Auditing and Information Systems
Midterm Exam
Course Introduction
This course explores the principles and practices of auditing with a particular focus on the impact and integration of information systems in the audit process. Students will gain an understanding of the audit environment, objectives, and the professional standards governing auditing practices. The course covers topics such as internal controls, risk assessment, audit planning, evidence gathering, and reporting, while highlighting how advances in information technology affect these procedures. Special emphasis is placed on the evaluation and testing of computerized information systems, use of Computer-Assisted Audit Techniques (CAATs), and issues of security, privacy, and data integrity. By the end of the course, students will be able to critically assess information systems in the context of auditing and understand how auditors can use technology to enhance effectiveness and efficiency in their work.
Recommended Textbook
Accounting Information Systems 14th Edition by Marshall B. Romney
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2238 Flashcards
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Page 2
Chapter 1: Conceptual Foundations of Accounting Information Systems
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Sample Questions
Q1) An accounting information system must be able to perform which of the following tasks?
A)collect transaction data
B)process transaction data
C)provide adequate controls
D)all of the above
Answer: D
Q2) In which transaction cycle would information relating to employees benefit be most likely to pass between internal and external accounting information systems?
A)the revenue cycle
B)the expenditure cycle
C)the human resources / payroll cycle
D)the financing cycle
Answer: C
Q3) Define the concept of a system.
Answer: A system is a set of two or more components that are somehow interrelated and interact together to achieve a specific goal.
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Page 3
Chapter 2: Overview of Transaction Processing and Enterprise Resource Planning Systems
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Sample Questions
Q1) A specialized journal would be most likely to be used to enter
A)sales transactions.
B)monthly depreciation adjustments.
C)annual closing entries.
D)stock issuance transactions.
Answer: A
Q2) Making payments to a vendor,with whom a credit line is already established,would be initially recorded in which type of accounting record and as part of what transaction cycle?
A)purchases journal;expenditure cycle
B)general journal;expenditure cycle
C)general ledger;expenditure cycle
D)cash disbursements journal;expenditure cycle
Answer: D
Q3) What is the most frequent revenue cycle transaction?
A)purchase of inventory
B)receipt of cash
C)sale to customer
D)billing
Answer: C
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Chapter 3: Systems Documentation Techniques
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Sample Questions
Q1) To create a good business process flowchart,one should emphasize ________ and put less emphasis on ________.
A)meeting with top management;meeting with staff employees
B)following rigid rules on how to prepare a business process flowchart;clearly communicating the activities involved in the process
C)clearly communicating the activities involved in the process;following rigid rules on how to prepare a business process flowchart
D)meeting with staff employees;meeting with top management
Answer: C
Q2) Explain the relevance of the Sarbanes Oxley Act to the documentation tools presented in this chapter.
Answer: The Sarbanes Oxley Act of 2002 requires executives of public companies to document and evaluate internal controls.External auditors must evaluate management's assessment of internal control and attest to its accuracy.Therefore,company executives and the auditors must document and test the internal controls - documentation tools,such as flowcharts,are used to do this.
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Chapter 4: Relational Databases
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Sample Questions
Q1) Identify one potential outcome of the delete anomaly.
A)inconsistent data
B)inability to add new data
C)unintentional loss of data
D)none of the above
Q2) An attribute in a table that serves as a unique identifier in another table and is used to link the two tables is a
A)foreign key.
B)primary key.
C)relational key.
D)linkage key.
Q3) Data dictionary can be used as part of the audit trail.
A)True
B)False
Q4) The ________ contains information about the structure of the database.
A)data definition language
B)data dictionary
C)data warehouse
D)database management system
Q5) Explain the relational database data model.
Page 6
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Chapter 5: Computer Fraud
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Sample Questions
Q1) Which of the following is not an example of the fraud triangle characteristic concerned with rationalization?
A)Revenge against the company
B)Intent to repay "borrowed" funds in the future
C)Sense of entitlement as compensation for receiving a lower than average raise
D)Belief that the company won't suffer because an insurance company will reimburse losses
Q2) Misappropriation of assets is a fraudulent act that involves
A)dishonest conduct by those in power.
B)misrepresenting facts to promote an investment.
C)using computer technology to perpetrate a crime.
D)theft of company property.
Q3) SAS No.99 requires that auditors
A)plan audits based on an analysis of fraud risk.
B)detect all material fraud.
C)alert the Securities and Exchange Commission of any fraud detected.
D)take all of the above actions.
Q4) Discuss the reasons for the rapid increase of computer fraud.
Q5) Describe four ways companies can reduce losses from fraud.
Q6) Describe two kinds of fraud.
