Accounting Information Systems
Pre-Test Questions
Course Introduction
Accounting Information Systems explores the design, implementation, and evaluation of computerized systems that support accounting processes and decision-making within organizations. The course covers fundamental concepts such as the flow of financial data through accounting cycles, database management, internal controls, risk assessment, and security measures. Students will learn how to analyze and design accounting systems, apply relevant technologies, and evaluate the impact of digital innovations on auditing and financial reporting. Emphasis is placed on integrating accounting knowledge with information systems to improve the accuracy, reliability, and efficiency of business operations.
Recommended Textbook
Auditing and Assurance Services 7th Edition by Timothy J Louwers
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20 Chapters
1606 Verified Questions
1606 Flashcards
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Chapter 1: Auditing and Assurance Services
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62 Verified Questions
62 Flashcards
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Sample Questions
Q1) In auditing the long term debt account,an auditor's procedures most likely would focus primarily on management's assertion of A)existence.
B)completeness.
C)allocation.
D)rights and obligations.
Answer: B
Q2) An auditor selected items from the client's detailed inventory listing (that agreed to the financial statements).During the physical inventory observation,the auditor then found each item selected and counted the number of units on hand.Assuming that the amount on hand was the same as the amount in the client's detailed inventory listing,this procedure most likely would provide evidence concerning management's assertion of A)completeness.
B)valuation.
C)presentation and disclosure.
D)existence.
E)rights and obligations.
Answer: D
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Chapter 2: Professional Standards
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Sample Questions
Q1) Which of the following could serve as a source of professional guidance in the audit of a public entity? \[\begin{array} { c c c }
&\text { Auditing Standards } & \text { Statements on Auditing } \\
&\text { issued by the } & \text { Standards issued by the } \\ & \text { PCAOB } & \text { ASB } \\
\text { A. } &\text { Yes } & \text { No } \\
\text { B. } & \text { Yes } & \text { Yes } \\
\text { C. }&\text { No } & \text { Yes }\\
\text { D. }&\text { No } & \text {No }\\
\end{array}\]
Answer: B
Q2) Which of the following does not directly relate to an auditor's responsibility for having appropriate competence and capabilities to perform the audit?
A)Participating in continuing professional education
B)Gaining experience through hands-on practice
C)Obtaining reliable documentary evidence
D)Attending on-the job training
Answer: C
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Page 4
Chapter 3: Engagement Planning
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Sample Questions
Q1) Which of the following most likely would give the most assurance concerning the valuation assertion of accounts receivable?
A)Tracing amounts in the subsidiary ledger to details on shipping documents
B)Comparing receivable turnover rates to industry statistics for reasonableness
C)Inquiring about receivables pledged under loan agreements
D)Assessing the allowance for uncollectible accounts for reasonableness
Answer: D
Q2) Explain the bottom-up approach and the top-down approach to quantifying overall materiality.
Answer: In the bottom-up approach to judging materiality,amounts in each account are judged separately and then combined to determine the overall effect.In the top-down approach to judging materiality,an overall material amount is determined for the financial statements and then allocated to each particular account.
Q3) Management's responsibility in a computer system would not include
A)ensuring that the documentation of the system is complete and up to date.
B)maintaining a system of transaction processing that includes an audit trail.
C)assessing the control risk.
D)making computer resources and knowledgeable personnel available for questions.
Answer: C
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Page 5
Chapter 4: Management Fraud and Audit Risk
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Sample Questions
Q1) If an auditor encounters significant risks at the client,the auditor should do all of the following except
A)inform the SEC.
B)perform extended procedures.
C)include more experienced auditors on the engagement.
D)perform tests closer to year end.
Q2) Independent auditors who consider fraud in the course of financial statement audits are well-advised to quantify "materiality" in terms of
A)the maximum amount of asset overstatement that might mislead investors in relation to the latest financial statements under audit.
B)a maximum percentage of net income overstatement that might mislead investors in relation to the latest financial statements under audit.
C)a cumulative amount of misstatement of assets or income over several years past and current that might mislead investors in relation to the latest financial statements under audit.
D)controversial accounting measurements that might mislead investors in relation to the latest financial statements under audit.
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Chapter 5: Risk Assessment: Internal Control Evaluation
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Sample Questions
Q1) When an auditor plans to rely on controls that have changed since they were last tested,which of the following courses of action would be most appropriate?
