Accounting Information Systems
Question Bank
Course Introduction
Accounting Information Systems explores the integration of accounting principles with information technology to support effective decision-making and business operations. The course covers the design, implementation, and management of computerized accounting systems, emphasizing internal controls, data security, and the use of software for transaction processing, financial reporting, and auditing functions. Students will analyze how accounting information systems facilitate organizational objectives, enhance reporting efficiency, and improve the reliability of financial data, while also addressing contemporary issues such as cybersecurity, fraud prevention, and regulatory compliance.
Recommended Textbook
Auditing Assurance Services A Systematic Approach 11th Edition by William F Messier Jr
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Page 2
Chapter 1: An Introduction to Assurance and Financial Statement Auditing
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Q1) Auditing focuses on rules, techniques, and computations required to prepare and analyze financial information.
A)True
B)False
Answer: False
Q2) When obtaining an understanding of the entity and its environment, the auditor should obtain an understanding of internal controls primarily to:
A)identify areas of relatively high risk of misstatement and plan the audit accordingly.
B)provide suggestions for improvement to the company.
C)serve as a basis for setting audit risk and materiality.
D)decide whether to perform an audit for the company.
Answer: A
Q3) Preliminary engagement activities include:
A)evaluating internal controls.
B)assessing audit risk at the account balance level.
C)setting materiality.
D)performing background checks on top management.
Answer: D
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Chapter 2: The Financial Statement Auditing Environment
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Q1) Typically, an external auditor first gets supervisory experience at what level of authority?
A)Associate.
B)Senior.
C)Manager.
D)Partner.
Answer: B
Q2) One of the five basic business processes is the warehousing cycle.
A)True
B)False
Answer: False
Q3) Due professional care requires:
A)auditors to maintain an attitude that includes a questioning mind and a critical assessment of audit evidence.
B)the examination of all available corroborating evidence.
C)the exercise of error-free judgment.
D)a study and review of internal controls that includes tests of controls.
Answer: A
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Chapter 3: Audit Planning, Types of Audit Tests, and Materiality
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Sample Questions
Q1) Name three Sarbanes-Oxley Act requirements and duties of the members of the audit committee of a public company.
Answer: Students must provide three of the following:
1. Each member of the audit committee must be a member of the board of directors and must be independent.
2. The audit committee is directly responsible for the appointment, compensation, and oversight of the work of any registered public accounting firm employed by the company.
3. The audit committee must preapprove all audit and nonaudit services provided by its auditor.
4. The audit committee must establish procedures for the receipt, retention, and treatment of complaints received by the company regarding accounting, internal control, and auditing.
5. Each audit committee member must have the authority to engage independent counsel, or other advisors, as he or she deems necessary to carry out his or her duties.
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Chapter 4: Risk Assessment
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Q1) What is the difference between audit risk and engagement risk?
Q2) Stacey, the partner in charge of the audit of RIF Enterprises, sets the planned level of audit risk for the audit of accounts payable at 0.06. The risk of material misstatement is assessed at 0.65. What is the detection risk for this audit?
Q3) Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?
A)Inability to generate cash flows from operations while reporting substantial earnings growth.
B)Management's lack of interest in increasing the entity's earnings trend.
C)Large amounts of liquid assets that are easily converted into cash.
D)Inability to borrow necessary capital without granting debt covenants.
Q4) The risk of material misstatement differs from detection risk in that it:
A)arises from the misapplication of auditing procedures.
B)may be assessed in either quantitative or qualitative terms.
C)exists independently of the actions of the auditor.
D)can be changed at the auditor's discretion.
Q5) In one sentence each, define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets.
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Chapter 5: Evidence and Documentation
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Sample Questions
Q1) Which assertions may be tested for the "transactions and events" category of management assertions?
A)Existence, completeness, rights and obligations, accuracy, cutoff, classification, and presentation.
B)Occurrence, completeness, rights and obligations, accuracy, cutoff, and classification.
C)Occurrence, completeness, authorization, accuracy, cutoff, classification, and presentation.
D)Existence, rights and obligations, accuracy, authorization, and completeness.
Q2) The permanent audit file usually includes:
A)Working trial balance.
B)Organizational chart.
C)Audit plan.
D)Audit programs.
Q3) The auditor must use his or her professional judgment to determine the amount of audit evidence to be gathered.