Page 7
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Chapter 6: Computer Fraud and Abuse Techniques
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Sample Questions
Q1) Changing data before or during entry into a computer system to delete,alter,add,or incorrectly update data is called a A)virus.
B)logic bomb.
C)trap door.
D)data diddle.
Q2) On a Friday evening you use a bar's ATM to withdraw $50 from your bank account.However,as you complete your withdrawal,your card gets jammed in the ATM machine.The individual waiting in line behind you approaches you and suggests re-entering your PIN number.You do.However,your card remains jammed.You leave the bar to call your bank to report the incident.However,after you left the individual who offered to help you removed a sleeve he inserted in the ATM to jam your card.He now has your ATM card and PIN number.You just fell victim to a ________ fraud.
A)tabnapping
B)Lebanese looping
C)phishing
D)pharming
Q3) Describe at least six computer attacks and abuse techniques.
Q4) Describe the differences between spyware,scareware,and ransomware.
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Chapter 7: Control and Accounting Information Systems
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Sample Questions
Q1) Maintaining backup copies of files,correcting data entry errors,and resubmitting transactions for subsequent processing are examples of what type of control?
A)Preventive control
B)Detective control
C)Corrective control
D)Authorization control
Q2) Detecting fraud where two or more people are in collusion to override controls is less difficult because it is much easier to for one or more fraud perpetrators to reveal the fraud.
A)True
B)False
Q3) As a result of an internal risk assessment,Berryhill Insurance decided it was no longer profitable to provide flood insurance in the southern states.Berryhill apparently chose to ________ the risk of paying flood claims in the southern states.
A)reduce
B)share
C)avoid
D)accept
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Chapter 8: Controls for Information Security
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Sample Questions
Q1) Describe what information security process the term hardening refers to.
Q2) ShareIt is a social networking site that boasts over a million registered users and a quarterly membership growth rate in the double digits.As a consequence,the size of the information technology department has been growing very rapidly,with many new hires.Each employee is provided with a name badge with a photo and embedded computer chip that is used to gain entry to the facility.This is an example of a(n)
A)authentication control.
B)biometric device.
C)remote access control.
D)authorization control.
Q3) Which of the below keeps a record of the network traffic permitted to pass through a firewall?
A)Intrusion detection system.
B)Vulnerability scan.
C)Log analysis.
D)Penetration test.
Q4) Identify six physical access controls.
Q5) Describe the steps in the security life cycle.
Q6) Describe the differences between virtualization and cloud computing.
Page 10
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Chapter 9: Confidentiality and Privacy Controls
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Sample Questions
Q1) Describe symmetric encryption and identify three limitations.
Q2) A client approached Paxton Uffe and said,"Paxton,I need for my customers to make payments online using credit cards,but I want to make sure that the credit card data isn't intercepted.What do you suggest?" Paxton responded,"The most effective solution is to implement
A)a data masking program."
B)a virtual private network."
C)a private cloud environment."
D)an encryption system with digital signatures."
Q3) The first steps in protecting the privacy of personal information is to identify
A)what sensitive information is possessed by the organization.
B)where sensitive information is stored.
C)who has access to sensitive information.
D)All of the above are first steps in protecting privacy.
Q4) The creation of a digital signature is a two-step process.
A)True
B)False
Q5) Compare the advantages and disadvantage of symmetric and asymmetric encryption.
Q6) Discuss to the key CAN-SPAM's guidelines on commercial e-mail that has the primary purpose of advertising.
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Chapter 10: Processing Integrity and Availability Controls
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Sample Questions
Q1) Which of the following statements is true with regards to system availability?
A)Human error does not threaten system availability.
B)Threats to system availability can be completely eliminated.
C)Proper controls can maximize the risk of threats causing significant system downtime.
D)Threats to system availability include hardware and software failures as well as natural and man-made disasters.
Q2) Which of the following is not an objective of a disaster recovery plan?
A)Minimize the extent of the disruption,damage or loss.
B)Establish a permanent alternative means of processing information.
C)Resume normal operations as soon as possible.
D)Train employees for emergency operations.
Q3) The best example of an effective payroll transaction file financial total would most likely be
A)sum of net pay.
B)total number of employees.
C)sum of hours worked.
D)total of employees' social security numbers.
Q4) Discuss how cloud computing could both positively and negatively affect system availability.
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Chapter 11: Auditing Computer-Based Information Systems
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Sample Questions
Q1) Auditors have the ability to change inherent risk.
A)True
B)False
Q2) The evidence collection method that examines all supporting documents to determine the validity of a transaction is called
A)review of documentation.
B)vouching.
C)physical examination.
D)analytical review.
Q3) Which of the following is not one of the types of internal audits?
