AIS and Internal Controls Review
Questions
Course Introduction
This course explores Accounting Information Systems (AIS) with a focus on their role in supporting key accounting processes and decision-making. Students will learn how AIS facilitate data collection, storage, and reporting, as well as how these systems are designed to ensure the integrity, accuracy, and security of financial information. The course emphasizes the importance of strong internal controls in mitigating risks, preventing fraud, and complying with regulatory requirements. Through case studies and practical applications, students will gain proficiency in evaluating, designing, and implementing effective AIS frameworks and internal control structures within organizations.
Recommended Textbook
Accounting Information Systems A Practitioner Emphasis 7th Edition by Cynthia D. Heagy
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Chapter 1: Significance of Accounting Information Systems
and the Accountants Role
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Q1) The most common mode of acquiring accounting software systems today is for a company to develop its own systems internally.
A)True
B)False
Answer: False
Q2) Define the difference between an event and a transaction.
Answer: An event/business activity may or may not result in a transaction, but a transaction is always an event.
Q3) The Certified Internal Auditor certification program is sponsored by the Information Systems Audit and Control Association.
A)True
B)False Answer: False
Q4) What are the major components of a computerized accounting system?
Answer: Hardware, software, and people
Q5) Accounting information is expressed only in monetary terms. A)True
B)False Answer: False
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Chapter 2: Accounting Systems Documentation
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Q1) Arrange by increasing amount of detail the types of system documentation that are frequently used by accountants.
Answer: Narrative description, block diagram, data flow diagram, system flowchart
Q2) Which type of documentation shows the flow of data through various stages of processing without regard for the logic of the individual processing activities?
A) System flowchart
B) Hierarchical block diagram
C) Structure chart
D) Data flow diagram
Answer: D
Q3) What is the appropriate use of a narrative description?
A) When there is not enough justification to hire technical personnel to develop graphical documentation
B) As an alternative to graphical representation
C) As a companion to graphical representation
D) None of the above
Answer: C
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Chapter 3: Essential Elements and Basic Activities of Accounting Systems
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Q1) The general ledger master file stores information that supports both accounting and operating activities while the subsidiary ledger master files stores information that mainly supports accounting activities.
A)True
B)False
Answer: False
Q2) The source documents and outputs are very similar in paper-based and computerized accounting systems.
A)True
B)False
Answer: True
Q3) The chart of accounts file is what type of file?
A) Open file
B) Reference file
C) Transaction file
D) Program file
Answer: B
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Chapter 4: Data Flows, Activities, and Structure of Accounting Systems
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Q1) Name the subsystems of the inventory process in a manufacturing organization.
Q2) The transaction data in the general journal transaction file are used to update the customer master file.
A)True
B)False
Q3) One of the subsystems of the purchasing process is receiving.
A)True
B)False
Q4) Which of the following subsystems are in the inventory process?
A) Production control, inventory management, cost accounting
B) Inventory management, cost accounting, accounts payable
C) Inventory management, cost accounting, accounts receivable
D) Production control, receiving, inventory management
Q5) A transaction's final resting place ordinarily is in an archive file.
A)True
B)False
Q6) What are the support activities of an accounting information system?
Q7) Name and give a brief description of two business processes.
Q8) Identify three subsystems of the business processes you described in the previous question. Page 6
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Chapter 5: Reporting Process, Coding Methods, and Audit Trails
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Q1) Which of the following is an example of exception reporting?
A) Providing reports of production hours worked to personnel
B) Providing reports of dollar denominated data to sales personnel
C) Providing reports of data with significant deviance from expected results to managers
D) Providing financial reports to the chief financial officer
Q2) Which of the following would not be suitable as a reference identifier in an audit trail?
A) Customer invoice
B) Document number of checks issued
C) Purchase order number
D) Internally generated numbers that represent completed transaction
Q3) Effective exception reporting requires the ability to select records based on the similarities between an account's current balance and its prior year's balance.