A)True
B)False
Q4) According to the text, what are the three functions of working papers?
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Chapter 6: Internal Control in a Financial Statement Audit
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Q1) The documentation of an auditor's understanding of internal controls:
A)is optional.
B)must be exclusively in narrative, questionnaires, or flowchart form.
C)must include flowcharts.
D)can include any combination of narratives, questionnaires, or flowcharts.
Q2) Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when:
A)external policies established by parties outside the entity affect its accounting practices.
B)management is dominated by one individual.
C)internal audit personnel have direct access to the board of directors and the entity's management.
D)the audit committee is active in overseeing the entity's financial reporting policies.
Q3) Internal control consists of six components.
A)True
B)False
Q4) Why might an auditor decide to test controls at an interim date?
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8
Chapter 7: Auditing Internal Control Over Financial Reporting
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Q1) Discuss the differences between a control deficiency, a significant deficiency, a material weakness, and the two dimensions of the control deficiency-likelihood and magnitude.
Q2) On the audit of Technology Unlimited, a leading manufacturer of computer chips, the external audit staff discovers that the internal audit staff has performed extensive evaluation and testing on the control environment. What should the external auditors do to determine the extent to which they may use the work of the internal audit staff? Can the external audit staff rely on the internal audit staff for evaluating and testing the control environment?
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) CBA Associates is auditing a large publicly traded company. The audit of internal controls over financial reporting has been properly planned and the auditors have already identified controls to test using a top-down, risk-based approach. What is the next step? Give three examples of procedures that may be completed in the next step in the audit.
Page 9
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Chapter 8: Audit Sampling: An Overview and Application to
Tests of Controls
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Q1) The computed upper deviation rate is:
A)the maximum rate of deviations that the auditor is willing to accept before deciding not to rely on the control.
B)the rate of deviations that the auditor expects to occur in the population.
C)a point estimate of the population deviation rate.
D)the sum of the sample deviation rate and an appropriate allowance for sampling risk.
Q2) In nonstatistical sampling for tests of controls, increasing the desired confidence level results in a:
A)higher tolerable deviation rate.
B)lower expected deviation rate.
C)larger sample size.
D)smaller sample size.
Q3) Your manager, Sally, believes that nonstatistical sampling is the best method to use on the audit of YaYa Corporation. You, however, believe that statistical sampling is by far the better method. In addition, you have a great deal of training in the proper use of sampling techniques. Prepare an argument to convince Sally why statistical sampling should be used.
Q4) Define Type I and Type II errors.
Page 10
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Chapter 9: Audit Sampling: An Application to Substantive
Tests of Account Balances
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Q1) MUS Upper misstatement limit
A)an individual dollar
B)the total of the projected misstatement plus the allowance for sampling risk
C)the difference between monetary amounts in the entity's records and amounts supported by audit evidence
D)the account or transaction that contains the selected dollar
Q2) The use of the ratio projection is most effective when:
A)the dollar amount of the misstatement is expected to relate to the dollar amount of items tested.
B)a small number of differences exist in the population.
C)estimating populations whose records consist of quantities but not book values.
D)large understatement differences exist in the population.
Q3) In nonstatistical sampling, describe the two methods auditors use to project sample results to the population. How does an auditor determine which method to use?
Q4) Whenever a statistical method is used, a decision rule determines whether the population is acceptable. The decision rule for monetary-unit sampling is "Accept the conclusion that the book value is not misstated by a material amount if ________."
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Chapter 10: Auditing the Revenue Process
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Q1) Data Corporation has just computerized its billing and accounts receivable record keeping. You want to make maximum use of the new computer in your audit of Data Corporation. Which of the following audit techniques could not be performed through a computer program?
A)Tracing audited cash receipts to accounts receivable credits.
B)Selecting accounts to be confirmed on a random basis.
C)Examining sales invoices for completeness, consistency between different items, valid conditions, and reasonable amounts.
D)Resolving differences reported by customers on confirmation requests.
Q2) To determine whether the system of internal control operated effectively to minimize errors of failure to invoice a shipment, the auditor would select a sample of transactions from the population represented by the:
A)customer order file.
B)bills of lading file.
C)open invoice file.
D)sales invoice file.
Q3) According to the Association of Certified Fraud Examiners, there are eight common methods for committing financial statement fraud. List 4 of the 8 methods.