A)Test the operating effectiveness of such controls in the current audit.
B)Document that reliance and proceed with the original audit strategy.
C)Inquire of management as to the effectiveness of the controls.
D)Report the reliance in the report on internal controls.
Q2) Each of the following types of controls is considered to be an entity-level control,except those
A)relating to the control environment.
B)pertaining to the company's risk assessment process.
C)regarding the company's annual stockholder meeting.
D)addressing policies over significant risk management practices.
Q3) Which of the following is the best way to compensate for the lack of adequate segregation of duties in a small organization?
A)Disclosing lack of segregation of duties to the external auditors during the annual review
B)Replacing personnel every three or four years
C)Requiring accountants to pass a yearly background check
D)Allowing for greater management oversight of incompatible activities
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Page 7
Chapter 6: Employee Fraud and the Audit of Cash
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Sample Questions
Q1) A proof of cash
A)is required by GAAS.
B)can be used to test the transactions process.
C)is most helpful when control risk for cash is low.
D)always detects lapping.
Q2) An audit plan of substantive procedures for cash would not include
A)request a cutoff bank statement be mailed to the client.
B)request client to prepare bank reconciliations.
C)prepare a schedule of interbank transfers for a period of ten business days before and after year-end date.
D)obtain a written client representation concerning compensating balance agreements.
Q3) Ed's wife Diane owns a printing business in town.Ed works in the accounts payable department of Jiffy Abs Vitamin Company.Diane prints invoices for work supposedly done for Jiffy Abs (no actual work was performed)and Ed places in the invoice in the approved for payment invoice pile.Jiffy Abs pays these invoices and sends Diane a check.
1.Name two internal controls that might prevent or detect these fraudulent payments.
2.Name two audit procedures that might detect this fraud.
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Chapter 7: Revenue and Collection Cycle
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Sample Questions
Q1) Credit checks should be performed by the sales department before credit is approved.
Question also found in study guide
A)True
B)False
Q2) Another way to obtain information about the internal control system is to take a single example of a transaction and __________________________ the process from its initiation to its recording in the accounting records.
Question also found in study guide
Q3) In determining the adequacy of the allowance for uncollectible accounts,the least valuable evidence would be obtained from
A)an aging schedule of past due accounts that the auditor has tested.
B)correspondence with the client's collection agency.
C)financial statements of individual customers.
D)no reply to negative confirmations.
Q4) A procedure to gather evidence on both account balances and controls is called a ______________________________________ procedure.
Question also found in study guide
Q5) What is dual direction testing?
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Chapter 8: Acquisition and Expenditure Cycle
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Sample Questions
Q1) The auditors' "search for unrecorded liabilities" should emphasize payments made shortly after the end of the year.
A)True
B)False
Q2) When auditing PP&E,the auditor's approach is generally to
A)Examine evidence supporting the amounts in the ending balance.
B)Examine evidence supporting additions during the year.
C)Follow a reliance strategy,testing internal controls and analytical procedures.
D)Concentrate on finding unrecorded assets.
Q3) Which of the following client control activities is not usually performed in the vouchers payable (accounts payable)department?
A)Determining the mathematical accuracy of the vendors' invoices.
B)Writing checks for the treasurer's signature to take advantage of purchase discounts.
C)Controlling the mailing of the check and remittance advice.
D)Checking the prices on the vendor's invoice.
Q4) ...
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Chapter 9: Production Cycle
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Sample Questions
Q1) An auditor will usually trace the details of the test counts made during the observation of physical inventory counts to a final inventory compilation.This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are
A)Owned by the client.
B)Not obsolete.
C)Physically present at the time of the preparation of the final inventory schedule.
D)Included in the final inventory schedule.
Q2) _____________________________ can be used in connection with knowledge of the shape of management's plans for the year under audit.
Reference: Question also found in study guide
Q3) Production reports of finished units should be signed by the __________________________________ and finished goods inventory custodian and forwarded to _______________________________.
Reference: Question also found in study guide
Q4) Cost accounting is responsible for reconciling inventory usage with production.
A)True
B)False
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11
Chapter 10: Finance and Investment Cycle
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116 Flashcards
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Sample Questions
Q1) Capital stock may be subject to _____________________________ when independent registrars and transfer agents are employed.
Question also found in study guide
Q2) The decision of a company to have a transfer agent handle exchanges of shares is related primarily to which of the functional responsibilities?
