LANs and client / server systems are easier to control than centralized, mainframe systems ) "any com#anies do not realize that data sec$rity is cr$cial to their s$rvival %) %om#$ter control #ro&lems are often overestimated and overly em#hasized &y management ') "onitoring!) Avoidance %) Acce#tance ') Sharing Answer) a
LANs and client / server systems are easier to control than centralized, mainframe systems ) "any com#anies do not realize that data sec$rity is cr$cial to their s$rvival %) %om#$ter control #ro&lems are often overestimated and overly em#hasized &y management ') "onitoring!) Avoidance %) Acce#tance ') Sharing Answer) a
LANs and client / server systems are easier to control than centralized, mainframe systems ) "any com#anies do not realize that data sec$rity is cr$cial to their s$rvival %) %om#$ter control #ro&lems are often overestimated and overly em#hasized &y management ') "onitoring!) Avoidance %) Acce#tance ') Sharing Answer) a
Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 7 Control and Accounting Information Systems
1) What is one reason why AIS threats are increasing? A) LANs and client/server systems are easier to control than centralized, mainframe systems !) "any com#anies do not realize that data sec$rity is cr$cial to their s$rvival %) %om#$ter control #ro&lems are often overestimated and overly em#hasized &y management ') "any com#anies &elieve that #rotecting information is a strategic re($irement Answer) ! *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 1) Which of the following is not one of the ris2 res#onses identified in the %.S. 0nter#rise +is2 "anagement 3ramewor2? A) "onitoring !) Avoidance %) Acce#tance ') Sharing Answer) A *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 5) A control #roced$re designed so that the em#loyee that records cash received from c$stomers does not also have access to the cash itself is an e7am#le of a8n) A) #reventive control !) detective control %) corrective control ') a$thorization control Answer) A *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 1 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all -) At a movie theater &o7 office, all tic2ets are se($entially #ren$m&ered At the end of each day, the &eginning tic2et n$m&er is s$&tracted from the ending n$m&er to calc$late the n$m&er of tic2ets sold :hen, tic2et st$&s collected at the theater entrance are co$nted and com#ared with the n$m&er of tic2ets sold Which of the following sit$ations does this control detect? A) Some c$stomers #resented tic2ets #$rchased on a #revio$s day when there wasn>t a tic2et ta2er at the theater entrance 8so the tic2ets didn>t get torn) !) A gro$# of 2ids sn$c2 into the theater thro$gh a &ac2 door when c$stomers left after a show %) :he &o7 office cashier accidentally gives too m$ch change to a c$stomer ') :he tic2et ta2er admits his friends witho$t tic2ets Answer) A *age +ef) 144?1<< .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 9) At a movie theater &o7 office, all tic2ets are se($entially #ren$m&ered At the end of each day, the &eginning tic2et n$m&er is s$&tracted from the ending n$m&er to calc$late the n$m&er of tic2ets sold %ash is co$nted and com#ared with the n$m&er of tic2ets sold Which of the following sit$ations does this control detect? A) Some c$stomers #resented tic2ets #$rchased on a #revio$s day when there wasn>t a tic2et ta2er at the theater entrance 8so the tic2ets didn>t get torn) !) A gro$# of 2ids sn$c2 into the theater thro$gh a &ac2 door when c$stomers left after a show %) :he &o7 office cashier accidentally gives too m$ch change to a c$stomer ') :he tic2et ta2er admits his friends witho$t tic2ets Answer) % *age +ef) 144?1<< .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 6) Which of the following is an e7am#le of a #reventive control? A) a##roving c$stomer credit #rior to a##roving a sales order !) reconciling the &an2 statement to the cash control acco$nt %) co$nting inventory on hand and com#aring co$nts to the #er#et$al inventory records ') maintaining fre($ent &ac2$# records to #revent loss of data Answer) A *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 1 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all @) Inde#endent chec2s on #erformance incl$de all the following except A) data in#$t validation chec2s !) reconciling hash totals %) #re#aring a trial &alance re#ort ') s$#ervisor review of /o$rnal entries and s$##orting doc$mentation Answer) A *age +ef) 1<< .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic ,) A com#$ter o#erator is allowed to wor2 as a #rogrammer on a new #ayroll software #ro/ect 'oes this create a #otential internal control #ro&lem? A) Aes, the com#$ter o#erator co$ld alter the #ayroll #rogram to increase her salary !) Aes, this is a #otential #ro&lem unless the com#$ter o#erator is s$#ervised &y the #ayroll manager %) No, ideal segregation of d$ties is not $s$ally #ossi&le, and o#erators are often the &est at #rogramming changes and $#dates ') No, as long as the com#$ter o#erator se#arately acco$nts for ho$rs wor2ed in #rogramming and in o#erations Answer) A *age +ef) 14, .