Accounting Information Systems
Practice Questions
Course Introduction
Accounting Information Systems explores the design, implementation, and management of information systems that collect, process, and report financial data. The course examines how technology supports accounting activities such as transaction processing, internal controls, and audit trails, while emphasizing the importance of information security, database management, and systems analysis. Students gain practical skills in evaluating and using accounting software, understanding the role of systems in organizational decision-making, and recognizing the ethical and regulatory issues related to the use of information systems in accounting contexts.
Recommended Textbook
Auditing and Assurance Services 6th Edition by Timothy J. Louwers
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20 Chapters
1618 Verified Questions
1618 Flashcards
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Page 2
Chapter 1: Auditing and Assurance Services
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Sample Questions
Q1) According to PCAOB Auditing Standard No.5 (AS 5),the auditor should identify significant accounts and disclosures and their relevant assertions.Which of the following financial statement assertions is not explicitly identified in AS 5?
A) Completeness
B) Valuation or Allocation
C) Accuracy
D) Existence or Occurrence
E) All of these are assertions identified in AS 5.
Answer: C
Q2) Which of the following is an underlying condition that in part creates the demand by users for reliable information?
A) Economic transactions that are numerous and complex
B) Decisions are time-sensitive
C) Users separated from accounting records by distance and time
D) Financial decisions that are important to investors and users
E) All of these
Answer: E
Q3) What are the four basic requirements for becoming a CPA?
Answer: Education,the CPA Examination,experience,and a state certificate.
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Page 3
Chapter 2: Professional Standards
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Sample Questions
Q1) What type of evidence would provide the highest level of assurance in an attestation engagement?
A) Evidence secured solely from within the entity
B) Evidence obtained from independent sources
C) Evidence obtained indirectly
D) Evidence obtained from multiple internal inquiries
Answer: B
Q2) Control risk is
A) the probability that a material misstatement could not be prevented or detected by the entity's internal control policies and procedures.
B) the probability that a material misstatement could occur and not be detected by auditors' procedures.
C) the risk that auditors will not be able to complete the audit on a timely basis.
D) the risk that auditors will not properly control the staff on the audit engagement.
Answer: A
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4
Chapter 3: Engagement Planning
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Sample Questions
Q1) Identify the two types of audit plans and indicate the purpose of each.
Answer: The two types of audit plans are (1)the internal control program and (2)the substantive audit plan.The internal control program contains the specification of procedures for obtaining an understanding of the entity's business and environment,including its internal control,and for assessing the inherent risk and the control risk related to the financial account balances.The substantive audit plan contains the specification of substantive tests for gathering direct evidence on the assertions about dollar amounts in the account balances.
Q2) Which of the following is not a category of audit documentation?
A) Temporary files
B) Permanent files
C) Audit administrative files
D) Current documentation files
Answer: A
Q3) Which of the following types of transactions would be routine and computerized?
A) Capital stock sales and repurchases
B) Credit sales and billings
C) Income tax expense and liability
D) Bank loan transactions
Answer: B
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Chapter 4: Management Fraud and Audit Risk
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Sample Questions
Q1) Assume that application of analytical procedures revealed significant unexplained differences between recorded amounts and the expectations (estimates)developed by the auditor.If management is unable to provide an acceptable explanation,the auditor should
A) consider the matter a scope limitation.
B) perform additional audit procedures to investigate the matter further.
C) intensify the audit with the expectation of detecting management fraud.
D) withdraw from the engagement.
Q2) Auditors would use the Enterprise Risk Model.
A) To reduce the client's business risk
B) To determine detection risk
C) To evaluate management's risk assessment
D) To monitor client risk
Q3) Auditors use brainstorming
A) to heighten the audit team's awareness of fraud potential.
B) to heighten management's awareness of fraud potential.
C) to determine detection risk.
D) to set materiality.
Q4) Why is it important for auditors to understand their clients' business risks?
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Chapter 5: Risk Assessment: Internal Control Evaluation
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Sample Questions
Q1) The overall attitude and awareness of an entity's board of directors concerning the importance of the client's internal control usually is reflected in its
A) computer-based control activities.
B) system of separation of duties.
C) control environment.
