answered "yes"?

A)Does management take undue business risks to achieve its objectives?
B)Does management attempt to manipulate performance measures such as net income?
C)Does management pressure employees to achieve results regardless of the methods?
D)All of the above statements would raise "red flags" if answered "yes."

Question 40

According to the ERM,these help the company address all applicable laws and regulations.

A)Compliance objectives
B)Operations objectives
C)Reporting objectives
D)Strategic objectives

Question 41

Which of the following is not a violation of the Sarbanes-Oxley Act (SOX)? The management at Folding Squid Technologies

A)asked their auditors to make recommendations for the redesign of their information technology system and to aid in the implementation process.
B)hired the head of the external audit team as company CFO six months after completion of the previous audit.
C)selected the company's Chief Financial Officer to chair the audit committee.
D)did not mention to auditors that the company had experienced significant losses due to fraud during the past year.

Question 42

The stock exchange or FASB is best described as external influences that directly affect an organization's

A)hiring practices
B)philosophy and operating style
C)internal environment
D)methods of assigning authority

Question 43

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits unless there is evidence of criminal negligence.What is the expected loss without insurance?

A)$50,000
B)$650,000
C)$650
D)$50

Question 44

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits unless there is evidence of criminal negligence.What is the impact of this risk without insurance?

A)$50,000
B)$650,000
C)$650
D)$50

Question 45

When undertaking risk assessment,the expected loss is calculated like this.

A)Impact times expected loss
B)Impact times likelihood
C)Inherent risk times likelihood
D)Residual risk times likelihood

Question 46

Regarding project development and acquisition controls,this is developed to show all projects that must be completed to achieve long-range company goals.

A)Performance evaluation
B)Project development plan
C)Steering committee
D)Strategic master plan

Question 47

Generally in a risk assessment process,the first step is to

A)identify the threats that the company currently faces.
B)estimate the risk probability of negative events occurring.
C)estimate the exposure from negative events.
D)identify controls to reduce all risk to zero.

Question 48

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinions about his work environment.It seems that,as a result of "feminazi" interference,the suggestive banter that had been prevalent in the workplace during his youth was no longer acceptable.He even had to sit through a sexual harassment workshop! The lever of control that the company is using in this case is a

A)boundary system.
B)belief system.
C)interactive control system.
D)diagnostic control system.

Question 49

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinions about his company's budgeting practices.It seems that,as a result of "budget handcuffs" that require managers to explain material deviations from budgeted expenditures,his ability to creatively manage his department's activities have been curtailed.The lever of control that the company is using in this case is a

A)boundary system.
B)belief system.
C)interactive control system.
D)diagnostic control system.

Question 50

Good internal control demands that no single employee be given too much responsibility.The segregation of duties is key to fulfilling this demand.Which two functions,when not performed by different employees,will cause a potential internal control problem due to the lack of separation of duties?

A)digital signature,specific authorization
B)custody,recording
C)digital signature,general authorization
D)custody,digital signature

Question 51

The third component of COSO's internal control model is risk assessment.Part of risk assessment is to identify threats to companies.If a company does the right things in the wrong way,this is known as

A)a strategic threat.
B)an operating threat.
C)a financial threat.
D)an information threat.

Question 52

The risk that remains after management implements internal controls is

A)Inherent risk
B)Residual risk
C)Risk appetite
D)Risk assessment

Question 53

Management can authorize employees to handle routine transactions without special approval.This is known as

A)Authorization
B)General authorization
C)Special authorization
D)Specific authorization

Question 54

Regarding project development and acquisition controls,a ________ shows how a project will be completed,including tasks and who will perform them as well as a timeline and cost estimates.

A)Performance evaluation
B)Project development plan
C)Steering committee
D)Strategic master plan

Question 55

The amount of risk a company is willing to accept in order to achieve its goals and objectives is

A)Inherent risk
B)Residual risk
C)Risk appetite
D)Risk assessment

Question 56

Chuck Hewitt was relaxing after work with a colleague at a local watering hole.Well into his second martini,he began expressing his opinion about government regulation.It seems that,as a result of "government interference" the company's longstanding policy of making low-interest loans to top management was being terminated.The regulation that Chuck is referring to is the

A)Foreign Corrupt Practices Act
B)McCain-Feingold Act
C)Truth in Lending Act
D)Sarbanes-Oxley Act

Question 57

Regarding project development and acquisition controls,a ________ is created to guide and oversee systems development and acquisition.

A)Performance evaluation
B)Project development plan
C)Steering committee
D)Strategic master plan

Question 58

The Sarbanes-Oxley Act (SOX)applies to

A)all companies with gross annual revenues exceeding $500 million.
B)only publicly held companies.
C)only privately held companies.
D)corporations and partnerships but not sole proprietorships.

Question 59

The risk that exists before management takes any steps to control the likelihood or impact of a risk is

A)Inherent risk
B)Residual risk
C)Risk appetite
D)Risk assessment

Question 60

The internal control model developed by COSO is comprised of five interrelated components.Among these components is the internal environment.Which attribute below is not part of the internal environment?