A)True
B)False
Q4) What is an audit trail?
Q5) What are the disadvantages of using mnemonic codes? Include at least two examples.
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Chapter 6: Internal Control and Risk Assessment
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Q1) Which of the following is not a reason that an external auditor would have an interest in an organization's internal control?
A) Internal control provides a measure of protection against erroneous or fraudulent financial reporting.
B) The external auditor is required to evaluate internal control in planning an external audit, according to generally accepted auditing standards.
C) Strong internal control can eliminate the test of controls required to be performed by the external auditor.
D) The Sarbanes-Oxley Act of 2002 requires the external auditor attest to and report on management's assessment of internal control.
Q2) Which of the following documents has become the widely accepted authority on internal control and is the basis for the others?
A) The AICPA's Statement of Auditing Standard No. 78
B) COSO's Internal Control - Integrated Framework
C) Information Systems Audit and Control Foundation's COBIT
D) Institute of Internal Auditors Research Foundation's Systems Auditability and Control Report
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Chapter 7: Control Activities
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Q1) Which of the following controls would be most effective in assuring the proper custody of investment securities?
A) Direct access to securities in the safety deposit box is limited to only one corporate office.
B) Personnel who post investment security transactions in the general ledger master file are prohibited from updating the investment securities master files
C) The purchase and sale of investment securities are executed upon the specific authorization of the board of directors.
D) The balances in the investment security master file are periodically compared with the physical investment securities by independent personnel.
Q2) What is the most common computer-related problem confronting organizations?
A) Hardware malfunction
B) Input errors
C) Disruption to the processing activities as a result of natural disasters
D) Fraud
Q3) SAS 94 allows auditing around the computer in complex IT environments.
A)True
B)False
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Chapter 8: The Financial Process
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Q1) Which of the following is not a type of entry in the financial process?
A) Data captured in and transferred from other processes to the financial process
B) Transactions originally recorded in the financial process
C) End-of-period adjustments required in the financial process
D) Planning and control for the purchase of inventory and other resources
Q2) Define "soft" and "hard" closings. Be sure to indicate the DIFFERENCE between the two.
Q3) Generally speaking, transactions that are categorized as sales, purchases, cash payments, cash receipts, or payroll are initially recorded in the general ledger module.
A)True
B)False
Q4) Because the financial process must recognize events that keep the general ledger accounts up-to-date, which of the following is/are included in the financial process?
A) The recognition of prepaid expenses
B) The recognition of accrued assets
C) The recognition of depreciation expense
D) All of the above are included in the financial process.
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Chapter 9: The Revenue Process
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Q1) A remittance advice is used as a source document for entering receipts in the cash receipts transaction file.
A)True
B)False
Q2) Purposes of the revenue cycle include not only reporting, but also the facilitation and control of certain business activities.
A)True
B)False
Q3) What is the location at which title to goods changes from the shipping organization to the customer known as?
A) Picking list
B) Cash and carry
C) Standing orders
D) FOB point
Q4) A detailed aging report of open item accounts lists individual invoices by customer, whereas a summary aging report requires only one line for each customer with all invoices for a single customer combined.
A)True
B)False
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Chapter 10: The Purchasing Process
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Q1) List three of the four efficiency features for data entry AND give examples of each..
Q2) Which of the following modules would you expect to find in the purchasing function?
A) Sales Order Processing, Accounts Payable, Vendor Invoicing, Disbursements.
B) Purchase Order Processing, Accounts Receivable, Receiving, Vendor Invoicing.
C) Purchase Order Processing, Accounts Payable, Vendor Invoicing, Disbursements.
D) Sales Order Processing, Accounts Payable, Vendor Invoicing, Receiving, Cash Receipts.
Q3) Why is the automatic distribution entry useful in the accounts payable module?
A) An invoice must be channeled through several check points before approval for payment is made.
B) There are many invoices that run through an organization's accounts payable cycle.
C) Any manager can pull up invoices in the form of exception or periodic reports to determine any "red flags."
