Chapter 1The Information System: An Accountants Perspective

MULTIPLE CHOICE

1. Which of the following is not a business resource?

a. raw material
b. labor
c. information
d. all are business resources
ANS: D

2. Which level of management is responsible for short-term planning and coordination of activities
necessary to accomplish organizational objectives?
a. operations management
b. middle management
c. top management
d. line management
ANS: B

3. Which level of management is responsible for controlling day-to-day operations?

a. top management
b. middle management
c. operations management
d. executive management
ANS: C

4. The ability to achieve the goals of a system depends upon the effective functioning and harmonious
interaction between its subsystems. This is called
a. system decomposition
b. system redundancy
c. backup system
d. subsystem interdependency
ANS: D

5. The value of information for users is determined by all of the following but
a. reliability
b. relevance
c. convenience
d. completeness
ANS: C

6. An example of a nonfinancial transaction is

a. sale of products
b. cash disbursement
c. log of customer calls
d. purchase of inventory
 ANS: C

7. An example of a financial transaction is

a. the purchase of computer
b. a suppliers price list
c. a delivery schedule
d. an employee benefit brochure
ANS: A

8. Which subsystem is not part of the Accounting Information System?

a. Transaction Processing System
b. Expert System
c. General Ledger/Financial Reporting System
d. Management Reporting System
ANS: B

9. The major difference between the Financial Reporting System (FRS) and the Management Reporting
System (MRS) is the
a. FRS provides information to internal and external users; the MRS provides information to
internal users
b. FRS provides discretionary information; the MRS provides nondiscretionary information
c. FRS reports are prepared using information provided by the General Ledger System; the
MRS provides information to the General Ledger System
d. FRS reports are prepared in flexible, nonstandardized formats; the MRS reports are
prepared in standardized, formal formats
ANS: A

10. The purpose of the Transaction Processing System includes all of the following except
a. converting economic events into financial transactions
b. recording financial transactions in the accounting records
c. distributing essential information to operations personnel to support their daily operations
d. measuring and reporting the status of financial resources and the changes in those
resources
ANS: D

11. The Transaction Processing System includes all of the following cycles except
a. the revenue cycle
b. the administrative cycle
c. the expenditure cycle
d. the conversion cycle
ANS: B

12. The primary input to the Transaction Processing System is

a. a financial transaction
b. an accounting record
c. an accounting report
d. a nonfinancial transaction
 ANS: A

13. When designing the data collection activity, which type of data should be avoided?
a. data that is relevant
b. data that is efficient
c. data that is redundant
d. data that is accurate
ANS: C

14. The most basic element of useful data in the database is

a. the record
b. the key
c. the file
d. the attribute
ANS: D

15. In a database, a complete set of attributes for a single occurrence of an entity class is called
a. a key
b. a file
c. a record
d. a character
ANS: C

16. Effective information has all of the following characteristics except

a. relevance
b. completeness
c. summarization
d. structure
ANS: D

17. Database management tasks do not include

a. summarization
b. storage
c. retrieval
d. deletion
ANS: A

18. The author distinguishes between the Accounting Information System and the management Information
System based on
a. whether the transactions are financial or nonfinancial
b. whether discretionary or nondiscretionary reports are prepared
c. the end users of the reports
d. the organizational structure of the business
ANS: A

19. Which activity is not part of the finance function?

a. cash receipts
 b. portfolio management
c. credit
d. general ledger
ANS: D

20. Market research and advertising are part of which business function?
a. materials management
b. finance
c. marketing
d. production
ANS: C

21. Which function manages the financial resources of the firm through portfolio management, banking,
credit evaluation, and cash receipts and disbursements?
a. accounting
b. finance
c. materials management
d. distribution
ANS: B

22. Which of the following is not part of the accounting function?

a. managing the financial information resource of the firm
b. capturing and recording transactions in the database
c. distributing transaction information to operations personnel
d. managing the physical information system of the firm
ANS: D

23. The term accounting independence refers to

a. data integrity
b. separation of duties, such as record keeping and custody of physical resources
c. generation of accurate and timely information
d. business segmentation by function
ANS: B

24. In the distributed data processing approach

a. computer services are consolidated and managed as a shared organization resource
b. the computer service function is a cost center
c. the end users are billed using a charge-back system
d. computer services are organized into small information processing units under the control
of end users
ANS: D

25. The data control group is responsible for

a. performing the day-to-day processing of transactions
b. security and integrity of the database
c. liaison between the end user and data processing
d. providing safe storage for off-line data files
 ANS: C

26. Data processing does not involve

a. data control
b. computer operations
c. system maintenance
d. data conversion
ANS: C

27. Independent auditing is performed by

a. external auditors
b. internal accountants
c. licensed auditors
d. third-party accountants
ANS: A

28. Which individual is least involved in new systems development?

a. systems analyst
b. external auditor
c. end user
d. data librarian
ANS: D

29. The objectives of all information systems include all of the following except
a. support for the stewardship function of management
b. evaluating transaction data
c. support for the day-to-day operations of the firm
d. support for management decision making
ANS: B

30. Which individuals may be involved in the Systems Development Life Cycle?
a. accountants
b. systems professionals
c. end users
d. all of the above
ANS: D

31. An appraisal function housed within the organization that performs a wide range of services for
management is
a. internal auditing
b. data control group
c. external auditing
d. database administration
ANS: A

32. Advantages of a database system include all of the following except

 a. elimination of data redundancy
b. open access to all data by all users
c. single update for changes in data
d. confidence that all data is current
ANS: B

33. Disadvantages of distributed data processing include all of the following except
a. mismanagement of organizationwide resources
b. hardware and software incompatibility
c. cost reductions
d. difficulty in hiring qualified IT professionals
ANS: C

34. Advantages of distributed data processing include each of the following except
a. cost reductions
b. better management of organization resources
c. improved operational efficiency
d. increased user satisfaction
ANS: B

35. Disadvantages of the distributed data processing approach include all of the following except
a. possible mismanagement of organization resources
b. redundancy of tasks
c. software incompatibility
d. system is not responsive to the users situation
ANS: D

36. ERP packages include all of the following modules except

a. human resources
b. general ledger
c. inventory management
d. they include all of the above
ANS: D

37. All of the following are external end users except

a. cost accountants
b. creditors
c. stockholders
d. tax authorities
ANS: A

38. Useful information must possess all of the following characteristics except
a. relevance
b. timelessness
c. accuracy
d. completeness
 ANS: B

39. The objectives of an information system include each of the following except
a. support for the stewardship responsibilities of management
b. furthering the financial interests of shareholders
c. support for management decision making
d. support for the firms day-to-day operations
ANS: B

40. Accountants play many roles relating to the accounting information system, including all of the following
except
a. system users
b. system designers
c. system auditors
d. system converters
ANS: D

Chapter 2Introduction to Transaction Processing

MULTIPLE CHOICE

1. Which system is not part of the expenditure cycle?

a. cash disbursements
b. payroll
c. production planning/control
d. purchases/accounts payable
ANS: C

2. Which system produces information used for inventory valuation, budgeting, cost control, performance
reporting, and make-buy decisions?
a. sales order processing
b. purchases/accounts payable
c. cash disbursements
d. cost accounting
ANS: D

3. Which of the following is a turn-around document?

a. remittance advice
b. sales order
c. purchase order
d. payroll check
ANS: A

4. The order of the entries made in the ledger is by

a. transaction number
 b. account number
c. date
d. user
ANS: B

5. The order of the entries made in the general journal is by

a. date
b. account number
c. user
d. customer number
ANS: A

6. In general a special journal would not be used to record

a. sales
b. cash disbursements
c. depreciation
d. purchases
ANS: C

7. Which account is least likely to have a subsidiary ledger?

a. sales
b. accounts receivable
c. fixed assets
d. inventory
ANS: A

8. Subsidiary ledgers are used in manual accounting environments. What file is comparable to a subsidiary
ledger in a computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file
ANS: D

9. A journal is used in manual accounting environments. What file is comparable to a journal in a

computerized environment?
a. archive file
b. reference file
c. transaction file
d. master file
ANS: C

10. In a computerized environment, a list of authorized suppliers would be found in the

a. master file
b. transaction file
c. reference file
d. archive file
 ANS: C

11. Which of the following is an archive file?

a. an accounts payable subsidiary ledger
b. a cash receipts file
c. a sales journal
d. a file of accounts receivable that have been written off
ANS: D

12. Which document is not a type of source document?

a. a sales order
b. an employee time card
c. a paycheck
d. a sales return receipt
ANS: C

13. The most important purpose of a turn-around document is to

a. serve as a source document
b. inform a customer of the outstanding amount payable
c. provide an audit trail for the external auditor
d. inform the bank of electronic funds deposits
ANS: A

14. Which type of graphical documentation represents systems at different levels of detail?
a. data flow diagram
b. document flowchart
c. system flowchart
d. program flowchart
ANS: A

15. Data flow diagrams

a. depict logical tasks that are being performed, but not who is performing them
b. illustrate the relationship between processes, and the documents that flow between them
and trigger activities
c. represent relationships between key elements of the computer system
d. describe in detail the logic of the process
ANS: A

16. Document flowcharts

a. depict logical tasks that are being performed, but not who is performing them
b. illustrate the relationship between processes, and the documents that flow between them
and trigger activities
c. represent relationships between key elements of the computer system
d. describe the logic of the process
ANS: B
17. When determining the batch size, which consideration is the least important?
a. achieving economies by grouping together large numbers of transactions
b. complying with legal mandates
c. providing control over the transaction process
d. balancing the trade off between batch size and error detection
ANS: B

18. In contrast to a real-time system, in a batch processing system

a. there is a lag between the time when the economic event occurs and the financial records
are updated
b. relatively more resources are required
c. a greater resource commitment per unit of output is required
d. processing takes place when the economic event occurs
ANS: A

19. In contrast to a batch processing system, in a real-time system

a. a lag occurs between the time of the economic event and when the transaction is recorded
b. relatively fewer hardware, programming, and training resources are required
c. a lesser resource commitment per unit of output is required
d. processing takes place when the economic event occurs
ANS: D

20. The type of transaction most suitable for batch processing is

a. airline reservations
b. credit authorization
c. payroll processing
d. adjustments to perpetual inventory
ANS: C

21. The type of transaction most suitable for real-time processing is

a. recording fixed asset purchases
b. recording interest earned on long-term bonds
c. adjusting prepaid insurance
d. recording a sale on account
ANS: D

22. Which step is not found in batch processing using sequential files?
a. control totals
b. sort runs
c. edit runs
d. immediate feedback of data entry errors
ANS: D

23. Both the revenue and the expenditure cycle can be viewed as having two key parts. These are
a. manual and computerized
b. physical and financial
c. input and output
 d. batch and real-time
ANS: B

24. All of the following can provide evidence of an economic event except
a. source document
b. turn-around document
c. master document
d. product document
ANS: C

25. Which method of processing does not use the destructive update approach?
a. batch processing using direct access files
b. real-time processing
c. batch processing using sequential files
d. all of the above use the destructive update approach
ANS: C

26. Which symbol represents a data store?

a.

b.

c.

d.

ANS: B

27. Which symbol represents a manual operation?

a.

b.

c.
 d.

ANS: D

28. Which symbol represents accounting records?

a.

b.

c.

d.

ANS: A

29. Which symbol represents a document?

a.

b.

c.

d.

ANS: B

30. Which symbol represents a magnetic tape (sequential storage device)?

a.
 b.

c.

d.

ANS: D

31. Which symbol represents a decision?

a.

b.

c.

d.

ANS: A

32. The characteristics that distinguish between batch and real-time systems include all of the following
except
a. time frame
b. resources used
c. file format
d. efficiency of processing
ANS: C

33. A file that stores data used as a standard when processing transactions is
a. a reference file
b. a master file
 c. a transaction file
d. an archive file
ANS: A

34. Sequential storage means

a. data is stored on tape
b. access is achieved through an index
c. access is direct
d. reading record 100 requires first reading records 1 to 99
ANS: D

35. Real-time processing would be most beneficial in handling a firms

a. fixed asset records
b. retained earning information
c. merchandise inventory
d. depreciation records
ANS: C

36. Which accounting application is least suited for batch processing?

a. general ledger
b. vendor payments
c. sales order processing
d. payroll
ANS: C

37. Which accounting application is best suited for batch processing?

a. general ledger
b. vendor payments
c. sales order processing
d. payroll
ANS: D

38. Operational inefficiencies occur because

a. accounts both common and unique to many concurrent transactions need to be updated in
real time.
b. accounts common to many concurrent transactions need to be updated in real time.
c. accounts unique to many concurrent transactions need to be updated in real time.
d. None of the above are true statements
ANS: B

39. Operational efficiencies can be improved by

a. updating accounts both common and unique to many concurrent transactions in real time.
b. updating accounts both common and unique to many concurrent transactions in batch
mode.
c. updating accounts unique to many concurrent transactions in real time and updating
common accounts in batch mode.
d. None of the above are true statements
 ANS: C

Chapter 3Ethics, Fraud, and Internal Control

MULTIPLE CHOICE

1. Which ethical principle states that the benefit from a decision must outweigh the risks, and that there is no
alternative decision that provides the same or greater benefit with less risk?
a. minimize risk
b. justice
c. informed consent
d. proportionality
ANS: D

2. Individuals who acquire some level of skill and knowledge in the field of computer ethics are involved in
which level of computer ethics?
a. para computer ethics
b. pop computer ethics
c. theoretical computer ethics
d. practical computer ethics
ANS: A

3. All of the following are issues of computer security except

a. releasing incorrect data to authorized individuals
b. permitting computer operators unlimited access to the computer room
c. permitting access to data by unauthorized individuals
d. providing correct data to unauthorized individuals
ANS: B

4. Which characteristic is not associated with software as intellectual property?

a. uniqueness of the product
b. possibility of exact replication
c. automated monitoring to detect intruders
d. ease of dissemination
ANS: C

5. For an action to be called fraudulent, all of the following conditions are required except
a. poor judgment
b. false representation
c. intent to deceive
d. injury or loss
ANS: A

6. One characteristic of employee fraud is that the fraud

a. is perpetrated at a level to which internal controls do not apply
 b. involves misstating financial statements
c. involves the direct conversion of cash or other assets to the employees personal benefit
d. involves misappropriating assets in a series of complex transactions involving third parties
ANS: C

7. Forces which may permit fraud to occur do not include

a. a gambling addiction
b. lack of segregation of duties
c. centralized decision making environment
d. questionable integrity of employees
ANS: C

8. Which of the following best describes lapping?

a. applying cash receipts to a different customers account in an attempt to conceal previous
thefts of funds
b. inflating bank balances by transferring money among different bank accounts
c. expensing an asset that has been stolen
d. creating a false transaction
ANS: A

9. Operations fraud includes

a. altering program logic to cause the application to process data incorrectly
b. misusing the firms computer resources
c. destroying or corrupting a programs logic using a computer virus
d. creating illegal programs that can access data files to alter, delete, or insert values
ANS: B

10. Who is responsible for establishing and maintaining the internal control system?
a. the internal auditor
b. the accountant
c. management
d. the external auditor
ANS: C

11. The concept of reasonable assurance suggests that

a. the cost of an internal control should be less than the benefit it provides
b. a well-designed system of internal controls will detect all fraudulent activity
c. the objectives achieved by an internal control system vary depending on the data
processing method
d. the effectiveness of internal controls is a function of the industry environment
ANS: A

