Accounting Information Systems
Final Exam Questions
Course Introduction
Accounting Information Systems explores the fundamentals of designing, implementing, and managing information technology solutions to support accounting processes within organizations. The course covers key topics such as the role of information systems in capturing and processing financial data, internal controls, documentation techniques, transaction cycles, database management, enterprise resource planning (ERP) systems, and the impact of emerging technologies like cloud computing and blockchain on accounting. Students will gain practical skills in evaluating and using accounting software, understanding system risks, and enhancing business decision-making through effective use of information systems.
Recommended Textbook
Auditing and Assurance Services A Systematic Approach 8th Edition by William F. Messier
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Chapter 1: An Introduction to Assurance and Financial Statement Auditing
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Q1) Which of the following best describes the concept of audit risk?
A) The risk of the auditor being sued because of association with an audit client.
B) The risk that the auditor will provide an unqualified opinion on financial statements that are, in fact, materially misstated.
C) The overall risk that a material misstatement exists in the financial statements.
D) The risk that auditors use audit procedures that are inappropriate.
Answer: B
Q2) Testing all transactions that occurred during the period is cost prohibitive.
A)True
B)False
Answer: True
Q3) Conflicts of interest often occur between absentee owners and managers. A)True
B)False
Answer: True
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Chapter 2: The Financial Statement Auditing Environment
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Q1) Define corporate governance,the board of directors,and the audit committee and explain how they relate to each other.
Answer: Corporate governance is all the people,processes,and activities in place to help ensure proper stewardship over an entity's assets.
The board of directors is the body primarily responsible for management oversight in corporations.
The audit committee oversees internal and external audit work done for an entity. The board of directors plays a part in ensuring proper corporate governance by holding management responsible for the usage of the entity's assets.The audit committee is made up of members of the board of directors.The audit committee enhances corporate governance by holding management accountable for its activities through audits of its work.
Q2) The auditor must be independent of the audit client unless
A) The lack of independence does not influence his or her professional judgment.
B) Both parties agree that the independence issue is not a problem.
C) The lack of independence is insignificant.
D) None of the above-the auditor cannot lack independence.
Answer: D
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Page 4
Chapter 3: Audit Planning,Types of Audit Tests,and Materiality
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Q1) Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?
A) The CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques.
B) Management's disregard of its responsibility to maintain an adequate control environment.
C) The CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions.
D) Management's refusal to permit the CPA to perform substantive procedures before the year-end.
Answer: B
Q2) Engagement letters include all of the following except:
A) A list of additional services that will be provided.
B) A list of adjusting journal entries.
C) Information about the audit fee.
D) Arrangements involving the use of specialists.
Answer: B
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Chapter 4: Risk Assessment
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Q1) Which of the following is correct concerning required auditor communications about fraud?
A) Fraud that involves senior management should be reported directly by the auditor to the audit committee regardless of the amount involved.
B) Fraud with a material effect on the financial statements should be reported directly by the auditor to the Securities and Exchange Commission.
C) Any requirement to disclose fraud outside the entity is the responsibility of management and not that of the auditor.
D) The professional standards provide no requirements related to the communication of fraud, but the auditor should use professional judgment in determining communication responsibilities.
Q2) When an entity moves into a significant new line of business,all of the following increase except:
A) Client risk.
B) Acceptable audit risk.
C) Risk of material misstatement.
D) Entity business risk.
Q3) What is the difference between audit risk and engagement risk?
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Chapter 5: Evidence and Documentation
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Q1) Which of the following statements concerning audit evidence is correct?
A) Appropriate evidence supporting management's assertions should be convincing rather than persuasive.
B) Effective internal controls contribute little to the reliability of the evidence created within the entity.
C) The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained.
D) A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.
Q2) Audit documents that record the procedures used by the auditor to gather evidence should be
A) Considered the primary support for the financial statements being examined.
B) Viewed as the connecting link between the accounting records and the financial statements.
C) Designed in an orderly fashion to facilitate the review of audit work by the senior, manager, and partner on the engagement.
D) Retained until the audited entity ceases to be a client.
Q3) For an auditor,how are management assertions useful?
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Chapter 6: Internal Control in a Financial Statement Audit
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Q1) The risk assessment component of internal controls refers to
A) The auditor's assessment of control risk.
B) The auditor's assessment of client risk.