D) safeguards over access to assets.
Q2) The primary objective of procedures performed to obtain an understanding of the entity's internal control is to provide an auditor with
A) knowledge necessary for audit planning.
B) evidential matter to use in assessing inherent risk.
C) a basis for modifying tests of controls.
D) an evaluation of the consistency of application of management's policies.
Q3) Which of the following outcomes is a likely benefit of information technology used for internal control?
A) Processing of unusual or nonrecurring transactions
B) Enhanced timeliness of information
C) Potential loss of data
D) Recording of unauthorized transactions
Q4) List several elements of a company's control environment.
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Chapter 6: Employee Fraud and the Audit of Cash
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Sample Questions
Q1) An auditor would least likely initiate a discussion with a client's audit committee concerning
A) the methods used to account for significant unusual transactions.
B) the maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated.
C) indications of fraud and illegal acts committed by a corporate officer that were discovered by the auditor.
D) disagreements with management as to accounting principles that were resolved during the current year's audit.
Q2) When counting cash on hand the auditor must exercise simultaneous control over all cash and other negotiable assets to prevent A) theft.
B) irregular endorsement.
C) replacement or substitution of stolen assets.
D) deposits in transit.
Q3) After checks are signed for vendor invoices,why should vouchers be marked "paid" or otherwise mutilated?
Q4) Describe how a lockbox works and indicate the advantages of such a system.
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8
Chapter 7: Revenue and Collection Cycle
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Sample Questions
Q1) In tests of controls auditing,auditors need to define "deviations" in advance.Give seven examples of control compliance deviations related to a client's processing of credit sales transactions and the related assertion that was violated.
Q2) The document that generates recording of a sale is the A) customer order. B) shipping order.
C) invoice.
D) purchase order.
Q3) An objective for an audit is to obtain evidence related to management's financial statement assertions.
Question also found in study guide A)True
B)False
Q4) The sum of customers' unpaid balances that is compared to the general ledger balance comes from A) a total of sales invoices.
B) a total of shipping orders.
C) the sales journal.
D) the accounts receivable trial balance.
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Chapter 8: Acquisition and Expenditure Cycle
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Sample Questions
Q1) Auditors can compare the ________________________________ file to the _________________________________ to determine whether the company has material unrecorded liabilities on the financial statement date. Question also found in study guide
Q2) The ____________________________________ is the primary original record for payroll accounting. Question also found in study guide
Q3) When using confirmations to provide evidence about the completeness assertion for accounts payable,the appropriate population most likely would be
A) vendors with whom the entity has previously done business.
B) amounts recorded in the accounts payable subsidiary ledger.
C) payees of checks drawn in the month after the year-end.
D) invoices filed in the entity's open invoice file.
Q4) Which of the following accounts would most likely be audited in connection with a related balance sheet account?
A) Property tax expense.
B) Payroll expense.
C) Research and development.
D) Legal expense.
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Chapter 9: Production Cycle
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Sample Questions
Q1) Which of the following would be considered an analytical procedure?
A) Testing purchasing, shipping, and receiving cutoff activities.
B) Comparing inventory balances to recent sales activities.
C) Projecting the deviation rate of a statistical sample to the population.
D) Reconciling physical counts to perpetual records and general ledger balances.
Q2) If control risk is assessed high,cost accumulations will require additional substantive procedures to lower the risk of failing to detect material misstatements in inventory.
A)True
B)False
Q3) A material error or fraud in inventory typically has a _________________________________ on financial statements.
Question also found in study guide
Q4) Which of the following is not an acceptable method of determining inventory cost under GAAP?
A) FIFO.
B) LIFO.
C) Average cost.
D) All of the above are acceptable.
Q5) Prepare an audit plan for inventory pricing and compilation.
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Chapter 10: Finance and Investment Cycle
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Sample Questions
Q1) Red Corporation had a temporary cash squeeze near its balance-sheet date.It needed cash badly for a seasonal dip in sales.However,a loan covenant requiring a certain debt/equity ratio would be violated if any additional money were borrowed.To remedy this,the top two officers of the Corporation set up another corporation,Pink Inc.,Red made a large sale of inventory to Pink at cost.Pink used the inventory as collateral for a three-month loan from a local bank.The money from the loan was used to pay Red for the accounts receivable resulting from the "sale." The officers intended to have Red buy back the inventory from Pink at the end of the three-month period at a price that would allow Pink to pay off the loan plus interest.