12. Which of the following is not a limitation of the internal control system?
a. errors are made due to employee fatigue
b. fraud occurs because of collusion between two employees
c. the industry is inherently risky
d. management instructs the bookkeeper to make fraudulent journal entries
 ANS: C

13. The most cost-effective type of internal control is

a. preventive control
b. accounting control
c. detective control
d. corrective control
ANS: A

14. Which of the following is a preventive control?

a. credit check before approving a sale on account
b. bank reconciliation
c. physical inventory count
d. comparing the accounts receivable subsidiary ledger to the control account
ANS: A

15. A well-designed purchase order is an example of a

a. preventive control
b. detective control
c. corrective control
d. none of the above
ANS: A

16. A physical inventory count is an example of a

a. preventive control
b. detective control
c. corrective control
d. feedforward control
ANS: B

17. The bank reconciliation uncovered a transposition error in the books. This is an example of a
a. preventive control
b. detective control
c. corrective control
d. none of the above
ANS: B

18. In balancing the risks and benefits that are part of every ethical decision, managers receive guidance from
each of the following except
a. justice
b. self interest
c. risk minimization
d. proportionality
ANS: B

19. Which of the following is not an element of the internal control environment?
 a. management philosophy and operating style
b. organizational structure of the firm
c. well-designed documents and records
d. the functioning of the board of directors and the audit committee
ANS: C

20. Which of the following suggests a weakness in the internal control environment?
a. the firm has an up-to-date organizational chart
b. monthly reports comparing actual performance to budget are distributed to managers
c. performance evaluations are prepared every three years
d. the audit committee meets quarterly with the external auditors
ANS: C

21. Which of the following indicates a strong internal control environment?

a. the internal audit group reports to the audit committee of the board of directors
b. there is no segregation of duties between organization functions
c. there are questions about the integrity of management
d. adverse business conditions exist in the industry
ANS: A

22. According to SAS 78, an effective accounting system performs all of the following except
a. identifies and records all valid financial transactions
b. records financial transactions in the appropriate accounting period
c. separates the duties of data entry and report generation
d. records all financial transactions promptly
ANS: C

23. Which of the following is the best reason to separate duties in a manual system?
a. to avoid collusion between the programmer and the computer operator
b. to ensure that supervision is not required
c. to prevent the record keeper from authorizing transactions
d. to enable the firm to function more efficiently
ANS: C

24. Segregation of duties in the computer-based information system includes

a. separating the programmer from the computer operator
b. preventing management override
c. separating the inventory process from the billing process
d. performing independent verifications by the computer operator
ANS: A

25. Which of the following is not an internal control procedure?

a. authorization
b. managements operating style
c. independent verification
d. accounting records
 ANS: B

26. The decision to extend credit beyond the normal credit limit is an example of
a. independent verification
b. authorization
c. segregation of functions
d. supervision
ANS: B

27. When duties cannot be segregated, the most important internal control procedure is
a. supervision
b. independent verification
c. access controls
d. accounting records
ANS: A

28. An accounting system that maintains an adequate audit trail is implementing which internal control
procedure?
a. access controls
b. segregation of functions
c. independent verification
d. accounting records
ANS: D

29. Employee fraud involves three steps. Of the following, which is not involved?
a. concealing the crime to avoid detection
b. stealing something of value
c. misstating financial statements
d. converting the asset to a usable form
ANS: C

30. Which of the following is not an example of independent verification?

a. comparing fixed assets on hand to the accounting records
b. performing a bank reconciliation
c. comparing the accounts payable subsidiary ledger to the control account
d. permitting authorized users only to access the accounting system
ANS: D

31. The importance to the accounting profession of the Foreign Corrupt Practices Act of 1977 is that
a. bribery will be eliminated
b. management will not override the companys internal controls
c. firms are required to have an effective internal control system
d. firms will not be exposed to lawsuits
ANS: C

32. The board of directors consists entirely of personal friends of the chief executive officer. This indicates a
weakness in
 a. the accounting system
b. the control environment
c. control procedures
d. this is not a weakness
ANS: B

33. Computer fraud can take on many forms, including each of the following except
a. theft or illegal use of computer-readable information
b. theft, misuse, or misappropriation of computer equipment
c. theft, misuse, or misappropriation of assets by altering computer-readable records and files
d. theft, misuse, or misappropriation of printer supplies
ANS: D

34. When certain customers made cash payments to reduce their accounts receivable, the bookkeeper
embezzled the cash and wrote off the accounts as uncollectible. Which control procedure would most
likely prevent this irregularity?
a. segregation of duties
b. accounting records
c. accounting system
d. access controls
ANS: A

35. The office manager forgot to record in the accounting records the daily bank deposit. Which control
procedure would most likely prevent or detect this error?
a. segregation of duties
b. independent verification
c. accounting records
d. supervision
ANS: B

36. Business ethics involves

a. how managers decide on what is right in conducting business
b. how managers achieve what they decide is right for the business
c. both a and b
d. none of the above
ANS: C

37. All of the following are conditions for fraud except

a. false representation
b. injury or loss
c. intent
d. material reliance
ANS: D

38. The four principal types of fraud include all of the following except
a. bribery
b. gratuities
 c. conflict of interest
d. economic extortion
ANS: B

39. The characteristics of useful information include

a. summarization, relevance, timeliness, accuracy, and completeness
b. relevance, summarization, accuracy, timelessness, and completeness
c. timeliness, relevance, summarization, accuracy, and conciseness
d. disaggregation, relevance, timeliness, accuracy, and completeness
ANS: A

40. Internal control system have limitations. These include

a. possibility of honest error
b. circumvention
c. management override
d. stability of systems
ANS: D

41. Management can expect various benefits to follow from implementing a system of strong internal control.
Which of the following benefits is least likely to occur?
a. reduced cost of an external audit.
b. prevents employee collusion to commit fraud.
c. availability of reliable data for decision-making purposes.
d. some assurance of compliance with the Foreign Corrupt Practices Act of 1977.
e. some assurance that important documents and records are protected.
ANS: B

42. Which of the following situations is not a segregation of duties violation?

a. The treasurer has the authority to sign checks but gives the signature block to the assistant
treasurer to run the check-signing machine.
b. The warehouse clerk, who has the custodial responsibility over inventory in the
warehouse, selects the vendor and authorizes purchases when inventories are low.
c. The sales manager has the responsibility to approve credit and the authority to write off
accounts.
d. The department time clerk is given the undistributed payroll checks to mail to absent
employees.
e. The accounting clerk who shares the record keeping responsibility for the accounts
receivable subsidiary ledger performs the monthly reconciliation of the subsidiary ledger
and the control account.
ANS: B

43. Which of the following is not an issue to be addressed in a business code of ethics required by the SEC?
a. Conflicts of interest
b. Full and Fair Disclosures
c. Legal Compliance
d. Internal Reporting of Code Violations
e. All of the above are issues to be addressed
 ANS: E

Chapter 4The Revenue Cycle

MULTIPLE CHOICE

1. The revenue cycle consists of

a. one subsystemorder entry
b. two subsystemssales order processing and cash receipts
c. two subsystemsorder entry and inventory control
d. three subsystemssales order processing, credit authorization, and cash receipts
ANS: B

2. The reconciliation that occurs in the shipping department is intended to ensure that
a. credit has been approved
b. the customer is billed for the exact quantity shipped
c. the goods shipped match the goods ordered
d. inventory records are reduced for the goods shipped
ANS: C

3. The adjustment to accounting records to reflect the decrease in inventory due to a sale occurs in the
a. warehouse
b. shipping department
c. billing department
d. inventory control department
ANS: D

4. Which document triggers the revenue cycle?

a. the sales order
b. the customer purchase order
c. the sales invoice
d. the journal voucher
ANS: B

5. Copies of the sales order can be used for all of the following except
a. purchase order
b. credit authorization
c. shipping notice
d. packing slip
ANS: A

6. The purpose of the sales invoice is to

a. record reduction of inventory
b. transfer goods from seller to shipper
c. bill the customer
d. select items from inventory for shipment
 ANS: C

7. The customer open order file is used to

a. respond to customer queries
b. fill the customer order
c. ship the customer order
d. authorize customer credit
ANS: A

8. The stock release copy of the sales order is not used to

a. locate and pick the items from the warehouse shelves
b. record any out-of-stock items
c. authorize the warehouse clerk to release custody of the inventory to shipping
d. record the reduction of inventory
ANS: D

9. The shipping notice

a. is mailed to the customer
b. is a formal contract between the seller and the shipping company
c. is always prepared by the shipping clerk
d. informs the billing department of the quantities shipped
ANS: D

10. The billing department is not responsible for

a. updating the inventory subsidiary records
b. recording the sale in the sales journal
c. notifying accounts receivable of the sale
d. sending the invoice to the customer
ANS: A

11. Customers should be billed for backorders when

a. the customer purchase order is received
b. the backordered goods are shipped
c. the original goods are shipped
d. customers are not billed for backorders because a backorder is a lost sale
ANS: B

12. Usually specific authorization is required for all of the following except
a. sales on account which exceed the credit limit
b. sales of goods at the list price
c. a cash refund for goods returned without a receipt
d. write off of an uncollectible account receivable
ANS: B

13. Which of following functions should be segregated?

a. opening the mail and making the journal entry to record cash receipts
 b. authorizing credit and determining reorder quantities
c. maintaining the subsidiary ledgers and handling customer queries
d. providing information on inventory levels and reconciling the bank statement
ANS: A

14. Which situation indicates a weak internal control structure?

a. the mailroom clerk authorizes credit memos
b. the record keeping clerk maintains both accounts receivable and accounts payable
subsidiary ledgers
c. the warehouse clerk obtains a signature before releasing goods for shipment
d. the accounts receivable clerk prepares customer statements every month
ANS: A

15. The most effective internal control procedure to prevent or detect the creation of fictitious credit
memoranda for sales returns is to
a. supervise the accounts receivable department
b. limit access to credit memoranda
c. prenumber and sequence check all credit memoranda
d. require management approval for all credit memoranda
ANS: D

16. The accounts receivable clerk destroys all invoices for sales made to members of her family and does not
record the sale in the accounts receivable subsidiary ledger. Which procedure will not detect this fraud?
a. prenumber and sequence check all invoices
b. reconcile the accounts receivable control to the accounts receivable subsidiary ledger
c. prepare monthly customer statements
d. reconcile total sales on account to the debits in the accounts receivable subsidiary ledger
ANS: C

17. Which department is least likely to be involved in the revenue cycle?

a. credit
b. accounts payable
c. billing
d. shipping
ANS: B

18. Which document is included with a shipment sent to a customer?

a. sales invoice
b. stock release form
c. packing slip
d. shipping notice
ANS: C

19. Good internal controls in the revenue cycle should ensure all of the following except
a. all sales are profitable
b. all sales are recorded
c. credit is authorized
 d. inventory to be shipped is not stolen
ANS: A

20. Which control does not help to ensure that accurate records are kept of customer accounts and inventory?
a. reconcile accounts receivable control to accounts receivable subsidiary
b. authorize credit
c. segregate custody of inventory from record keeping
d. segregate record keeping duties of general ledger from accounts receivable
ANS: B

21. Internal controls for handling sales returns and allowances do not include
a. computing bad debt expense using the percentage of credit sales
b. verifying that the goods have been returned
c. authorizing the credit memo by management
d. using the original sales invoice to prepare the sales returns slip
ANS: A

22. The printer ran out of preprinted sales invoice forms and several sales invoices were not printed. The best
internal control to detect this error is
a. a batch total of sales invoices to be prepared compared to the actual number of sales
invoices prepared
b. sequentially numbered sales invoices
c. visual verification that all sales invoices were prepared
d. none of the above will detect this error
ANS: A

23. Which department prepares the bill of lading?

a. sales
b. warehouse
c. shipping
d. credit
ANS: C

24. A remittance advice is

a. used to increase (debit) an account receivable by the cash received
b. is a turn-around document
c. is retained by the customer to show proof of payment
d. none of the above
ANS: B

25. A weekly reconciliation of cash receipts would include comparing

a. the cash prelist with bank deposit slips
b. the cash prelist with remittance advices
c. bank deposit slips with remittance advices
d. journal vouchers from accounts receivable and general ledger
ANS: A
26. At which point is supervision most critical in the cash receipts system?
a. accounts receivable
b. general ledger
c. mail room
d. cash receipts
ANS: C

27. EDI trading partner agreements specify all of the following except
a. selling price
b. quantities to be sold
c. payment terms
d. person to authorize transactions
ANS: D

28. A cash prelist is

a. a document that records sales returns and allowances
b. a document returned by customers with their payments
c. the source of information used to prepare monthly statements
d. none of the above
ANS: D

29. An advantage of real-time processing of sales is

a. the cash cycle is lengthened
b. current inventory information is available
c. hard copy documents provide a permanent record of the transaction
d. data entry errors are corrected at the end of each batch
ANS: B

30. Commercial accounting systems have fully integrated modules. The word integrated means that
a. segregation of duties is not possible
b. transfer of information among modules occurs automatically
c. batch processing is not an option
d. separate entries are made in the general ledger accounts and the subsidiary ledgers
ANS: B

31. The data processing method that can shorten the cash cycle is
a. batch, sequential file processing
b. batch, direct access file processing
c. real-time file processing
d. none of the above
ANS: C

32. Which of the following is not a risk exposure in a microcomputer accounting system?
a. reliance on paper documentation is increased
b. functions that are segregated in a manual environment may be combined in a
microcomputer accounting system
 c. backup procedures require human intervention
d. data are easily accessible
ANS: A

33. Which journal is not used in the revenue cycle?

a. cash receipts journal
b. sales journal
c. purchases journal
d. general journal
ANS: C

34. Periodically, the general ledger department receives all of the following except
a. total increases to accounts receivable
b. total of all sales backorders
c. total of all sales
d. total decreases in inventory
ANS: B

35. The credit department

a. prepares credit memos when goods are returned
b. approves credits to accounts receivable when payments are received
c. authorizes the granting of credit to customers
d. none of the above
ANS: C

36. Adjustments to accounts receivable for payments received from customers is based upon
a. the customers check
b. the cash prelist
c. the remittance advice that accompanies payment
d. a memo prepared in the mailroom
ANS: C

37. The revenue cycle utilizes all of the following files except
a. credit memo file
b. sales history file
c. shipping report file
d. cost data reference file
ANS: D

38. All of the following are advantages of real-time processing of sales except
a. The cash cycle is shortened
b. Paper work is reduced
c. Incorrect data entry is difficult to detect
d. Up-to-date information can provide a competitive advantage in the marketplace
ANS: C
Chapter 5The Expenditure Cycle Part I: Purchases and Cash Disbursements
Procedures

MULTIPLE CHOICE

1. The purpose of the purchase requisition is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered
ANS: C

2. The purpose of the receiving report is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. bill for goods delivered
ANS: B

3. All of the following departments have a copy of the purchase order except
a. the purchasing department
b. the receiving department
c. accounts payable
d. general ledger
ANS: D

4. The purpose of the purchase order is to

a. order goods from vendors
b. record receipt of goods from vendors
c. authorize the purchasing department to order goods
d. approve payment for goods received
ANS: A

5. The open purchase order file in the purchasing department is used to determine
a. the quality of items a vendor ships
b. the best vendor for a specific item
c. the orders that have not been received
d. the quantity of items received
ANS: C