A)Rights and obligations.
B)Custody.
C)Record keeping.
D)Periodic reconciliation.
Q3) Which of the following audit procedures would not likely be performed for audits of shareholders' equity?
A)Read board of directors' minutes for authorization of equity transactions.
B)Confirm outstanding common and preferred stock with stock registrar.
C)Compare valuation of stock to published market prices.
D)Obtain management representation about number of shares issued and outstanding.
Q4) Bank confirmation requests should only include balances for cash accounts.
A)True
B)False
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Chapter 11: Completing the Audit
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Sample Questions
Q1) Auditors must complete various phases of an audit after the date of the financial statements.The auditors' responsibility for matters affecting the client extends from the date of the financial statements to the
A)Date of the auditors' report.
B)Final review of the audit documentation.
C)Audit report release date.
D)Delivery of the auditors' reports to the client.
Q2) For which of the following objectives would auditors be least likely to use analytical procedures near the end of the audit?
A)Obtaining evidence about assertions related to account balances or classes of transactions.
B)Evaluating the adequacy of evidence gathered in response to unexpected account balances.
C)Identifying unusual or unexpected account balances or relationships among account balances that were not previously identified during the audit.
D)Evaluating the adequacy of evidence gathered in response to unexpected relationships among account balances.
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13
Chapter 12: Reports on Audited Financial Statements
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Sample Questions
Q1) When reporting on comparative financial statements,auditors ordinarily should modify their previously expressed opinion on the prior years' financial statements if the
A)Prior years' financial statements are restated to conform with generally accepted accounting principles.
B)Auditors were predecessor auditors who have been requested by a former client to reissue the previous report.
C)Prior years' opinions were unmodified and the opinion on the current-year's financial statements is modified due to a lack of consistency.
D)Prior years' financial statements are restated following an acquisition in the current year.
Q2) An auditor who is unable to form an opinion on a new client's opening inventory balances may issue an unmodified opinion on the current year's
A)Income statement only.
B)Statement of cash flows only.
C)Balance sheet only.
D)Statement of changes in shareholders' equity only.
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14
Chapter 13: Other Public Accounting Services
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Sample Questions
Q1) When interim financial information is presented as supplementary information accompanying audited financial statements,the auditor should make reference to the information
A)in all cases.
B)when it has not been labeled as "unaudited".
C)when it is material to the financial statement users.
D)when the information has been reviewed rather than audited.
Q2) Hamell Corporation is making a presentation to a perspective investor.The presentation includes a projection showing that the company's sales will be between $25,000,000 and $27,000,000 within the next three years.Hamell believes the information will be better received if its CPA provides an attestation report on the projection.The CPA should insure that proper disclosure is made to indicate that
A)the $27,000,000 estimate is a best case scenario.
B)the range of the projection is appropriate given the circumstances.
C)the range does not indicate a "best" and "worst" case scenario.
D)projections are limited in their information content due to uncontrollable changes in the business environment.
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Page 15
Chapter 14: Professional Ethics
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Sample Questions
Q1) Which of the following philosophical theories places emphasis on the consideration of projecting the consequences of a choice in terms of this question: "What may be the consequences of similar persons making this choice in similar circumstances?"
A)Imperative principle.
B)Utilitarianism.
C)Generalization principle.
D)Virtue ethics.
Q2) Which of the following philosophical principles in ethics places emphasis on the consequences of action,rather than on following the rules?
A)Imperative principle.
B)Utilitarianism principle.
C)Generalization principle.
D)Moral principle.
Q3) 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?
Q4) 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) Paula performed the audit of the financial statements of Abdul Company (a nonpublic entity currently not subject to filing requirements under the Securities Act of 1933 or Securities Exchange Act of 1934).Abdul Company is currently considering several alternatives for raising capital,including seeking financing from area banks or an initial public offering of its securities.Which of the following parties would have the lowest likelihood of successfully bringing suit for ordinary negligence against Paula?
A)Abdul Company.
B)Purchasers of Abdul Company's securities in an initial public offering.
C)First State Bank,a bank with whom Abdul Company has not previously done business.
D)Simon Whitaker,a private investor who is considering acquiring Abdul Company.
Q2) In a common law action against auditors,lack of privity is a viable defense if the plaintiff
A)Is the client's creditor who sues auditors for ordinary negligence.
B)Can prove gross negligence by auditors that amounts to a reckless disregard for the truth.