C) The entity's identification and analysis of risks relevant to achievement of its objectives.
D) The entity's monitoring of the potential for material misstatements.
Q2) Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they represent
A) Disclosures of information that significantly contradict the auditor's going concern assumption.
B) Material fraud or illegal acts perpetrated by high-level management.
C) Significant design flaws in internal controls or poor implementation of internal controls.
D) Manipulation or falsification of accounting records or documents from which financial statements are prepared.
Q3) Why might an auditor decide to test controls at an interim date?
Q4) Data capture occurs through source documentation,direct data entry,or a combination of the two.List three purposes of data capture controls.
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Page 8
Chapter 7: Auditing Internal Control Over Financial Reporting
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Q1) In a public company,management must assess and report on internal control over financial reporting.
A)True
B)False
Q2) Which of the following audit procedures would an auditor be least likely to perform using a generalized computer audit program?
A) Searching records of accounts receivable balances for credit balances.
B) Investigating inventory balances for possible damaged goods.
C) Selecting accounts receivable for positive and negative confirmation.
D) Listing of unusually large inventory balances.
Q3) The PCAOB makes it clear that the CEO and CFO are responsible for the internal control over financial reporting and the preparation of the statements.
A)True
B)False
Q4) Discuss the differences between a control deficiency,a significant deficiency,a material weakness,and the two dimensions of the control deficiency-likelihood and magnitude.
Q5) Discuss entity-level controls and provide examples of these types of controls.
Page 9
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Chapter 8: Audit Sampling: An Overview and Application to
Tests of Controls
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Q1) When determining the sample size of accounts receivable to test,what are three factors that are important for you to consider?
Q2) Confidence level and sampling risk are related to sample size.
A)True
B)False
Q3) Before performing sampling procedures in an audit of controls,Sue set the tolerable deviation rate at 4.0%.After the procedures,she computes a computed upper deviation rate of 5.4%.What can Sue conclude about the client's controls?
Q4) Which of the following best describes the distinguishing feature of statistical sampling?
A) It requires the examination of a smaller number of supporting documents.
B) It provides a means for measuring mathematically the degree of uncertainty that results from examining only part of a population.
C) It reduces the problems associated with the auditor's judgment concerning materiality.
D) It is evaluated in terms of two parameters: statistical mean and random selection.
Q5) Define sampling risk and nonsampling risk.
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Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
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Q1) Expected misstatement is directly related to sample size.
A)True
B)False
Q2) Which one of the following statements is true regarding two random samples,drawn in the same way,from the same population,one of size 30 and one of size 300?
A) The two samples are expected to have the same sample mean.
B) The larger sample is more likely to produce a large sample mean.
C) The smaller sample will have a smaller 95% confidence interval for the mean.
D) The smaller sample will, on average, produce a lower estimate of the variance of the population.
Q3) After a sample is drawn randomly,the allowance for sampling risk must be statistically quantified within a specified level of confidence.
A)True
B)False
Q4) The purpose of audit sampling is to draw inferences about the entire population from the results of a sample.
A)True
B)False
Page 11
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Chapter 10: Auditing the Revenue Process
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Sample Questions
Q1) The revenue process affects numerous accounts in the financial statements.
A)True
B)False
Q2) All of the following are important controls over credit memos except:
A) Proper segregation of duties to ensure that sales discounts taken were earned.
B) Credit memos should be approved by someone other than whoever initiated it.
C) Credit memos should be supported by a receiving document for returned goods.
D) Proper segregation of duties between access to customer records and authorizing credit memos.
Q3) You are auditing the allowance for doubtful accounts (ADA)and perform the analytical procedures shown below.Assume that no significant changes have occurred during the year in either the client's credit policies or customer base.What concerns,if any,about adjusting the ADA should the auditor have based on the information shown below?
Q4) Channel stuffing is an improper practice used to boost sales by inducing distributors to buy more inventory than they can promptly resell.
A)True
B)False
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Chapter 11: Auditing the Purchasing Process
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Q1) A debit memo
A) Reduces the amount of accounts payable to a vendor.
B) Reduces accounts payable when payment is made.
C) Is used by vendors to record cash payments received.
D) Authorizes a debit to purchases when goods are received.
Q2) A product cost is
A) An expense allocated by a systematic procedure.
B) Recognized during the period in which a liability is incurred.