Required:
a.How would this transaction designed by the two officers enable Red to maintain its required debt/equity ratio while obtaining the cash it needed?
b.What tests of controls and substantive tests would enable an auditor to detect this scheme?
Q2) Dividends received from stock investments can be verified by examing the company's cash receipts journal.
A)True
B)False
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Page 12
Chapter 11: Completing the Audit
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Sample Questions
Q1) Following the audit report release date,auditors became aware of facts existing at the report date that would have affected the reports had auditors then been aware of such facts.What is the most appropriate initial course of action that auditors should take?
A) Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
B) Request that management disclose the newly-discovered information by issuing revised financial statements.
C) Issue revised pro forma financial statements taking into consideration the newly discovered information.
D) Give public notice that auditors are no longer associated with financial statements.
Q2) Roll-forward work normally occurs between the ____ and the ____.
A) beginning of the year under audit; audit report release date
B) date of the financial statements; audit report release date
C) beginning of the year under audit; date of the financial statements
D) date of interim work; date of the auditors' report
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Chapter 12: Reports on Audited Financial Statements
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Sample Questions
Q1) Reference in a group auditors' report to the fact that part of the audit of group financial statements was performed by component auditors most likely would be an indication of
A) involvement of component auditors in the audit of the group financial statements.
B) the portion of the group statements audited by the component auditors not being considered material.
C) group auditors' recognition of the component auditors' competence, reputation, and professional certification.
D) different opinions the auditors are expressing on the components of the financial statements that each audited.
Q2) A client has capitalizable leases but refuses to capitalize them in the financial statements.Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?
A) Qualified opinion
B) Unmodified opinion
C) Disclaimer of opinion
D) Adverse opinion
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Chapter 13: Other Public Accounting Services
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Sample Questions
Q1) In a compilation engagement,
A) all appropriate disclosures must be presented.
B) managers or owners may choose to omit all the footnote disclosures.
C) financial statements must be presented in prescribed forms.
D) an auditor provides only negative assurance.
Q2) Review work on unaudited financial statements consists primarily of conducting inquiries,performing analytical procedures,and obtaining a management representation letter.List the typical procedures accountants would perform on a review engagement.
Q3) Which of the following is NOT a principle of Trust Service engagements?
A) Security from unauthorized use
B) Availability of the system, products, or services
C) Proficiency in preparing transactions
D) Confidentiality of information
Q4) In an agreed-upon procedures engagement,an accountant
A) follows all of the Fundamental Principles of GAAS.
B) restricts the report to specified users.
C) includes negative assurance in the report.
D) gives a qualified audit report.
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Chapter 14: Professional Ethics
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Sample Questions
Q1) What is the role of the PCAOB's Division of Enforcement and Investigation in dealing with independence violations involving accountants engaged to audit public companies?
Q2) The SEC requires companies to disclose fees paid to independent public accounting firms for audit and consulting services in the belief that
A) such disclosures will end the practice of auditors performing nonaudit services for audit clients.
B) financial analysts will attribute far less credibility to financial statements audited by public accounting firms that earn substantial nonaudit fees from audit clients.
C) audit firm consulting on client's accounting information processing systems essentially impairs audit independence.
D) client directors and financial statement users should consider all aspects related to auditors' independence, and information about fees is important.
Q3) What are (a)the AICPA Principles of Professional Conduct,(b)Rules of Conduct,and (c)Interpretation of Rules of Conduct?
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Chapter 15: Legal Liability
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Sample Questions
Q1) While conducting an audit,Larson Associates,CPAs,failed to detect material misstatements included in its client's financial statements.Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client.Larson knew that its opinion and the financial statements would be used for this purpose.In a suit by a purchaser against Larson,Larson's best defense would be that the A) audit was conducted in accordance with generally accepted auditing standards. B) client was aware of the misstatements. C) purchaser was not in privity of contract with Larson. D) identity of the purchaser was not known to Larson at the time of the audit.