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) Analytic 4) .ne of the o&/ectives of the segregation of d$ties is to A) ma2e s$re that different #eo#le handle different #arts of the same transaction !) ens$re that no coll$sion will occ$r %) ma2e s$re that different #eo#le handle different transactions ') achieve an o#timal division of la&or for efficient o#erations Answer) A *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) Analytic 1<) *am is a rece#tionist for '$nderhead *a#er %o, which has strict cor#orate #olicies on a##ro#riate $se of cor#orate reso$rces :he first wee2 of A$g$st, *am saw "ichael, the &ranch manager, #$tting #encils, #ens, erasers, #a#er and other s$##lies into his &riefcase on his way o$t the door :his sit$ation &est reflects a wea2ness in which as#ect of internal environment, as disc$ssed in the %.S. 0nter#rise +is2 "anagement 3ramewor2? A) Integrity and ethical val$es !) +is2 management #hiloso#hy %) +estrict access to assets ') "ethods of assigning a$thority and res#onsi&ility Answer) A *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic 5 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 11) Which of the following statements is true? A) Internal a$ditors, rather than e7ternal a$ditors, can cond$ct eval$ations of effectiveness of 0nter#rise +is2 "anagement #rocesses !) +e?adding the total of a &atch of invoices and com#aring the total with the first total yo$ calc$lated is an e7am#le of an inde#endent chec2 %) +e($iring two signat$res on chec2s over B1<,<<< is an e7am#le of segregation of d$ties ') Altho$gh forensic s#ecialists $tilize com#$ters, only #eo#le can acc$rately identify fra$d Answer) A *age +ef) 1<1 .&/ective) Learning .&/ective @ 'iffic$lty ) 'iffic$lt AA%S!) +eflective :hin2ing 11) .f the following e7am#les of fra$d, which will &e the most diffic$lt to #revent and detect? Ass$me the com#any enforces ade($ate segregation of d$ties A) Cim iss$es credit cards to him and "arie, and when the credit card &alances are /$st $nder B1,<<<, "arie writes off the acco$nts as &ad de&t Cim then iss$es new cards !) An em#loyee #$ts inventory &ehind the d$m#ster while $nloading a vendor>s delivery tr$c2, then #ic2s $# the inventory later in the day and #$ts it in her car %) A mail room em#loyee steals a chec2 received from a c$stomer and destroys the doc$mentation ') :he acco$nts receiva&le cler2 does not record sales invoices for friends or family, so they can receive free goods Answer) A *age +ef) 14@ .&/ective) Learning .&/ective @ 'iffic$lty ) 'iffic$lt AA%S!) +eflective :hin2ing 15) According to :he Sar&anes?.7ley Act of 1<<1, the a$dit committee of the &oard of directors is directly res#onsi&le for A) hiring and firing the e7ternal a$ditors !) #erforming tests of the com#any>s internal control str$ct$re %) certifying the acc$racy of the com#any>s financial re#orting #rocess ') overseeing day?to?day o#erations of the internal a$dit de#artment Answer) A *age +ef) 1,6 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic - %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 1-) Do?Do %or#oration, a #$&licly traded com#any, has three &rothers who serve as *resident, Eice *resident of 3inance and %0. :his sit$ation A) increases the ris2 associated with an a$dit !) m$st &e changed &efore yo$r a$dit firm co$ld acce#t the a$dit engagement %) is a violation of the Sar&anes?.7ley Act ') violates the Sec$rities and 07change Act Answer) A *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 19) Which of the following is a control related to design and $se of doc$ments and records? A) Se($entially #ren$m&ering sales invoices !) %om#aring #hysical inventory co$nts with #er#et$al inventory records %) +econciling the &an2 statement to the general ledger ') Loc2ing &lan2 chec2s in a drawer or safe Answer) A *age +ef) 144 .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic 16) Which of the following d$ties co$ld &e #erformed &y the same individ$al witho$t violating segregation of d$ties controls? A) A##roving acco$nting software change re($ests and testing #rod$ction sched$ling software changes !) *rogramming new code for acco$nting software and testing acco$nting software $#grades %) A##roving software changes and im#lementing the $#graded software ') "anaging acco$nts #aya&le f$nction and revising code for acco$nting software to more efficiently #rocess disco$nt d$e dates on vendor invoices Answer) A *age +ef) 14, .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 1@) With a limited wor2 force and a desire to maintain strong internal control, which com&ination of d$ties wo$ld res$lt in the lowest ris2 e7#os$re? A) F#dating the inventory s$&sidiary ledgers and recording #$rchases in the #$rchases /o$rnal !) A##roving a sales ret$rn on a c$stomer>s acco$nt and de#ositing c$stomers> chec2s in the &an2 %) F#dating the general ledger and wor2ing in the inventory wareho$se ') 0ntering #ayments to vendors in the cash dis&$rsements /o$rnal and entering cash received from c$stomers in the cash recei#ts /o$rnal Answer) ' *age +ef) 146?14@ .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 9 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 1,) Which of the following is not a factor of internal environment according to the %.S. 0nter#rise +is2 "anagement 3ramewor2? A) Analyzing #ast financial #erformance and re#orting !) *roviding s$fficient reso$rces to 2nowledgea&le em#loyees to carry o$t d$ties %) 'isci#lining em#loyees for violations of e7#ected &ehavior ') Setting realistic targets for long?term #erformance Answer) A *age +ef) 1,, .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic 14) Which of the following s$ggests a wea2ness in a com#any>s internal environment? A) :he a$dit committee reg$larly meets with the e7ternal a$ditors !) :he !oard of 'irectors is #rimarily inde#endent directors %) :he com#any has an $#?to?date organizational chart ') 3ormal em#loyee #erformance eval$ations are #re#ared every three years Answer) ' *age +ef) 141 .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic 1<) Which of the following statements a&o$t internal environment is false? A) "anagement>s attit$des toward internal control and ethical &ehavior have only minimal im#act on em#loyee &eliefs or actions !) S$#ervision is es#ecially im#ortant in organizations that cannot afford ela&orate res#onsi&ility re#orting or are too small to have ade($ate segregation of d$ties %) An overly com#le7 or $nclear organizational str$ct$re may &e indicative of more serio$s #ro&lems ') A written #olicy and #roced$res man$al is an im#ortant tool for assigning a$thority and res#onsi&ility Answer) A *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) +eflective :hin2ing 11) Which of the following is not a reason for the increase in sec$rity #ro&lems for AIS? A) %onfidentiality iss$es ca$sed &y interlin2ed inter?com#any networ2s !) 