D) It permits the specification of a master account to which entries will be made.
Q4) List four of the five actions that result from the receipt of merchandise from a vendor.
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Chapter 11: The Inventory Process
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Q1) What report is essential to organizations using the "just in time" inventory approach?
A) Excess inventory report.
B) Returns and allowances report.
C) Inventory and PO aging report.
D) Order recommendation report.
Q2) The order excess inventory report calls attention only to those overstocked items that are important in dollar value.
A)True
B)False
Q3) In a batch posting system, posting to the inventory master file is accomplished simultaneously with data entry.
A)True
B)False
Q4) RFID codes have international standards.
A)True
B)False
Q5) What are the end of period processing options in the inventory module?
Q6) Discuss ways that an organization can minimize the risks associated with outsourcing.
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Chapter 12: Database Structure of Accounting Systems
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Q1) List the rules regarding where the foreign key should be placed EACH OF the following relationships: one-to-one, one-to-many, many-to-many.
Q2) What does a database schema define?
Q3) The database architecture includes an external level, which is the physical implementation of the conceptual level.
A)True
B)False
Q4) Which of the following is not included in a data dictionary?
A) A list of records where each particular data element is stored
B) The cost of the data element
C) The source of each calculated data element
D) A description of each data element
Q5) List the advantages and disadvantages of a database system.
Q6) Which level of the database architecture relates to the way all the data in the entire database are logically viewed?
A) Physical level
B) Conceptual level
C) Internal level
D) External level
15
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Chapter 13: Developing a Relational Database for an Accounting Information System
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Q1) Which of the following statements is true about symbols used in the entity-relationship diagram?
A) A line links an attribute to an attribute.
B) An ellipse represents an attribute.
C) A diamond represents an attribute.
D) A square represents an entity.
Q2) In a database table for sales transactions, you need to store "extended amount" and "total due."
A)True
B)False
Q3) Which of the following would be the primary keys of the first three tables above?
A) CustCode, InvNo, ProdNo
B) InvNo, InvNo/ProdNo, ProdNo
C) InvNo/CustCode, ProdNo/Qty, ProdNo
D) InvDate/InvNo, ProdNo, Desc
Q4) A table in a relational database can have multiple values for one cell.
A)True
B)False
Q5) What is an insertion anomaly?
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Chapter 14: Electronic Business
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Q1) A security feature for Extranets is to create tunnels of secured data flows using cryptography and authorization algorithms.
A)True
B)False
Q2) Which of the following statements is/are true regarding a digital signature?
A) It is generated from the contents of the message and the sender's private key.
B) Extra data are appended to an electronic message to identify and authenticate the sender and message data using public-key encryption.
C) If the receiver of a message sees that a digital signature is attached, the receiver can be confident that no one has altered the message and that the sender is who the sender claims to be.
D) It is generated from the contents of the message and the sender's private key and extra data are appended to an electronic message to identify and authenticate the sender and message data using public-key encryption.
Q3) An Extranet consists of two Intranets and one value added network.
A)True
B)False
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Chapter 15: Ais Selection and Implementation
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Q1) What is AIS installation?
A) The transfer of AIS programs to client computers
B) A process that is more comprehensive than implementation
C) A process that includes conversion planning and training of new personnel
D) All of the above are true about AIS installation.
Q2) Discuss issues involved in system acquisition.
Q3) What is a Gantt chart?
A) A diagram planning tool showing the order in which to perform tasks
B) A bar chart with all major tasks on the vertical axis and a calendar on the horizontal axis
C) A bar chart with all major tasks on the horizontal axis and a calendar on the vertical axis
D) A decision chart designed to determine a single versus multiple suppliers
Q4) With parallel conversion, the old system is stopped and the new system is started.
A)True B)False
Q5) What is the difference in AIS installation and AIS implementation?
Q6) Discuss what is meant by enterprise resource planning (ERP) packages and give some examples of the leading packages.
Page 18
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