Q2) Under the anti-fraud provisions of section 10(b)of the Securities Exchange Act of 1934,auditors may be liable if they acted A) with ordinary negligence. B) with independence. C) without due diligence. D) without good faith.
Q3) What are the legal liabilities of auditors under common law?
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Page 17
Chapter 16: Internal Audits governmental Audits and Fraud
Examinations
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Sample Questions
Q1) Governmental and internal auditors are more concerned with compliance with laws,regulation and policy than are external auditors.
A)True
B)False
Q2) The services provided by internal auditors do not include
A) audits of financial statements for security registration statements.
B) review of control systems that ensure compliance with company policies, laws, and regulations.
C) review of effectiveness in achieving program results in comparison to pre-established objectives and goals.
D) appraisals of the economy and efficiency of operations.
Q3) Predication is
A) the determination of the method used to enact a fraud.
B) evidence used in a court of law in proving fraudulent behavior.
C) a reason to believe that a fraud has occurred.
D) the amount of restitution that is made to the company when an individual is convicted of a fraud.
Q4) Explain briefly the purpose and requirements under the Single Audit Act.
Q5) What are the different types of internal audits?
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Chapter 17: Overview of Sampling
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Sample Questions
Q1) In sampling,an individual makes a statement about a _____ of interest by examining a _____ (or subset)of items.
A) sample; population
B) sampling unit; population
C) population; sample
D) population; sampling unit
Q2) Auditors use attributes sampling in assessing the effectiveness of a client's internal controls to determine
A) the extent to which internal controls are operating as intended to prevent or detect misstatements.
B) the degree of inherent risk associated with various account balances or classes of transactions.
C) the degree of risk present in the client's business environment.
D) the accuracy of the client's account balances or classes of transactions.
Q3) The precision interval has a ____ percent probability of including the ____.
A) sampling risk; adjusted sample estimate
B) sampling risk; true population value
C) 1 minus sampling risk; adjusted sample estimate
D) 1 minus sampling risk; true population value
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Page 19
Chapter 18: Attributes Sampling
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Sample Questions
Q1) In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized,an auditor should consider the tolerable rate of deviation from the control activity.The auditor should also consider 1.Likely rate of deviations
2)Allowable risk of underreliance.
A) 1 only
B) 2 only
C) Both 1 and 2
D) Either 1 or 2
Q2) The auditor tested a sample of recorded sales invoices for evidence of credit approval.Based on the results of the sample,the auditor concluded that there was a satisfactory rate of approvals.Unknown to the auditor,credit approvals in the population were not satisfactory.This would be an example of
A) risk of overreliance.
B) risk of underreliance.
C) risk of incorrect acceptance.
D) risk of incorrect rejection.
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Chapter 19: Variables Sampling
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Sample Questions
Q1) All other factors being equal,as the risk of incorrect acceptance and tolerable misstatement increase,the sample size will
A) not be affected.
B) increase.
C) decrease.
D) cannot determine from the information given.
Q2) Samantha,CPA decided to stratify the population in her statistical sampling plan.Which of the following is the most likely reason she used this approach?
A) It eliminates the need for random selection.
B) The population is relatively homogenous in terms of the dollar amount of components or transactions.
C) It reduces her expected sample size.
D) It eliminates the need for calculating the projected misstatement in the account being examined.
Q3) What is the appropriate sampling interval?
A) $60
B) $250
C) $500
D) $30,000
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Page 21
Chapter 20: Auditing and Information Technology
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Sample Questions
Q1) The audit team made a copy of the client's sales and billing program early in the audit.Several times during the audit,the audit team used this copy of the program to process actual client data.The output of the secured program was compared to that of the client's system.This audit technique would be considered
A) generalized audit software.
B) parallel Simulation.
C) test data.
D) tagging transactions.
Q2) Techniques needed to select specific transactions of audit interest for testing would not include
A) embedded audit modules.
B) monitoring system activity.
C) snapshot.
D) test data.
Q3) Which of the following is an example of a computer operations control?
A) Control totals
B) Balancing input to output
C) File backup and retention
D) Transaction logs
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Page 22