'iffic$lt to control distri&$ted com#$ting networ2s %) Increasing efficiency res$lting from more a$tomation ') Increasing n$m&ers of information systems and $sers Answer) % *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 6 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 11) .ne reason why many organizations do not ade($ately #rotect their systems is &eca$se A) control #ro&lems may &e overestimated &y many com#anies !) #rod$ctivity and cost c$tting ca$se management to forgo im#lementing and maintaining internal controls %) control technology has not yet &een develo#ed ') all of the a&ove Answer) ! *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 15) Acco$ntants m$st try to #rotect the AIS from threats Which of the following wo$ld &e a meas$re that sho$ld &e ta2en? A) :a2e a #roactive a##roach to eliminate threats !) 'etect threats that do occ$r %) %orrect and recover from threats that do occ$r ') All of the a&ove are #ro#er meas$res for the acco$ntant to ta2e Answer) ' *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 1-) :he #rocess that a &$siness $ses to safeg$ard assets, #rovide acc$rate and relia&le information, and #romote and im#rove o#erational efficiency is 2nown as A) a #henomenon !) internal control %) an AIS threat ') a #reventive control Answer) ! *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 19) Safeg$arding assets is one of the control o&/ectives of internal control Which of the following is not one of the other control o&/ectives? A) #roviding acc$rate and relia&le information !) #romoting o#erational efficiency %) ens$ring that no fra$d has occ$rred ') enco$raging adherence to management #olicies Answer) % *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic @ %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 16) Internal control is often referred to as a8n) GGGGGGGG, &eca$se it #ermeates an organization>s o#erating activities and is an integral #art of management activities A) event !) activity %) #rocess ') system Answer) % *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 1@) Which of the following is accom#lished &y corrective controls? A) Identify the ca$se of the #ro&lem !) %orrect the res$lting errors %) "odify the system to #revent f$t$re occ$rrences of the #ro&lem ') All of the a&ove are accom#lished &y corrective controls Answer) ' *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 1,) '$#licate chec2ing of calc$lations is an e7am#le of a GGGGGGGG control, and #roced$res to res$&mit re/ected transactions is an e7am#le of a GGGGGGGG control A) correctiveH detective !) detectiveH corrective %) #reventiveH corrective ') detectiveH #reventive Answer) ! *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 14) What is not a corrective control #roced$re? A) Identify the ca$se of a #ro&lem !) 'eter #ro&lems &efore they arise %) %orrect res$lting errors or diffic$lties ') "odify the system so that f$t$re #ro&lems are minimized or eliminated Answer) ! *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic , %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 5<) GGGGGGGG controls are designed to ma2e s$re an organization>s control environment is sta&le and well managed A) A##lication !) 'etective %) Deneral ') *reventive Answer) % *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 51) GGGGGGGG controls #revent, detect and correct transaction errors and fra$d A) A##lication !) 'etective %) Deneral ') *reventive Answer) A *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 51) :he #rimary #$r#ose of the 3oreign %orr$#t *ractices Act of 14@@ was A) to re($ire cor#orations to maintain a good system of internal control !) to #revent the &ri&ery of foreign officials &y American com#anies %) to re($ire the re#orting of any material fra$d &y a &$siness ') All of the a&ove are re($ired &y the act Answer) ! *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 55) %ongress #assed this federal law for the #$r#ose of #reventing financial statement fra$d, to ma2e financial re#orts more trans#arent and to strengthen the internal control of #$&lic com#anies A) 3oreign %orr$#t *ractices Act of 14@@ !) :he Sec$rities 07change Act of 145- %) :he Sar&anes?.7ley Act of 1<<1 ') :he %ontrol *rovision of 144, Answer) % *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 4 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 5-) Which of the following is not one of the im#ortant as#ects of the Sar&anes?.7ley Act? A) :he creation of the *$&lic %om#any Acco$nting .versight !oard !) New r$les for a$ditors and management %) New roles for a$dit committees ') New r$les for information systems develo#ment Answer) ' *age +ef) 1,6 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 59) A8n) GGGGGGGG hel#s em#loyees act ethically &y setting limits &eyond which an em#loyee m$st not #ass A) &o$ndary system !) diagnostic control system %) interactive control system ') internal control system Answer) A *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 56) A8n) GGGGGGGG meas$res com#any #rogress &y com#aring act$al #erformance to #lanned #erformance A) &o$ndary system !) diagnostic control system %) interactive control system ') internal control system Answer) ! *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 5@) A8n) GGGGGGGG hel#s to#?level managers with high?level activities that demand fre($ent and reg$lar attention A) &o$ndary system !) diagnostic control system %) interactive control system ') internal control system Answer) % *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 1< %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 5,) :his control framewor2 addresses the iss$e of control from three vantage #oints) &$siness o&/ectives, information technology reso$rces, and information technology #rocesses A) ISA%A>s control o&/ectives for information and related technology !) %.S.