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Chapter 11: Auditing the Purchasing Process
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Q1) Which of the following tests of details of transactions can be used as a dual-purpose test in conjunction with tests of controls?
A)Test a sample of purchase requisitions for proper authorization.
B)Obtain selected vendors' statements and reconcile to vendor accounts.
C)Obtain listing of accounts payable and compare total to general ledger.
D)Review results of confirmations of selected accounts payable.
Q2) To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is:
A)supported by a vendor's invoice.
B)stamped "paid" by the check signer.
C)prenumbered and accounted for.
D)approved for authorized purchases.
Q3) The key inherent risk factors an auditor must consider when auditing the purchasing process are industry factors. Which two are most important and why?
Q4) Analytical procedures can be used to examine the reasonableness of accounts payable and accrued expenses.
A)True
B)False
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Chapter 12: Auditing the Human Resource Management Process
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Q1) Comparing selected items from the payroll register to employee time records that have been approved by supervisory personnel tests which of the following assertions for payroll expense?
A)Occurrence.
B)Completeness.
C)Authorization.
D)Cutoff.
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) Explain how the human resource management process can affect the financial statements.
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Chapter 13: Auditing the Inventory Management Process
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Q1) Which of the following is the best audit procedure for the discovery of damaged merchandise in an entity's ending inventory?
A)Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
B)Observe the condition of merchandise and raw materials during the entity's physical inventory count.
C)Review the management's inventory representation letter for accuracy.
D)Test overall fairness of inventory values by comparing the company's turnover ratio with the industry average.
Q2) Which of the following best describes the occurrence assertion for inventory?
A)Purchase requisitions initiated by authorized personnel.
B)Recorded inventory transactions actually happened.
C)Inventory properly accumulated from journals and ledgers.
D)All inventory is recorded.
Q3) Which of the following departments typically approves purchase requisitions?
A)Raw materials stores.
B)Cost accounting.
C)Inventory management.
D)IT.
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Chapter 14: Auditing the Financinginvesting Process:
Prepaid Expenses, Intangible Assets, and Property, Plant, and Equipment
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Q1) What tests do auditors typically perform on a lead schedule for property, plant, and equipment and what assertion are they testing?
Q2) The auditor may conclude that depreciation charges are insufficient by noting:
A)insured values greatly in excess of book values.
B)large amounts of fully depreciated assets.
C)continuous trade-ins of relatively new assets.
D)excessive recurring losses on assets retired.
Q3) If the auditor has detected misstatements in prior audits, the assessment of inherent risk for the property management process will usually be set higher.
A)True
B)False
Q4) Testing a sample of repairs and maintenance items to ensure that they were properly classified as repairs as opposed to property, plant, and equipment tests which of the following assertions for the property, plant, and equipment account?
A)Occurrence.
B)Completeness.
C)Cutoff.
D)Authorization.
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Chapter 15: Auditing the Financinginvesting Process:
Long-Term Liabilities, Stockholders' Equity, and Income
Statement Accounts
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Q1) The portion of long-term debt due in the next year is classified as a short-term liability
A)Classification
B)Accuracy, Valuation, and Allocation
C)Completeness
D)Occurrence and Authorization
Q2) Which audit procedure is most closely related to management's assertion regarding presentation of liabilities?
A)Tracing cash received from a bond issue to the accounting records.
B)Confirmation with the bond trustee of amounts owed on a private placement of bonds.
C)Reviewing loan contracts for restrictive covenants.
D)Testing a sample of receipts and payments.
Q3) Reviewing interest expense to examine payments to debt holders not listed on the debt analysis schedule is a procedure that can be used to test the audit assertion of:
A)occurrence.
B)completeness.
C)cutoff.
D)accuracy.
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Chapter 16: Auditing the Financinginvesting Process: Cash and Investments
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Q1) If fraud is suspected, auditors may complete all of the following procedures except:
A)testing for kiting.
B)footing the bank reconciliation and the outstanding checks listing.
C)performing a proof of cash.
D)performing extended bank reconciliation procedures, including detailed examination of reconciling items.
Q2) When there is a large number of negotiable securities in multiple locations, careful planning of the physical inspection and count of the securities by the auditor is necessary to guard against:
A)unauthorized negotiation of the securities before they are counted.
B)unrecorded sales of securities after they are counted.