6. The purchase order

a. is the source document to make an entry into the accounting records
b. indicates item description, quantity, and price
c. is prepared by the inventory control department
d. is approved by the end-user department
 ANS: B

7. The reason that a blind copy of the purchase order is sent to receiving is to
a. inform receiving when a shipment is due
b. force a count of the items delivered
c. inform receiving of the type, quantity, and price of items to be delivered
d. require that the goods delivered are inspected
ANS: B

8. The receiving report is used to

a. accompany physical inventories to the storeroom or warehouse
b. advise the purchasing department of the dollar value of the goods delivered
c. advise general ledger of the accounting entry to be made
d. advise the vendor that the goods arrived safely
ANS: A

9. When a copy of the receiving report arrives in the purchasing department, it is used to
a. adjust perpetual inventory records
b. record the physical transfer of inventory from receiving to the warehouse
c. analyze the receiving departments process
d. recognize the purchase order as closed
ANS: D

10. The financial value of a purchase is determined by reviewing the

a. packing slip
b. purchase requisition
c. receiving report
d. suppliers invoice
ANS: D

11. Which document is least important in determining the financial value of a purchase?
a. purchase requisition
b. purchase order
c. receiving report
d. suppliers invoice
ANS: A

12. In a merchandising firm, authorization for the payment of inventory is the responsibility of
a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements
ANS: C

13. In a merchandising firm, authorization for the purchase of inventory is the responsibility of
a. inventory control
b. purchasing
 c. accounts payable
d. cash disbursements
ANS: A

14. When purchasing inventory, which document usually triggers the recording of a liability?
a. purchase requisition
b. purchase order
c. receiving report
d. suppliers invoice
ANS: D

15. Because of time delays between receiving inventory and making the journal entry
a. liabilities are usually understated
b. liabilities are usually overstated
c. liabilities are usually correctly stated
d. none of the above
ANS: A

16. Usually the open voucher payable file is organized by

a. vendor
b. payment due date
c. purchase order number
d. transaction date
ANS: B

17. Which of the following statements is not correct?

a. the voucher system is used to improve control over cash disbursements
b. the sum of the paid vouchers represents the voucher payable liability of the firm
c. the voucher system permits the firm to consolidate payments of several invoices on one
voucher
d. many firms replace accounts payable with a voucher payable system
ANS: B

18. In the expenditure cycle, general ledger does not

a. post the journal voucher from the accounts payable department
b. post the account summary from inventory control
c. post the journal voucher from the purchasing department
d. reconcile the inventory control account with the inventory subsidiary summary
ANS: C

19. The documents in a voucher packet include all of the following except
a. a check
b. a purchase order
c. a receiving report
d. a suppliers invoice
ANS: A
20. To maintain a good credit rating and to optimize cash management, cash disbursements should arrive at
the vendors place of business
a. as soon as possible
b. on the due date
c. on the discount date
d. by the end of the month
ANS: C

21. The cash disbursement clerk performs all of the following tasks except
a. reviews the supporting documents for completeness and accuracy
b. prepares checks
c. signs checks
d. marks the supporting documents paid
ANS: C

22. When a cash disbursement in payment of an accounts payable is recorded

a. the liability account is increased
b. the income statement is changed
c. the cash account is unchanged
d. the liability account is decreased
ANS: D

23. Authorization for payment of an accounts payable liability is the responsibility of

a. inventory control
b. purchasing
c. accounts payable
d. cash disbursements
ANS: C

24. Of the following duties, it is most important to separate

a. warehouse from stores
b. warehouse from inventory control
c. accounts payable and accounts receivable
d. purchasing and accounts receivable
ANS: B

25. In a firm with proper segregation of duties, adequate supervision is most critical in
a. purchasing
b. receiving
c. accounts payable
d. general ledger
ANS: B

26. The receiving department is not responsible to

a. inspect shipments received
b. count items received from vendors
 c. order goods from vendors
d. safeguard goods until they are transferred to the warehouse
ANS: C

27. The major risk exposures associated with the receiving department include all of the following except
a. goods are accepted without a physical count
b. there is no inspection for goods damaged in shipment
c. inventories are not secured on the receiving dock
d. the audit trail is destroyed
ANS: D

28. When searching for unrecorded liabilities at the end of an accounting period, the accountant would search
all of the files except
a. the purchase requisition file
b. the cash receipts file
c. the purchase order file
d. the receiving report file
ANS: B

29. In regards to the accounts payable department, which statement is not true?
a. the purchase requisition shows that the transaction was authorized
b. the purchase order proves that the purchase was required
c. the receiving report provides evidence of the physical receipt of the goods
d. the suppliers invoice indicates the financial value of the transaction
ANS: B

30. In a computerized system that uses an economic order quantity (EOQ) model and the perpetual inventory
method, who determines when to reorder inventory?
a. the inventory control clerk
b. the purchasing department
c. the vendor
d. the computer system
ANS: D

31. Firms can expect that proper use of a valid vendor file will result in all of the following benefits except
a. purchasing agents will be discouraged from improperly ordering inventory from related
parties
b. purchases from fictitious vendors will be detected
c. the most competitive price will be obtained
d. the risk of purchasing agents receiving kickbacks and bribes will be reduced
ANS: C

32. In a real-time processing system with a high number of transactions, the best and most practical control
over cash disbursements is to have
a. all checks manually signed by the treasurer
b. all checks signed by check-signing equipment
c. checks over a certain dollar amount manually signed by the treasurer
 d. checks over a certain dollar amount manually signed by the cash disbursements clerk
ANS: C

33. The document which will close the open purchase requisition file is the
a. purchase order
b. vendor invoice
c. receiving report
d. none of the above
ANS: C

34. Goods received are inspected and counted to

a. determine that the goods are in good condition
b. determine the quantity of goods received
c. preclude payment for goods not received or received in poor condition
d. all of the above
ANS: D

35. If a company uses a standard cost system, inventory records can be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition
ANS: C

36. If a company uses an actual cost system, inventory records can first be updated from the
a. vendor invoice
b. purchase order
c. receiving report
d. purchase requisition
ANS: A

37. Copies of a purchase order are sent to all of the following except
a. inventory control
b. receiving
c. general ledger
d. accounts payable
ANS: C

38. The receiving report

a. is used to update the actual cost inventory ledger
b. accompanies the goods to the storeroom
c. is sent to general ledger
d. is returned to the vendor to acknowledge receipt of the goods
ANS: B

39. A supplier invoice

 a. is included with the goods
b. shows what was ordered even if all was not shipped
c. is sent by vendor to accounts payable
d. none of the above
ANS: C

40. The cash disbursement function is

a. part of accounts payable
b. an independent accounting function
c. a treasury function
d. part of the general ledger department
ANS: C

Chapter 6The Expenditure Cycle Part II: Payroll Processing and Fixed Asset
Procedures

MULTIPLE CHOICE

1. The document that captures the total amount of time that individual workers spend on each production job
is called a
a. time card
b. job ticket
c. personnel action form
d. labor distribution form
ANS: B

2. An important reconciliation in the payroll system is

a. general ledger compares the labor distribution summary from cost accounting to the
disbursement voucher from accounts payable
b. personnel compares the number of employees authorized to receive a paycheck to the
number of paychecks prepared
c. production compares the number of hours reported on job tickets to the number of hours
reported on time cards
d. payroll compares the labor distribution summary to the hours reported on time cards
ANS: A

3. Which internal control is not an important part of the payroll system?

a. Supervisors verify the accuracy of employee time cards.
b. Paychecks are distributed by an independent paymaster.
c. Accounts payable verifies the accuracy of the payroll register before transferring payroll
funds to the general checking accounting.
d. General ledger reconciles the labor distribution summary and the payroll disbursement
voucher.
ANS: C
 4. Which transaction is not processed in the Fixed Asset System?
a. purchase of building
b. improvement of equipment
c. purchase of raw materials
d. sale of company van
ANS: C

5. Depreciation
a. is calculated by the department that uses the fixed asset
b. allocates the cost of the asset over its useful life
c. is recorded weekly
d. results in book value approximating fair market value
ANS: B

6. Depreciation records include all of the following information about fixed assets except
a. the economic benefit of purchasing the asset
b. the cost of the asset
c. the depreciation method being used
d. the location of the asset
ANS: A

7. Which control is not a part of the Fixed Asset System?

a. formal analysis of the purchase request
b. review of the assumptions used in the capital budgeting model
c. development of an economic order quantity model
d. estimates of anticipated cost savings
ANS: C

8. Objectives of the Fixed Asset System do not include

a. authorizing the acquisition of fixed assets
b. recording depreciation expense
c. computing gain and/or loss on disposal of fixed assets
d. maintaining a record of the fair market value of all fixed assets
ANS: D

9. Which of the following is not a characteristic of the Fixed Asset System?

a. Acquisitions are routine transactions requiring general authorization.
b. Retirements are reported on an authorized disposal report form.
c. Acquisition cost is allocated over the expected life of the asset.
d. Transfer of fixed assets among departments is recorded in the fixed asset subsidiary
ledger.
ANS: A

10. In the payroll subsystem, which function should distribute paychecks?

a. personnel
b. timekeeping
c. paymaster
 d. payroll
ANS: C

11. Where does the responsibility lie for reconciling the labor distribution summary and the payroll
disbursement voucher?
a. cash disbursements
b. cost accounting
c. personnel
d. general ledger
ANS: D

12. Which of the following statements is not true?

a. Routine payroll processing begins with the submission of time cards.
b. Payroll clerks must verify the hours reported on the time cards.
c. Payroll reconciles personnel action forms with time cards and prepares paychecks.
d. Cash disbursements signs paychecks and forwards them to the paymaster for distribution.
ANS: B

13. In a manufacturing firm, employees use time cards and job tickets. Which of the following statements is
not correct?
a. Job tickets are prepared by employees for each job worked on, so an employee may have
more that one job ticket on a given day.
b. An individual employee will have only one time card.
c. The time reported on job tickets should reconcile with the time reported on time cards.
d. Paychecks should be prepared from the job tickets.
ANS: D

14. Which department is responsible for approving changes in pay rates for employees?
a. payroll
b. treasurer
c. personnel
d. cash disbursements
ANS: C

15. Which of the following situations represents a serious control weakness?

a. Timekeeping is independent of the payroll department.
b. Paychecks are distributed by the employees immediate supervisor.
c. Time cards are reconciled with job tickets.
d. Personnel is responsible for updating employee records, including creation of records for
new hires.
ANS: B

16. Why would an organization require the paymaster to deliver all unclaimed paychecks to the internal audit
department?
a. to detect a phantom employee for whom a check was produced
b. to prevent an absent employees check from being lost
c. to avoid paying absent employees for payday
 d. to prevent the paymaster from cashing unclaimed checks
ANS: A

17. Which of the following is not a reasonable control for fixed assets?
a. Proper authorization is required for acquisition and disposal of fixed assets.
b. Fixed asset records show the location of each asset.
c. Fully depreciated assets are immediately disposed of.
d. Depreciation policies are in writing.
ANS: C

18. Cost accounting updates work-in-process accounts from

a. time cards
b. the labor distribution summary
c. job tickets
d. personnel action forms
ANS: C

19. Payroll uses time card data to do all of the following except
a. prepare the payroll register
b. update employee payroll records
c. prepare the labor distribution summary
d. prepare paychecks
ANS: C

20. Payroll checks are typically drawn on

a. the regular checking account
b. a payroll imprest account
c. a wages payable account
d. petty cash
ANS: B

21. The personnel action form provides authorization control by

a. preventing paychecks for terminated employees
b. verifying pay rates for employees
c. informing payroll of new hires
d. all of the above
ANS: D

22. Accounting records that provide the audit trail for payroll include all of the following except
a. time cards
b. job tickets
c. payroll register
d. accounts payable register
ANS: D

23. Personnel actions forms are used to do all of the following except
 a. activate new employees
b. terminate employees
c. record hours worked
d. change pay rates
ANS: C

24. The payroll department performs all of the following except

a. prepares the payroll register
b. distributes paychecks
c. updates employee payroll records
d. prepares paychecks
ANS: B

25. The document that records the total amount of time spent on a production job is the
a. time card
b. job ticket
c. labor distribution summary
d. personnel action form
ANS: C

26. A control technique that can reduce the risk of a terminated employee being paid is
a. a security camera viewing the time clock
b. the supervisor taking role during the shift
c. paychecks being distributed by an independent paymaster
d. reconciliation of time cards and job tickets
ANS: C

27. Accounts payable

a. signs paychecks
b. prepares the payroll voucher
c. reconciles time cards and employee records
d. distributes paychecks to employees
ANS: B

28. All of the following are processed by the Fixed Asset System except
a. sale of unneeded equipment
b. purchase of raw materials
c. repair of production equipment
d. purchase of a new plant
ANS: B

29. The Fixed Asset System performs all of the following except
a. determines the need for new assets
b. maintains depreciation records
c. records retirement and disposal of assets
d. tracks the physical location of fixed assets
 ANS: A

30. The payroll department performs all of the following except

a. prepares paychecks
b. transfers adequate funds to the payroll imprest account
c. updates employee payroll records
d. prepares the payroll register
ANS: B

31. Depreciation
a. assures that assets are reported at fair market value
b. is discretionary for many firms
c. allocates the cost of an asset over its useful life
d. is the responsibility of the department using the asset
ANS: C

32. The Fixed Asset System is similar to the expenditure cycle except
a. fixed asset transactions are non-routine and require special authorization and controls
b. fixed assets are capitalized, not expensed
c. both a and b
d. none of the above
ANS: C

33. Asset maintenance involves

a. the recording of periodic depreciation
b. adjusting the asset records to reflect the cost of physical improvements
c. keeping track of the physical location of the assets
d. all of the above
ANS: D

34. The Fixed Asset Systems does all of the following except
a. records acquisition of assets
b. records improvements to assets
c. estimates the fair market value of assets in service
d. records the disposal of assets
ANS: C

35. Asset disposal

a. occurs as soon as an asset is fully depreciated
b. requires no special authorization
c. automatically initiates the purchase of a replacement asset
d. must follow formal authorization procedures
ANS: D
Chapter 7The Conversion Cycle

MULTIPLE CHOICE

1. Which item does not describe a world-class company?

a. the goal of a world-class company is to delight its customers
b. customers in a world-class company are external departments only
c. world-class companies work in cross-functional teams
d. a world-class company has a flat organizational structure
ANS: B

2. Which subsystem is not a part of the production system?

a. directing the movement of work through the process
b. determining raw material requirements
c. authorizing work to be performed
d. monitoring the flow of cost information related to production
ANS: D

3. The purpose of the cost accounting system is to

a. produce information for inventory valuation
b. authorize release of raw materials
c. direct the movement of work-in-process
d. determine material requirements
ANS: A

4. Which process creates a homogeneous product through a continuous series of standard procedures?
a. batch process
b. make-to-order process
c. continuous process
d. none of the above
ANS: C

5. An example of a continuous process is the production of

a. wedding invitations
b. milk products
c. jet aircraft
d. all of the above
ANS: B

6. All of the following are characteristics of batch processing except

a. each item in the batch is similar
b. batches are produced in accordance with detailed customer specifications
c. batches are produced to replenish depleted inventory levels
d. setting up and retooling is required for different batches
ANS: B
 7. When determining which items to produce, a firm must know
a. last years production level
b. raw material inventory levels
c. the standard cost of the item
d. the sales forecast
ANS: D