>s internal control framewor2 %) %.S.>s enter#rise ris2 management framewor2 ') none of the a&ove Answer) A *age +ef) 1,6 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 54) :his control framewor2>s intent incl$des hel#ing the organization to #rovide reasona&le ass$rance that o&/ectives are achieved and #ro&lems are minimized, and to avoid adverse #$&licity and damage to the organization>s re#$tation A) ISA%A>s control o&/ectives for information and related technology !) %.S.>s internal control framewor2 %) %.S.>s enter#rise ris2 management framewor2 ') none of the a&ove Answer) % *age +ef) 1,@ .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic -<) :he %.S. 0nter#rise +is2 "anagement 3ramewor2 incl$des eight com#onents Which of the following is not one of them? A) control environment !) ris2 assessment %) com#liance with federal, state, or local laws ') monitoring Answer) % *age +ef) 1,, .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic -1) Which of the following is not one of the eight interrelated ris2 and control com#onents of %.S. 0nter#rise +is2 "anagement 3ramewor2? A) Internal environment !) "onitoring %) +is2 res#onse ') 0vent assessment Answer) ' *age +ef) 1,, .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 11 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all -1) :he %.S. 0nter#rise +is2 "anagement Integrated 3ramewor2 stresses that A) ris2 management activities are an inherent #art of all &$siness o#erations and sho$ld &e considered d$ring strategy setting !) effective ris2 management is com#rised of /$st three interrelated com#onentsH internal environment, ris2 assessment, and control activities %) ris2 management is the sole res#onsi&ility of to# management ') ris2 management #olicies, if enforced, g$arantee achievement of cor#orate o&/ectives Answer) A *age +ef) 1,@ .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic -5) Which of the following wo$ld &e considered a Ired flagI for #ro&lems with management o#erating style if the ($estion were answered IyesI? A) 'oes management ta2e $nd$e &$siness ris2s to achieve its o&/ectives? !) 'oes management attem#t to mani#$late #erformance meas$res s$ch as net income? %) 'oes management #ress$re em#loyees to achieve res$lts regardless of the methods? ') All of the a&ove statements wo$ld raise Ired flagsI if answered IyesI Answer) ' *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic --) Which com#onent of the %.S. 0nter#rise +is2 "anagement Integrated 3ramewor2 is concerned with $nderstanding how transactions are initiated, data are ca#t$red and #rocessed, and information is re#orted? A) Information and comm$nication !) Internal environment %) 0vent identification ') .&/ective setting Answer) A *age +ef) 1<1 .&/ective) Learning .&/ective , 'iffic$lty ) 0asy AA%S!) Analytic -9) :he %.S. 0nter#rise +is2 "anagement Integrated 3ramewor2 identifies fo$r o&/ectives necessary to achieve cor#orate goals .&/ectives s#ecifically identified incl$de all of the following except A) im#lementation of newest technologies !) com#liance with laws and reg$lations %) effective and efficient o#erations ') relia&le re#orting Answer) A *age +ef) 141 .&/ective) Learning .&/ective - 'iffic$lty ) 0asy AA%S!) Analytic 11 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all -6) :he a$dit committee of the &oard of directors A) is $s$ally chaired &y the %3. !) cond$cts testing of controls on &ehalf of the e7ternal a$ditors %) #rovides a chec2 and &alance on management ') does all of the a&ove Answer) % *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic -@) :he a$dit committee is res#onsi&le for A) overseeing the internal control str$ct$re !) overseeing the financial re#orting #rocess %) wor2ing with the internal and e7ternal a$ditors ') All of the a&ove are res#onsi&ilities Answer) ' *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic -,) :he definition of the lines of a$thority and res#onsi&ility and the overall framewor2 for #lanning, directing, and controlling is laid o$t &y the A) control activities !) organizational str$ct$re %) &$dget framewor2 ') internal environment Answer) ! *age +ef) 14< .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic -4) +ed$cing management layers, creating self?directed wor2 teams, and em#hasizing contin$o$s im#rovement are all related to which as#ect of internal environment? A) .rganizational str$ct$re !) "ethods of assigning a$thority and res#onsi&ility %) "anagement #hiloso#hy and o#erating style ') %ommitment to com#etence Answer) A *age +ef) 14< .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic 15 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 9<) *ersonnel #olicies s$ch as &ac2gro$nd chec2s, mandatory vacations, and rotation of d$ties tend to deter A) $nintentional errors !) em#loyee fra$d or em&ezzlement %) fra$d &y o$tsiders ') disgr$ntled em#loyees Answer) ! *age +ef) 14<?141 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic 91) :he S0% and 3AS! are &est descri&ed as e7ternal infl$ences that directly affect an organization>s A) hiring #ractices !) #hiloso#hy and o#erating style %) internal environment ') methods of assigning a$thority Answer) % *age +ef) 141 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic 91) Which attri&$te &elow is not an as#ect of the %.S. 0+" 3ramewor2 internal environment? A) 0nforcing a written code of cond$ct !) =olding em#loyees acco$nta&le for achieving o&/ectives %) +estricting access to assets ') Avoiding $nrealistic e7#ectations Answer) % *age +ef) 1,, .