Question 1

Parallel testing involves:

Accepted Answer

A)  processing test data against a copy of the client's application program. 
B)  operating the old and the new system simultaneously. 
C)  requiring the user to re-input critical fields to verify accuracy of input. 
D)  implementing a new system in one part of the organisation while other locations continue to rely on the old system.

Question 2

One potential disadvantage of IT systems is the increased risk of destruction of entire data files.

Accepted Answer

A) True 
 B)False

Question 3

Encryption techniques protect the security of electronic communication during transmission.

Accepted Answer

A) True 
 B)False

Question 4

When integrating IT into accounting systems, which of the following would enhance internal control?

Accepted Answer

A)  computer controls replacing manual ones 
B)  higher quality information 
C)  both A and B 
D)  none of the above

Question 5

Output controls focus on:

Accepted Answer

A)  checking the accuracy of processing. 
B)  detecting errors after the completion of processing. 
C)  confirming that data has been processed in the correct order. 
D)  preventing errors before final reports are completed.

Question 6

Physical control over computer equipment restricts access to:

Accepted Answer

A)  software. 
B)  hardware. 
C)  backup data files. 
D)  all of the above

Question 7

Controls that relate to a specific use of the IT system, such as the processing of sales or cash receipts, are called application controls.

Accepted Answer

A) True 
 B)False

Question 8

Discuss how the integration of IT into accounting systems enhances internal control.

Accepted Answer

The answer of Discuss how the integration of IT into...

Question 9

Identify the six categories of general controls and give one example of each.

Accepted Answer

The answer of Identify the six categories of general controls...

Question 10

When auditing a client whose information is processed by an outside computer service company, it is acceptable for the auditor to rely on the audit report of another independent auditor who has previously tested the internal controls of the computer service centre rather than testing the service centre's controls himself or herself.

Accepted Answer

A) True 
 B)False

Question 11

A computer service centre processes, for an auditor's client, financial data that has a material effect on that client's financial statements.The independent auditor need NOT consider a review of the service centre controls if:

Accepted Answer

A)  he or she is satisfied that a special report on internal controls issued by the service centre's independent auditor can be relied on to the extent desired. 
B)  the service centre is a partially owned subsidiary of the client company, whose financial statements are examined by another audit firm. 
C)  the service centre controls have already been reviewed by the internal audit team of the client. 
D)  the service centre processes data exclusively for the audit client and its subsidiaries.

Question 12

General controls are normally evaluated earlier in the audit than application controls.

Accepted Answer

A) True 
 B)False

Question 13

Which audit procedure is least useful in gathering evidence on significant computer processes?

Accepted Answer

A)  tracing 
B)  test data 
C)  observation 
D)  generalised audit software

Question 14

The effect of ITF transactions should be removed:

Accepted Answer

A)  after the conclusion of the audit. 
B)  on a surprise basis. 
C)  by inputting adjustment transactions. 
D)  by the internal audit group.

Question 15

IT can significantly impact an organisation's overall control risk.Which of the following risks would NOT be important from an auditing perspective?

Accepted Answer

A)  the potential for material misstatement 
B)  use of unreliable information because of processing errors produced by the technology 
C)  the inability to retrieve important information because of IT systems failure 
D)  none of the above (i.e., they are all important)

Question 16

The objective of understanding internal control and assessing control risk in an IT system is to:

Accepted Answer

A)  aid in determining the audit evidence that should be accumulated. 
B)  evaluate management's efficiency in designing and using the IT system. 
C)  gain an understanding of the computer hardware and software. 
D)  determine if the audit firm must have an IT auditor on the team.

Question 17

Auditors usually evaluate the effectiveness of:

Accepted Answer

A)  sales-cycle controls first. 
B)  application controls first. 
C)  general controls before application controls. 
D)  hardware controls first.

Question 18

Well-controlled organisations segregate key duties within IT.Ideally, this means the following responsibilities should be separated:

Accepted Answer

A)  IT management is separate from systems development. 
B)  IT management is separate from data control. 
C)  IT management is separate from operations. 
D)  all of the above

Question 19

When might an auditor decide NOT to reduce assessed control risk even if internal controls are adequate?

Accepted Answer

A)  The cost of the study and tests of controls will exceed the savings from reduced substantive procedures. 
B)  A qualified opinion will be issued. 
C)  The auditor plans to rely on the controls and reduce substantive testing. 
D)  all of the above

Question 20

Which of the following is NOT a test performed by generalised audit software?

Accepted Answer

A)  review of accounts receivable balances for amounts over the credit limit 
B)  observing cash receipts processes 
C)  recalculating employees' net pay calculations 
D)  preparing general ledger trial balances

Exam 10: The impact of information technology on the audit process

Parallel testing involves:

One potential disadvantage of IT systems is the increased risk of destruction of entire data files.

Encryption techniques protect the security of electronic communication during transmission.

When integrating IT into accounting systems, which of the following would enhance internal control?

Output controls focus on:

Physical control over computer equipment restricts access to:

Controls that relate to a specific use of the IT system, such as the processing of sales or cash receipts, are called application controls.

Discuss how the integration of IT into accounting systems enhances internal control.

Identify the six categories of general controls and give one example of each.

A computer service centre processes, for an auditor's client, financial data that has a material effect on that client's financial statements.The independent auditor need NOT consider a review of the service centre controls if:

General controls are normally evaluated earlier in the audit than application controls.

Which audit procedure is least useful in gathering evidence on significant computer processes?

The effect of ITF transactions should be removed:

IT can significantly impact an organisation's overall control risk.Which of the following risks would NOT be important from an auditing perspective?

The objective of understanding internal control and assessing control risk in an IT system is to:

Auditors usually evaluate the effectiveness of:

Well-controlled organisations segregate key duties within IT.Ideally, this means the following responsibilities should be separated:

When might an auditor decide NOT to reduce assessed control risk even if internal controls are adequate?

Which of the following is NOT a test performed by generalised audit software?