8. The production schedule is

a. the expected demand for the firms finished goods for a given year
b. the formal plan and authority to begin production
c. a description of the type and quantity of raw materials and subassemblies used to produce
a single unit of finished product
d. the sequence of operations during manufacturing
ANS: B

9. A move ticket
a. is the formal plan and authority to begin production
b. specifies the materials and production required for each batch
c. records the work done in each work center
d. authorizes the storekeeper to release materials to work centers
ANS: C

10. The internal control significance of the excess materials requisition is that it
a. indicates the amount of material released to work centers
b. identifies materials used in production that exceed the standard amount allowed
c. indicates the standard quantities required for production
d. documents the return to raw materials inventory of unused production materials
ANS: B

11. Inventory control performs all of the following tasks except it

a. provides production planning and control with the inventory status report of finished
goods
b. updates the raw material inventory records
c. prepares a materials requisition for each production batch
d. records the completed production as an increase to finished goods inventory
ANS: C

12. The storekeeper releases raw materials based on the

a. production schedule
b. materials requisition
c. work order
d. bill of materials
ANS: B

13. Which of the following is not an assumption of the Economic Order Quantity model?
a. demand for the product is known with certainty
b. total cost per year of placing orders is fixed
 c. lead time is known and is constant
d. there are no quantity discounts
ANS: B

14. Firms hold safety stock to compensate for

a. mathematical weaknesses of the Economic Order Quantity model
b. variations in lead time or daily demand
c. fluctuations in carrying costs
d. uncertainty in the estimation of ordering costs
ANS: B

15. What is the economic order quantity if the annual demand is 10,000 units, set up cost of placing each
order is $3 and the holding cost per unit per year is $2?
a. 174
b. 123
c. 245
d. none of the above
ANS: A

16. If the daily demand is 40 units and the lead time is 12 days, the reorder point is
a. 52 units
b. 48 units
c. 480 units
d. none of the above
ANS: C

17. Which statement is not correct?

a. general ledger creates a new cost record upon receipt of a work order from production
planning and control
b. cost accounting updates the cost record with data gathered from the materials requisition
c. general ledger posts summary information about the manufacturing process based on a
journal voucher prepared by cost accounting
d. cost accounting computes variances and applies overhead to individual cost records
ANS: A

18. Which of the following is not a category of critical success factors in most manufacturing companies?
a. product quality
b. customer service
c. revenue generation
d. resource management
ANS: C

19. Computer integrated manufacturing groups all of the following technologies except
a. robotics
b. materials requirements planning
c. automated storage and retrieval systems
d. computer aided design
 ANS: B

20. The SAP R/3 system provides pre-defined modules to support business processes in the all of the
following categories except
a. human resources
b. business process support
c. strategic
d. financial
ANS: C

21. Which situation violates the segregation of functions control procedure?

a. production planning and control is located apart from the work centers
b. inventory control maintains custody of inventory items
c. cost accounting has custody of and makes entries on cost records
d. work centers record direct labor on job tickets
ANS: B

22. All of the following are internal control procedures that should be in place in the conversion cycle except
a. calculation and analysis of direct material and direct labor variances
b. retention of excess materials by work centers
c. physical count of inventory items on hand
d. limited access to raw material and finished goods inventories
ANS: B

23. Process simplification focuses on

a. using Computer Numerical Controlled machines which stand alone within a traditional
setting
b. completely automating the manufacturing environment
c. reducing the complexity of the physical manufacturing layout of the shop floor
d. organizing the process into functional departments
ANS: C

24. A manufacturing process that is organized into group technology cells utilizing no human labor is called
a. islands of technology
b. process simplification
c. Computer Integrated Manufacturing
d. traditional manufacturing
ANS: C

25. An example of automation of manufacturing design is

a. Computer Aided Engineering
b. Automated Storage and Retrieval Systems
c. Computer Numerical Control
d. robotics
ANS: A
26. An example of automation of manufacturing planning is
a. Computer Aided Engineering
b. Automated Storage and Retrieval Systems
c. Materials Requirements Planning
d. Computer Numerical Control
ANS: C

27. Firms implement a Just-In-Time inventory approach to

a. reduce investment in inventories
b. determine the optimum inventory level using the EOQ model
c. camouflage production problems
d. ensure overproduction of inventory
ANS: A

28. Characteristics of Just-In-Time manufacturing include all of the following except

a. push manufacturing
b. zero defects
c. reduced setup time and small lot sizes
d. reliable vendors
ANS: A

29. The cost of poor quality includes all of the following except
a. cost of rework
b. warranty claims
c. scheduling delays
d. proceeds from the sale of scrap
ANS: D

30. A flexible manufacturing system

a. creates bottlenecks in the process
b. leads to an us versus them attitude among workers
c. shortens the physical distance between activities
d. is organized along functional lines
ANS: C

31. Deficiencies of the traditional cost accounting information system include all of the following except
a. an emphasis on financial performance
b. inaccurate cost allocations
c. an emphasis on standard costs
d. immediate feedback about deviations from the norm
ANS: D

32. Which statement is not correct?

a. an activity driver is a means to measure the activity used by the cost object
b. cost object describes the work performed in a firm
c. activities cause costs
d. cost objects create a demand for activities
 ANS: B

33. Firms are adopting Activity Based Costing (ABC) because

a. it facilitates the analysis of variances
b. it more accurately allocates costs to products
c. it recognizes the importance of direct labor as a component of total manufacturing cost
d. the financial nature of the reports permits comparisons to be made among different types
of products
ANS: B

34. In traditional firms, information reporting

a. provides financially oriented information relating to operations
b. presents detailed information about activities
c. shows the allocation of costs first to activities and then to cost objects
d. identifies nonessential activities
ANS: A

35. Types of information provided by Activity Based Costing include

a. a description of the single activity driver used for overhead application
b. the dollar value of the direct material usage variance
c. identification of cost drivers
d. details of the components of the single overhead cost pool
ANS: C

36. Which statement is not correct?

a. the benchmark approach compares key activities with similar activities in other firms
b. critical success factors include product and process quality
c. the ABC model includes two perspectives: an allocation of cost perspective and a process
perspective
d. in world-class manufacturing firms, quality control activities at the end of the process are
essential
ANS: D

37. All of the following are documents in batch process production systems except
a. production schedule
b. route sheet
c. materials requisition
d. purchase order
ANS: D

38. Transaction authorization occurs in a traditional manufacturing environment in all of the following ways
except
a. production planning and control initiates production with a work order
b. movement of the work through the production process follows the move ticket
c. the sales department modifies work orders to match changes in demand
d. the materials requisition authorizes the storekeeper to release materials to the work centers
 ANS: C

39. Manufacturing flexibility incorporates four characteristics. These include all of the following except
a. high product quality
b. high inventory levels
c. automation of manufacturing processes
d. physical reorganization of production facilities
ANS: B

40. The stages of the automation continuum are (in order)

a. traditional, computer-integrated manufacturing, islands of technology, process
simplification
b. process simplification, traditional, islands of technology, computer-integrated
manufacturing
c. traditional, islands of technology, process simplification, computer-integrated
manufacturing
d. traditional, process simplification, computer-integrated manufacturing, islands of
technology
ANS: C

Chapter 8General Ledger, Financial Reporting, and Management Reporting Systems

MULTIPLE CHOICE

1. The coding scheme most appropriate for a chart of accounts is

a. sequential code
b. block code
c. group code
d. mnemonic code
ANS: B

2. A common use for sequential coding is

a. creating the chart of accounts
b. identifying inventory items
c. identifying documents
d. identifying fixed assets
ANS: C

3. The most important advantage of sequential coding is that

a. missing or unrecorded documents can be identified
b. the code itself lacks informational content
c. items cannot be inserted
d. deletions affect the sequence
ANS: A
 4. When a firm wants its coding system to convey meaning without reference to any other document, it
would choose
a. an alphabetic code
b. a mnemonic code
c. a group code
d. a block code
ANS: B

5. The most important advantage of an alphabetic code is that

a. meaning is readily conveyed to users
b. sorting is simplified
c. the capacity to represent items is increased
d. missing documents can be identified
ANS: C

6. Entries into the General Ledger System (GLS) can be made using information from
a. the general journal
b. a journal voucher which represents a summary of similar transactions
c. a journal voucher which represents a single, unusual transaction
d. all of the above
ANS: D

7. Which statement is not correct? The general ledger master file

a. is based on the firms chart of account
b. contains a record for control accounts
c. is an output of the Financial Reporting System (FRS)
d. supplies information for management decision making
ANS: C

8. What type of data is found in the general ledger master file?

a. a chronological record of all transactions
b. the balance of each account in the chart of accounts
c. budget records for each account in the chart of accounts
d. subsidiary details supporting a control account
ANS: B

9. Which report is not an output of the Financial Reporting System (FRS)?

a. variance analysis report
b. statement of cash flows
c. tax return
d. comparative balance sheet
ANS: A

10. Which steps in the Financial Accounting Process are in the correct sequence?
a. record the transaction, post to the ledger, prepare the adjusted trial balance, enter adjusting
entries, prepare financial statements
b. record the transaction, prepare the unadjusted trial balance, record adjusting journal
 entries, record closing entries, prepare financial statements
c. record the transaction, post to the ledger, record adjusting entries, prepare the unadjusted
trial balance, prepare financial statements
d. record the transaction, post to the ledger, prepare the adjusted trial balance, prepare
financial statements, record closing entries
ANS: D

11. Which statement is not correct?

a. the post-closing trial balance reports the ending balance of each account in the general
ledger
b. one purpose of preparing the unadjusted trial balance is to ensure that debits equal credits
c. financial statements are prepared based on the unadjusted trial balance
d. the unadjusted trial balance reports control account balances but omits subsidiary ledger
detail
ANS: C

12. What account appears on the postclosing trial balance?

a. income summary
b. machinery
c. rent expense
d. interest income
ANS: B

13. Financial statements are prepared from the

a. trial balance
b. adjusted trial balance
c. general ledger
d. general journal
ANS: B

14. Risk exposures in the General Ledger and Financial Reporting Systems include all of the following
except
a. loss of the audit trail
b. unauthorized access to the general ledger
c. loss of physical assets
d. general ledger account out of balance with the subsidiary account
ANS: C

15. Which situation indicates an internal control risk in the General Ledger/Financial Reporting Systems
(GL/FRS)?
a. the employee who maintains the cash journal computes depreciation expense
b. the cash receipts journal voucher is approved by the Treasurer
c. the cash receipts journal vouchers are prenumbered and stored in a locked safe
d. the employee who maintains the cash receipts journal records transactions in the accounts
receivable subsidiary ledger
ANS: D
16. With a limited work force and a desire to maintain strong internal control, which combination of duties
performed by a single individual presents the least risk exposure?
a. maintaining the inventory ledger and recording the inventory journal voucher in the
general ledger
b. recording the inventory journal voucher in the general ledger and maintaining custody of
inventory
c. maintaining the cash disbursements journal and recording direct labor costs applied to
specific jobs
d. preparing the accounts payable journal voucher and recording it in the general ledger
ANS: C

17. The audit trail fulfills all of the following purposes except
a. provides the ability to answer inquiries
b. ensures the accuracy of the application software
c. fulfills governmental regulations
d. offers a means for preventing, detecting, and correcting errors
ANS: B

18. Which best describes a batch process General Ledger System (GLS)
a. paper documents are eliminated
b. the general ledger master file is updated each night
c. there is a time lag between transaction processing and posting to the general ledger
d. no direct access or querying of the General Ledger is possible
ANS: C

19. An advantage of a batch General Ledger System (GLS) is that

a. separation between authorization and transaction processing is strictly enforced
b. the general ledger master file is recreated with each update
c. updates and reconciliation of transactions occur as a step within the transaction cycle
d. errors and out-of-balance conditions are identified at the end of the month
ANS: C

20. A characteristic of the Management Reporting System (MRS) is

a. the MRS operates in conformity with generally accepted accounting principles
b. it is a legal requirement that the MRS be installed and functioning properly
c. the MRS is developed by implementing SEC requirements
d. the MRS focuses on internal decision-making information
ANS: D

21. Which statement is not true?

a. authority refers to an individuals obligation to achieve desired results
b. if an employee is given the responsibility for a task, that employee should be given
authority to make decisions within the limits of that task
c. the level of detail provided to an employee is a function of the employees position with
the firm
d. all of the above are true
ANS: A
22. Which statement is not true? The managers span of control
a. is narrow for routine and repetitive tasks
b. is related to the number of layers of management
c. affects the amount of detail provided to a manager
d. can affect employee morale and motivation
ANS: A

23. Short-range planning involves

a. setting goals and objectives of the firm
b. planning the production schedule for the next quarter
c. planning the growth of the firm
d. deciding on the degree of diversification among the firms products
ANS: B

24. Long-range planning involves

a. planning the marketing and promotion for a product
b. presenting department heads with budgetary goals for the next year
c. preparing a work force utilization budget for the next quarter
d. deciding the optimum size of the firm
ANS: D

25. The level of management that makes tactical planning decisions is

a. top management
b. middle management
c. operations management
d. front-line management
ANS: B

26. The decision to enter a new market is an example of

a. strategic planning
b. tactical planning
c. management control
d. operational control
ANS: A

27. All of the following are elements of operational control decisions except
a. determining the scope of the activity
b. setting operating standards
c. evaluating performance
d. taking corrective action when necessary
ANS: A

28. In contrast to tactical planning decisions, management control decisions, and operational control
decisions, strategic planning decisions usually
a. are more focused
b. have a shorter time frame
 c. are unstructured
d. have a high degree of certainty
ANS: C

29. Which of the following management principles affects the management reporting system?
a. formalization of tasks
b. authorization
c. span of control
d. all of the above
ANS: D

30. All of the following are elements of problem structure except

a. certainty
b. data
c. procedures
d. objectives
ANS: A

31. All of the following are examples of programmed reports except

a. cash flow reports for Division B
b. year-to-date local income tax payments made by all employees living in City X and
working in City Y
c. inventory exception reports for Division G
d. equipment utilization reports for Plant M
ANS: B

32. A fundamental principle of responsibility accounting is that

a. managers are accountable only for items they control
b. a managers span of control should not exceed eight people
c. structured reports should be prepared weekly
d. the information flow is in one direction, top-down
ANS: A

33. Which statement is not true? Responsibility accounting

a. involves both a top-down and bottom-up flow of information
b. acknowledges that some economic events cannot be traced to any manager
c. creates a budget
d. compares actual performance with budget
ANS: B

34. What mechanism is used to convey to managers the standards by which their performance will be
measured?
a. the responsibility report
b. the scheduled report
c. the budget
d. all of the above
 ANS: C

35. All of the following concepts encourage goal congruence except

a. detailed information reporting at all management levels
b. authority and responsibility
c. formalization of tasks
d. responsibility accounting
ANS: A

36. Which of the following statements is NOT true?

a. Sorting records that are coded alphabetically tends to be more difficult for users than
sorting numeric sequences.
b. Mnemonic coding requires the user to memorize codes.
c. Sequential codes carry no information content beyond their order in the sequence.
d. Mnemonic codes are limited in their ability to represent items within a class.
ANS: B

37. Which file has as its primary purpose to present comparative financial reports on a historic basis?
a. journal voucher history file
b. budget master file
c. responsibility file
d. general ledger history file
ANS: D