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic 95) :he amo$nt of ris2 a com#any is willing to acce#t in order to achieve its goals and o&/ectives is A) Inherent ris2 !) +esid$al ris2 %) +is2 a##etite ') +is2 assessment Answer) % *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) 0asy AA%S!) Analytic 1- %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 9-) :he ris2 that remains after management im#lements internal controls is A) Inherent ris2 !) +esid$al ris2 %) +is2 a##etite ') +is2 assessment Answer) ! *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 99) :he ris2 that e7ists &efore management ta2es any ste#s to control the li2elihood or im#act of a ris2 is A) Inherent ris2 !) +esid$al ris2 %) +is2 a##etite ') +is2 assessment Answer) A *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 96) When $nderta2ing ris2 assessment, the e7#ected loss is calc$lated li2e this A) Im#act times e7#ected loss !) Im#act times li2elihood %) Inherent ris2 times li2elihood ') +esid$al ris2 times li2elihood Answer) ! *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 9@) Denerally in a ris2 assessment #rocess, the first ste# is to A) identify the threats that the com#any c$rrently faces !) estimate the ris2 #ro&a&ility of negative events occ$rring %) estimate the e7#os$re from negative events ') identify controls to red$ce all ris2 to zero Answer) A *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 19 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 9,) Store #olicy that allows retail cler2s to #rocess sales ret$rns for B5<< or less, with a recei#t dated within the #ast 6< days, is an e7am#le of A) general a$thorization !) s#ecific a$thorization %) s#ecial a$thorization ') generic a$thorization Answer) A *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) +eflective :hin2ing 94) %or#orate #olicy that re($ires a #$rchasing agent and #$rchasing de#artment manager to sign off on asset #$rchases over B1,9<< is an e7am#le of A) general a$thorization !) s#ecific a$thorization %) s#ecial a$thorization ') generic a$thorization Answer) ! *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) +eflective :hin2ing 6<) A doc$ment that shows all #ro/ects that m$st &e com#leted and the related I: needs in order to achieve long?range com#any goals is 2nown as a A) #erformance eval$ation !) #ro/ect develo#ment #lan %) data #rocessing sched$le ') strategic master #lan Answer) ' *age +ef) 14, .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) Analytic 61) A GGGGGGGG is created to g$ide and oversee systems develo#ment and ac($isition A) #erformance eval$ation !) #ro/ect develo#ment #lan %) steering committee ') strategic master #lan Answer) % *age +ef) 14, .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic 16 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 61) A GGGGGGGG shows how a #ro/ect will &e com#leted, incl$ding tas2s and who will #erform them as well as a timeline and cost estimates A) #erformance eval$ation !) #ro/ect develo#ment #lan %) steering committee ') strategic master #lan Answer) ! *age +ef) 14, .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic 65) Which of the following is not a violation of the Sar&anes?.7ley Act 8S.J)? :he management at 3olding S($id :echnologies A) as2ed their a$ditors to ma2e recommendations for the redesign of their information technology system and to aid in the im#lementation #rocess !) hired the manager from the e7ternal a$dit team as com#any %3. twelve months after the manager had wor2ed on the a$dit %) selected the com#any>s %hief 3inancial .fficer to chair the a$dit committee ') did not mention to a$ditors that the com#any had e7#erienced significant losses d$e to fra$d d$ring the #ast year Answer) ! *age +ef) 1,6 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 6-) :he Sar&anes?.7ley Act 8S.J) a##lies to A) all com#anies with gross ann$al reven$es e7ceeding B9<< million !) #$&licly held com#anies with gross ann$al reven$es e7ceeding B9<< million %) all #rivate and #$&licly held com#anies incor#orated in the Fnited States ') all #$&licly held com#anies Answer) ' *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 1@ %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 69) %h$c2 =ewitt was rela7ing after wor2 with a colleag$e at a local watering hole Well into his second martini, he &egan e7#ressing his o#inions a&o$t his com#any>s &$dgeting #ractices It seems that, as a res$lt of I&$dget handc$ffsI that re($ire managers to e7#lain material deviations from &$dgeted e7#endit$res, his a&ility to creatively manage his de#artment>s activities have &een c$rtailed :he level of control that the com#any is $sing in this case is a A) &o$ndary system !) &elief system %) interactive control system ') diagnostic control system Answer) ' *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) 0asy AA%S!) Analytic 66) %h$c2 =ewitt was rela7ing after wor2 with a colleag$e at a local watering hole Well into his second martini, he &egan e7#ressing his o#inions a&o$t his wor2 environment It seems that, as a res$lt of IfeminaziI interference, the s$ggestive &anter that had &een #revalent in the wor2#lace d$ring his yo$th was no longer acce#ta&le =e even had to sit thro$gh a se7$al harassment wor2sho#K :he level of control that the com#any is $sing in this case is a A) &o$ndary system !) &elief system %) interactive control system ') diagnostic control system Answer) A *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 6@) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing in/$red or 2illed Settlement of res$lting laws$its has an average cost of B69<,<<< Ins$rance with a B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal negligence What is the im#act of this ris2 witho$t ins$rance? A) B9<,<<< !) B69<,<<< %) B69< ') B9< Answer) ! *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 1, %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 6,) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing in/$red or 2illed Settlement of res$lting laws$its has an average cost of B69<,<<< Ins$rance with a B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal negligence What is the