Deck 4: Transaction Processing and the Internal Control Process

Question 1

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 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

The third component of internal control is risk assessment.

Question 5

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

Question 6

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.

Question 7

The term risk is synonymous with exposure.

Question 8

COBIT stands for Control Objectives for Businesses in Technology fields.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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.

Question 17

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

Question 18

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.

Question 19

Typically,an organization's internal control process consists of five components.

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

General controls can be a substitute for application controls.

Question 38

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

Question 39

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

Question 40

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

Question 41

The chief goal of an information system is productivity.

Question 42

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

Question 43

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

Question 44

The ________ budget is the budget for the entire organization.

Question 45

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

Question 46

Deficient revenues and excessive costs reduce ________.

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

Commitment and competence are factors included in the ________ environment.

Question 56

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

Question 57

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

Question 58

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

Question 59

Informal pressure from employees does not cause collusion.

Question 60

Controls increase productivity and the reliability of resulting output.

Question 61

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

A) constitute less than 5% of the audit fees for the corporation.
B) constitute less than 5% of the audit fees for the corporation and are not specifically identified as being barred by SOA 2002.
C) constitute less than 20% of the audit fees for the corporation.
D) Auditors are barred from any and all non-audit services for their audit clients according to SOA 2002.

Question 62

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

A) Securities Exchange Act of 1934.
B) accounting provisions of the FCPA.
C) antibribery provisions of the FCPA.
D) accounting and antibribery provisions of the FCPA.

Question 63

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

A) all public and privately held U.S.-based companies.
B) all companies subject to the Securities Exchange Act of 1934.
C) any publicly held company, whether it is a for-profit or non-profit entity.
D) all foreign-owned companies currently operating in the United States.

Question 64

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

Question 65

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

A) revenue cycle.
B) expenditure cycle.
C) finance cycle.
D) production cycle.

Question 66

The formal communications patterns within an organization can be communicated using

A) a specific, precise management philosophy.
B) an organizational chart.
C) a cultural audit.
D) an ethical code of conduct.

Question 67

ISO 27002 aids companies with Section ________ compliance.

Question 68

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

A) fraudulent financial reporting.
B) corporate crime.
C) management fraud.
D) None of these answers are correct.

Question 69

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

A) management.
B) auditors.
C) audit committees.
D) All of these answers are correct.

Question 70

An interesting aspect of white-collar crime is that

A) it often seems to be victimless.
B) it usually amounts to less than $1,000 per organization per year on average.
C) internal controls almost never reveal the perpetrators of such crimes.
D) None of these answers are correct.

Question 71

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

A) Excessive prices are paid for goods for use in the organization.
B) The corporation never was billed for a sale of merchandise shipped to a customer.
C) A flash flood destroys the merchandise contained in a warehouse.
D) Certain equipment was accidentally misplaced and not depreciated.

Question 72

Assets fraudulently appropriated for one's own use from an organization is considered

A) fraud.
B) theft.
C) embezzlement.
D) a corporate loan.

Question 73

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

A) emphasis on sales quotas and deadlines.
B) emphasis on short-run goals and objectives.
C) a cultural audit to bring to light the corporation's true culture and ethical behavior.
D) All of these answers are correct.

Question 74

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

A) Compliance with applicable laws and regulations
B) The prevention of fraud and embezzlement
C) Effectiveness and efficiency of operations
D) Reliability of financial reporting

Question 75

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

A) responsibility.
B) risk.
C) reasonable assurance.
D) exposure.

Question 76

Many aspects of computer processing tend to significantly

A) decrease an organization's exposure to undesirable events.
B) strengthen the corporate culture's ethical behavior in the long-term analysis.
C) increase employee productivity through the use of monitoring software.
D) increase an organization's exposure to undesirable events.

Question 77

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

Question 78

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

A) revenue cycle.
B) finance cycle.
C) production cycle.
D) expenditure cycle.

Question 79

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

A) risk assessment.
B) information and communication.
C) control activities.
D) control environment.

Question 80

In cases of ________,"the procedures did not fail,the people did."