38. All of the following are characteristics of the strategic planning process except the
a. emphasis on both the short and long run.
b. review of the attributes and behavior of the organizations competition.
c. analysis of external economic factors.
d. analysis of consumer demand.
ANS: A

39. Which of the following performance measures can not result in dysfunctional behavior?
a. price variance
b. quotas
c. ROI
d. net income
e. all of the above can result in dysfunctional behavior
ANS: E

40. Which of the following best describes a profit center:

a. authority to make decisions affecting the major determinants of profit, including the power
to choose its markets and sources of supply.
b. authority to make decisions affecting the major determinants of profit, including the power
to choose its markets and sources of supply, and significant control over the amount of
invested capital.
c. authority to make decisions over the most significant costs of operations, including the
power to choose the sources of supply.
d. authority to provide specialized support to other units within the organization.
 e. responsibility for combining the raw materials, direct labor, and other factors of
production into a final product.
ANS: A
Chapter 9Database Management Systems

MULTIPLE CHOICE

1. All of the following are basic data management tasks except

a. data deletion
b. data storage
c. data attribution
d. data retrieval
ANS: C

2. The task of searching the database to locate a stored record for processing is called
a. data deletion
b. data storage
c. data attribution
d. data retrieval
ANS: D

3. Which of the following is not a problem usually associated with the flat-file approach to data
management?
a. data redundancy
b. restricting access to data to the primary user
c. data storage
d. currency of information
ANS: B

4. Which characteristic is associated with the database approach to data management?

a. data sharing
b. multiple storage procedures
c. data redundancy
d. excessive storage costs
ANS: A

5. Which characteristic is not associated with the database approach to data management?
a. the ability to process data without the help of a programmer
b. the ability to control access to the data
c. constant production of backups
d. the inability to determine what data is available
ANS: D

6. The textbook refers to four interrelated components of the database concept. Which of the following is
not one of the components?
a. the Database Management System
 b. the Database Administrator
c. the physical database
d. the conceptual database
ANS: D

7. Which of the following is not a responsibility of the Database Management System?

a. provide an interface between the users and the physical database
b. provide security against a natural disaster
c. ensure that the internal schema and external schema are consistent
d. authorize access to portions of the database
ANS: C

8. A description of the physical arrangement of records in the database is

a. the internal view
b. the conceptual view
c. the subschema
d. the external view
ANS: A

9. Which of the following may provide many distinct views of the database?
a. the schema
b. the internal view
c. the user view
d. the conceptual view
ANS: C

10. Users access the database

a. by direct query
b. by developing operating software
c. by constantly interacting with systems programmers
d. all of the above
ANS: A

11. The Data Definition Language

a. identifies, for the Database Management System, the names and relationships of all data
elements, records, and files that comprise the database
b. inserts database commands into application programs to enable standard programs to
interact with and manipulate the database
c. permits users to process data in the database without the need for conventional programs
d. describes every data element in the database
ANS: A

12. The Data Manipulation Language

a. defines the database to the Database Management System
b. transfers data to the buffer area for manipulation
c. enables application programs to interact with and manipulate the database
d. describes every data element in the database
 ANS: C

13. Which statement is not correct? A query language like SQL

a. is written in a fourth-generation language
b. requires user familiarity with COBOL
c. allows users to retrieve and modify data
d. reduces reliance on programmers
ANS: B

14. Which duty is not the responsibility of the Database Administrator?

a. to develop and maintain the Data Dictionary
b. to implement security controls
c. to design application programs
d. to design the subschema
ANS: C

15. In a hierarchical model

a. links between related records are implicit
b. the way to access data is by following a predefined data path
c. an owner (parent) record may own just one member (child) record
d. a member (child) record may have more than one owner (parent)
ANS: B

16. Which term is not associated with the relational database model?
a. tuple
b. attribute
c. collision
d. relation
ANS: C

17. In the relational database model

a. relationships are explicit
b. the user perceives that files are linked using pointers
c. data is represented on two-dimensional tables
d. data is represented as a tree structure
ANS: C

18. In the relational database model all of the following are true except
a. data is presented to users as tables
b. data can be extracted from specified rows from specified tables
c. a new table can be built by joining two tables
d. only one-to-many relationships can be supported
ANS: D

19. In a relational database

a. the users view of the physical database is the same as the physical database
 b. users perceive that they are manipulating a single table
c. a virtual table exists in the form of rows and columns of a table stored on the disk
d. a programming language (COBOL) is used to create a users view of the database
ANS: B

20. The update anomaly in unnormalized databases

a. occurs because of data redundancy
b. complicates adding records to the database
c. may result in the loss of important data
d. often results in excessive record insertions
ANS: A

21. The most serious problem with unnormalized databases is the

a. update anomaly
b. insertion anomaly
c. deletion anomaly
d. none of the above
ANS: C

22. The deletion anomaly in unnormalized databases

a. is easily detected by users
b. may result in the loss of important data
c. complicates adding records to the database
d. requires the user to perform excessive updates
ANS: B

23. Which statement is correct?

a. in a normalized database, data about vendors occur in several locations
b. the accountant is responsible for database normalization
c. in a normalized database, deletion of a key record could result in the destruction of the
audit trail
d. connections between M:M tables is provided by a link table
ANS: D

24. Which of the following is not a common form of conceptual database model?
a. hierarchical
b. network
c. sequential
d. relational
ANS: C

25. Which of the following is a relational algebra function?

a. restrict
b. project
c. join
d. all are relational algebra functions
 ANS: D

26. Which statement is false?

a. The DBMS is special software that is programmed to know which data elements each user
is authorized to access.
b. User programs send requests for data to the DBMS.
c. During processing, the DBMS periodically makes backup copies of the physical database.
d. The DBMS does not control access to the database.
ANS: D

27. All of the following are elements of the DBMS which facilitate user access to the database except
a. query language
b. data access language
c. data manipulation language
d. data definition language
ANS: B

28. Which of the following is a level of the database that is defined by the data definition language?
a. user view
b. schema
c. internal view
d. all are levels or views of the database
ANS: D

29. An example of a distributed database is

a. partitioned database
b. centralized database
c. networked database
d. all are examples of distributed databases
ANS: A

30. Data currency is preserved in a centralized database by

a. partitioning the database
b. using a lockout procedure
c. replicating the database
d. implementing concurrency controls
ANS: B

31. Which procedure will prevent two end users from accessing the same data element at the same time?
a. data redundancy
b. data replication
c. data lockout
d. none of the above
ANS: C

32. The advantages of a partitioned database include all of the following except
a. user control is enhanced
 b. data transmission volume is increased
c. response time is improved
d. risk of destruction of entire database is reduced
ANS: B

33. A replicated database is appropriate when

a. there is minimal data sharing among information processing units
b. there exists a high degree of data sharing and no primary user
c. there is no risk of the deadlock phenomenon
d. most data sharing consists of read-write transactions
ANS: B

34. What control maintains complete, current, and consistent data at all information processing units?
a. deadlock control
b. replication control
c. concurrency control
d. gateway control
ANS: C

35. Data concurrency

a. is a security issue in partitioned databases
b. is implemented using timestamping
c. may result in data lockout
d. occurs when a deadlock is triggered
ANS: B

36. Entities are

a. nouns that are depicted by rectangles on an entity relationship diagram
b. data that describe the characteristics of properties of resources
c. associations among elements
d. sets of data needed to make a decision
ANS: A

37. A user view

a. presents the physical arrangement of records in a database for a particular user
b. is the logical abstract structure of the database
c. specifies the relationship of data elements in the database
d. defines how a particular user sees the database
ANS: D

38. All of the following are advantages of a partitioned database except

a. increased user control by having the data stored locally
b. deadlocks are eliminated
c. transaction processing response time is improved
d. partitioning can reduce losses in case of disaster
ANS: B
 39. Each of the following is a relational algebra function except
a. join
b. project
c. link
d. restrict
ANS: C

Chapter 10The REA Approach to Business Process Modeling

MULTIPLE CHOICE

1. Economic resources possess all of the following characteristics except

a. assets
b. measure expected future receipts
c. scarce
d. under the organizations control
ANS: B

2. The REA approach leads to more efficient operations in all of the following ways except
a. identifying non-value-added activities
b. storage of both financial and nonfinancial data in the same database
c. storage of detailed data to support a wider range of management decisions
d. standardizing data forms for simplicity
ANS: D

3. Which type of events are included in an REA model?

a. operating
b. decision
c. management
d. information
ANS: A

4. Decision/management events involve decisions relating to all of the following except

a. record keeping
b. planning
c. evaluation
d. control
ANS: A

5. Information events involve all of the following except

a. acts of recording
b. acts of updating
c. acts of evaluating
d. acts of maintaining
 ANS: C

6. The R in REA stands for

a. ratios
b. relationships
c. resources
d. reserves
ANS: C

7. The E in REA stands for

a. events
b. estimates
c. economics
d. entities
ANS: A

8. The A in REA stands for

a. assets
b. apportionment
c. allocation
d. agents
ANS: D

9. Which of the following is an example of a decision/management event?

a. preparing cost estimates for a new product
b. requesting a report
c. preparing sales invoices
d. preparing performance reports
ANS: B

10. All of the following are examples of operating events except

a. receiving raw materials from a supplier
b. preparing a cash disbursement voucher for payment to the supplier
c. paying for inventories received
d. shipping product to a customer
ANS: B

11. Which types of events are included in entity relationship diagrams?

a. operating events
b. information events
c. decision events
d. all of the above
ANS: D

12. Which of the following represents the order of the steps in the preparation of an REA model?
a. organize events in order, identify resources and agents, identify links, identify operating
events, assign cardinalities
 b. identify operating events, identify resources and agents, identify links, assign cardinalities,
organize events in order
c. identify operating events, organize events in order, identify resources and agents, identify
links, assign cardinalities
d. identify resources and agents, identify operating events, organize events in order, identify
links, assign cardinalities
ANS: C

13. Which of the following statement is correct?

a. The REA model requires that phenomena be characterized in a manner consistent with the
development of a single user view.
b. The REA model requires that phenomena be characterized in a manner consistent with the
development of a selected user view.
c. The REA model requires that phenomena be characterized in a manner consistent with the
development of a unique user view.
d. The REA model requires that phenomena be characterized in a manner consistent with the
development of a multiple user view.
ANS: D

14. Which of the following is not an advantage of using the REA model?
a. greater efficiency
b. increased productivity
c. more relevant and timely information
d. simpler database creation
ANS: D

15. Which of the following is not correct?

a. Operating events trigger information events.
b. Information events trigger operating events.
c. Decision/management events trigger operating events.
d. Information events trigger decision/management events.
ANS: B

16. When developing an REA model, events need to be organized in sequence of

a. completion
b. length
c. ease of analysis
d. occurrence
ANS: D

17. In an REA model, events are described from the perspective of

a. the organization
b. the designer
c. the user
d. the customer
ANS: A
 18. Which of the following is not an example of an information event?
a. updating inventory records after a sale
b. requesting a report
c. preparing cost estimates for new products
d. preparing sales invoices
ANS: B

Chapter 11Enterprise Resource Planning Systems

MULTIPLE CHOICE

1. Goals of ERP include all of the following except

a. improved customer service
b. improvements of legacy systems
c. reduced production time
d. increased production
ANS: B

2. Core applications are

a. sales and distribution
b. business planning
c. shop floor control and logistics
d. all of the above
ANS: D

3. Data warehousing processes does not include

a. modeling data
b. condensing data
c. extracting data
d. transforming data
ANS: B

4. Which of the following is usually not part of an ERPs core applications?

a. OLTP applications
b. sales and distribution applications
c. business planning applications
d. OLAP applications
ANS: D

5. Which of the following is usually not part of an ERPs OLAP applications?

a. logistics
b. decision support systems
c. ad hoc analysis
d. what-if analysis
ANS: A
 6. Which of the following statements is least likely to be true about a data warehouse?
a. It is constructed for quick searching and ad hoc queries.
b. It was an original part of all ERP systems.
c. It contains data that are normally extracted periodically from the operating databases.
d. It may be deployed by organizations that have not implemented an ERP.
ANS: B

7. Which of the following statements is not true?

a. In a typical two-tier client server system, the server handles both application and database
duties.
b. Client computers are responsible for presenting data to the user and passing user input
back to the server.
c. In three-tier client server architecture, one tier is for user presentations, one is for database
and applications, and the third is for Internet access.
d. The database and application functions are separate in the three-tier model.
ANS: C

8. Which statements about data warehousing is not correct?

a. The data warehouse should be separate from the operational system.
b. Data cleansing is a process of transforming data into standard form.
c. Drill-down is a data-mining tool available to users of OLAP.
d. Normalization is an requirement of databases included in a data warehouse.
ANS: D

9. Which statement about ERP installation is least accurate?

a. For the ERP to be successful, process reengineering must occur.
b. ERP fails because some important business process is not supported.
c. When a business is diversified, little is gained from ERP installation.
d. The phased-in approach is more suited to diversified businesses.
ANS: C

10. Which statement is true?

a. ERPs are infinitely scalable.
b. Performance problems usually stem from technical problems, not business process
reengineering.
c. The better ERP can handle any problems an organization can have.
d. ERP systems can be modified using bolt-on software.
ANS: D

11. Auditors of ERP systems

a. need not worry about segregation of duties.
b. may feel that the data warehouse is too clean and free from errors.
c. find independent verification easy.
d. need not worry about system access since the ERP determines it.
ANS: B
12. Legacy systems are
a. old manual systems that are still in place.
b. flat file mainframe systems developed before client-server computing became standard.
c. stable database systems after debugging.
d. advanced systems without a data warehouse.
ANS: B

13. A data mart is

a. another name for a data warehouse.
b. a database that provides data to an organizations customers.
c. an enterprise resource planning system.
d. a data warehouse created for a single function or department.
ANS: D

14. Most ERPs are based on which network model?

a. peer to peer
b. client-server
c. ring topology
d. bus topology
ANS: B

15. On-line transaction processing programs

a. are bolt-on programs used with commercially available ERSs.
b. are available in two modelstwo-tier and three-tier.
c. handle large numbers of relatively simple transactions.
d. allow users to analyze complex data relationships.
ANS: C

16. Supply chain management software

a. is typically under the control of external partners in the chain.
b. links all of the partners in the chain, including vendors, carriers, third-party firms, and
information systems providers.
c. cannot be integrated into an overall ERP.
d. none of the above
ANS: B

17. The setup of a data warehouse includes

a. modeling the data
b. extracting data from operational databases
c. cleansing the data
d. all of the above
ANS: D

18. Extracting data for a data warehouse

a. cannot be done from flat files.
b. should only involve active files.
c. requires that the files be out of service.
 d. follows the cleansing of data.
ANS: C

19. Data cleansing involves all of the following except

a. filtering out or repairing invalid data
b. summarizing data for ease of extraction
c. transforming data into standard business terms
d. formatting data from legacy systems
ANS: B

20. Separating the data warehouse from the operations databases occurs for all of the following reasons
except
a. to make the management of the databases more economical
b. to increase the efficiency of data mining processes
c. to integrate legacy system data into a form that permits entity-wide analysis
d. to permit the integration of data from diverse sources
ANS: A