C)substitution of securities already counted at one location for other securities that should be on hand at a different location but are not.
D)substitution of authentic securities with counterfeit securities.
Q3) Identify 3 of the 6 tests an auditor uses on the bank reconciliation. (Only 3 are required for the student's answer)
Q4) What should an auditor look for when testing for proper classification and presentation of securities?
Page 18
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Chapter 17: Completing the Audit Engagement
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Q1) An attorney is responding to an independent auditor as a result of the entity's letter of inquiry. The attorney may appropriately limit the response to:
A)asserted claims and litigation.
B)matters to which the attorney has given substantive attention in the form of legal consultation or representation.
C)asserted, overtly threatened, or pending claims and litigation.
D)items that have an extremely high probability of being resolved to the entity's detriment.
Q2) If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should:
A)honor the confidentiality of the client-lawyer relationship.
B)consider the refusal to be a scope limitation.
C)seek to obtain the corroborating information from management.
D)disclose this fact in a footnote to the financial statements.
Q3) Reading contracts and loan agreements is one way to identify unrecorded contingent liabilities.
A)True
B)False
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Chapter 18: Reports on Audited Financial Statements
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Q1) In the auditor's report, the principal auditor decides not to make reference to another CPA who audited an entity's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:
A)issues an unqualified opinion on the consolidated financial statements.
B)learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements.
C)is unable to review the other CPA's audit programs and working papers.
D)is satisfied as to the other CPA's independence and professional reputation.
Q2) Which of the following situations will not result in modification of the auditor's report because of a scope limitation?
A)Restriction imposed by the client.
B)Reliance placed on the report of another auditor.
C)Inability to obtain sufficient appropriate evidential matter.
D)Restriction caused by the circumstance of the engagement.
Q3) A scope limitation results from an inability to obtain sufficient appropriate evidence about some component of the financial statements.
A)True
B)False
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Chapter 19: Professional Conduct, Independence, and Quality Control
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Q1) According to the ethical standards of the profession, which of the following acts is generally prohibited?
A)Purchasing a product from a third party and reselling it to a client.
B)Writing a financial management newsletter promoted and sold by a publishing company.
C)Accepting a commission for recommending a product to an audit client.
D)Accepting engagements obtained through the efforts of third parties.
Q2) Principles are stated at a conceptual level, not a detailed level.
A)True
B)False
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) Rules of Conduct are enforceable.
A)True
B)False
Q5) Why do professions establish codes of conduct that define ethical behaviors for members of the profession?
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Chapter 20: Legal Liability
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Q1) Ritz Corporation wished to acquire the stock of Stale, Inc. In conjunction with its plan of acquisition, Ritz hired Fein, CPA, to audit the financial statements of Stale. Based on the audited financial statements and Fein's unqualified opinion, Ritz acquired Stale. Within 6 months, it was discovered that the inventory of Stale had been overstated by $500,000. Ritz commenced an action against Fein. Ritz believes that Fein failed to exercise the knowledge, skill, and judgment commonly possessed by CPAs in the locality, but is not able to prove that Fein either intentionally deceived it or showed a reckless disregard for the truth. Ritz also is unable to prove that Fein had any knowledge that the inventory was overstated. Which of the following two causes of action would Ritz need to prove to prevail in a lawsuit?
A)Negligence and breach of contract.
B)Negligence and gross negligence.
C)Negligence and fraud.
D)Gross negligence and breach of contract.
Q2) Common law:
A)requires that the CPA guarantee their work.
B)requires that the auditor performs work with due care.
C)requires that the auditor performs work with due diligence.
D)does not recognize the concept of constructive fraud.
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Chapter 21: Assurance, Attestation, and Internal Auditing Services
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Q1) Security
A)Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives.
B)Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity's ability to meet its objectives.
C)System processing is complete, valid, accurate, timely, and authorized to meet the entity's objectives.
D)Information designated as private is protected to meet the entity's objectives.
E)Information and systems are available for operation and use to meet the entity's objectives.
Q2) An agreed-upon procedures engagement is significantly more limited in scope than an examination. An accountant may perform an agreed-upon procedures attestation engagement for prospective financial statements provided that attestation standards are complied with and eleven criteria are met. Identify five of the eleven criteria below.
Q3) How has the advancement in technology led to the creation of the Trust Services?
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