e7#ected loss witho$t ins$rance? A) B9<,<<< !) B69<,<<< %) B69< ') B9< Answer) % *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 64) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing in/$red or 2illed Settlement of res$lting laws$its has an average cost of B69<,<<< Ins$rance with a B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal negligence What is the e7#ected loss with ins$rance? A) B9<,<<< !) B69<,<<< %) B69< ') B9< Answer) ' *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic @<) +iver +afting Advent$res of Iowa #rovides rafts and to$r g$ides to to$rists eager to ride the wild rivers of Iowa "anagement has determined that there is one chance in a tho$sand of a client &eing in/$red or 2illed Settlement of res$lting laws$its have an average cost of B69<,<<< Ins$rance with a B9<,<<< ded$cti&le is availa&le It covers the costs of laws$its, $nless there is evidence of criminal negligence !ased on cost?&enefit analysis, what is the most that the &$siness sho$ld #ay for the ins$rance? A) B9<< !) B69< %) B6<< ') B9< Answer) % *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 14 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all @1) '$e to data errors occ$rring from time to time in #rocessing the Al&ert %om#any>s #ayroll, the com#any>s management is considering the addition of a data validation control #roced$re that is #ro/ected to red$ce the ris2 of these data errors from 15L to 1L :he cost of the #ayroll re#rocessing is estimated to &e B11,<<< :he cost of im#lementing the data validation control #roced$re is e7#ected to &e B@<< Which of the following statements is true? A) :he data validation control #roced$re sho$ld &e im#lemented &eca$se its net estimated &enefit is B91< !) :he data validation control #roced$re sho$ld &e im#lemented &eca$se its cost of B@<< is less than the #ayroll re#rocessing cost of B1,-5< %) :he data validation control #roced$re sho$ld not &e im#lemented &eca$se its cost of B@<< e7ceeds the e7#ected &enefit &y B-,< ') :he data validation control #roced$re sho$ld not &e im#lemented &eca$se its net estimated &enefit is a negative B1,11< Answer) A *age +ef) 14- .&/ective) Learning .&/ective 6 'iffic$lty ) "oderate AA%S!) Analytic @1) :he organization chart for Deerts %or#oration incl$des a controller and an information #rocessing manager, &oth of whom re#ort to the vice #resident of finance Which of the following wo$ld &e a control wea2ness? A) Assigning the #rogramming and o#erating of the com#$ter system to an inde#endent control gro$# which re#orts to the controller !) *roviding for maintenance of in#$t data controls &y an inde#endent control gro$# which re#orts to the controller %) *eriodically rotating assignment of a##lication #rocessing among machine o#erators, who all re#ort to the information #rocessing manager ') *roviding for review and distri&$tion of system?generated re#orts &y an inde#endent control gro$# which re#orts to the controller Answer) A *age +ef) 14, .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 1< %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all @5) Dlo&al 0conomic Strategies, LL', has &een diligent in ens$ring that their o#erations meet modern control standards +ecently, they have e7tended their control com#liance system &y incor#orating #olicies and #roced$res that re($ire the s#ecification of com#any o&/ectives, $ncertainties associated with o&/ectives, and contingency #lans :hey are transitioning from a GGGGGGGG to a GGGGGGGG control framewor2 A) %.S.?Integrated 3ramewor2H %.!I: !) %.!I:H %.S.?Integrated 3ramewor2 %) %.!I:H %.S.?0+" ') %.S.?Integrated 3ramewor2H %.S.?0+" 0) %.S.?0+"H %.!I: Answer) ' *age +ef) 1,@?1,, .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing @-) 3rantic=o$se *artners, LL%, does home remodeling and re#air All em#loyees are &onded, so the firm>s ris2 e7#os$re to em#loyee fra$d is A) red$ced !) shared %) avoided ') acce#ted Answer) ! *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic @9) 3rantic=o$se *artners, LL%, does home remodeling and re#air :he firm does not acce#t /o&s that re($ire the installation of slate or co##er roofing &eca$se these materials often re($ire costly #ost? installation services :he firm>s ris2 e7#os$re to costly #ost?installation services is A) red$ced !) shared %) avoided ') acce#ted Answer) % *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic 11 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all @6) According to the %.S. 0nter#rise +is2 "anagement 3ramewor2, the ris2 assessment #rocess incor#orates all of the following com#onents except A) re#orting #otential ris2s to a$ditors !) identifying events that co$ld im#act the enter#rise %) eval$ating the im#act of #otential events on achievement of o&/ectives ') esta&lishing o&/ectives for the enter#rise Answer) A *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) "oderate AA%S!) Analytic @@) 3erdinand Waldo 'emara was 2nown as the great im#oster =e had an asto$nding a&ility to convince #eo#le that he was who he tr$ly was not =e wor2ed as a naval officer, #hysician, college teacher, #rison warden, and other /o&s witho$t any of the #rere($isite ($alifications !y not diligently chec2ing references, the organizations fooled &y 'emara 8incl$ding the %anadian Navy) a##arently chose to GGGGGGGG the ris2 of fra$d A) red$ce !) share %) avoid ') acce#t Answer) ' *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 0asy AA%S!) Analytic @,) Which of the following is an inde#endent chec2 on #erformance? A) :he *$rchasing Agent #hysically reviews the contents of shi#ments and com#ares them with the #$rchase orders he has #laced !) *rod$ction teams #erform ($ality eval$ations of the #rod$cts that they #rod$ce %) :he Deneral "anager com#ares &$dgeted amo$nts with e7#endit$re records from all de#artments ') *etty cash is dis&$rsed &y 3red =aynes =e also maintains records of dis&$rsements, #laces re($ests to finance to re#lace e7#ended f$nds, and #eriodically reconciles the #etty cash &alance Answer) % *age +ef) 1<< .