Chapter 12Electronic Commerce Systems

MULTIPLE CHOICE

APPENDIX QUESTION

1. The primary difference between a LAN and a WAN is

a. the geographical area covered by the network
b. the transmission technology used
c. the type of workstation used
d. the size of the company
ANS: A

2. To physically connect a workstation to a LAN requires a

a. file server
b. network interface card
c. multiplexer
d. bridge
ANS: B

3. One advantage of network technology is

a. bridges and gateways connect one workstation with another workstation
b. the network interface card permits different networks to share data
c. file servers permit software and data to be shared with other network users
d. a universal topology facilitates the transfer of data among networks
ANS: C
4. Which topology has a large central computer with direct connections to a periphery of smaller computers?
Also in this topology, the central computer manages and controls data communications among the
network nodes.
a. star topology
b. bus topology
c. ring topology
d. client/server topology
ANS: A

5. In a star topology, when the central site fails

a. individual workstations can communicate with each other
b. individual workstations can function locally but cannot communicate with other
workstations
c. individual workstations cannot function locally and cannot communicate with other
workstations
d. the functions of the central site are taken over by a designated workstation
ANS: B

6. Which of the following statements is correct? The client-server model

a. is best suited to the token-ring topology because the random-access method used by this
model detects data collisions.
b. distributes both data and processing tasks to the servers node.
c. is most effective used with a bus topology.
d. is more efficient than the bus or ring topologies.
ANS: B

7. What do you call a system of computers that connects the internal users of an organization that is
distributed over a wide geographic area?
a. LAN
b. decentralized network
c. multidrop network
d. Intranet
ANS: D

8. Sniffer software is
a. software used by malicious Web sites to sniff data from cookies stored on the users hard
drive
b. used by network administrators to analyze network traffic
c. used by bus topology Intranets to sniff for a carrier before transmitting a message to avoid
data collisions
d. illegal programs downloaded from the Net to sniff passwords from the encrypted data of
Internet customers
ANS: B

9. In a ring topology
a. all nodes are of equal status
b. nodes manage private programs and databases locally
c. shared resources are managed by a file server which is a node on the ring
 d. all of the above
ANS: D

10. The client/server technology

a. increases the amount of data that is transmitted between the central file and the network
node
b. eliminates the need for nodes to communicate with each other
c. reduces the number of records that must be locked by having the file server perform record
searches
d. functions only with a ring and bus topology
ANS: C

11. A star topology is appropriate

a. for a wide area network with a mainframe for a central computer
b. for centralized databases only
c. for environments where network nodes routinely communicate with each other
d. when the central database does not have to be concurrent with the nodes
ANS: A

12. In a ring topology

a. the network consists of a central computer which manages all communications between
nodes
b. has a host computer connected to several levels of subordinate computers
c. all nodes are of equal status; responsibility for managing communications is distributed
among the nodes
d. information processing units rarely communicate with each other
ANS: C

13. Which method does not manage or control data collisions that might occur on a network?
a. multiplexing
b. polling
c. carrier sensing
d. token passing
ANS: A

14. Network protocols fulfill all of the following objectives except

a. facilitate physical connection between network devices
b. provide a basis for error checking and measuring network performance
c. promote compatibility among network devices
d. result in inflexible standards
ANS: D

15. All of the following are true about the Open System Interface (OSI) protocol except
a. within one node different layers communicate with other layers at that node
b. one protocol is developed and applied to all the OSI layers
c. specific layers are dedicated to hardware tasks and other layers are dedicated to software
tasks
 d. layers at each node communicate logically with their counterpart layers across nodes
ANS: B

16. Which of the following statements is correct? TCP/IP

a. is the basic protocol that permits communication between Internet sites.
b. controls Web browsers that access the WWW.
c. is the file format used to produce Web pages.
d. is a low-level encryption scheme used to secure transmissions in HTTP format.
ANS: A

17. XBRL
a. is the basic protocol that permits communication between Internet sites.
b. controls Web browsers that access the Web.
c. is the document format used to produce Web pages.
d. was designed to provide the financial community with a standardized method for
preparing
e. is a low-level encryption scheme used to secure transmissions in higher-level (HTTP)
format.
ANS: D

18. FTP
a. is the document format used to produce Web pages.
b. controls Web browsers that access the Web.
c. is used to connect to Usenet groups on the Internet
d. is used to transfer text files, programs, spreadsheets, and databases across the Internet.
e. is a low-level encryption scheme used to secure transmissions in higher-level () format.
ANS: D

19. HTML
a. is the document format used to produce Web pages.
b. controls Web browsers that access the Web.
c. is used to connect to Usenet groups on the Internet.
d. is used to transfer text files, programs, spreadsheets, and databases across the Internet.
e. is a low-level encryption scheme used to secure transmissions in higher-level () format.
ANS: A

20. Which one of the following statements is correct?

a. Cookies always contain encrypted data.
b. Cookies are text files and never contain encrypted data.
c. Cookies contain the URLs of sites visited by the user.
d. Web browsers cannot function without cookies.
ANS: C

21. A message that is made to look as though it is coming from a trusted source but is not is called
a. a denial of service attack
b. digital signature forging
c. Internet protocol spoofing
 d. URL masquerading
ANS: C

22. A digital signature is

a. the encrypted mathematical value of the message senders name
b. derived from the digest of a document that has been encrypted with the senders private
key
c. the computed digest of the senders digital certificate
d. allows digital messages to be sent over analog telephone lines
ANS: B

23. HTTP
a. is the document format used to produce Web pages.
b. controls Web browsers that access the Web.
c. is used to connect to Usenet groups on the Internet
d. is used to transfer text files, programs, spreadsheets, and databases across the Internet.
e. is a low-level encryption scheme used to secure transmissions in higher-level () format.
ANS: B

24. Which of the following statements is correct?

a. Packet switching combines the messages of multiple users into a packet for
transmission. At the receiving end, the packet is disassembled into the individual messages
and distributed to the intended users.
b. The decision to partition a database assumes that no identifiable primary user exists in the
organization.
c. Message switching is used to establish temporary connections between network devices
for the duration of a communication session.
d. A deadlock is a temporary phenomenon that disrupts transaction processing. It will resolve
itself when the primary computer completes processing its transaction and releases the
data needed by other users.
ANS: C

25. NNTP
a. is the document format used to produce Web pages.
b. controls Web browsers that access the Web.
c. is used to connect to Usenet groups on the Internet
d. is used to transfer text files, programs, spreadsheets, and databases across the Internet.
e. is a low-level encryption scheme used to secure transmissions in higher-level (HTTP)
format.
ANS: C
Chapter 13Managing the Systems Development Life Cycle

MULTIPLE CHOICE

1. When studying the detailed feasibility of a new project

a. prototyping does not affect the schedule feasibility analysis
b. the need for user training will influence the schedule feasibility analysis
c. protection from fraud and errors will influence the schedule feasibility analysis
d. a cost-benefit review will affect the schedule feasibility analysis
ANS: B

2. Protection from inadvertent disclosures of confidential information is part of the detailed

a. operational feasibility study
b. schedule feasibility study
c. legal feasibility study
d. economic feasibility study
ANS: C

3. A cost-benefit analysis is a part of the detailed

a. operational feasibility study
b. schedule feasibility study
c. legal feasibility study
d. economic feasibility study
ANS: D

4. Examples of one-time costs include all of the following except

a. hardware acquisition
b. insurance
c. site preparation
d. programming
ANS: B

5. Examples of recurring costs include

a. software acquisition
b. data conversion
c. personnel costs
d. systems design
ANS: C

6. Site preparation costs include all of the following except

a. crane used to install equipment
b. freight charges
c. supplies
d. reinforcement of the building floor
ANS: C
 7. The testing of individual program modules is a part of
a. software acquisition costs
b. systems design costs
c. data conversion costs
d. programming costs
ANS: D

8. When implementing a new system, the costs associated with transferring data from one storage medium
to another is an example of
a. a recurring cost
b. a data conversion cost
c. a systems design cost
d. a programming cost
ANS: B

9. An example of a tangible benefit is

a. increased customer satisfaction
b. more current information
c. reduced inventories
d. faster response to competitor actions
ANS: C

10. An example of an intangible benefit is

a. expansion into other markets
b. reduction in supplies and overhead
c. more efficient operations
d. reduced equipment maintenance
ANS: C

11. A tangible benefit

a. can be measured and expressed in financial terms
b. might increase revenues
c. might decrease costs
d. all of the above
ANS: D

12. Intangible benefits

a. are easily measured
b. are of relatively little importance in making information system decisions
c. are sometimes estimated using customer satisfaction surveys
d. when measured, do not lend themselves to manipulation
ANS: C

13. Which technique is least likely to be used to quantify intangible benefits?

a. opinion surveys
b. simulation models
c. professional judgment
 d. review of accounting transaction data
ANS: D

14. The formal product of the systems evaluation and selection phase of the Systems Development Life Cycle
is
a. the report of systems analysis
b. the systems selection report
c. the detailed system design
d. the systems plan
ANS: B

15. One time costs include all of the following except

a. site preparation
b. insurance
c. programming and testing
d. data conversion
ANS: B

16. Recurring costs include all of the following except

a. data conversion
b. software maintenance
c. insurance
d. supplies
ANS: A

17. All of the following are reasons why new systems fail except
a. the user is not involved in the development of the system
b. system requirements are not clearly specified
c. systems analysts rely on prototyping models
d. system development techniques are ineffective
ANS: C

18. The systems steering committee is responsible for all of the following except
a. assigning priorities
b. determining whether and when to terminate systems projects
c. analyzing the technical feasibility of the project
d. budgeting funds for systems development
ANS: C

19. Strategic systems planning is important because the plan

a. provides authorization control for the Systems Development Life Cycle
b. will eliminate any crisis component in systems development
c. provides a static goal to be attained within a five-year period
d. all of the above
ANS: A
20. Project feasibility includes all of the following except
a. technical feasibility
b. conceptual feasibility
c. operational feasibility
d. schedule feasibility
ANS: B

21. The degree of compatibility between the firms existing procedures and personnel skills and the
requirements of the new system is called
a. technical feasibility
b. operational feasibility
c. schedule feasibility
d. legal feasibility
ANS: B

22. The ability of a system to protect individual privacy and confidentiality is an example of
a. schedule feasibility
b. operational feasibility
c. legal feasibility
d. economic feasibility
ANS: C

23. The systems project proposal

a. provides management with a basis for deciding whether or not to proceed with the project
b. supplies an input to the project planning activity
c. links the objectives of the proposed system to the systems scheduling requirements
d. prioritizes the proposal in relation to other system proposals
ANS: A

24. Which step is not used to evaluate a systems proposal? An analysis of the projects
a. feasibility factors
b. ability to eliminate nonessential activities and costs
c. ability to provide a competitive advantage to the firm
d. use of Computer Aided Software Engineering (CASE) tools in developing the system
proposal
ANS: D

25. Reasons that a new systems implementation may be unsuccessful include all of the following except
a. organizational restructuring required by the new system results in displaced workers
b. end users do not understand the strategic merits of the new system
c. employees are not trained to use the system
d. system development team members include representatives from end-user departments
ANS: D

26. Typically a systems analysis

a. results in a formal project schedule
b. does not include a review of the current system
 c. identifies user needs and specifies system requirements
d. is performed by the internal auditor
ANS: C

27. A disadvantage of surveying the current system is

a. it constrains the generation of ideas about the new system
b. it highlights elements of the current system that are worth preserving
c. it pinpoints the causes of the current problems
d. all of the above are advantages of surveying the current system
ANS: A

28. Systems analysis involves all of the following except

a. gathering facts
b. surveying the current system
c. redesigning bottleneck activities
d. reviewing key documents
ANS: C

29. The systems analysis report does not

a. identify user needs
b. specify requirements for the new system
c. formally state the goals and objectives of the system
d. specify the system processing methods
ANS: D

30. After the systems analysis phase of the System Development Life Cycle (SDLC) is complete, the
company will have a formal systems analysis report on
a. the conceptual design of the new system
b. an evaluation of the new system
c. users needs and requirements for the new system
d. a comparison of alternative implementation procedures for the new system
ANS: C

31. The accountants role in systems analysis includes all of the following except
a. specify audit trail requirements
b. prepare data gathering questionnaires
c. suggest inclusion of advanced audit features
d. ensure mandated procedures are part of the design
ANS: B

32. The role of the steering committee includes

a. designing the system outputs
b. resolving conflicts that arise from a new system
c. selecting the programming techniques to be used
d. approving the accounting procedures to be implemented
ANS: B
 33. Project planning includes all of the following except
a. specifying system objectives
b. preparing a formal project proposal
c. selecting hardware vendors
d. producing a project schedule
ANS: C

34. Aspects of project feasibility include all of the following except

a. technical feasibility
b. economic feasibility
c. logistic feasibility
d. schedule feasibility
ANS: C

35. Which of the following is not a tool of systems analysts?

a. observation
b. task participation
c. audit reports
d. personal interviews
ANS: C

36. When developing the conceptual design of a system,

a. all similarities and differences between competing systems are highlighted
b. structure diagrams are commonly used
c. the format for input screens and source documents is decided
d. inputs, processes, and outputs that distinguish one alternative from another are identified
ANS: D

37. The role of the accountant/internal auditor in the conceptual design phase of the Systems Development
Life Cycle includes all of the following except
a. the accountant is responsible for designing the physical system
b. the accountant is responsible to ensure that audit trails are preserved
c. the internal auditor is responsible to confirm that embedded audit modules are included in
the conceptual design
d. the accountant is responsible to make sure that the accounting conventions that apply to
the module are considered by the system designers
ANS: A

Chapter 14Construct, Deliver, and Maintain Systems Projects

MULTIPLE CHOICE

1. Which statement is not true?

a. prototypes do not include internal control features
b. a prototype is an inexpensive, simplified model of a system
 c. a throwaway prototype is discarded after the requirements are established
d. systems designers always discard prototypes and do not develop them into finished
systems
ANS: D

2. Which statement is not true? Computer Aided Software Engineering (CASE) technology
a. is commercially available software
b. reduces the productivity but increases the quality of the work of systems professionals
c. expedites the System Development Life Cycle
d. consists of upper and lower tools
ANS: B

3. The central repository of the Computer Aided Software Engineering (CASE) system contains
a. the program code
b. user prototype screens
c. data flow diagrams
d. all of the above
ANS: D

4. Which is not a level of a data flow diagram?

a. conceptual level
b. context level
c. intermediate level
d. elementary level
ANS: A

5. Which level of a data flow diagram is used to produce program code and database tables?
a. context level
b. elementary level
c. intermediate level
d. prototype level
ANS: B

6. In a Computer Aided Software Engineering (CASE) environment, a structure diagram

a. presents an overview model of the primary transactions processed
b. graphically depicts the iceberg effect
c. presents a model of the program code that constitutes the physical system
d. is prepared by the systems analyst
ANS: C

7. An advantage of the Computer Aided Software Engineering (CASE) model tool, which transforms the
structure diagram into machine language, is
a. it facilitates the auditors review of the system
b. it ensures that firm will use a specific CASE tool and vendor
c. it forces all system changes to be made through the data flow diagrams
d. it reduces the analysis required in designing the system
 ANS: C

8. When maintaining a system that was developed using Computer Aided Software Engineering (CASE)
tools,
a. the programmer must thoroughly review the program code
b. changes should be made directly to the structure diagram
c. significantly less time is required compared to maintenance activities for a system
developed without using Computer Aided Software Engineering (CASE) tools
d. the need for testing the modified application is eliminated
ANS: C