C)Is the auditors' client.
D)Bases the action upon fraud.
Q3) What are the legal liabilities of auditors under common law?
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Chapter 16: Internal Audits, Governmental Audits, and Fraud Examinations
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Sample Questions
Q1) During the audit of the quality control area,an auditor identified that a specific product has a 3 percent failure rate when tested.The specification calls for a failure rate of less than 1.8 percent.Product failure might lead to customer injury and in turn lawsuits against the company.The auditor has communicated this to management.Which of the following is not an acceptable response from management with regard to this risk?
A)Management is aware of the risk and has decided that it is acceptable.
B)Management has decided not to continue manufacturing this product.
C)Management has decided to increase the quality control activity to reduce the manufacture of unacceptable product to an acceptably low level.
D)Management has decided that the test data are unreliable and has decided not to respond to the audit findings.
Q2) Which of the following would not be an objective of a fraud investigation?
A)Determine from the evidence if a fraud has been committed.
B)Determine the scope of the fraud.
C)Identify internal control weaknesses that allowed the fraud to occur.
D)Determine the amount of restitution that should be received from the perpetrators.
Q3) What are the different types of internal audits?
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Page 18
Chapter 17: Overview of Sampling
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Sample Questions
Q1) Jones,CPA,is performing a sampling application to determine the average number of patrons attending the performance of a musical on a weeknight.She randomly selects five weeknight performances during the month of May and calculates an average of 230 patrons per performance,with an associated precision of 25 patrons.This precision is determined based on a confidence level of 95 percent.
A.What is Jones' exposure to sampling risk?
B.What is the precision interval associated with Jones' sample?
C.Provide an explanation of the sampling interval calculated in (b)above.
D.If theaters needed an average attendance of 200 patrons per weeknight to remain profitable,what would Jones' conclusion be with respect to this question?
Q2) When considering the results of an attributes sampling application,the auditor compares which of the following two measures?
A)Upper limit rate of deviation; sample rate of deviation.
B)Tolerable rate of deviation; sample rate of deviation.
C)Expected rate of deviation; upper limit rate of deviation.
D)Upper limit rate of deviation; tolerable rate of deviation.
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Chapter 18: Attributes Sampling
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Sample Questions
Q1) In performing tests of controls over authorization of cash disbursements,which of the following statistical sampling methods would be most appropriate?
A)Variables.
B)Stratified.
C)Ratio.
D)Attributes.
Q2) The upper limit rate of deviation in attributes sampling is:
A)The actual deviation rate in the population.
B)Always less than the tolerable rate of deviation.
C)Always greater than the tolerable rate of deviation.
D)A statistical calculation that considers sampling risk.
Q3) Which of the following is not true with regard to the relationship among control risk,the risk of overreliance,and the tolerable rate of deviation?
A)Lower levels of control risk result in a higher level of the risk of overreliance.
B)Lower levels of the risk of overreliance result in a lower tolerable rate of deviation.
C)Lower levels of control risk result in a lower tolerable rate of deviation.
D)All of the above are true.
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Page 20
Chapter 19: Variables Sampling
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Sample Questions
Q1) Brown,CPA,was using monetary unit sampling to audit an inventory of $3,000,000 that was comprised of 6,000 items.A sample size of 500 was determined and a tolerable misstatement of $20,000 was established.The sampling interval would be:
A)$500.
B)$5,000.
C)$6,000.
D)$20,000.
Q2) What is the projected misstatement?
A)$5,000.
B)$10,000.
C)$15,000.
D)$30,000.
Q3) The auditor's sample would indicate that the client's account balance is fairly stated when the _____ is less than the _____.
A)Upper limit on misstatements; tolerable misstatement.
B)Actual misstatement; tolerable misstatement.
C)Tolerable misstatement; upper limit on misstatements.
D)Tolerable misstatement; actual misstatement.
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Chapter 20: Auditing and Information Technology
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Sample Questions
Q1) Which of the following is a category of general controls?
A)Detective controls.
B)Input controls.
C)Processing controls.
D)Program change controls.
Q2) 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.
Q3) When audit teams test a computerized processing system,which of the following is true of the test data approach?
A)Several transactions of each type must be tested.
B)Test data are processed by the client's computer programs under the audit team's control.
C)Test data must consist of all possible valid and invalid combinations.
D)The computer program used to process test data is different from the program used throughout the year by the client.
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