C) Recognized in the period during which related revenue is recognized.
D) Recognized in the period in which cash is spent.
Q3) Which of the following procedures relating to the examination of accounts payable could the auditor delegate entirely to the client's employees?
A) Test footings in the accounts payable ledger.
B) Reconcile unpaid invoices to vendors' statements.
C) Prepare a schedule of accounts payable.
D) Mail confirmations for selected account balances.
Q4) Describe three categories of expenses outlined in FASB Concept Statement No.5.
Q5) A purchase transaction usually begins with the preparation of a purchase order.
A)True
B)False
Page 13
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Chapter 12: Auditing the Human Resource Management Process
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Q1) Which of the following could test the assertion of classification for payroll-related liabilities?
A) Compare items in accrued payroll taxes to the supporting payroll tax return.
B) Search for unrecorded liabilities.
C) Examine payroll tax returns to determine that the expense was recorded in the proper period.
D) Review payroll liabilities for proper reporting as short- or long-term.
Q2) Listed below are descriptions of various types of documents used in the payroll process.Identify the document being described for each of the following
1)The document used to record hours worked by an employee.
2)The document that summarizes all payroll payments issued to employees.
3)The document that contains information on an employee's work history.
4)The form used to authorize deductions from an employee's pay.
5)The computer file that contains all the entity's records related to payroll.
Q3) Tests of details of transactions are often conducted in conjunction with tests of controls.
A)True
B)False
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Chapter 21: Assurance,Attestation,and Internal Auditing Services
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Q1) The major control procedure for preventing fictitious inventory transactions from being recorded is proper segregation of duties.
A)True
B)False
Q2) Which of the following is least likely to be a possible cause of book-to-physical differences in inventory quantities?
A) Inventory cutoff errors.
B) Misapplication of LIFO.
C) Unreported scrap or spoilage.
D) Theft.
Q3) For the purpose of determining proper cutoff for inventory,the auditor will select a sample from which of the following for a few days before and after year-end?
A) Materials requisitions.
B) Production schedules.
C) Receiving documents.
D) Purchase orders.
Q4) Explain the importance of observing physical inventory during an audit.
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Chapter 14: Auditing the Financinginvesting Process:
Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment
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Q1) For each of the following tests,state whether it is a test of details of account balances or a test of details of transactions.Then note for which property management assertion the test provides evidence.
Test depreciation calculations for a sample of capital assets
For assets written off,test amounts charged against income and accumulated depreciation
Physically examine the capital asset additions
Vouch transactions included in repairs and maintenance for items that should be capitalized
Vouch significant additions and dispositions to vendor invoices or other supporting documentation
Examine of confirm deeds or title documents for proof of ownership
Q2) In testing plant and equipment balances,an auditor may inspect new additions listed on the analysis of plant and equipment.This procedure is designed to obtain evidence concerning management's assertion(s)about
A) Presentation and disclosure.
B) Existence or occurrence.
C) Both (1) presentation and disclosure and (2) existence and occurrence.
D) Neither (1) presentation and disclosure nor (2) existence and occurrence.
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Chapter 15: Auditing the Financinginvesting Process:
Long-Term Liabilities, Stockholders Equity, and Income
Statement Accounts
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Q1) Reviewing notes paid or renewed after the balance sheet date to determine if there are unrecorded liabilities at year-end can be used to test the assertion of A) Existence.
B) Completeness.
C) Rights and obligations.
D) Valuation and allocation.
Q2) In performing tests concerning the granting of stock options,an auditor should
A) Confirm the transaction with the Secretary of State in the state of incorporation.
B) Verify the existence of option holders in the entity's payroll records or stock ledgers.
C) Determine that sufficient treasury stock is available to cover any new stock issued.
D) Trace the authorization for the transaction to a vote of the board of directors.
Q3) You have been assigned the duty of auditing long-term debt and retained earnings for your client,Keys,Inc.Describe the tests you would use to support management's assertions regarding disclosure for these accounts.
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Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
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Q1) A client has a large and active investment portfolio that is kept in a bank safe-deposit box.If the auditor is unable to examine and count the securities at the balance sheet date but will examine and count the securities shortly thereafter,the auditor most likely will
A) Request that the bank confirm to the auditor the contents of the safe-deposit box at the balance sheet date.
B) Examine supporting evidence for transactions occurring during the year.
C) Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date.
D) Request that the client have the bank seal the safe-deposit box until the auditor can count the securities at a subsequent date.
Q2) Tracing a sample of remittance advices to entries in the cash receipts journal tests which of the following assertions for cash?
A) Occurrence.
B) Completeness.
C) Authorization.
D) Cutoff.
Q3) Explain how cash plays a role in all business processes.
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Chapter 17: Completing the Audit Engagement
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Q1) The refusal of a client's attorney to provide a representation on the legality of a particular act committed by the client is generally
A) Sufficient reason to issue a "subject to" qualified opinion.
B) Considered to be a scope limitation.
C) Insufficient reason to modify the auditor's report because of the attorney's obligation of confidentiality.
D) Proper grounds to withdraw from the engagement without further consideration.
Q2) Which of the following ratios is least likely to assist the auditor in determining whether the client is experiencing financial difficulties?
A) Net worth/total liabilities.
B) Cash/total assets.
C) Total liabilities/total assets.
D) Net income before taxes/net sales.
Q3) Discuss the internal control communication requirements of the PCAOB.What must auditors of public companies report to those charged with governance?
Q4) Define the term "contingent liability" and discuss the criteria used to classify these events or conditions.Provide some examples of contingent liabilities.
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Chapter 18: Reports on Audited Financial Statements
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Q1) An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except:
A) An opinion as to whether the basis of accounting used is appropriate under the circumstances.
B) An opinion as to whether the financial statements are presented fairly in conformity with the other basis of accounting.
C) Reference to the note to the financial statements that describes the basis of presentation.
D) A statement that the basis of presentation is a basis of accounting other than generally accepted accounting principles.
Q2) An opinion based in part on the report of another auditor requires an explanatory/emphasis-of-matter paragraph be added to the standard unqualified/unmodified audit report.
A)True
B)False
Q3) An auditor must disclaim an opinion when the auditor lacks independence.
A)True
B)False
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Chapter 19: Professional Conduct,Independence,and Quality Control
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Q1) A CPA firm's personnel partner periodically studies the CPA firm's personnel advancement experience to ascertain whether the individuals who were assigned increased degrees of responsibility met predetermined criteria.This is evidence of the CPA firm's adherence to prescribed standards of
A) Quality control.
B) Due professional care.
C) Supervision and review.
D) Fieldwork.
Q2) Identify the primary purposes of Rules 201-203 of the Rules of Conduct.
Q3) If an auditor is not independent of the client,it is unlikely that a user of financial statements will place much reliance on the CPA's work.
A)True
B)False
Q4) The SEC has issued independence rules that differ from the AICPA's in all of the following areas except:
A) Working paper documentation.
B) Provision of other professional services.
C) Human resource and compensation-related issues.
D) Required communication.
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Chapter 20: Legal Liability
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Q1) Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements?
A) Contributory negligence on the part of the client.
B) A disclaimer contained in the engagement letter.
C) Lack of privity.
D) Lack of scienter.
Q2) The most restrictive view under common law is that auditors have no liability to third parties who do not have a privity relationship with the auditor.Briefly define privity and the effect it has on the auditor,client,investors,and creditors under common law.
Q3) To recover against an auditor in a negligence case,the client must prove that the client sustained an actual loss or damage.
A)True
B)False
Q4) Why are plaintiffs motivated to bring actions under RICO?
A) It pertains exclusively to auditors' actions.
B) It guarantees that cases will be heard in state courts.
C) It provides for treble damages.
D) It holds auditors to standards that exceed reasonable assurance.
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Chapter 21: Assurance,Attestation,and Internal Auditing Services
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Q1) Which of the following is the authoritative body designated to promulgate attestation standards for nonpublic entities?
A) AICPA (Auditing Standards Board).
B) Governmental Accounting Standards Board.
C) Financial Accounting Standards Board.
D) General Accounting Office.
Q2) Which of the following would an accountant not need to know when conducting a compilation?
A) The accounting principles and practices of the industry in which the entity operates.
B) A general understanding of the nature of the entity's business transactions and the form of its accounting records.
C) The accounting basis on which the financial statements are to be presented.
D) The accountant would need to know all of the above when conducting a compilation.
Q3) Limited assurance is provided in a review engagement.
A)True B)False
Q4) Explain each of the three PrimePlus Services typically offered by practitioners.
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