9. Which of the following is an advantage of the Computer Aided Software Engineering (CASE) approach?
a. the ability to easily revise the model during the development stage
b. the requirement that all program code and documentation be regenerated for each module
c. the cost of software engineering programs
d. user involvement is restricted to final stages of development
ANS: A

10. Which of the following is a disadvantage of the Computer Aided Software Engineering (CASE)
approach?
a. source code produced by CASE tools is less efficient than code written by a skilled
programmer
b. alternative designs cannot be reviewed prior to implementation
c. system users are reluctant to become involved with the CASE approach
d. maintenance costs are increased
ANS: A

11. Which statement is not correct? The structured design approach

a. is a top-down approach
b. is documented by data flow diagrams and structure diagrams
c. assembles reusable modules rather than creating systems from scratch
d. starts with an abstract description of the system and redefines it to produce a more detailed
description of the system
ANS: C

12. The benefits of the object-oriented approach to systems design include all of the following except
a. this approach does not require input from accountants and auditors
b. development time is reduced
c. a standard module once tested does not have to be retested until changes are made
d. system maintenance activities are simplified
ANS: A

13. In the object-oriented systems design approach, the employee pay rate is an example of
a. an object
b. an attribute
c. an operation
d. a class
 ANS: B

14. Ms. Andrews is a customer of the Edsell Company. In the object-oriented design approach
a. Ms. Andrews is an instance in the object class accounts receivable
b. the amount Ms. Andrews owes the Edsell Company is an operation
c. determining the amount past due is an attribute
d. the object class accounts receivable inherits all the attributes of Ms. Andrews
ANS: A

15. In the object-oriented systems design approach,

a. objects possess two characteristicsattributes and instances
b. an instance is a logical grouping of individual objects
c. inheritance means that each object instance inherits the attributes and operations of the
class to which it belongs
d. operations performed on objects always change attributes
ANS: C

16. Which statement is not correct? In the object-oriented design approach

a. a single change to an attribute or operation in one object class is automatically changed for
all the object instances and subclasses that inherit the attribute
b. each module can inherit from other modules the attributes and operations it requires
c. the entity relationship diagram is used to create a program which can be used in other
systems
d. the control module must be recreated for each program
ANS: D

17. Evaluators of the detailed feasibility study should not include

a. the internal auditor
b. the project manager
c. a user representative
d. the system designer
ANS: D

18. A commercial software system that is completely finished, tested, and ready for implementation is
called a
a. backbone system
b. vendor-supported system
c. benchmark system
d. turnkey system
ANS: D

19. Which of the following is not an advantage of commercial software? Commercial software
a. can be installed faster than a custom system
b. can be easily modified to the users exact specifications
c. is significantly less expensive than a system developed in-house
d. is less likely to have errors than an equivalent system developed in-house
ANS: B
20. Which step is least likely to occur when choosing a commercial software package?
a. a detailed review of the source code
b. contact with user groups
c. preparation of a request for proposal
d. comparison of the results of a benchmark problem
ANS: A

21. The output of the detailed design phase of the Systems Development Life Cycle (SDLC) is a
a. fully documented system report
b. systems selection report
c. detailed system design report
d. systems analysis report
ANS: C

22. The detailed design report contains all of the following except
a. input screen formats
b. alternative conceptual designs
c. report layouts
d. process logic
ANS: B

23. When each element of information supports the users decision or task, the output is said to possess
a. completeness
b. summarization
c. conciseness
d. relevance
ANS: D

24. There is often a conflict between the attributes of

a. timeliness and conciseness
b. accuracy and timeliness
c. relevance and summarization
d. completeness and exceptions orientation
ANS: B

25. A report of accounts that are past due has many information attributes. The most important attribute is
a. summarization
b. timeliness
c. conciseness
d. exception orientation
ANS: D

26. When hardcopy forms are used as the source for electronic data input,
a. a paper audit trail is maintained
b. economies of scale in data collection are avoided
c. input errors are reduced
 d. a point-of-sale terminal is required
ANS: A

27. The most important design element for a hardcopy form that is used for electronic data input is that
a. the form is a standard size
b. the source document and the input screen are identical
c. instructions use active voice
d. sufficient copies of the form are prepared
ANS: B

28. Which is not true of direct data input forms?

a. errors caused by transcription are reduced
b. calculations are automatically performed on intelligent forms
c. many data entry errors are detected and corrected immediately
d. workers who use direct data input forms must be highly trained and skilled
ANS: D

29. Which statement is not true?

a. loosely coupled modules are independent of other modules
b. cohesive modules perform a single, well-defined task
c. maintenance of a module with weak cohesion is simple
d. an error made in a tightly coupled module will affect other modules
ANS: C

30. Translating the system modules into pseudocode

a. occurs in the implementation phase of the Systems Development Life Cycle
b. expresses the detailed logic of the module in programming language
c. discourages end users from becoming actively involved in designing the system
d. permits individuals with few technical skills to understand the logic of the module
ANS: D

31. Which statement is not true? A systems design walkthrough

a. is conducted by a quality assurance group
b. occurs just after system implementation
c. simulates the operation of the system in order to uncover errors and omissions
d. reduces costs by reducing the amount of reprogramming
ANS: B

32. System documentation is designed for all of the following groups except
a. systems designers and programmers
b. end users
c. accountants
d. all of the above require systems documentation
ANS: D

33. Which type of documentation shows the detailed relationship of input files, programs, and output files?
 a. structure diagrams
b. overview diagram
c. system flowchart
d. program flowchart
ANS: C

34. Typical contents of a run manual include all of the following except
a. run schedule
b. logic flowchart
c. file requirements
d. explanation of error messages
ANS: B

35. Computer operators should have access to all of the following types of documentation except
a. a list of users who receive output
b. a program code listing
c. a list of all master files used in the system
d. a list of required hardware devices
ANS: B

36. Which task is not essential during a data conversion procedure?

a. decomposing the system
b. validating the database
c. reconciliation of new and old databases
d. backing up the original files
ANS: A

37. When converting to a new system, which cutover method is the most conservative?
a. cold turkey cutover
b. phased cutover
c. parallel operation cutover
d. data coupling cutover
ANS: C

38. What is not true about data modeling?

a. Relationships are the degree of association between two entities.
b. Attributes are data that describe the characteristics or properties of entities.
c. Entities are resources, events, or agents involved in the business.
d. Modeling is the task of formalizing the data requirements of the business process as a
physical model.
ANS: D
Chapter 15IT Controls Part I: Sarbanes-Oxley and IT Governance

MULTIPLE CHOICE

1. Which of the following is NOT an implication of section 302 of the Sarbanes-Oxley Act?
a. Auditors must determine, whether changes in internal control has, or is likely to,
materially affect internal control over financial reporting.
b. Auditors must interview management regarding significant changes in the design or
operation of internal control that occurred since the last audit.
c. Corporate management (including the CEO) must certify monthly and annually their
organizations internal controls over financial reporting.
d. Management must disclose any material changes in the companys internal controls that
have occurred during the most recent fiscal quarter.
ANS: C

2. Which of the following is NOT a requirement in managements report on the effectiveness of internal
controls over financial reporting?
a. A statement of managements responsibility for establishing and maintaining adequate
internal control user satisfaction.
b. A statement that the organizations internal auditors has issued an attestation report on
managements assessment of the companies internal controls.
c. A statement identifying the framework used by management to conduct their assessment
of internal controls.
d. An explicit written conclusion as to the effectiveness of internal control over financial
reporting.
ANS: B

3. In a computer-based information system, which of the following duties needs to be separated?

a. program coding from program operations
b. program operations from program maintenance
c. program maintenance from program coding
d. all of the above duties should be separated
ANS: D

4. Supervision in a computerized environment is more complex than in a manual environment for all of the
following reasons except
a. rapid turnover of systems professionals complicates management's task of assessing the
competence and honesty of prospective employees
b. many systems professionals have direct and unrestricted access to the organization's
programs and data
c. rapid changes in technology make staffing the systems environment challenging
d. systems professionals and their supervisors work at the same physical location
ANS: D

5. Adequate backups will protect against all of the following except

a. natural disasters such as fires
b. unauthorized access
 c. data corruption caused by program errors
d. system crashes
ANS: B

6. Which is the most critical segregation of duties in the centralized computer services function?
a. systems development from data processing
b. data operations from data librarian
c. data preparation from data control
d. data control from data librarian
ANS: A

7. Systems development is separated from data processing activities because failure to do so

a. weakens database access security
b. allows programmers access to make unauthorized changes to applications during
execution
c. results in inadequate documentation
d. results in master files being inadvertently erased
ANS: B

8. Which organizational structure is most likely to result in good documentation procedures?

a. separate systems development from systems maintenance
b. separate systems analysis from application programming
c. separate systems development from data processing
d. separate database administrator from data processing
ANS: A

9. All of the following are control risks associated with the distributed data processing structure except
a. lack of separation of duties
b. system incompatibilities
c. system interdependency
d. lack of documentation standards
ANS: C

10. Which of the following is not an essential feature of a disaster recovery plan?
a. off-site storage of backups
b. computer services function
c. second site backup
d. critical applications identified
ANS: B

11. A second site backup agreement between two or more firms with compatible computer facilities to assist
each other with data processing needs in an emergency is called
a. internally provided backup
b. recovery operations center
c. empty shell
d. mutual aid pact
 ANS: D

12. The major disadvantage of an empty shell solution as a second site backup is
a. the host site may be unwilling to disrupt its processing needs to process the critical
applications of the disaster stricken company
b. intense competition for shell resources during a widespread disaster
c. maintenance of excess hardware capacity
d. the control of the shell site is an administrative drain on the company
ANS: B

13. An advantage of a recovery operations center is that

a. this is an inexpensive solution
b. the initial recovery period is very quick
c. the company has sole control over the administration of the center
d. none of the above are advantages of the recovery operations center
ANS: B

14. For most companies, which of the following is the least critical application for disaster recovery
purposes?
a. month-end adjustments
b. accounts receivable
c. accounts payable
d. order entry/billing
ANS: A

15. The least important item to store off-site in case of an emergency is

a. backups of systems software
b. backups of application software
c. documentation and blank forms
d. results of the latest test of the disaster recovery program
ANS: D

16. Some companies separate systems analysis from programming/program maintenance. All of the following
are control weaknesses that may occur with this organizational structure except
a. systems documentation is inadequate because of pressures to begin coding a new program
before documenting the current program
b. illegal lines of code are hidden among legitimate code and a fraud is covered up for a long
period of time
c. a new systems analyst has difficulty in understanding the logic of the program
d. inadequate systems documentation is prepared because this provides a sense of job
security to the programmer
ANS: C

17. All of the following are recommended features of a fire protection system for a computer center except
a. clearly marked exits
b. an elaborate water sprinkler system
c. manual fire extinguishers in strategic locations
d. automatic and manual alarms in strategic locations
 ANS: B

18. Which concept is not an integral part of an audit?

a. evaluating internal controls
b. preparing financial statements
c. expressing an opinion
d. analyzing financial data
ANS: B

19. Which statement is not true?

a. Auditors must maintain independence.
b. IT auditors attest to the integrity of the computer system.
c. IT auditing is independent of the general financial audit.
d. IT auditing can be performed by both external and internal auditors.
ANS: C

20. Typically, internal auditors perform all of the following tasks except
a. IT audits
b. evaluation of operational efficiency
c. review of compliance with legal obligations
d. internal auditors perform all of the above tasks
ANS: D

21. The fundamental difference between internal and external auditing is that
a. internal auditors represent the interests of management and external auditors represent
outsiders
b. internal auditors perform IT audits and external auditors perform financial statement audits
c. internal auditors focus on financial statement audits and external auditors focus on
operational audits and financial statement audits
d. external auditors assist internal auditors but internal auditors cannot assist external
auditors
ANS: A

22. Internal auditors assist external auditors with financial audits to

a. reduce audit fees
b. ensure independence
c. represent the interests of management
d. the statement is not true; internal auditors are not permitted to assist external auditors with
financial audits
ANS: A

23. Which statement is not correct?

a. Auditors gather evidence using tests of controls and substantive tests.
b. The most important element in determining the level of materiality is the mathematical
formula.
c. Auditors express an opinion in their audit report.
d. Auditors compare evidence to established criteria.
 ANS: B

24. All of the following are steps in an IT audit except

a. substantive testing
b. tests of controls
c. post-audit testing
d. audit planning
ANS: C

25. When planning the audit, information is gathered by all of the following methods except
a. completing questionnaires
b. interviewing management
c. observing activities
d. confirming accounts receivable
ANS: D

26. Substantive tests include

a. examining the safety deposit box for stock certificates
b. reviewing systems documentation
c. completing questionnaires
d. observation
ANS: A

27. Tests of controls include

a. confirming accounts receivable
b. counting inventory
c. completing questionnaires
d. counting cash
ANS: C

28. All of the following are components of audit risk except

a. control risk
b. legal risk
c. detection risk
d. inherent risk
ANS: B

29. Control risk is

a. the probability that the auditor will render an unqualified opinion on financial statements
that are materially misstated
b. associated with the unique characteristics of the business or industry of the client
c. the likelihood that the control structure is flawed because controls are either absent or
inadequate to prevent or detect errors in the accounts
d. the risk that auditors are willing to take that errors not detected or prevented by the control
structure will also not be detected by the auditor
ANS: C
30. All of the following tests of controls will provide evidence about the physical security of the computer
center except
a. review of fire marshal records
b. review of the test of the backup power supply
c. verification of the second site backup location
d. observation of procedures surrounding visitor access to the computer center
ANS: C

31. All of the following tests of controls will provide evidence about the adequacy of the disaster recovery
plan except
a. inspection of the second site backup
b. analysis of the fire detection system at the primary site
c. review of the critical applications list
d. composition of the disaster recovery team
ANS: B

32. Which of the following is true?

a. In the CBIS environment, auditors gather evidence relating only to the contents of
databases, not the reliability of the computer system.
b. Conducting an audit is a systematic and logical process that applies to all forms of
information systems.
c. Substantive tests establish whether internal controls are functioning properly.
d. IT auditors prepare the audit report if the system is computerized.
ANS: B

33. Inherent risk

a. exists because all control structures are flawed in some ways.
b. is the likelihood that material misstatements exist in the financial statements of the firm.
c. is associated with the unique characteristics of the business or industry of the client.
d. is the likelihood that the auditor will not find material misstatements.
ANS: C

34. Attestation services require all of the following except

a. written assertions and a practitioners written report
b. the engagement is designed to conduct risk assessment of the clients systems to verify
their degree of SOX compliance
c. the formal establishment of measurements criteria
d. the engagement is limited to examination, review, and application of agreed-upon
procedures
ANS: B

35. The financial statement of an organization reflects a set of management assertions about the financial
health of the business. All of the following described types of assertions except
a. that all of the assets and equities on the balance sheet exist
b. that all employees are properly trained to carry out their assigned duties
c. that all transactions on the income statement actually occurred
d. that all allocated amounts such as depreciation are calculated on a systematic and rational
 basis
ANS: B

Chapter 16IT Controls Part II: Security and Access

MULTIPLE CHOICE

1. The operating system performs all of the following tasks except

a. translates third-generation languages into machine language
b. assigns memory to applications
c. authorizes user access
d. schedules job processing
ANS: C