A)the competence of an organization's people
B)the integrity of an organization's people
C)monitoring activities within the organization itself
D)the ethical values of an organization's people

Question 61

Ferdinand Waldo Demara was known as the great imposter.He had an astounding ability to convince people that he was who he truly was not.He worked as a naval officer,physician,college teacher,prison warden,and other jobs without any of the prerequisite qualifications.The organizations fooled by Demara (including the Canadian Navy)apparently chose to _______ the risk of fraud.

A)reduce.
B)share.
C)avoid.
D)accept.

Question 62

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits have an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits unless there is evidence of criminal negligence.Based on cost-benefit analysis,what is the most that the business should pay per client for the insurance?

A)$500
B)$650
C)$600
D)$50

Question 63

What is the difference between general and specific authorization?

Question 64

The Director of Information Technology for the city of Bumpkiss,Minnesota,formed a company to sell computer supplies and software.All purchases made on behalf of the City were made from his company.He was later charged with fraud for overcharging the City,but was not convicted.The control issue in this case arose because the Director had both _______ and _______ duties.

A)custody; authorization
B)custody; recording
C)recording; authorization
D)management; custody

Question 65

What are the three functions of internal controls?

Question 66

What was the primary objective of the Foreign Corrupt Practices Act?

Question 67

FranticHouse Partners,L.L.C.,does home remodeling and repair.All employees are bonded,so the firm's risk exposure to employee fraud is

A)reduced.
B)shared.
C)avoided.
D)accepted.

Question 68

FranticHouse Partners,L.L.C.,does home remodeling and repair.The firm does not accept jobs that require the installation of slate or copper roofing because these materials often require costly post-installation services.The firm's risk exposure to this source of cost

A)reduced.
B)shared.
C)avoided.
D)accepted.

Question 69

What are the two categories of internal controls?

Question 70

What is a weakness of the internal control concept of the separation of duties?

Question 71

River Rafting Adventures of Iowa provides rafts and tour guides to tourists eager to ride the wild rivers of Iowa.Management has determined that there is one chance in a thousand of a client being injured or killed.Settlement of resulting lawsuits has an average cost of $650,000.Insurance with a $50,000 deductible is available.It covers the costs of lawsuits unless there is evidence of criminal negligence.What is the expected loss with insurance?

A)$50,000
B)$650,000
C)$650
D)$50

Question 72

Petty cash is disbursed by the Fred Haynes in the Cashier's Office.He also maintains records of disbursements,places requests to the Finance Department to replace expended funds,and periodically reconciles the petty cash balance.This represents a(an)___________ segregation of duties.

A)effective
B)partial
C)ineffective
D)limited

Question 73

What are the major components of control as defined in the COSO internal control model report?

Question 74

What is COSO?

Question 75

Change management refers to

A)disbursement controls on petty cash.
B)operational controls applied to companies after mergers or acquisitions.
C)replacement of upper management and their introduction to the organization.
D)controls designed to ensure that updates in information technology do not have negative consequences.

Question 76

Hiring decisions at Frazier's Razors are made by Sheila Frazier,the Director of Human Resources.Pay rates are approved by the Vice President for Operations.At the end of each pay period,supervisors submit time cards to Sheila,who prepares paycheck requisitions.Paychecks are then distributed through the company's mail room.This represents a(an)___________ segregation of duties.

A)effective
B)partial
C)ineffective
D)limited

Question 77

Which of the following is an independent check on performance?

A)The Purchasing Agent physically reviews the contents of shipments and compares them with the purchase orders he has placed.
B)Production teams perform quality evaluations of the products that they produce.
C)The General Manager compares budgeted amounts with expenditure records from all departments.
D)Petty cash is disbursed by the Fred Haynes in the Cashier's Office.He also maintains records of disbursements,places requests to finance to replace expended funds,and periodically reconciles the petty cash balance.

Question 78

Global Economic Strategies,L.L.D.,has been diligent in ensuring that their operations meet modern control standards.Recently,they have extended their control compliance system by incorporating policies and procedures that require the specification of company objectives,uncertainties associated with objectives,and contingency plans.They are transitioning from a _____ to a _____ control framework.

A)COSO-Integrated Framework; COBIT
B)COBIT; COSO-Integrated Framework
C)COBIT; COSO-ERM
D)COSO-Integrated Framework; COSO-ERM
E)COSO-ERM; COBIT

Question 79

In restaurants,servers often take orders,collect payments from customers,and return change.This violates the principle of segregation of duties if servers also

A)participate in food preparation.
B)operate cash registers.
C)bus tables.
D)evaluate potential employees.

Question 80

Segregation of duties is only effective if employees

A)are unable to collude.
B)have received supplemental ethics training.
C)understand the implications of the segregation of duties.
D)are carefully supervised.