A)A review of the corporate organizational structure and reporting hierarchies.
B)An examination of procedures for reporting and disposing of hazardous waste.
C)A review of source documents and general ledger accounts to determine integrity of recorded transactions.
D)A comparison of estimates and analysis made before purchase of a major capital asset to actual numbers and results achieved.
Q4) Why do all audits follow a sequence of events that can be divided into four stages,and what are the four stages?
Q5) Describe some of the important uses of CAATs.
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Chapter 12: The Revenue Cycle: Sales to Cash Collections
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Sample Questions
Q1) The ________ normally triggers the billing process in the revenue cycle.
A)sales order received from the sales department
B)picking ticket received from the sales department
C)packing slip received from the shipping department
D)journal voucher received from the shipping department
Q2) Explain how to effectively segregate duties in the sales order activity.
Q3) The revenue cycle's primary objective is to
A)maximize the company's profit.
B)provide quality product in order to maximize market share.
C)lower expenses.
D)provide the right product in the right place at the right time for the right price.
Q4) Which of the following duties could be performed by the same individual and not violate segregation of duty controls?
A)handling cash and posting to customer accounts
B)issuing credit memos and maintaining customer accounts
C)handling cash and authorizing credit memos
D)handling cash receipts and mailing vendor payments
Q5) Describe the two methods to manage accounts receivable.
Q6) Define and describe benefits of a CRM system.
Page 14
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Chapter 13: The Expenditure Cycle: Purchasing to Cash
Disbursements
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Sample Questions
Q1) Which of the following controls can minimize the threat of mistakes in counting incoming inventory?
A)The use of positive pay.
B)Do not inform receiving employees about quantity ordered.
C)The use of ERS.
D)Perpetual inventory system.
Q2) Which of the following controls would be the least effective in preventing paying the same invoice twice?
A)Only pay from original invoices.
B)Cancel each document in the voucher package once the check is prepared and mailed.
C)Only pay vendor invoices that have been matched and reconciled to a purchase order and a receiving report.
D)Allow only the accounts payable department to authorize payment for vendor invoices and allow only the cash disbursements department to cut and mail checks to vendors.
Q3) Explain what is meant by the expenditure cycle as a "mirror image" of the revenue cycle.
Q4) Define and describe the EOQ approach to inventory management.
Page 15
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Chapter 14: The Production Cycle
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Sample Questions
Q1) What is a RFP and how can management use it to improve its production operations?
Q2) In activity-based costing,the expenses associated with planning and design of new products are ________ overhead.
A)batch-related
B)product-related
C)company wide
D)expenditure-based
Q3) Explain what CIM means and its benefits.
Q4) At the end of each production run,preventive maintenance is done on the assembly line.The expenses associated with this maintenance are ________ overhead.
A)batch-related
B)product-related
C)company wide
D)department-based
Q5) Implementing a modern costing approach often results in short-term declines in profitability.
A)True
B)False
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Chapter 15: The Human Resources Management and Payroll Cycle
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Sample Questions
Q1) Pay rate information should be stored in
A)employees' personnel files.
B)employee subsidiary ledgers.
C)the payroll master file.
D)electronic time cards.
Q2) Which of the following controls can minimize the threat of theft or fraudulent distribution of paychecks?
A)Redepositing unclaimed paychecks and investigating cause.
B)Issuing earnings statements to employees.
C)Using biometric authentication.
D)Conducting criminal background investigation checks of all applicants for finance related positions.
Q3) Identify the two types of payroll deductions and give two examples of each type.
Q4) Which type of payroll report contains information such as the employees' gross pay,payroll deductions,and net pay in a multicolumn format?
A)Payroll register.
B)Deduction register.
C)Employee earnings statement.
D)Federal W-4 form.
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Chapter 16: General Ledger and Reporting System
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Sample Questions
Q1) Each specific data item in an XBRL document is called a(n)
A)taxonomy.
B)element.
C)instance.
D)schema.
Q2) Budgets used for internal planning purposes and performance evaluation should be developed on the basis of
A)responsibility accounting.
B)generally accepted accounting principles.
C)financial accounting standards.
D)managerial accounting standards.
Q3) Identify the year the SEC will require American companies to switch from U.S.-based GAAP to IFRS as the basis for preparing financial statements.
A)2016
B)2018
C)2020
D)At this point it is unclear when the SEC will require American companies to implement IFRS,though the SEC remains committed to requiring U.S.companies use IFRS at some point.
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Chapter 17: Database Design Using the Rea Data Model
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Sample Questions
Q1) Define minimum and maximum cardinalities.
Q2) Identify the most likely relationship where cardinalities have zero minimums and N maximums.