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic 11 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all @4) *etty cash is dis&$rsed &y the 3red =aynes in the %ashier>s .ffice =e also maintains records of dis&$rsements, #laces re($ests to the 3inance 'e#artment to re#lace e7#ended f$nds, and #eriodically reconciles the #etty cash &alance :his re#resents a8an) GGGGGGGG segregation of d$ties A) effective !) ideal %) ineffective ') limited Answer) % *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic ,<) =iring decisions at 3razier>s +azors are made &y Sheila 3razier, the 'irector of =$man +eso$rces *ay rates are a##roved &y the Eice *resident for .#erations At the end of each #ay #eriod, s$#ervisors s$&mit time cards to Sheila, who #re#ares #aychec2 re($isitions *aychec2s are then distri&$ted thro$gh the com#any>s mail room :his re#resents a8an) GGGGGGGG segregation of d$ties A) effective !) #artial %) ineffective ') limited Answer) A *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing ,1) %hange management refers to A) dis&$rsement controls on #etty cash !) o#erational controls a##lied to com#anies after mergers or ac($isitions %) re#lacement of $##er management and their introd$ction to the organization ') controls designed to ens$re that $#dates in information technology do not have negative conse($ences Answer) ' *age +ef) 144 .&/ective) Learning .&/ective @ 'iffic$lty ) 0asy AA%S!) Analytic 15 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all ,1) :he 'irector of Information :echnology for the city of !$m#2iss, "innesota, formed a com#any to sell com#$ter s$##lies and software All #$rchases made on &ehalf of the %ity were made from his com#any =e was later charged with fra$d for overcharging the %ity, &$t was not convicted :he control iss$e in this case arose &eca$se the 'irector had &oth GGGGGGGG and GGGGGGGG d$ties A) c$stodyH a$thorization !) c$stodyH recording %) recordingH a$thorization ') managementH c$stody Answer) % *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing ,5) According to the 0+", these hel# the com#any address all a##lica&le laws and reg$lations A) %om#liance o&/ectives !) .#erations o&/ectives %) +e#orting o&/ectives ') Strategic o&/ectives Answer) A *age +ef) 141 .&/ective) Learning .&/ective - 'iffic$lty ) 0asy AA%S!) Analytic ,-) According to the 0+", high level goals that are aligned with and s$##ort the com#any>s mission are A) com#liance o&/ectives !) o#erations o&/ectives %) re#orting o&/ectives ') strategic o&/ectives Answer) ' *age +ef) 141 .&/ective) Learning .&/ective - 'iffic$lty ) 0asy AA%S!) Analytic ,9) According to the 0+", these deal with the effectiveness and efficiency of com#any o#erations, s$ch as #erformance and #rofita&ility goals A) %om#liance o&/ectives !) .#erations o&/ectives %) +e#orting o&/ectives ') Strategic o&/ectives Answer) ! *age +ef) 141 .&/ective) Learning .&/ective - 'iffic$lty ) 0asy AA%S!) Analytic 1- %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all ,6) According to the 0+", these o&/ectives hel# ens$re the acc$racy, com#leteness and relia&ility of internal and e7ternal com#any re#orts A) %om#liance o&/ectives !) .#erations o&/ectives %) +e#orting o&/ectives ') Strategic o&/ectives Answer) % *age +ef) 141 .&/ective) Learning .&/ective - 'iffic$lty ) 0asy AA%S!) Analytic ,@) Which of the following is not a ris2 red$ction element of a disaster recovery #lan? A) Identification of alternate wor2 site !) .ff?site storage of &ac2$# files and #rograms %) 'oc$mentation of #roced$res and res#onsi&ilitie ') Ade($ate cas$alty ins$rance Answer) ' *age +ef) 145 .&/ective) Learning .&/ective 6 'iffic$lty ) 'iffic$lt AA%S!) +eflective :hin2ing ,,) 'escri&e the differences &etween general and s#ecific a$thorization Answer) A$thorizations are often doc$mented &y signing, initializing, or entering an a$thorization code on a transaction doc$ment or record "anagement may deem that certain transactions are of a ro$tine nat$re and as s$ch may a$thorize em#loyees to handle s$ch transactions witho$t s#ecial a##roval :his is 2nown as general a$thorization .ther transactions may &e of s$ch conse($ence that management grants s#ecific a$thorization for them to occ$r Fs$ally management m$st a##rove of s$ch transactions and oversee them to com#letion, re($iring an additional signat$re re($ired on chec2s e7ceeding a given dollar amo$nt "anagement sho$ld have written #olicies on &oth s#ecific and general a$thorization for all ty#e of transactions *age +ef) 146 .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) Analytic ,4) 07#lain how a com#any co$ld &e the victim of fra$d, even if ideal segregation of d$ties is enforced Answer) When a system effectively incor#orates a se#aration of d$ties, it sho$ld &e diffic$lt for any one em#loyee to defeat the system and commit fra$d 3ra$d is #ossi&le when two or more em#loyees agree to defeat the system for their own dishonest ends :his #ro&lem is 2nown as coll$sion When two or more em#loyees act together to defeat the internal controls of the system, they may li2ely s$cceed It is more diffic$lt to detect s$ch activity &eca$se the em#loyees may have #lanned to Icover their trac2sI :his is why inde#endent review of transaction activity &y third #arties is im#ortant to monitor that internal controls are in #lace and wor2ing as designed *age +ef) 14@ .&/ective) Learning .