2. Which of the following is considered an unintentional threat to the integrity of the operating system?
a. a hacker gaining access to the system because of a security flaw
b. a hardware flaw that causes the system to crash
c. a virus that formats the hard drive
d. the systems programmer accessing individual user files
ANS: B

3. A software program that replicates itself in areas of idle memory until the system fails is called a
a. Trojan horse
b. worm
c. logic bomb
d. none of the above
ANS: B

4. A software program that allows access to a system without going through the normal logon procedures is
called a
a. logic bomb
b. Trojan horse
c. worm
d. back door
ANS: D

5. All of the following will reduce the exposure to computer viruses except
a. install antivirus software
b. install factory-sealed application software
c. assign and control user passwords
d. install public-domain software from reputable bulletin boards
ANS: D

6. Which backup technique is most appropriate for sequential batch systems?

a. grandfather-father-son approach
 b. staggered backup approach
c. direct backup
d. remote site, intermittent backup
ANS: A

7. When creating and controlling backups for a sequential batch system,

a. the number of backup versions retained depends on the amount of data in the file
b. off-site backups are not required
c. backup files can never be used for scratch files
d. the more significant the data, the greater the number of backup versions
ANS: D

8. Hackers can disguise their message packets to look as if they came from an authorized user and gain
access to the hosts network using a technique called
a. spoofing.
b. spooling.
c. dual-homed.
d. screening.
ANS: A

9. In a direct access file system

a. backups are created using the grandfather-father-son approach
b. processing a transaction file against a maser file creates a backup file
c. files are backed up immediately before an update run
d. if the master file is destroyed, it cannot be reconstructed
ANS: C

10. Which of the following is not an access control in a database system?

a. antivirus software
b. database authorization table
c. passwords
d. voice prints
ANS: A

11. Which is not a biometric device?

a. password
b. retina prints
c. voice prints
d. signature characteristics
ANS: A

12. Which of the following is not a basic database backup and recovery feature?
a. checkpoint
b. backup database
c. transaction log
d. database authority table
 ANS: D

13. All of the following are objectives of operating system control except
a. protecting the OS from users
b. protesting users from each other
c. protecting users from themselves
d. protecting the environment from users
ANS: D

14. Passwords are secret codes that users enter to gain access to systems. Security can be compromised by all
of the following except
a. failure to change passwords on a regular basis
b. using obscure passwords unknown to others
c. recording passwords in obvious places
d. selecting passwords that can be easily detected by computer criminals
ANS: B

15. Audit trails cannot be used to

a. detect unauthorized access to systems
b. facilitate reconstruction of events
c. reduce the need for other forms of security
d. promote personal accountability
ANS: C

16. Which control will not reduce the likelihood of data loss due to a line error?
a. echo check
b. encryption
c. vertical parity bit
d. horizontal parity bit
ANS: B

17. Which method will render useless data captured by unauthorized receivers?
a. echo check
b. parity bit
c. public key encryption
d. message sequencing
ANS: C

18. Which method is most likely to detect unauthorized access to the system?
a. message transaction log
b. data encryption standard
c. vertical parity check
d. request-response technique
ANS: A

19. All of the following techniques are used to validate electronic data interchange transactions except
a. value added networks can compare passwords to a valid customer file before message
 transmission
b. prior to converting the message, the translation software of the receiving company can
compare the password against a validation file in the firm's database
c. the recipient's application software can validate the password prior to processing
d. the recipient's application software can validate the password after the transaction has been
processed
ANS: D

20. In an electronic data interchange environment, customers routinely access

a. the vendor's price list file
b. the vendor's accounts payable file
c. the vendor's open purchase order file
d. none of the above
ANS: A

21. All of the following tests of controls will provide evidence that adequate computer virus control
techniques are in place and functioning except
a. verifying that only authorized software is used on company computers
b. reviewing system maintenance records
c. confirming that antivirus software is in use
d. examining the password policy including a review of the authority table
ANS: B

22. Audit objectives for the database management include all of the following except
a. verifying that the security group monitors and reports on fault tolerance violations
b. confirming that backup procedures are adequate
c. ensuring that authorized users access only those files they need to perform their duties
d. verifying that unauthorized users cannot access data files
ANS: A

23. All of the following tests of controls will provide evidence that access to the data files is limited except
a. inspecting biometric controls
b. reconciling program version numbers
c. comparing job descriptions with access privileges stored in the authority table
d. attempting to retrieve unauthorized data via inference queries
ANS: B

24. Audit objectives for communications controls include all of the following except
a. detection and correction of message loss due to equipment failure
b. prevention and detection of illegal access to communication channels
c. procedures that render intercepted messages useless
d. all of the above
ANS: D

25. When auditors examine and test the call-back feature, they are testing which audit objective?
a. incompatible functions have been segregated
b. application programs are protected from unauthorized access
 c. physical security measures are adequate to protect the organization from natural disaster
d. illegal access to the system is prevented and detected
ANS: D

26. In an Electronic Data Interchange (EDI) environment, when the auditor compares the terms of the trading
partner agreement against the access privileges stated in the database authority table, the auditor is testing
which audit objective?
a. all EDI transactions are authorized
b. unauthorized trading partners cannot gain access to database records
c. authorized trading partners have access only to approved data
d. a complete audit trail is maintained
ANS: C

27. Audit objectives in the Electronic Data Interchange (EDI) environment include all of the following except
a. all EDI transactions are authorized
b. unauthorized trading partners cannot gain access to database records
c. a complete audit trail of EDI transactions is maintained
d. backup procedures are in place and functioning properly
ANS: D

28. In determining whether a system is adequately protected from attacks by computer viruses, all of the
following policies are relevant except
a. the policy on the purchase of software only from reputable vendors
b. the policy that all software upgrades are checked for viruses before they are implemented
c. the policy that current versions of antivirus software should be available to all users
d. the policy that permits users to take files home to work on them
ANS: D

29. Which of the following is not a test of access controls?

a. biometric controls
b. encryption controls
c. backup controls
d. inference controls
ANS: C

30. In an electronic data interchange environment, customers routinely

a. access the vendor's accounts receivable file with read/write authority
b. access the vendor's price list file with read/write authority
c. access the vendor's inventory file with read-only authority
d. access the vendor's open purchase order file with read-only authority
ANS: C

31. In an electronic data interchange environment, the audit trail

a. is a printout of all incoming and outgoing transactions
b. is an electronic log of all transactions received, translated, and processed by the system
c. is a computer resource authority table
d. consists of pointers and indexes within the database
 ANS: B

32. All of the following are designed to control exposures from subversive threats except
a. firewalls
b. one-time passwords
c. field interrogation
d. data encryption
ANS: C

33. Many techniques exist to reduce the likelihood and effects of data communication hardware failure. One
of these is
a. hardware access procedures
b. antivirus software
c. parity checks
d. data encryption
ANS: C

34. Which of the following deal with transaction legitimacy?

a. transaction authorization and validation
b. access controls
c. EDI audit trail
d. all of the above
ANS: D

35. Firewalls are

a. special materials used to insulate computer facilities
b. a system that enforces access control between two networks
c. special software used to screen Internet access
d. none of the above
ANS: B

36. The database attributes that individual users have permission to access are defined in
a. operating system.
b. user manual.
c. database schema.
d. user view.
e. application listing.
ANS: D

37. An integrated group of programs that supports the applications and facilitates their access to specified
resources is called a (an)
a. operating system.
b. database management system.
c. utility system
d. facility system.
e. object system.
 ANS: A

Chapter 17IT Controls Part III: Systems Development, Program Changes, and
Application Controls
MULTIPLE CHOICE

1. Which statement is not correct? The audit trail in a computerized environment

a. consists of records that are stored sequentially in an audit file
b. traces transactions from their source to their final disposition
c. is a function of the quality and integrity of the application programs
d. may take the form of pointers, indexes, and embedded keys
ANS: A

2. Which control is not associated with new systems development activities?

a. reconciling program version numbers
b. program testing
c. user involvement
d. internal audit participation
ANS: A

3. Routine maintenance activities require all of the following controls except

a. documentation updates
b. testing
c. formal authorization
d. internal audit approval
ANS: D

4. Which statement is correct?

a. compiled programs are very susceptible to unauthorized modification
b. the source program library stores application programs in source code form
c. modifications are made to programs in machine code language
d. the source program library management system increases operating efficiency
ANS: B

5. Which control is not a part of the source program library management system?
a. using passwords to limit access to application programs
b. assigning a test name to all programs undergoing maintenance
c. combining access to the development and maintenance test libraries
d. assigning version numbers to programs to record program modifications
ANS: C

6. Which control ensures that production files cannot be accessed without specific permission?
a. Database Management System
b. Recovery Operations Function
c. Source Program Library Management System
d. Computer Services Function
 ANS: C

7. Program testing
a. involves individual modules only, not the full system
b. requires creation of meaningful test data
c. need not be repeated once the system is implemented
d. is primarily concerned with usability
ANS: B

8. The correct purchase order number, 123456, was incorrectly recorded as shown in the solutions. All of
the following are transcription errors except
a. 1234567
b. 12345
c. 124356
d. 123454
ANS: C

9. Which of the following is correct?

a. check digits should be used for all data codes
b. check digits are always placed at the end of a data code
c. check digits do not affect processing efficiency
d. check digits are designed to detect transcription and transposition errors
ANS: D

10. Which statement is not correct? The goal of batch controls is to ensure that during processing
a. transactions are not omitted
b. transactions are not added
c. transactions are free from clerical errors
d. an audit trail is created
ANS: C

11. An example of a hash total is

a. total payroll checks$12,315
b. total number of employees10
c. sum of the social security numbers12,555,437,251
d. none of the above
ANS: C

12. Which statement is not true? A batch control record

a. contains a transaction code
b. records the record count
c. contains a hash total
d. control figures in the record may be adjusted during processing
e. All the above are true
ANS: E
13. Which of the following is not an example of a processing control?
a. hash total.
b. record count.
c. batch total.
d. check digit
ANS: D

14. Which of the following is an example of input control test?

a. sequence check
b. zero value check
c. spooling check
d. range check
ANS: D

15. Which input control check would detect a payment made to a nonexistent vendor?
a. missing data check
b. numeric/alphabetic check
c. range check
d. validity check
ANS: D

16. The employee entered "40" in the "hours worked per day" field. Which check would detect this
unintentional error?
a. numeric/alphabetic data check
b. sign check
c. limit check
d. missing data check
ANS: C

17. An inventory record indicates that 12 items of a specific product are on hand. A customer purchased two
of the items, but when recording the order, the data entry clerk mistakenly entered 20 items sold. Which
check could detect this error?
a. numeric/alphabetic data checks
b. limit check
c. range check
d. reasonableness check
ANS: B

18. Which check is not an input control?

a. reasonableness check
b. validity check.
c. spooling check
d. missing data check
ANS: C
19. A computer operator was in a hurry and accidentally used the wrong master file to process a transaction
file. As a result, the accounts receivable master file was erased. Which control would prevent this from
happening?
a. header label check
b. expiration date check
c. version check
d. validity check
ANS: A

20. Run-to-run control totals can be used for all of the following except
a. to ensure that all data input is validated
b. to ensure that only transactions of a similar type are being processed
c. to ensure the records are in sequence and are not missing
d. to ensure that no transaction is omitted
ANS: A

21. Methods used to maintain an audit trail in a computerized environment include all of the following except
a. transaction logs
b. Transaction Listings.
c. data encryption
d. log of automatic transactions
ANS: C

22. Risk exposures associated with creating an output file as an intermediate step in the printing process
(spooling) include all of the following actions by a computer criminal except
a. gaining access to the output file and changing critical data values
b. using a remote printer and incurring operating inefficiencies
c. making a copy of the output file and using the copy to produce illegal output reports
d. printing an extra hardcopy of the output file
ANS: B

23. Which statement is not correct?

a. only successful transactions are recorded on a transaction log
b. unsuccessful transactions are recorded in an error file
c. a transaction log is a temporary file
d. a hardcopy transaction listing is provided to users
ANS: C

24. Input controls include all of the following except

a. check digits
b. Limit check.
c. spooling check
d. missing data check
ANS: C

25. Which of the following is an example of an input error correction technique?

a. immediate correction
 b. rejection of batch
c. creation of error file
d. all are examples of input error correction techniques
ANS: D

26. Which test of controls will provide evidence that the system as originally implemented was free from
material errors and free from fraud? Review of the documentation indicates that
a. a cost-benefit analysis was conducted
b. the detailed design was an appropriate solution to the user's problem
c. tests were conducted at the individual module and total system levels prior to
implementation
d. problems detected during the conversion period were corrected in the maintenance phase
ANS: C

27. Which statement is not true?

a. An audit objective for systems maintenance is to detect unauthorized access to application
databases.
b. An audit objective for systems maintenance is to ensure that applications are free from
errors.
c. An audit objective for systems maintenance is to verify that user requests for maintenance
reconcile to program version numbers.
d. An audit objective for systems maintenance is to ensure that the production libraries are
protected from unauthorized access.
ANS: A

28. When the auditor reconciles the program version numbers, which audit objective is being tested?
a. protect applications from unauthorized changes
b. ensure applications are free from error
c. protect production libraries from unauthorized access
d. ensure incompatible functions have been identified and segregated
ANS: A

29. When auditors do not rely on a detailed knowledge of the application's internal logic, they are performing
a. black box tests of program controls
b. white box tests of program controls
c. substantive testing
d. intuitive testing
ANS: A

30. All of the following concepts are associated with the black box approach to auditing computer
applications except
a. the application need not be removed from service and tested directly
b. auditors do not rely on a detailed knowledge of the application's internal logic
c. the auditor reconciles previously produced output results with production input
transactions
d. this approach is used for complex transactions that receive input from many sources
ANS: D
31. Which test is not an example of a white box test?
a. determining the fair value of inventory
b. ensuring that passwords are valid
c. verifying that all pay rates are within a specified range
d. reconciling control totals
ANS: A

32. When analyzing the results of the test data method, the auditor would spend the least amount of time
reviewing
a. the test transactions
b. error reports
c. updated master files
d. output reports
ANS: A

33. All of the following are advantages of the test data technique except
a. auditors need minimal computer expertise to use this method
b. this method causes minimal disruption to the firm's operations
c. the test data is easily compiled
d. the auditor obtains explicit evidence concerning application functions
ANS: C

34. All of the following are disadvantages of the test data technique except
a. the test data technique requires extensive computer expertise on the part of the auditor
b. the auditor cannot be sure that the application being tested is a copy of the current
application used by computer services personnel
c. the auditor cannot be sure that the application being tested is the same application used
throughout the entire year
d. preparation of the test data is time-consuming
ANS: A

35. All of the following statements are true about the integrated test facility (ITF) except
a. production reports are affected by ITF transactions
b. ITF databases contain "dummy" records integrated with legitimate records
c. ITF permits ongoing application auditing
d. ITF does not disrupt operations or require the intervention of computer services personnel
ANS: A

36. Which statement is not true? Embedded audit modules

a. can be turned on and off by the auditor.
b. reduce operating efficiency.
c. may lose their viability in an environment where programs are modified frequently.
d. identify transactions to be analyzed using white box tests.
ANS: D

37. Generalized audit software packages perform all of the following tasks except
a. recalculate data fields
b. compare files and identify differences
c. stratify statistical samples
d. analyze results and form opinions
ANS: D