A)Agent-event relationship.
B)Resource-event relationship.
C)Event-event relationship.
D)Agent-agent relationship.
Q3) It is industry standard to model relationships as ________ in entity-relationship diagrams.
A)rectangles
B)ovals
C)diamonds
D)There is no industry standard.
Q4) It is industry standard to model attributes as ________ in entity-relationship diagrams.
A)rectangles
B)ovals
C)diamonds
D)There is no industry standard.
Q5) Describe an REA data model.
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Chapter 18: Implementing an Rea Model in a Relational Database
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Sample Questions
Q1) Two or more primary keys of other database tables that,together,become the unique identifier or primary key of an M:N relationship table are called A)two attributes keys.
B)concatenated keys.
C)connecteated keys.
D)conjoined keys.
Q2) Which of the following statements is not true with regards to a correctly drawn enterprise-wide REA diagram?
A)Every event must be linked to at least one resource.
B)Merging two transaction cycles on a common event may affect the minimum cardinalities between the merged event and the other events.
C)Events can only be merged if they share the same resources and events.
D)Creating a set of tables from an REA diagram automatically results in a well-structured relational database.
Q3) Explain where in the REA model you can find the information normally found in a journal.
Q4) Describe the rules that are necessary to correctly draw an integrated REA diagram.
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Chapter 19: Special Topics in Rea Modeling
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Sample Questions
Q1) Since the same inventory items may be stored in several different warehouses,the maximum cardinality from Inventory to Warehouse is most likely
A)0)
B)N)
C)1)
D)M)
Q2) Identify the entity that stores most of the data typically found in the employee master file.
A)Time Worked.
B)Employee.
C)Salary.
D)Payroll.
Q3) In an REA diagram for the HR/Payroll cycle,the relationship between Employees and Training is typically M:N for all except which of the following reasons?
A)One employee may attend the same training event more than once.
B)Each employee may attend more than one training event.
C)Each training event may have more than one employee attend.
D)One training event may be offered more than once.
Q4) Why is cost information stored in several relational tables?
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Chapter 20: Introduction to Systems Development and Systems Analysis
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Q1) Suppose an organization is interested in knowing whether the system can be developed and implemented in the time allotted.Where should this requirement be considered in a feasibility study?
A)Economic feasibility.
B)Scheduling feasibility.
C)Operational feasibility.
D)Technical feasibility.
Q2) Who is responsible for planning and monitoring a project to ensure timely and cost-effective completion?
A)Information systems steering committee.
B)Management.
C)Project development team.
D)Accountants.
Q3) Describe the four primary objectives of a systems survey conducted during systems analysis.
Q4) What are some of the reasons why behavioral problems occur when a new AIS is introduced?
Q5) Describe guidelines that an organization can follow to prevent behavioral problems when implementing a system.
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Chapter 21: Ais Development Strategies
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Sample Questions
Q1) The first step in developing a prototype emphasizes
A)developing a good prototype into a fully functional system.
B)speed and low cost rather than efficiency of operation.
C)that users identify changes to be made in an iterative process.
D)what output should be produced rather than how it should be produced.
Q2) Which of the following is an advantage of CASE?
A)It exhibits a high degree of cross-system compatibility.
B)It is an inexpensive technology that is accessible to small businesses.
C)Documentation is generated automatically.
D)It enhances the congruence between user expectations and the final system.
Q3) End-user development is inappropriate for which types of systems?
A)Systems that process a large number of transactions.
B)Systems that need to be developed rapidly.
C)Systems that must be easy to use.
D)Organizations that have large IT departments.
Q4) What are the advantages and disadvantages of custom software and of canned software for meeting application software needs?
Q5) Explain the importance of using a request for proposal.
Q6) Describe the advantages and disadvantages of outsourcing.
Q7) Explain the concept of an application service provider.
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Chapter 22: Systems Design, implementation, and Operation
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Q1) Describe the different methods of testing a system.
Q2) In a ________,the old and the new systems are operated simultaneously for a period of time.
A)direct conversion
B)parallel conversion
C)phase-in conversion
D)pilot conversion
Q3) Which of the following is not a reason for preparing the conceptual systems design report?
A)It can be used to guide physical systems design activities.
B)It communicates how management and user information needs will be met.
C)It discusses the design alternatives that were not selected for the project.
D)It helps the steering committee assess system feasibility.
Q4) What is the objective of output design? What are the output design considerations? What are the various categories of outputs?
Q5) Describe the eight basic steps in program design.
Q6) What factors does a steering committee consider when evaluating different system designs?
Page 24
Q7) Describe structured programming.
Q8) Describe at least four considerations during controls design.
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Page 25