&/ective @ 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 19 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 4<) %lassify each of the following controls as #reventive, detective, or corrective *eriodic &an2 reconciliation Se#aration of cash and acco$nting records "aintaining &ac2$# co#ies of master and transaction files *re?n$m&ering of sales invoices %hart of acco$nts +etina scan &efore entering a sensitive + M ' facility +es$&mission of error transactions for s$&se($ent #rocessing Internal a$ditor rechec2ing the de&its and credits on the #ayment vo$cher 'e#ositing all cash recei#ts intact =iring ($alified acco$nting #ersonnel Answer) 'etective *reventive %orrective *reventive *reventive *reventive %orrective 'etective *reventive *reventive *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 41) 'isc$ss fo$r reasons why AIS threats are increasing Answer) 1 %lient/server systems have #roliferated and have ena&led large n$m&ers of em#loyees to have access to the information 1 LANs and client/server systems distri&$te data to vario$s $sers and are more diffic$lt to control than centralized systems 5 0'I and e?commerce have ena&led c$stomers and s$##liers to access each other>s systems and data, ma2ing confidentiality a ma/or concern - .rganizations are not aggressively #rotecting their data for vario$s reasons 9 %om#$ter control #ro&lems are often $nderestimated and down#layed 6 %ontrol im#lications of networ2ed systems are not #ro#erly reasoned o$t @ :o# management does not gras# the effect of sec$rity of data and information on s$rvival and #rofita&ility of the com#any , Internal controls &ecome a cas$alty in cost c$tting and #rod$ctivity meas$res $nderta2en &y the management *age +ef) 1,- .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 41) 07#lain why the 3oreign %orr$#t *ractices Act was im#ortant to acco$ntants Answer) :he act is im#ortant to acco$ntants &eca$se it incor#orates the lang$age of the AI%*A #rono$ncement on internal controls :he Act mandates that cor#orations sho$ld 2ee# records that acc$rately and fairly reflect their transactions and assets in reasona&le detail :he internal control system of these organizations sho$ld &e a&le to #rovide reasona&le ass$rance that) a) transactions are #ro#erly a$thorized and recordedH &) assets are safeg$arded and #rotected from $na$thorized accessH and c) recorded asset val$es are #eriodically com#ared with act$al assets and any differences are corrected :he act re($ires cor#orations to maintain good systems of internal acco$nting control *age +ef) 1,9 .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 16 %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 45) 'isc$ss the internal environment and identify the elements that com#rise the internal environment Answer) :he internal environment em&races individ$als and the environment in which they o#erate in an organization Individ$al em#loyees are Ithe engineI that drive the organization and form the fo$ndation $#on which everything in the organization rests 0lements of the internal environment are) 1) a commitment to integrity and ethical val$esH 1) the #hiloso#hy and o#erating style of managementH 5) organizational str$ct$reH -) the a$dit committee of the &oard of directorsH 9) methods of assigning a$thority and res#onsi&ilityH 6) h$man reso$rces #olicies and #racticesH and @) vario$s e7ternal infl$ences 0ach of these elements infl$ences the internal control str$ct$re of the organization Li2ewise, these elements sho$ld &e e7amined and analyzed in detail when im#lementing or eval$ating a system of internal controls *age +ef) 1,, .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic 4-) 07#lain why management>s #hiloso#hy and o#erating style are considered to &e the most im#ortant element of the internal environment Answer) "anagement tr$ly sets the tone for the control environment of a &$siness If to# management ta2es good control serio$sly and ma2es this 2nown to everyone in the organization, then em#loyees down the line will tend to do li2ewise "anagement>s attit$de toward ris2 ta2ing and the assessment of ris2 &efore acting are indications Willingness to mani#$late #erformance meas$res or to enco$rage em#loyees to do li2ewise is another indication of attit$de 3inally, #ress$re on s$&ordinates to achieve certain res$lts regardless of the methods $sed can &e a very #ers$asive indicator of #ro&lems "anagement concerned a&o$t control will assess ris2 and act #r$dently, mani#$lation of #erformance meas$res will not &e tolerated, and ethical &ehavior will &e instilled in and re($ired of em#loyees *age +ef) 1,4 .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) +eflective :hin2ing 49) What are some of the ways to assign a$thority and res#onsi&ility within an organization? Answer) It is inc$m&ent on management to identify s#ecific &$siness o&/ectives and assign s$ch o&/ectives to certain de#artments and individ$als "anagement m$st also hold s$ch de#artments and individ$als res#onsi&le and acco$nta&le for achieving the assigned &$siness o&/ectives Ways in which management may assign a$thority and res#onsi&ility is thro$gh formal /o& descri#tions, em#loyee training, &$dgets, o#erating #lans, and sched$ling A formal code of cond$ct also sets the stage for res#onsi&le &ehavior on the #art of em#loyees &y defining ethical &ehavior, acce#ta&le &$siness #ractices, reg$latory re($irements, and conflicts of interest Another $sef$l and im#ortant tool is a written #olicy and #roced$res man$al *age +ef) 14< .&/ective) Learning .&/ective 5 'iffic$lty ) "oderate AA%S!) Analytic 1@ %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all 46) 'isc$ss the wea2nesses in %.S.>s internal control framewor2 that led to the develo#ment of the %.S. 0nter#rise +is2 "anagement framewor2 Answer) %.S.>s internal control framewor2 1 had too narrow a foc$s 1 e7amined controls witho$t first addressing #$r#oses and ris2s of &$siness #rocesses 5 e7isting internal control systems often have controls that #rotect against items that are no longer ris2s or are no longer im#ortant - foc$sing on controls first has an inherent &ias toward #ast #ro&lems and concerns *age +ef) 1,@?1,, .&/ective) Learning .&/ective 1 'iffic$lty ) "oderate AA%S!) Analytic 1, %o#yright ; 1<11 *earson 0d$cation, Inc #$&lishing as *rentice =all